Mercadolibre Inc

NASDAQ:MELI

Earnings Call Analysis

MercadoLibre Achieves Record Revenue and User Growth

MercadoLibre celebrated its 25th anniversary with a strong second-quarter performance in 2024, reporting $5.1 billion in revenue, a 40% increase from the prior year. The company's operations in Brazil led with a 36% growth in GMV, while Mexico maintained momentum with notable successes in Argentina. On the fintech front, Mercado Pago saw its monthly active users surpass 50 million. The issuance of 1.6 million new credit cards contributed to a threefold increase in TPV. Innovation remained key, with new robotics improving logistics and a US fulfillment center expanding product offerings for Mexican consumers. Net income reached $531 million, achieving a 10.5% margin, the highest in eight years.

A Strong Quarter for MercadoLibre

MercadoLibre delivered an exceptional performance in the second quarter of 2024, demonstrating robust growth across its key business units. The company achieved a remarkable 40% year-on-year increase in revenues, totaling $5.1 billion. This resulted in an impressive net income of $531 million, with a net income margin of 10.5%, the highest in the last eight years. Income from operations stood at $726 million.

E-commerce Triumphs

In the e-commerce sector, MercadoLibre experienced substantial growth in the number of sold items and unique buyers. Brazil emerged as a standout performer, with a 36% growth in Gross Merchandise Volume (GMV) marking the highest level in 2021 and continuing this upward trend in 2024. Argentina also showed a positive turnaround in item sales, reversing the previous quarter's negative growth. This success is attributed to the company's dedication to enhancing user experience and investing in fulfillment and minimalist initiatives.

Fintech Services on the Rise

MercadoLibre's fintech services saw a significant surge, with monthly active users surpassing the 50 million mark for the first time. The company issued 1.6 million new credit cards, and total payment volume (TPV) grew threefold compared to last year. The fintech division’s remunerated accounts also witnessed strong growth in asset management. This growth was further supported by the company's accurate underwriting models and strategic investments in online payment segments.

Expansion and Innovation in Logistics

MercadoLibre's logistics network is a pivotal element in its e-commerce operations and competitive edge. The launch of a fulfillment center in Texas, the first outside Latin America, aims to enhance the assortment of products available to Mexican consumers by integrating U.S. sellers into the system. Additionally, the company introduced robotics in its Sao Paulo distribution center, optimizing processing time by 20% and increasing storage capacity by 15%. Such innovations are part of MercadoLibre's ongoing commitment to improving logistics efficiency.

Future Prospects and Strategic Initiatives

Looking ahead, MercadoLibre remains optimistic about its growth potential. The company continues to focus on strategic investments in areas like free shipping, credit services, and fulfillment, with no planned changes in its investment strategy. Innovations such as the introduction of 'MELI Delivery Day' are designed to offer more flexible shipping options. Moreover, MercadoLibre's ambitions in Mexico include becoming the top digital bank, leveraging its large user base and synergistic marketplace-acquiring and fintech services.

Navigating Macroeconomic Conditions

Despite macroeconomic fluctuations, MercadoLibre's management remains confident. The company benefits from secular trends favoring online commerce and digital financial services. This resilience is evident in markets like Brazil, Mexico, and Argentina, where economic conditions have varied, yet MercadoLibre continues to perform well and invest in product improvements and faster shipping options.

Embracing Artificial Intelligence

MercadoLibre is also exploring the potentials of AI and GenAI across various business functions. AI is being used to enhance product recommendations, streamline customer interactions, and optimize review consolidations. These technologies are also improving developer productivity and customer support, ensuring that MercadoLibre stays at the cutting edge of efficiency and user experience.

Credit and Financial Health

The company's credit business is expanding, with a total credit book reaching $4.9 billion, up 51% year-on-year. Despite an increase in bad debt provisions, which created some pressure on margins, the overall health and profitability of MercadoLibre's credit portfolio remain strong. The fintech strategy aligns with the company's broader goals of scaling its operations and driving growth through enhanced financial services.

Earnings Call Transcript 2024-Q2

[Richard Cathcart, executive]

Hello, everyone, and welcome to the MercadoLibre Earnings Conference Call for the quarter ended June 30, 2024. Thank you for joining us. I am Richard Cathcart, MercadoLibre's Investor Relations Officer. Today, we will share our quarterly highlights on video, after which we will begin our live Q&A session with our CFO, Martin de los Santos, our Fintech President as well as Humans; and our commerce President, Ariel Szarfsztejn.

Before we go on to discuss our results for the second quarter of 2024. I remind you that management make or referred to and this presentation may contain forward-looking statements and non-GAAP measures. So please refer to the disclaimer on screen, which will also be available in our earnings materials on our Investor Relations website.

