MercadoLibre, Inc. Third Quarter 2022 Letter to Shareholders
Net Revenues of
Income from operations of
To our Shareholders
The third quarter of 2022 was yet another successful period for
Commerce
Our Commerce business continues to perform consistently, with FX-neutral GMV growth accelerating to 32% in the quarter, including a 9% increase in items sold. All three of our major markets posted solid growth, with FX-neutral GMV +20% in
As traditional retail reopens across the region, our growth has remained resilient and the number of unique buyers continues to rise, up approximately 10% year-on-year. We believe that ecommerce growth, in the long run, is driven by the overall user experience offered to buyers; this is measured by selection, price competitiveness, logistics services (cost and speed), customer service, and technology, amongst other factors. Over the last two years we invested heavily in all of these areas, and we attribute the resilience of our growth to these investments. As a testament to this, our conversion rates have also taken a step higher this quarter.
We are particularly pleased with our third quarter performance in
Our growth in first-party (1P) categories - mainly the Consumer Electronics and Supermarket verticals - has slowed as we focus on improving the overall experience and fine tuning the economics. That said, even with slower growth, we have gained share in both categories in
Our Ads business continues to steadily increase its share in our GMV, reaching 1.3%, up from 0.9% a year ago. We have started to accelerate our investments in Ads technology, including the allocation of more engineers, to be able to offer a more sophisticated, automated and personalized product for display advertising, whilst also continually improving the algorithms that drive keyword search. We are confident that these investments will allow our partners to capitalize on the unique reach and targeting opportunities that our platform offers, which will further increase the penetration of Ads in our GMV, and drive our profitability.
Fintech
Our Fintech business continues to deliver rapid growth rates, with total TPV rising 54% in US dollars, and 76% on an FX-neutral basis to reach
We continue to expand the user base of our MPOS business, with devices sold in the quarter falling just below 1mn. This slowdown was offset by a sequential acceleration of growth in TPV per device, and overall MPOS growth trends are stable across our three main markets. Our primary focus in the MPOS segment continues to be the base of the pyramid, but within that long tail we are increasingly serving larger merchants (which are still very small businesses), which tend to transact more frequently than micro merchants. These larger merchants also tend to attract lower take rate and this, together with the absence of additional price increases in the quarter, contributed to the sequential compression of our Fintech take rate. Our churn remains stable, showing that we have successfully navigated a period of repricing year-to-date with our value proposition intact. The profitability of older MPOS cohorts is funding the acquisition of new cohorts, with a net effect that generates a solid EBIT margin on a standalone basis. Online payments also make a strong contribution to the profitability of the Acquiring segment.
Digital Account TPV - mostly transactions made in Wallet and with Pago cards - was a highlight, growing 138% year-on-year on an FX-neutral basis to reach
The Digital Account is still a detractor to margin on a standalone basis, but we are focused on reducing or offsetting losses over time. We aim to do this through deepening our relationship with the customer, and by overlaying other products such as
Our Credits portfolio ended the quarter at
The portfolio's total non-performing loan (NPL) ratio rose to 37.0% in the third quarter. The combination of writing off delinquent loans at 360 days, with a portfolio where a majority of loans have a duration of less than three months, and the slowdown in originations means that delinquent loans from prior periods have a greater weight in our portfolio sequentially. All of the sequential rise in the NPL ratio has come from the over-90 day bucket, whilst the 1-90 day bucket was stable at 13% (this can be seen in the presentation that accompanies our earnings). We are seeing a higher probability of default among our customers, but the actions taken during the quarter to reduce exposure to certain cohorts and to limit access to certain products, have mitigated this risk.
