CFO Perspectives: Reflections on Q4'25 Results

Reflecting on MercadoLibre's Incredible 2025 Performance and Q4 Results Welcome to our listeners to the latest episode of CFO Perspectives. This is our Investor Relations podcast where I sit down with Martine De Los Santos, our CFO, to talk about our latest results release and give him the opportunity to reflect on those results. Martine, thank you for joining us for the podcast. Speaker 2 Thank you, Richard. Speaker 1 So I want to spend most of the time here to address some of the questions that we've been receiving from investors in the last few days. But I think before that, how would you define Recover Libre's performance in 2025? Speaker 2 I think, Richard, we had a great Q4 in terms of results and an incredible 2025. Our e-commerce platform continues to deliver very strong growth, about 30% year on year and we continue to make to gain market share even in a very competitive environment. Our advertising business continues to accelerate throughout the year and we ended the year at 70% year on year growth in Q4. Marcalo Bago also had an amazing year in 2025. Our aquarium business grew by 40% in FX neutral. Our credit book grew by 90% and we surpassed the 78,000,000 monthly active users. But more important than that, we made significant improvements in terms of user experience. We reached the incredible milestone in terms of NPS. We now have the record level of MPs in our marketplace in all of our countries. And Marcado Paolo has the highest MPs of any fintech in Argentina, Brazil, Mexico and Chile. And this is important because it lays the foundation for future growth. But of course achieving these results require investments and that creates short term margin pressure as we saw in 2025. But given the relatively early stage of development of our markets, we believe this is the right way to go. I would summarize it as you know, great Q4 but incredible 2025 as I said earlier. Understanding Margin Compression from Deliberate Strategic Investments OK, great. So I wanted to pick up on the points about investments and margins to ask if the margin compression is due to competition. Speaker 2 I think which is important to make a distinction between, you know what's going on in terms of the competitive environment and the investments that we're making in our platform to capture the long term opportunities that face us in both commerce and fintech. I would say that most of the margin compressions comes from deliberate strategic investments that we're making in order to capture that growth opportunity in the long term. This includes the expansion of free shipping offering in Brazil that we saw in the middle of last year to bring more people online, the growth of our credit card portfolio that delivers financial inclusion and also scaling our 1P, you know, retail operation as well as our cross-border initiatives to expand assortment and improve price competitiveness in our marketplace. So if you put all these together, those initiatives represent roughly 5 to 6 percentage points of margins, but we're very confident with these investments because we're seeing the fantastic results that they bring to us. It accelerated growth and improved user experience in our ecosystem, as I mentioned earlier, with record levels of MPs across all of our business and geographies. Speaker 1 OK, that's clear. So the investments having quite a significant impact on our margin, but obviously a very significant impact on growth, engagement scale, etcetera. There's just one of the points that I wanted to maybe double click on in a little bit more detail, which was sales and marketing to ask, how do we think about deploying marketing dollars? And does that step up that we saw in Q4 mean that growth is just becoming more expensive? Speaker 2 I think, Richard, if you look at the Q4, we increased our investment in marketing by one percentage points relative to last year. And that's mostly explained by investments that we're making in social commerce and user acquisition. In social commerce, primarily the expansion of our affiliate program, which is a new channel that we didn't have last year that is contributing to not only GMB growth, but is critical to reach a key demographics such as women and younger consumers. In terms of user acquisition, we have a very strict philosophy that determines how we invest in, in that front on the marketplace where with the majority of the investment is deployed, we only acquire users if they make a positive value contribution measured in a window of attribution of only 7 days. We do not consider long term value of those users or the cross sell potential that those users have on our Fintech platform. We only look at the profits that are generated on the marketplace within that very short period of time. So we're very prudent in the way we invest in marketing to make sure that these new users are accreted to profits. So with that in mind, you're in 2025 we saw opportunities to acquire more users with positive value contribution and is the reason why you're seeing increased investments? Speaker 1 OK. That's fantastic. And I think this is something that we've been talking about now for a couple of quarters. That obviously continued into Q4. So just moving back to investments at a broader level, as you indicated before, when you mentioned the five to six percentage points, there's obviously a lot of investment going on. And I think the lower free shipping threshold in in Brazil is probably the biggest in there. What results and returns have you seen from it in the first six months? Speaker 2 Remember Richard that this is not the first time that we lowered the pre shipment threshold. We have been doing this several times since 2017 and every time that we do it, we see a strong results in terms of volume growth and use of retention and engagement. And this time was not exception. I think we talked a lot about over the past couple of quarters, we talked a lot about the growth on GMV and the higher frequency engagement and retention that we're seeing on our users. And let me give you a little bit more color on that just to to make the point. Our marketplace daily active users are growing today 10 percentage points faster than our monthly active users, showing that we are creating greater stickiness on our platform. Growth in unique buyers that purchase in more than three categories at the same time within a month accelerated by 20 percentage points after we lower the free shipping thresholds. That also shows stickiness, but also that people are buying