[Marcos Galperin, executive]

Tomorrow, August 2, 2024, marks 25 years since we founded MercadoLibre with the mission of democratizing commerce and financial services in Latin America. Over those 25 years, we have built a sustainable company that provides millions of small and medium-sized businesses with the tools they need to compete with larger players. We have enabled the shift to online retail by providing tens of millions of consumers with world-class levels of service. And we have included millions of people into the financial system across the region for the first time. These are notable achievements, but there are also just a baseline from which we think about our even bigger ambitions to deliver on our mission at an even greater scale. We are as optimistic as ever about the opportunity that are ahead of us, and we're excited to pursue them with a culture of entrepreneurship, excellence and innovation that has served us well for the last 25 years. This is, therefore, a great moment to reaffirm our belief that the best is yet to come.

Now I will pass it on to Martin for more information on the second quarter of 2024.

[Martin de Los Santos, executive]

Thank you, Marcos. Hello, everyone. I am pleased to highlight MercadoLibre's outstanding performance in the second quarter of 2024, with strong growth across our key business units as well as solid bottom line financial results. In commerce, we saw the highest growth sold items and unique buyers in 2021, with both metrics accelerating sequentially. GMV performed well across geographies particularly in Brazil, for the 36% growth marks the highest level also in 2021. In Mexico, we maintained our momentum with successful hot sale once again. And in Argentina, we saw a positive growth in terms of items sold, reverting the negative growth that we saw during Q1. This growth is a result of our commitment to improving the user experience through innovation and technology and the investments we continue to make in our key strategic initiatives such as fulfillment and minimize.

In FinTech services, we saw strong growth in monthly active users, which surpassed the 50 million mark for the first time. And we also saw solid engagement metrics demonstrating the traction that Mercado Pago has within our users. We continue to see a very positive adoption of our remunerated accounts in all of our major markets, resulting in strong growth of asset under management. Our consumer and merchant grade books continue to scale while delivering strong profitability. During the quarter, we issued 1.6 million new credit cards and the TPV grew by 3x compared to last year. The credit card is a critical component of our fintech value proposition, and we feel confident about scaling this product as a result of the improved accuracy of the underwriting model.

Acquiring TPV grew also very strongly in Brazil, Mexico and Argentina. And this was a result of the move-up market strategy that we're implementing that enables us to reach larger merchants and also the continuous investment that we'll make in the online payment segment. Our consolidated financial results for the second quarter reflect the strong performance of our commerce and FinTech operations with revenues of $5.1 billion, growing above 40% year-on-year. We delivered income from operation of $726 million and net income of $531 million, resulting in net income margin of 10.5%, which is the highest in the last 8 years. For more information on our results, please refer to our shareholders' letter.

Now I would pass it on to Richard for more business news.

[Richard Cathcart, executive]

Our logistics network plays a major role in enabling e-commerce in the region and driving more off-line retail online. It has become a key competitive advantage for MercadoLibre. Innovation is a foundation of the success of our logistics network and we are pleased to share some of our most recent innovations today. During the second quarter of 2024 MercadoLibre launched a fulfillment center in Texas in the USA. This is the first fulfillment center outside of Latin America, and it was open to expand the assortment of products we offer to Mexican consumers by plugging U.S. sellers into our ecosystem. This is complementary to our existing cross-border business from China into Mexico.

We are offering a great shipping service for our U.S.-based assortment. Buyers are receiving their packages from the U.S.A. within a couple of days in the North of Mexico we've done approximately 3 days in Mexico City. Shipping is free, and we also offer interest-free installments. In June 2024, we took another major step in our innovation journey with the launch of robotics in our distribution center in Cajamar just outside the city of Sao Paulo. A total of more than 300 robots will have arrive by the end of the year with 100 of those already up and running. These robots will collaborate with the human workforce and will handle tasks such as transporting shelves containing products from storage area. This optimizes processing time by 20%. It also enables us to automate repetitive tasks like product sorting whilst reducing the distance that our workforce has to walk around the distribution center. It also increases total storage capacity by up to 15% per square meter.

These robots operate autonomously, handling up to 20,000 items and 2,500 shelves per day returning to charge stations when their batteries are low. This ongoing investment in technology and innovation reflects our commitment to creating an increasingly efficient logistics network. By building greater flexibility into our logistics operations, we have developed slow shipments, which offer additional shipping options for buyers and efficiencies for MercadoLibre. Slow shipments occur when a buyer chooses a slower shipping option than would be otherwise available to them because it may be more convenient or in some circumstances, it may come with a lower shipping cost. This enables us to take advantage of moments of able capacity in 2 key cost areas of our network.