To reconcile margin expansion and rising NPLs we must go deeper into our provisioning policies - we have maintained a cautious and unchanged provisioning policy with expected losses provisioned upfront, at the moment of origination. Provisioning as a percentage of our current portfolio remained stable, and it has actually risen as a proportion of the 1-90 loan book. Provisions as a proportion of the over-90 loan book have remained stable, close to 100% of the past due amounts. As such, the sequentially lower bad debt charge on the P&L is the result of mix effects, driven by lower originations.
| Portfolio broken down by ageing (MM) | Current | 1-90 | 90+ (to 360) | |
| Q3 2021 | 812 | 115 | 200 | |
| Q4 2021 | 1,284 | 174 | 237 | |
| Q1 2022 | 1,749 | 323 | 343 | |
| Q2 2022 | 1,844 | 354 | 489 | |
| Q3 2022 | 1,748 | 363 | 663 |
| Provisions as % of portfolio broken down by ageing | Current | 1-90 | 90+ (to 360) | |
| Q3 2021 | 8.8% | 58.9% | 92.7% | |
| Q4 2021 | 8.9% | 58.8% | 92.6% | |
| Q1 2022 | 9.0% | 63.3% | 92.1% | |
| Q2 2022 | 8.9% | 64.5% | 92.3% | |
| Q3 2022 | 8.6% | 67.6% | 92.8% |
Third-party funding of our credit portfolio reached 59% in the third quarter, up from 52% in 2Q'22 and 39% in 3Q'21. This increase helps to improve the ROE (return on equity) of our Credits business.
Overall,
Consolidated Results
We are pleased with the financial results for the third quarter of 2022. Our FX-neutral net revenue growth accelerated to 61% YoY, taking net revenue in US dollars to
Our income from operations reached
We booked a
We generated
Looking Ahead
After a successful third quarter that delivered strong growth and profitability, our attention is now focused on executing well in the fourth quarter, which brings Black Friday, the FIFA World Cup and Christmas back onto the retail calendar. We remain as optimistic as ever about the fundamentals of our business: we have strengthened our leadership position in Commerce, our Fintech business continues to gain momentum, our profitability is solid, we have a strong balance sheet and we still see more opportunities to enhance the experience and synergies of our ecosystem. On our mission to democratize
The following table summarizes certain key performance metrics for the nine and three-month periods ended
| Nine Months Ended |
Three Months Ended |
|||||||||||
| (in millions) | 2022 | 2021 | 2022 | 2021 | ||||||||
| Unique active users (**) | 127 | 120 | 88 | 79 | ||||||||
| Gross merchandise volume | $ | 24,834 | $ | 20,394 | $ | 8,618 | $ | 7,314 | ||||
| Number of successful items sold | 826 | 727 | 284 | 260 | ||||||||
| Number of successful items shipped | 794 | 686 | 276 | 248 | ||||||||
| Total payment volume | $ | 87,683 | $ | 53,127 | $ | 32,170 | $ | 20,880 | ||||
| Total volume of payments on marketplace | $ | 24,427 | $ | 19,673 | $ | 8,624 | $ | 7,058 | ||||
| Total payment transactions | 3,792 | 2,226 | 1,439 | 866 | ||||||||
| Capital expenditures | $ | 343 | $ | 434 | $ | 106 | $ | 171 | ||||
| Depreciation and amortization | $ | 281 | $ | 137 | $ | 97 | $ | 52 | ||||
| (*) Figures have been calculated using rounded amounts. Growth calculations based on this table may not total due to rounding. |
| (**) Figure previously reported for unique active users as of the nine-month period ended |
Year-over-year USD Revenue Growth Rates by Quarter
| Consolidated Net Revenues | Q3’21 | Q4’21 | Q1’22 | Q2’22 | Q3’22 | ||||||
| 74 | % | 51 | % | 63 | % | 53 | % | 35 | % | ||
| 38 | % | 47 | % | 74 | % | 62 | % | 72 | % | ||
| 94 | % | 92 | % | 58 | % | 65 | % | 60 | % |
Year-over-year Local Currency Revenue Growth Rates by Quarter
| Consolidated Net Revenues | Q3’21 | Q4’21 | Q1’22 | Q2’22 | Q3’22 | ||||||
| 69 | % | 61 | % | 55 | % | 42 | % | 35 | % | ||
| 83 | % | 84 | % | 110 | % | 104 | % | 140 | % | ||
| 76 | % | 96 | % | 59 | % | 66 | % | 62 | % |
Conference Call and Webcast
The Company will host an earnings video as well as a conference call and audio webcast for any questions that investors may have on
Definition of Selected Operational Metrics
Unique Active User – New or existing user who performed at least one of the following actions during the reported period: (1) made one purchase, or reservation, or asked one question on
Unique Fintech User – Users who engage in at least one of the following services within the quarter: wallet payments online, in app or in store; transfers; withdrawals; consumer or merchant credit borrowers; card users; fintech sellers; and fintech active products such as asset management and insurtech users.