more broadly within our marketplace. After lowering the free shipment threshold, we saw the highest increase in buyers since the pandemic. Finally, because of the increase in volume, we have been able to obtain operational efficiencies that resulted in unit shipping cost decreasing in Brazil in the second-half of the year. So all the measures that we wanted to influence are pointing in the right direction and we are extremely happy with the results of our governor of free shipping threshold like we have been in the past since we started doing it in 2017 as I mentioned earlier. Speaker 1 OK, great. And I think obviously all of that additional engagement that we're seeing now in the short term helps us to to grow in the future as well. The credit card is another major investment. So perhaps you could just touch relatively quickly on, on whether you're pleased with the results that we're seeing from the credit card? Speaker 2 We've seen very, very consistent evolution in terms of nemal spreads, in particular on the older cohorts in Brazil. We mentioned on the call that already in Q 475% of the portfolio in Brazil was nemal positive. So we're, you know, we make great progress in that front. And given the confidence of the risk models, in Q4 we issued a record 2.8 million credit cards. We picked up the pace of issuance in Mexico and Argentina and we expect this trend to continue even though it creates margin pressure in the short term. Speaker 1 That's great. Navigating the Investment Cycle and Long-Term Profitability Trajectory So just moving on to one of the questions that I think we've had most frequently from investors in the last few days with all of the investment that's going on, Martine, what can you say about where we are in the investment cycle? Speaker 2 I think, Richard, when you look at the business that we operate, we are early on in terms of the stage of development. e-commerce in Latin America has a relatively low penetration compared to other regions of the world. In Fintech, most of the population remains underserved by the traditional financial system. So even the large opportunity that this represents, we believe at this time it would not be the best idea to try to optimize for shorter margins. We feel comfortable investing to improve our competitive mode and so long as we continue finding opportunities to grow at accelerated rates, we will continue to invest in our business. Speaker 1 OK, great. And I think certainly 2025 was a pretty good example of growth at accelerated rates. But with that in mind, how should investors think about margins in 2026? Speaker 2 I think the best way to think about that is actually to look at what happened in 2025. You can see clearly two different margin profiles throughout the year. In the first half of the year, our margin was roughly 12 to 13% and we exited the year with an operating margin of 9% in Q4 after the investment that we just described. I mentioned on the earnings call that we are comfortable with this level of margins because the strategic investments that we're making are delivering the desired results. Also as I mentioned on the call, if we see investment initiatives that helps us capture the large opportunity in front of us, we will pursue them even if they put short term preferred margins. For example, we're starting to grow our credit card portfolio in Argentina. We're also scaling our CVT or a cross-border operation from China. These are two initiatives that could offset levers that we're seeing in other investments. Speaker 1 OK. I think that's clear. And perhaps more importantly, looking beyond 2026, how should investors think about our long term profitability? Speaker 2 We are very optimistic about the long term margin trajectory and let me give you a couple of points of on our reasons why I believe so. First, I would point to the maturation of our investments, you know the ones that we discussed today, which are currently compressing margins by 5 to 6 percentage points. Let me give you an example of CBT and 1P, which are businesses that are not profitable today, but we expect them to become profitable eventually. Second, we also expect to gain significant scale as we continue to grow and that will help us dilute fixed costs over time. We have been delivering sustainable growth for many years and looking at the size of the opportunity, we have no doubt that we have lots of growth ahead. In Q4, we delivered the 28th consecutive quarter of growth, about 30% year on year and that has enabled us to generate operating leverage in GNA for the past five years and in product development for the past two years. Finally, we have several monetization levers that will help us with profitability in the long term and let me give you a couple of examples. Our advertising business is growing very rapidly at 70% year on year, as I mentioned earlier. However, still you know, very nascent. If you look at the penetration of GMV, it's only 3%, it's a little bit below 3% compared to 5 or 6 percentage points of penetration in some of our international peers. It's a large opportunity and remember that's a very important profit engine for marketplace on fintech. Our consumer credits and merchant credit business is an important source of profit as well. But we're also just getting started. If you look at the size of that portfolio is less than $10 billion, which is growing very fast, but it's still negligible compared to the size of the opportunity. And if you compare to the to the banking industry for example, in fulfillment, we think we have an opportunity eventually to monetize our fulfillment infrastructure. We have the most sophisticated persistic network in Latin America. But right now we are much more focused on trying to expand fulfillment and get our merchants to bring their inventory with us. So we're not fully monetizing our operation and we think that eventually we should be able to monetize that because of the value that we provide to our sellers. So in summary, we're very optimistic about the long term trajectory of our profitability. But as we said before, we're also very optimistic about the growth that we are delivering and the growth that is coming, which is where we're focused in the short term as we manage the company. Speaker 1 OK, great. So I think that's clear and I think we've hit some important points. So my team, thanks again for taking the time to reflect on Q4 results with us. Speaker 2 Thank you, Richard. Looking forward to talking to investors throughout the quarter and in May when we deliver Q1 results for 2026.