Firstly, the processing in our fulfillment centers and secondly, the line haul trucks that travel between cities. With slow shipments, the shipping window becomes larger and more flexible for MercadoLibre, which means we can choose the moment of greater idlers to process products in our fulfillment centers and ship them between cities and line hauls to maximize network capacity utilization. MELI Delivery Day is another innovation which has slightly different benefits to slow shipping. The main efficiency built into the MDD model is in the last mile, where several deliveries at a single address on a single drop means that last mile vans can drop more packages at fewer addresses. This helps us to dilute our last mile costs.

Innovation and efficiency will continue to be key to the success of our shipping operations. For a more detailed discussion, check how the podcast on our Investor Relations website with the Head of Costa. From cross-border in Texas, the robotics in Sao Paulo and MDD across Brazil, Mexico and Chile, we continue to innovate, and we'll continue to do so because, as always, at MercadoLibre the best is yet to come.

[Operator]

[Operator Instructions] The first question comes from the line of Andrew Ruben of Morgan Stanley.

[Andrew Ruben, analyst]

So considering where you are the 25-year and congratulations for that. Can you talk about where we are in the interplay between commerce and fintech, it's a quarter we see the acceleration in GMV, also a number of fintech operating metrics picking up. So I'm curious how much you'd say is independent business drivers versus the 2 sides feeding each other. I'd be interested in the strategic update and maybe just honing in on the same topic near term, you have the Brazil GMV accelerating to the 36% ex FX. You also called out the higher remunerated account. We see growth in the credit business. So how much of that pickup would you attribute to these fintech initiatives versus something more commerce specific?

[Martin de Los Santos, executive]

Andrew, Martin here. Thanks for your question. Obviously, as we have been saying over the years, being part of an ecosystem is both in the fintech side to commerce and vice versa, right? So I think in this particular quarter, credit a good example to that. Our credit is fueling growth on our commerce side as we provide better payment solutions for users. Also, it's very beneficial to the fintech value proposition like we have or credit cards very strongly this quarter. And in terms of growth in both on commerce side, we are very satisfied with growth that we've seen in Brazil. I mean this is the second consecutive quarter, which we accelerate in Brazil.

We are sustaining very solid growth rates in Mexico, gaining market share in both markets and also seeing a very strong recovery in Argentina both on commerce as well as on fintech side. So I think, for the most part, our strategy continues to perform extremely well, just like you said, 25 years after our -- are beginning our company, we continue to grow at rates of really start-up rates, and we are super excited not only for what we have done so far over the past 25 years, but more importantly, to the many growth opportunities that we have ahead of us.

[Osvaldo Giménez, executive]

Let me complement that. I think that Andre both businesses, we have always said that both businesses are very synergistic. We continue to believe that, and we have many, many examples of that. One is, for example, in order to grow how we can deploy products on the marketplace both to drive the growth of the marketplace, for example, in Mexico, a significant part of our GMV is paid either with Mercado Pago, with store balance of Mercado Pago or credit offered by us or by our own credit card on the 1 hand.

On the other hand, how we can, for example, offer insurance products in the marketplace and grow the number of policies we sell. Both businesses that have been extremely synergistic. We have a huge user base on the marketplace and also on Mercado Pago and when we drive users from 1 platform to the other one. I think that we are very excited with that, that continues to work very well.

[Operator]

The next question comes from the line of Irma Sgarz of Goldman Sachs.

[Irma Sgarz, analyst]

Congratulations also on 25th birthday tomorrow. You had a great quarter again in terms of operating leverage. And yet I can think of several items that can still contribute or unleash higher margins from here like scaling ads incrementally lower increases in provisioning, efficiencies in logistics, as you laid out. But before we all get ahead of our skis, are there any perhaps items or headwinds or areas of investment that we should think through especially into the back half of this year, perhaps related to carrier cost adjustments or higher deposit rates in Mexico, any marketing campaigns just to sort of level set expectations here a little bit in terms of what we should keep an eye on.

[Martin de Los Santos, executive]

Irma, it's Martin here. Let me talk about this quarter. I think we -- as you mentioned, we had a very strong quarter in terms of both EBIT results, but more importantly, net income, as you know, net income after the devaluation of Argentina has become a more -- probably more relevant metric to look at, and we grew it by 100% year-on-year, and we delivered 10.5% of margin. In terms of the EBIT margin, specifically, you see on a comparable basis, you see a contraction this quarter. Most of that contraction is roughly 120 basis points of contraction. Most of it comes from bad debt provisioning and as you know, as we accelerated our credit book origination, we provisioned expected losses upfront and that generates some pressure on margin, but we feel comfortable with that as we see very good performance in terms of NPLs and NIMAL margins continue to be very solid and with good profitability.