Foreign Exchange (“FX”) Neutral – Calculated by using the average monthly exchange rate of each month of 2021 and applying it to the corresponding months in the current year, so as to calculate what the results would have been had exchange rates remained constant. Intercompany allocations are excluded from this calculation. These calculations do not include any other macroeconomic effect such as local currency inflation effects or any price adjustment to compensate local currency inflation or devaluations.
Gross merchandise volume – Measure of the total
Total payment transactions – Measure of the number of all transactions paid for using
Total volume of payments on marketplace – Measure of the total
Total payment volume – Measure of total
MPOS – Mobile point-of-sale is a dedicated wireless device that performs the functions of a cash register or electronic point-of-sale terminal wirelessly.
Commerce – Revenues from core marketplace fees, shipping fees, first-party sales, ad sales, classified fees and other ancillary services.
Fintech – Revenues includes fees from off-platform transactions, financing fees, interest earned from merchant and consumer credits and sale of MPOS.
Successful items sold – Measure of the number of items that were sold/purchased through the
Successful items shipped – Measure of the number of items that were shipped through our shipping service.
Local Currency Growth Rates – Refer to FX Neutral definition.
Net income margin – Defined as net income as a percentage of net revenues.
Operating margin – Defined as income from operations as a percentage of net revenues.
IMAL (Interest Margins After Losses) – IMAL is the spread between credit revenues and the expenses associated with provisions for doubtful accounts, and usually expressed as a percentage of the outstanding portfolio.
About
Founded in 1999,
The Company is listed on NASDAQ (Nasdaq: MELI) following its initial public offering in 2007.
For more information about the Company visit: http://investor.mercadolibre.com.
The
Forward-Looking Statements
Any statements herein regarding
(In millions of
| 2022 | 2021 | ||||||
| Assets | |||||||
| Current assets: | |||||||
| Cash and cash equivalents | $ | 1,455 | $ | 2,585 | |||
| Restricted cash and cash equivalents | 1,073 | 1,063 | |||||
| Short-term investments ( |
1,943 | 810 | |||||
| Accounts receivable, net | 108 | 98 | |||||
| Credit card receivables and other means of payments, net | 2,550 | 1,839 | |||||
| Loans receivable, net of allowances of $974 and |
1,724 | 1,199 | |||||
| Prepaid expenses | 62 | 40 | |||||
| Inventories | 160 | 253 | |||||
| Customer crypto-assets safeguarding assets | 15 | — | |||||
| Other assets | 261 | 288 | |||||
| Total current assets | 9,351 | 8,175 | |||||
| Non-current assets: | |||||||
| Long-term investments | 375 | 89 | |||||
| Loans receivable, net of allowances of $34 and |
42 | 61 | |||||
| Property and equipment, net | 945 | 807 | |||||
| Operating lease right-of-use assets | 587 | 461 | |||||
| 147 | 148 | ||||||
| Intangible assets, net | 29 | 45 | |||||
| Deferred tax assets | 269 | 181 | |||||
| Other assets | 217 | 134 | |||||
| Total non-current assets | 2,611 | 1,926 | |||||
| Total assets | $ | 11,962 | $ | 10,101 | |||
| Liabilities | |||||||
| Current liabilities: | |||||||
| Accounts payable and accrued expenses | $ | 1,155 | $ | 1,036 | |||
| Funds payable to customers | 2,558 | 2,393 | |||||
| Amounts payable due to credit and debit card transactions | 418 | 337 | |||||
| Salaries and social security payable | 345 | 313 | |||||
| Taxes payable | 338 | 291 | |||||
| Loans payable and other financial liabilities | 1,946 | 1,285 | |||||