So we are okay with scaling the book by increasing our credit card book as well. We issued more than 1.5 -- 1.6 million cards this quarter. We're in a credit card TPV by 3x compared to last year. So we should come with that kind of pressure on margins. In addition to that, we continue to invest in the strategic initiatives. We increased that penetration of fulfillment by 6 percentage points year-on-year we increased the penetration of shipping -- free shipping also by 6 percentage points. So investments will continue to be, as we have been saying for several quarters at a similar pace, and there will be no change in our investors -- investment strategy. We'll continue to invest in our investment strategic initiatives, minimize free shipping, credit and so on.

[Operator]

The next question comes from the line of Robert Ford of Bank of America.

[Robert Ford, analyst]

Sorry about that. Happy birthday and congratulations on the quarter. I just had a few questions. And the first was, could you talk a little bit about Meli Más and MDD and how that's contributing to conversion and the acceleration you're seeing in GMV as well as the seller promotional tools that you call out today and particularly the ones that are resonating with consumers. And then how do you expect the end of tax withholding requirements for small businesses on their digital transactions to impact Pago in the marketplace in Argentina? And what's the timing for that?

And then the third one I had was we understand you've taken over 100,000 square meters of distribution space and areas. And we were curious as to the role that you envision for that space, particularly when it comes to centralizing inventory for Brazilian air cargo or processing cross-border transactions into Brazil. And where do you open up capacity in the rest of the network with the addition of that space and what is it at all? And then how should we think about the implications of a Mexican banking license in terms of product enablers, funding and then the various frictions, whether they be regulatory tax or something else?

And then lastly, and I apologize for all this. In the press release, you mentioned some downstream benefits of your more aggressive remuneration strategies and AUM strategies. And I was wondering if you could expand on those, please and that was it.

[Ariel Szarfsztejn, executive]

Bob, Ariel here. So I think on Meli Más, we are going through the same trajectory that we've been seeing over the last few quarters. Meli Más is successfully generating incremental engagement and incremental GMV. So users who enroll in the program have higher frequency, higher GMV lower churn compared to the previous program engagement KPIs are looking good. And to your point on MELI Delivery Day, we see adoption of MDD trending upwards. So general terms, we are extremely satisfied with the impact that the program is having in our business and particularly in the satisfaction of our users and we pretend to continue increasing the user base of sub scripter.

[Robert Ford, analyst]

And Ariel in terms of the MDD adoption coinciding with more packages per week or yet at a time?

[Ariel Szarfsztejn, executive]

Yes. So in every single market, we see consumers choosing to get data packages from -- with MDD trending upwards. And within MDD we see consolidation also going up. In terms of capacity and distribution centers, I think you mentioned a couple of things that are different. So we did move our air cart in Sao Paulo. We just needed more space to deal with the volume that we are applying. But more on a general view, I think, as Martin was mentioning in the previous answer, we will continue building the capacity, linked the growth of our business and the increase in penetration of fulfillment, and that is true for every single market.

This quarter or these few quarters, in particular, we have been expanding capacity in Mexico. At some point, we will continue expanding capacity in Brazil and the rest of the market as well, nothing changing or directionally radical with the way we've been operating so far. But in the end, we are compounding the growth of MercadoLibre as a whole with the increase in fulfillment penetration. I will let Osvaldo complement.

[Robert Ford, analyst]

Sorry, I was just going to ask you that facility is domestically oriented. Is that fair?

[Ariel Szarfsztejn, executive]

Yes, we are not doing any international flights from Brazil to other countries, nor from any country of Latin America into another one. The only international connection that we do is from Texas into Mexico, which is not going through air.

[Osvaldo Giménez, executive]

Bob, let me cover the 2 questions related to FinTech. One of them was how do we expect the end of tax footholding requirements in Argentina to impact Mercado Pago, and we are very excited about that. Today, electronic payments in Argentina had a drawback versus cash payments because were perceptions and taxes we need to rehold on behalf of the local IRS from every seller. So that was a detractor for further adoption of electronic payments in general and the lot of past Congress recently removed that at a federal level, not at a state level, but at a federal level. This, however, has not yet been implemented by the local IRS. So we need that to happen and then we will make the implementation.

But that really will be a positive on all kinds of electronic payment. If I recall correctly, the second question was regarding implications of the Mexican banking license and I would say that, that is something that we believe there's a huge opportunity in Mexico to compete and further deploy financial services and that by having a banking license, we will be able to add products to -- a stack of products. And for example, let people be able to collect salary season than the Mercado Pago accounituxin. And so we believe that the opportunity we see in the country is huge. We have been already growing our credit book very significantly. This will be a process that will be long, typically around 2 years, but it depends on the regulator. But we believe that we will continue growing our footprint in Mexico throughout that period. For example, recently, we increased the rate we have paying to the depositors in [indiscernible], and we are very excited with the results we are seeing.

[Robert Ford, analyst]

And that's what triggered my question with respect to the benefits of -- the downstream benefits of those AUM strategies. Could you expand a little bit on that further.

[Osvaldo Giménez, executive]

Yes. The reason for [indiscernible] it really drives principality. We see that the 2 main drivers of principalities where people put their savings first. And together with that, where they get most of the credit. So we are driving those 2 up significantly. By having a very competitive [indiscernible] and also be aggressive deploying our credit card strategy in Mexico.

[Robert Ford, analyst]

So these are not just opportunistic depositors taking advantage of the 15% rate. You're seeing some real adoption of the rest of the ecosystem.

[Osvaldo Giménez, executive]

Yes. Yes, Bob, we'll probably go to the next question and we can go into more detail on this on. But yes, the short answer is yes, it contributes to that.

[Operator]

The next question comes from the line of Marcelo Santos of JPMorgan.

[Marcelo Santos, analyst]

I have 2 on my side. The first is, given that you launched your distribution center in Texas, could you please comment a bit on your broader ambition on cross-border, how relevant this could be, where this like -- where do you think this could be in a couple of years? And the second question is regarding the net shipping. So dividing -- getting their shipping revenue, minus shipping cost divided by GMV, we see that it improved a lot on a quarter-over-quarter basis. If you could please dissect the drivers that led to the sequential improvement for 1 quarter to other. And if you see further room for more efficiency there.

[Ariel Szarfsztejn, executive]

Marcelo, this is Ariel. So let me start with your first question related to cross-border. I think we've always said that cross-border is still a huge opportunity for MercadoLibre in general. Today, almost 15% of the GMV that we have in Mexico is coming from cross-border, mostly Chinese. But I would say that in the rest of Latin America, our cross-border business is still small, and we think we have an opportunity to generate some value there. Specifically about Texas, our introductory video was mentioning, we think that we can complement the selection that we have in Mexico from local Mexican sellers with inventory coming from North American sellers.

And that is particularly relevant considering that there are certain thesis of that selection that we cannot get locally in Mexico or we cannot find at the right price. So in the end, our North American strategy is to complement the offering that we have in Mexico and be able to serve our consumers better. And eventually thinking about the strategic impact, we think this can be relevant. We think this could be multi-country in the future, but it's too early to tell. But signs of that operation are really, really positive. We see consumers getting extremely engaged with the products that we are offering, and we see our sellers from the U.S., also very satisfied with the sell-out that they have in the inventory that they are bringing to our warehouse.

Going to the second part of your question about shipping margins and cost. I would say that we are pleased with the results that we are seeing from our logistics operation. So in terms of discipline with which we are managing the operation itself, but also with our ability to manage the -- our P&L while continuing to invest behind our strategic priorities. This quarter, as you were saying, we saw an expansion in shipping margin. That expansion is mostly coming from our ability to drive efficiencies in our operations, and that happened even with some headwinds coming from Mexico where we are operating at max capacity and where we have an extremely strong hot sale season.

I would say, broadly speaking, we continue committed to running shipping with a very disciplined P&L. And you can see that clearly when you look back into a longer-term picture, right? So if you go back to 2019, you can see that our net shipping costs remained broadly flat or even improving, if you were to add our flat fee revenues into that one. And in that same period, we moved fulfillment penetration from 6% into 50%. We moved preshipping up 30 percentage points. We increased our square meters by 5x, all this across the region. So again, shipping is a key driver and a key strategic priority for MercadoLibre, and we are committed to executing what we need while managing costs and revenues with strong discipline.

[Operator]

The next question comes from the line of Maria Clara Infantozzi from Itaú.

[Maria Infantozzi, analyst]

It's about your view on the implementation of GenAI in the ad business. So this has been a key topic of discussion in the earnings calls of some these -- during this test base. And can you please share your thoughts on the topic is now in the front and which opportunities of improvement in business do you foresee with the implementation of GenAI. And if I may add, can you please comment on how the AI business has been affecting your recommendation in time? .

[Martin de Los Santos, executive]

Maria Clara, this is Martin. I mean as you use -- can you mute the line on the other side please, we are hearing some noise. Thank you. Yes, as you mentioned, we have been -- put a lot of resources into AI and GenAI throughout the company, really. We don't have a centralized department of AI, but all of our different business units. And clearly, the IT team have been focusing on trying to find opportunities to improve our efficiency and deploy AI solutions, both in the way we manage the business as well consumer-facing. And some examples of that are on the commerce side, obviously, we are using AI to help us with recommendations, as you mentioned, but more important than that on reviews, for instance, that in the past, you have to -- if you were to review a product, you have to go through many different views, now we can consolidate that into a more efficient way of communicating the qualities, the prospects of a particular product pictures, as you know, our pictures that publish might not be the quality that we are expecting from our merchants, and we can improve those with answers from sellers is another good example in the past, if you were to buy something at 2 AM in the morning, you'll have to wait until the next day to get an answer that obviously affected significantly the conversion of the product.