| Operating lease liabilities | 121 | 92 | |||||
| Customer crypto-assets safeguarding liabilities | 15 | — | |||||
| Other liabilities | 106 | 90 | |||||
| Total current liabilities | 7,002 | 5,837 | |||||
| Non-current liabilities: | |||||||
| Amounts payable due to credit and debit card transactions | 4 | 4 | |||||
| Loans payable and other financial liabilities | 2,743 | 2,233 | |||||
| Operating lease liabilities | 470 | 372 | |||||
| Deferred tax liabilities | 36 | 62 | |||||
| Other liabilities | 76 | 62 | |||||
| Total non-current liabilities | 3,329 | 2,733 | |||||
| Total liabilities | $ | 10,331 | $ | 8,570 | |||
| Commitments and Contingencies | |||||||
| Equity | |||||||
| Common stock, |
|||||||
| 50,294,893 and 50,418,980 shares issued and outstanding at |
|||||||
| 2022 and |
$ | — | $ | — | |||
| Additional paid-in capital | 2,308 | 2,439 | |||||
| (898 | ) | (790 | ) | ||||
| Retained earnings | 748 | 397 | |||||
| Accumulated other comprehensive loss | (527 | ) | (515 | ) | |||
| Total Equity | 1,631 | 1,531 | |||||
| Total Liabilities and Equity | $ | 11,962 | $ | 10,101 | |||
Interim Condensed Consolidated Statements of Income
For nine and three-month periods ended
(In millions of
| Nine Months Ended |
Three Months Ended |
|||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Net service revenues | $ | 6,766 | $ | 4,366 | $ | 2,437 | $ | 1,631 | ||||||||
| Net product revenues | 769 | 573 | 253 | 227 | ||||||||||||
| Net revenues | 7,535 | 4,939 | 2,690 | 1,858 | ||||||||||||
| Cost of net revenues | (3,830 | ) | (2,787 | ) | (1,342 | ) | (1,051 | ) | ||||||||
| Gross profit | 3,705 | 2,152 | 1,348 | 807 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Product and technology development | (774 | ) | (411 | ) | (278 | ) | (138 | ) | ||||||||
| Sales and marketing | (916 | ) | (736 | ) | (333 | ) | (281 | ) | ||||||||
| Provision for doubtful accounts | (845 | ) | (271 | ) | (288 | ) | (105 | ) | ||||||||
| General and administrative | (485 | ) | (317 | ) | (153 | ) | (123 | ) | ||||||||
| Total operating expenses | (3,020 | ) | (1,735 | ) | (1,052 | ) | (647 | ) | ||||||||
| Income from operations | 685 | 417 | 296 | 160 | ||||||||||||
| Other income (expenses): | ||||||||||||||||
| Interest income and other financial gains | 142 | 84 | 65 | 35 | ||||||||||||
| Interest expense and other financial losses (*) | (221 | ) | (175 | ) | (92 | ) | (44 | ) | ||||||||
| Foreign currency losses, net | (134 | ) | (52 | ) | (71 | ) | (25 | ) | ||||||||
| Net income before income tax expense | 472 | 274 | 198 | 126 | ||||||||||||
| Income tax expense | (154 | ) | (145 | ) | (69 | ) | (31 | ) | ||||||||
| Equity in earnings of unconsolidated entity | (1 | ) | — | — | — | |||||||||||
| Net income | $ | 317 | $ | 129 | $ | 129 | $ | 95 | ||||||||
| (*) | Includes $49 million of loss on debt extinguishment and premium related to the 2028 Notes repurchase recognized in |
| Nine Months Ended |
Three Months Ended |
|||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||
| Basic EPS | ||||||||||||
| Basic net income | ||||||||||||
| Available to shareholders per common share | $ | 6.30 | $ | 2.60 | $ | 2.57 | $ | 1.92 | ||||
| Weighted average of outstanding common shares | 50,365,813 | 49,761,360 | 50,325,075 | 49,597,157 | ||||||||
| Diluted EPS | ||||||||||||
| Diluted net income | ||||||||||||
| Available to shareholders per common share | $ | 6.29 | $ | 2.60 | $ | 2.56 | $ | 1.92 | ||||
| Weighted average of outstanding common shares | 51,356,081 | 49,761,360 | 51,315,343 | 49,597,157 | ||||||||
Interim Condensed Consolidated Statements of Cash Flows