Now we can respond right away with using GenAI models. On the -- obviously, on the developer side, we have 16,000 developers, which are also using AI tools to improve productivity and that also generating some improvements and efficiencies in the way we deploy products throughout the company. And I think 1 of the most important projects that we have is on CX, customer experience and customer support by which we are also applying AI tools that will help us to not only respond more efficiently in terms of cost, but also be more accurate in terms of the way we manage those issues. These are some examples, but there are many others. Osvaldo maybe also you can complement.

[Osvaldo Giménez, executive]

Yes. The only thing I was going to add, you asked about search and where you're seeing technical and bedding to power search that technical -- turn search into something more semantic. So it's easier to try to send the users to what they're looking for.

[Operator]

The next question comes from the line of Kaio Da Prato of UBS.

[Kaio Penso Da Prato, analyst]

So 2 quick on my side, please. With all these good trends that we are seeing in the fintech business, I was wondering if you can share some idea about the profitability of the fintech business in your 3 main countries, Brazil, Mexican Argentina? And what levels do you think you can achieve in each of them? Just an idea of how it has been evolving over time? Would it be really helpful here. And additionally, you are mentioning that you would like to become the #1 digital bank in Mexico. What do you think are your competitive advantages against the digital players in Mexico today as since that now you are with similar offerings compared to most of them nowadays.

[Osvaldo Giménez, executive]

We don't share a lot of details regarding specific profitability in each of the 3 countries. Let me share with you that we are extremely, we are profitable in all 3 countries, in the 3 largest markets in Argentina, Brazil and Mexico. In the case of Brazil and Mexico is driven mostly on the fintech services side, driven mostly by our credit book and acquiring is profitable in all 3 markets. In the case of Argentina, the importance of credit is less relevant than in the other markets, but we have such a strong position as a wallet leveraging the payments every day users make that makes up for a lower credit volume at this point. And we are very profitable in all 3 markets.

So the second question was that we have claimed that we are applying for license and that will be -- we want to be the #1 digital bank in Mexico. We believe we have several competitive advantages. First of all, we already have a large user base given the importance of, on the 1 hand, the marketplace. And on the other hand, our Acquiring business, which is very developed in Mexico. And furthermore, we have been doing aggressively. First, initially, our consumer credit book there for several years, but also recently, our credit card, and we are very excited with the kind of growth we are seeing. And we believe that this synergy we have between the marketplace acquiring business and the Fintech services businesses is something that nobody else has. So we believe we have a very strong position in Mexico.

[Operator]

The next question comes from the line of João Soares of Citi.

[Joao Pedro Soares, analyst]

Congratulations on the results. Two quick ones on my side. The first one, is I wanted to dig a little bit deeper into the GMV performance in Brazil. We usually have a big pricing which is going to be more challenging. And actually, you had right, of these [indiscernible]. And not only do we see an acceleration, we saw volumes driving acceleration. So I just wanted to understand. I realize there's no single bullet here at Super Bowl, but what you attribute this to? How much attribute this to -- I mean, I just want to go at some point what are the main points that we would attribute this acceleration to it would be interesting to hear. And we also saw a good development of the ad penetration right now at 2%, right? So I just wanted to hear your thoughts on the broader retail media adoption. How much of this comes from the view involving your own capabilities? And also, any thoughts on the profitability on this business will also be interesting to hear.

[Ariel Szarfsztejn, executive]

João, this is Ariel. So thank you for your question on still I think it's a good thing. The fact that I am getting kind of the similar question on why we grew so much in Brazil quarter, but we must be doing some positive on that one. So the answer to your question is that there is no silver bullet the performance. So it's not something specific that I can attribute that growth too. I would say several strategies and actions were executed across the business from improvements in selection, expanding our 3P selection complemented with more 1P, which is helping us strengthen MercadoLibre's position as they go to place to buy in Brazil, improvement in pricing, we are getting more and more obsessed with our price competitiveness.

We continue also improving our shipping offering with faster deliveries, slower deliveries, more fulfillment, more free shipping. As we said in the past, we are putting a lot of effort in the averaging Brazil into regions, into categories, into different type of users as to find the right solution to push for growth in each of those segments, product and experience continues to be a key priority for us. We continue to deploy innovation in beauty, we deploy virtual trials we are expanding our compatibilities in out-of-park trading in consumer electronic presales. I mean we continue to improve our experience more and more.

I think we also developed over time a good muscle to quickly identify and adjust our promotional calendars and marketing efforts as to capitalize the opportunities that appear in the market at every single point of time, and that's also helpful. And last but not least, as Osvaldo was saying before with the first question, our payments ecosystem. So Blue Money including Buy Now Pay Later, credit card, account money continues to gain share in our checkout, and that's definitely helping us increase conversion. So in summary, I would say that what you see today is probably the compounded effect of 25 years investing fully focused in Latin America.

So the second part of your question related to advertising. So I would say, again, another good quarter or a great quarter for us. Our penetration reached percent of GMV which is 40 basis points improvement year-over-year. The revenues grew 51% year-over-year in dollar terms, that's the eighth consecutive quarter with a growth rate above 30% particularly, we saw a great performance coming from cross-border sellers from 1P brands and that product continues to represent the majority of the business. I would also add to the ad thing, that a big milestone for us.

[Operator]

The next question comes from the line of Jamie Friedman of Susquehanna International Group.

[James Friedman, analyst]

Congratulations on the 25th. I just wanted to briefly get your summary message about credit quality because I realize there's a lot of different inputs here. But the NIMAL did deteriorate on a year-over-year basis, about 500 basis points, though admittedly, it was roughly flat sequentially. The provision -- that's Page 10. And then on Page 19, the bad debt provision, which I realize is also a function of growth math but that also increased about 300 basis points sequentially. So I know there's a lot of detail, but if you could just give us like the overall message about how you're thinking about credit quality, that would be helpful. .

[Marcos Galperin, executive]

Sorry, we just got -- we dropped, our line got dropped, if you can give us or bear with me for a second please. We are trying to dial-in once again.

[Osvaldo Giménez, executive]

Okay. If you could please, Ariel if you listen to the last part of the answer from us, but we can move on to the next question, if needed, we can go in more detail on that. Please go ahead, please.

[James Friedman, analyst]

So I was just asking -- this is Jamie Friedman at Susquehanna. I was just asking for the 1 liner on credit quality. On Page 10, the NIMAL, though they were roughly flat sequentially. They did deteriorate about 500 basis points year-over-year. On Page 19, a 300 basis point increase in the bad debt provision. I realized that as growth math. But I noticed a lot of detail, but if you could just share us the 1 liners how you're thinking about credit quality, that would be helpful.

[Osvaldo Giménez, executive]

Absolutely. NIMAL was slightly down, but that compression was, I would say, fully explained by the growth of the credit card portfolio as percentage of the total portfolio. So it's mostly a change of mix. The credit card factory has a lower NIMAL because we will provision upfront but only a small portion of the portfolio generates revenue initially. Having said that, we are very excited with the evolution of all of our credit portfolios we are seeing very good results in the earlier cohorts of the credit cards. We continue to see that the improvement in our scoring malls and shortening of the payback period for each cohort, that's why we have been growing the credit card portfolio. And beyond that, also the credit card is obviously strategically very, very, very important. .

And then when -- the second part of the question is regarding, if I understood correctly regarding the NPL evolution. Again, we are comfortable with the results we are seeing are the spreads we have are very, very healthy. And I think overall, we are comfortable with the credit portfolio.

[Martin de Los Santos, executive]

Yes. And going back to NIMAL just to complement, we don't disclose specific NIMAL portfolio for countries, but as Osvaldo mentioned, this is a mixed issue. If you were to look at individual product portfolios, NIMAL are stable or improving year-on-year. So that's why we feel comfortable accelerating growth. Our credit book reached $4.9 billion, growing 51% year-on-year on the back of very strong profitability results.

[Operator]

The next question comes from the line of Geoffrey Elliott of Autonomous.

[Geoffrey Elliott, analyst]

There's clearly lots of growth, lots of acceleration, lots of positives in the numbers. Can you tell us what has been the biggest positive surprise for you over the last year. If you wound back to 12 months ago, you could see the numbers that you've just printed, which part of the business is it, which has exceeded your expectations.

[Martin de Los Santos, executive]

Geoffrey, I think if you look at the results over the past year, we are super excited about all parts of our business. I mean on commerce side, as Ari mentioned, we are growing Brazil 36% on the back of -- 30% last quarter and sustained growth in Mexico. This is the third consecutive quarter by which grew 30% year-on-year. So gaining market share in both markets, also very positively surprised about the turnaround of Argentina. We had a tough quarter, last quarter in Q1, and we regained growth once again on the commerce side of Argentina. Our fulfillment infrastructure continues to be deployed and great gain in penetration, which results in much better user experience.