For the nine-month periods ended
| Nine Months Ended |
||||||||
| 2022 | 2021 | |||||||
| Cash flows from operations: | ||||||||
| Net income | $ | 317 | $ | 129 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Unrealized devaluation loss, net | 265 | 67 | ||||||
| Impairment of digital assets | 11 | 8 | ||||||
| Depreciation and amortization | 281 | 137 | ||||||
| Accrued interest | (111 | ) | (21 | ) | ||||
| Non cash interest, convertible notes amortization of debt discount and amortization of debt issuance costs and other charges | 133 | 61 | ||||||
| Provision for doubtful accounts | 845 | 271 | ||||||
| Financial results on derivative instruments | 28 | 1 | ||||||
| Stock-based compensation expense — restricted shares | 1 | — | ||||||
| LTRP accrued compensation | 59 | 84 | ||||||
| Deferred income taxes | (96 | ) | 18 | |||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable | (27 | ) | (7 | ) | ||||
| Credit card receivables and other means of payments | (768 | ) | (617 | ) | ||||
| Prepaid expenses | (22 | ) | (24 | ) | ||||
| Inventories | 102 | (114 | ) | |||||
| Other assets | (60 | ) | (148 | ) | ||||
| Payables and accrued expenses | 150 | 127 | ||||||
| Funds payable to customers | 216 | 250 | ||||||
| Amounts payable due to credit and debit card transactions | 77 | 82 | ||||||
| Other liabilities | (87 | ) | (63 | ) | ||||
| Interest received from investments | 84 | 23 | ||||||
| Net cash provided by operating activities | 1,398 | 264 | ||||||
| Cash flows from investing activities: | ||||||||
| Purchase of investments | (9,266 | ) | (6,499 | ) | ||||
| Proceeds from sale and maturity of investments | 7,861 | 6,798 | ||||||
| Receipts from settlements of derivative instruments | — | 4 | ||||||
| Capital contributions in joint ventures | — | (5 | ) | |||||
| Payment for settlements of derivative instruments | (7 | ) | (20 | ) | ||||
| Purchases of intangible assets | (1 | ) | (29 | ) | ||||
| Changes in principal of loans receivable, net | (1,470 | ) | (711 | ) | ||||
| Investment of property and equipment | (342 | ) | (425 | ) | ||||
| Net cash used in investing activities | (3,225 | ) | (887 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from loans payable and other financial liabilities | 12,478 | 6,056 | ||||||
| Payments on loans payable and other financial liabilities | (11,421 | ) | (4,365 | ) | ||||
| Payments on repurchase of the 2028 Notes | — | (1,865 | ) | |||||
| Payment of finance lease obligations | (14 | ) | (13 | ) | ||||
| Purchase of convertible note capped call | — | (101 | ) | |||||
| Unwind of convertible note capped call | — | 397 | ||||||
| Common Stock repurchased | (115 | ) | (440 | ) | ||||
| Exercise of Convertible Notes | — | (3 | ) | |||||
| Net cash provided by (used in) financing activities | 928 | (334 | ) | |||||
| Effect of exchange rate changes on cash, cash equivalents, restricted cash and cash equivalents | (221 | ) | (128 | ) | ||||
| Net decrease in cash, cash equivalents, restricted cash and cash equivalents | (1,120 | ) | (1,085 | ) | ||||
| Cash, cash equivalents, restricted cash and cash equivalents, beginning of the period | $ | 3,648 | $ | 2,508 | ||||
| Cash, cash equivalents, restricted cash and cash equivalents, end of the period | $ | 2,528 | $ | 1,423 | ||||
Financial results of reporting segments
| Three Months Ended |
|||||||||||||||||||||
| Other Countries | Total | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||
| Net revenues | $ | 1,431 | $ | 675 | $ | 465 | $ | 119 | $ | 2,690 | |||||||||||
| Direct costs | (1,209 | ) | (376 | ) | (384 | ) | (121 | ) | (2,090 | ) | |||||||||||
| Direct contribution | 222 | 299 | 81 | (2 | ) | 600 | |||||||||||||||