A number of users have been growing a number of buyers as well as monthly active users on the fintech side of the business. Then on the fintech side, we have tremendous opportunity ahead of us in Mexico. Assets under management are performing very well throughout the region. Our credit books as like Osvaldo mentioned earlier, performing very well, and we accelerated growth in the past 2 quarters. So very excited about all of our businesses and in particular, also the new businesses that are growing, Mercado Play, which is starting relatively new, showing some positive signs. So far, Meli Más, which we launched a year ago, performing very well. So we are very excited about both the commerce as well as the FinTech side of the business.

[Geoffrey Elliott, analyst]

Okay. It sounds like the answer to that is everything. I'm tempted to ask you to pick one, but I won't just to follow up, the new customers, the monthly active user group, who are those people? Are they people who have not used ecom before? Or are they coming from competitors, where are the new users coming from?

[Martin de Los Santos, executive]

Just to be fair with you, it's true that the answer was broad because we're really excited about the performance of the business. I think if I had to highlight 1 is probably the surprise of continuing to gain market share in Brazil for several quarters. For more than a year now, every quarter, we continue to grow at a faster rate than the market at a very large scale. So that's obviously something that we are very proud and very positively surprised.

[Osvaldo Giménez, executive]

If I were to pinpoint something on the fintech side, I'll say that several quarters ago, we restructured how our team is organized with a strong focus on fintech services and since then, we have seen very strong growth, both in Brazil and Mexico, not only in number of users, but in the frequency, the use of products how, for example, [indiscernible] has grown and credit cards have grown. So I'd say the increased focus we put on fintech services clearly is paying off, and that is really according to the expectations we have. .

[Operator]

The next question comes from the line of Craig Mauer of FT Partners.

[Craig Maurer, analyst]

Again, congratulations on your 25th. Most of my questions have been asked and answered. But I wanted to ask you a follow-up to Geoff's question on market share, if you could characterize for us where you think market share is for MercadoLibre and in each of the main markets? And how that's progressed year-on-year, that would be helpful.

[Marcos Galperin, executive]

Yes. As you know, market shares are a lot of information -- public information that it's not that accurate. I mean the reason why we believe we are gaining market share is because we are growing at a very rapid pace most likely for sure, above market. But in terms of specific market share numbers, those are numbers that we don't share, but it's public information. I'm sure you can get. What we can say is that at a growth rate of 36% year-on-year in Brazil and 30% in Mexico, we are gaining share for sure.

[Operator]

The final question comes from the line of Marvin Fong of BTIG.

[Marvin Fong, analyst]

Congratulations as well on the anniversary as well as the strong quarter. I would just like to turn to the topic of the Brazil macro environment in terms of -- it looks like inflation is kind of ticking up and the Central Bank is pausing. So just with respect to your fintech business, 2 parts on this. Does it factor at all or how does that trajectory factor at all into your willingness to lean into acquiring more -- expanding more credit and acquiring more borrowers in that country? And then secondly, how might it affect your spreads. I think in the second quarter, you had some positive gross margin impact from credit spreads and credit funding. Just any thoughts on how you might pass or not pass on interest rate funding cost to your customers?

[Osvaldo Giménez, executive]

Marvin, so mostly the decision of how to expand our credit books, our credit offerings is principally related to how we are seeing payments evolving, how we see the malls evolving and as long as we continue to see that our malls are working well and NPLs are coming down. We will continue being aggressive with expansion of credit. Our trades typically are very short, and therefore, we are very flexible to adjust to any change in interest rate policy that may come. And with regards to credit spreads and funding, I would say that today, we have spreads that are very healthy. We are in the -- we're always looking for ways to continue growing the book we have.

And in some cases, that will imply working with very positive spreads, but smaller than the 1 we have now because there's an opportunity to continue further expanding upmarket where in order to reach those customers would need to be even more competitive with vis-a-vis traditional banks.

[Marcos Galperin, executive]

And just to complement on macro. I mean we've been operating in Latin America for 25 years, and we've seen many different macro situations, and we believe that in our industry, both on commerce and fintech a lot more important, stronger the secular trend of people moving online, both to commerce online as well as to bring their finances, digitalize their finances. So we are a lot more focused on continuing to improve our products, continue to offer faster shipping, better assortment on the commerce side, business credit book, as Osvaldo mentioned, and macro should not affect our performance or growth in the future, at least what we're seeing so far in Brazil, Mexico and Argentina.

[Operator]

This concludes the question-and-answer session. I would now like to turn it back over to Martin de los Santos for closing remarks.

[Martin de Los Santos, executive]

Well, thank you, everybody, for joining. Once again, very excited about the results of the quarter, but more importantly, about the future of MercadoLibre, celebrating our 25th year tomorrow. But we're looking ahead, we see -- we continue to see as many as big opportunities as we saw 25 years ago. So again, looking forward to the second half of the year and to reporting to you in 3 months. Thanks again.

[Operator]

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.