| Operating expenses and indirect costs of net revenues | (304 | ) | |||||||||||||||||||
| Income from operations | 296 | ||||||||||||||||||||
| Other income (expenses): | |||||||||||||||||||||
| Interest income and other financial gains | 65 | ||||||||||||||||||||
| Interest expense and other financial losses | (92 | ) | |||||||||||||||||||
| Foreign currency losses, net | (71 | ) | |||||||||||||||||||
| Net income before income tax expense | $ | 198 | |||||||||||||||||||
| Three Months Ended |
|||||||||||||||||||||
| Other Countries | Total | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||
| Net revenues | $ | 1,063 | $ | 393 | $ | 291 | $ | 111 | $ | 1,858 | |||||||||||
| Direct costs | (831 | ) | (253 | ) | (285 | ) | (91 | ) | (1,460 | ) | |||||||||||
| Direct contribution | 232 | 140 | 6 | 20 | 398 | ||||||||||||||||
| Operating expenses and indirect costs of net revenues | (238 | ) | |||||||||||||||||||
| Income from operations | 160 | ||||||||||||||||||||
| Other income (expenses): | |||||||||||||||||||||
| Interest income and other financial gains | 35 | ||||||||||||||||||||
| Interest expense and other financial losses | (44 | ) | |||||||||||||||||||
| Foreign currency losses, net | (25 | ) | |||||||||||||||||||
| Net income before income tax expense | $ | 126 | |||||||||||||||||||
Non-GAAP Financial Measures
To supplement our condensed consolidated financial statements presented in accordance with
This non-GAAP measure should not be considered in isolation or as a substitute for measures of performance prepared in accordance with
We provide this non-GAAP financial measure to enhance overall understanding of our current financial performance and its prospects for the future, and we understand that this measure provides useful information to both Management and investors. In particular, we believe that FX neutral measures provide useful information to both Management and investors by excluding the foreign currency exchange rate impact that may not be indicative of our core operating results and business outlook.
The FX neutral measures were calculated by using the average monthly exchange rates for each month during 2021 and applying them to the corresponding months in 2022, so as to calculate what our results would have been had exchange rates remained stable from one year to the next. The table below excludes intercompany allocation FX effects. Finally, these measures do not include any other macroeconomic effect such as local currency inflation effects, the impact on impairment calculations or any price adjustment to compensate local currency inflation or devaluations.
The following table sets forth the FX neutral measures related to our reported results of the operations for the three-month period ended
| Three Months Ended |
||||||||||||||||||||||
| As reported | FX Neutral Measures | As reported | ||||||||||||||||||||
| (In millions, except percentages) | 2022 | 2021 | Percentage Change |
2022 | 2021 | Percentage Change |
||||||||||||||||
| (Unaudited) | (Unaudited) | |||||||||||||||||||||
| Net revenues | $ | 2,690 | $ | 1,858 | 44.8 | % | $ | 2,983 | $ | 1,858 | 60.6 | % | ||||||||||
| Cost of net revenues | (1,342 | ) | (1,051 | ) | 27.7 | % | (1,470 | ) | (1,051 | ) | 39.9 | % | ||||||||||
| Gross profit | 1,348 | 807 | 67.0 | % | 1,513 | 807 | 87.5 | % | ||||||||||||||
| Operating expenses | (1,052 | ) | (647 | ) | 62.6 | % | (1,168 | ) | (647 | ) | 80.5 | % | ||||||||||
| Income from operations | $ | 296 | $ | 160 | 85.0 | % | $ | 345 | $ | 160 | 115.6 | % | ||||||||||
CONTACT:
Investor Relations
http://investor.mercadolibre.com
Source: