美卡多 (MELI) 2008 Q4 法說會逐字稿

Good day, everyone, and welcome to the MercadoLibre fourth quarter 2008 earnings results conference call.

Today's conference is being recorded.

At this time, I'd like to turn the conference over to Mr.

Pedro Arndt.

Please go ahead, sir.

Welcome, everyone, to MercadoLibre's earnings release conference call for the quarter and year ended on December 31st, 2008.

Company management presenting today are Marcos Galperin, Chief Executive Officer, Nicolas Szekasy, Chief Financial Officer, and Hernan Kazah, Chief Operating Officer.

This conference call is also being broadcast over the Internet, and is available through the Investor Relations section of our website.

Before handing the conference over to Marcos and Nicolas and Hernan, I remind you that during the course of this conference call, we will discuss some non-GAAP measures.

A reconciliation of those measures to the nearest comparable GAAP measures can be found in our fourth quarter and year-end 2008 earnings press release, available on our Investor Relations website.

In addition, management may make forward-looking statements relating to such matters as continued growth prospects for the Company, industry trends, and product and technology initiatives.

These statements are based on currently available information, and our current assumptions, expectations, and projections about future events.

While we believe that our assumptions, expectations, and projections are reasonable in view of the currently available information, you are cautioned not to place undue reliance on these forward-looking statements.

Our actual results may differ materially from those discussed in this call for a variety of reasons, including those described in the forward-looking statements and risk factors sections of our 10-Q, 10-K, and other filings with the Securities and Exchange Commission, which are available on our Investor Relations website.

With that disclaimer, let me hand the microphone over to Marcos.

Marcos?

Good afternoon, and thank you to all who have joined us today for this call.

I will begin the call by providing some qualitative comments about our outlook and discussing some of the highlights from the fourth quarter and full year 2008.

I will then turn the call over to Nicolas who will speak in greater detail about our financial performance.

Hernan Kazah will also say a few words today since, as many of you are aware from our release, he will soon be stepping into the role of CFO.

After our prepared remarks, we will be available for your questions.

All in all, fiscal year 2008 was a very good year for us.

We grew our business on a number of fronts, and despite the global economic turmoil in the latter months of the year, still produced a very solid fourth quarter and only moderately felt the impact of the macro economy on our business.

While we continue to carefully monitor the impact of the tougher environment and are very focused on running our business in the most cost efficient manner possible, we also continue to believe that industry and regional factors largely dampened the impact of the global economic slowdown on our business.

These favorable factors include the continued adoption of the Internet across Latin America and the growth rate of broadband and PC penetration in the region, as well as a less severe economic slowdown forecast for Latin America when compared to other parts of the world.

In addition to these larger trends, we were encouraged by the growth in number of holiday shoppers that visited our site this year.

We believe that this trend was due in part to our improved selection of available goods, but also due to consumer's increased propensity to bargain hunt in 2008.

This increased holiday shopping activity helped drive a monthly sequential improvement in sales throughout the quarter.

Therefore, sales results, when measured in successful items year-over-year growth, were stronger for the fourth quarter than any other quarter of the year, indicating in part that we were able to push through recessionary conditions and post improving results.

I'd now like to quickly highlight our financial results for the fourth quarter and full year, and then move to the progress that we have made on our ongoing business strategy.

For the fourth quarter, we continued our solid momentum and experienced high growth rates.

We saw rapid growth in the number of live listings, unique sellers and buyers, and gross merchandise volume.

Specifically for fourth quarter, successful items grew 22% and gross merchandise volume grew 14%.

And on a foreign exchange neutral basis, gross merchandise volume grew 32%, as local currency average selling prices continued to increase.

Total net revenue was up 24% to $33.4 million over the fourth quarter of last year.

And on a local currency basis, total net revenue grew 45% year-on-year.

Income from operations grew 48% to $11.2 million, with an operating income margin of 33.4%.

Net income was $7.9 million, a 49% increase over last year, and earnings per share was $0.18, a 38% increase over last year.

Specifically for the full year, successful items grew 21% and gross merchandise volume grew 38% year-on-year.

Total net revenue was $137 million, up 61% over the previous year.

Income from operations grew 73% to $37.5 million, with an operating income margin of 27%.

Net income was $18.8 million, 94% increase over last year, and earnings per share was $0.43 cents, a 95% increase over last year.

In general, we are very pleased with the growth and progress that we have experienced in all of our businesses during the fourth quarter and throughout the past year.

I'd now like to move to a discussion of the progress that we have made on a number of important fronts throughout the past 12 months.

We believe we have made important advances during 2008 on our stated goal of offering our buyers an ever-improving online shopping experience.

Among many upgrades carried out during 2008, I would like to draw particular attention to three things.

First, we recently upgraded our product and listing pages.

These upgrades have made it much easier for buyers to shop for their desired products.

The new and improved view item and listing results pages encourage increased usage, allow for decreased download times, generally lead to more efficient product browsing, and ultimately generate more transactions.

This streamlined user experience is particularly important to inexperienced users who are in the early stages of exploring our offering, and who represent an important growth segment for MercadoLibre.

Second, we continued to improve our search technology.

We placed great importance on constantly upgrading the capability of our search to accurately match what buyers are looking for with the existing supply of products on our site, and believe that we have made important advances in this area during 2008.

Finally, I would like to highlight our new real estate platform which, among other features, allows the user to have customized functionality for their real estate searches.

In the real estate segment, we aspire to achieve, over the long run, the same kind of traction and success that we are having in motors classifieds.

Going forward, we will continue to invest in ways to improve our offering so that we can simplify the buying and selling processes and bolster the usability of our site.

We recognize the importance of a superior technical offering in contributing to our leadership position of the online marketplace space in Latin America, and we are committed to continuously strengthening our website's offerings and adding to the expertise of our technical team.

As such, we are very excited to have launched a beta version of MercadoClics, our advertising/sales platforms.

Through MercadoClics, advertisers are able to attract traffic to their sites by purchasing text display ads that appear on the primary MercadoLibre site.

The development of our MercadoClics offering is an important milestone in our goal of becoming a comprehensive e-commerce service provider.

We believe that as MercadoClics expands, it will become a key driver of our advertising business and will help us gain share of wallet from larger online retailers who are interested in buying traffic from us.

Over the long run, we view clicks as driving advertising revenue streams as we add to the number of advertisers that we offer our services to and increase the visibility of ads on our site as MercadoLibre becomes even more popular.

Additionally, we believe MercadoClics adds to the user experience, as it allows buyers to browse products from both our marketplace sellers as well as branded retailers all in one single destination.

Although MercadoClics is still very much in beta stage, we are already generating an additional, albeit immaterial, revenue stream from the offering, which is currently available on our Brazil, Argentina, Mexico, Venezuela, Chile, and Uruguay sites.

It is a great example of how we are constantly aiming to diversify our total offering and capture the alternative revenue streams that are available to us as leaders in our market.

I would now like to take a moment to address MercacoPago's progress over the year and the quarter.

We continue to see an immense business opportunity in online payments throughout the region.

As the Internet develops in Latin America and a greater number of large and small-scale retailers open online sales channels, we expect that the demand for a safe, efficient, and cost effective payment platform will increase.

Our objective is to offer such a solution and strengthen our leadership position in that segment, leveraging the user base and knowhow we have acquired through the use of MercadoPago on our marketplace.

However, despite the fact that the fundamental business thesis behind MercadoPago remains intact, it is only fair to acknowledge a few headwinds we have faced.

Most importantly, the timing of the MercadoPago 3.0 rollout has been slower than originally anticipated.

We continue to work very carefully and consciously to produce a technically superior, scalable, and user-friendly version of MercadoPago, tapped MercadoPago 3.0, that can be rolled out with confidence across the rest of our geographic markets.

We place the highest priority on those factors rather than timing or rush to market.

We continue to be fully committed to our goal of having the new MercadoPago 3.0 platform available in all major markets.

In the meantime, we are pleased that earlier versions of the product are working well in Brazil, Mexico, and Venezuela.

Additionally, rising interest rates on consumer credit as a consequence of the global credit crisis have also generated a slowdown in the rate of growth and adoption of MercadoPago during the fourth quarter.

We believe, however, that at some point interest rates should decrease, allowing us to transfer those lower financing costs onto our consumers, thus reigniting growth in MercadoPago.

We actually started to see some evidence of declining interest rates in Brazil during the latter part of Q4 and early Q1.

Finally, when addressing fourth quarter MercadoPago results, it is important to take into account the four days during which the payments platform was unavailable due to site instability.

I remind you that, as we had mentioned on our last quarterly call, we have taken the necessary steps to ensure that these problems do not occur again.

On another note, we are very pleased to have ranked, during Q4, as the number one car site in terms of traffic in Argentina and the second largest car site in Brazil and Mexico, as measured by unique visitors.

2008 was the first year that we have achieved such high rankings in comScore Media metric ratings, and it is largely a result of the launch of our new motor site and the overall efforts we have been doing to improve the buying and selling experience of our motors users.

All these initiatives, as well as others and our overall success to date, are indicative of the progress that we are making on our ultimate goal of providing our buyers and sellers with the access to the best possible online marketplace.

As we enter a new fiscal year, we remain optimistic about our prospects and strongly believe that we remain well positioned to leverage the positive growth trends influencing Internet, broadband, and PC penetration rates in Latin America.

These trends will allow us to capture additional revenue and grow our total presence as our users and content evolve and improve over time.

With that, I'd like to turn it over to Nicolas for a more detailed review of our financial performance.

But, before I do that, I would like to take a moment to talk about the planned and expected management transitions that we announced today.

I would like to publicly thank Nicolas for his nine years of outstanding contributions to MercadoLibre, and especially for the key role that he played during the early stages of our development as a public company.

We are also thankful that he will assist Hernan during the transition period and will remain a contributor to the MercadoLibre team.

In addition, we are pleased to continue to promote from within and provide our existing senior management team with new challenges and opportunities.

We are confident both Hernan and Stelleo are exceptionally qualified for the roles that they will take on, and that we have the right executive team and infrastructure in place to support MercadoLibre's growth and the long-term success of the business.

Thanks, Marcos.

I would like to use the rest of this call, before taking questions, to go into more detail on our Q4 and full year 2008 financial performance.

All growth rates mentioned in my remarks represent year-over-year comparisons.

Overall, Q4 was a good quarter in which we generated revenue growth and continued to deliver year-over-year economies of scale in our operating expenses.

This resulted in healthy margins, solid bottom line growth, and excellent cash flows in spite of the tough economic environment.

Specifically for the fourth quarter, net revenues grew 24% to $33.4 million.

Gross profit margin was healthy at 81%.

Income from operations was $11.2 million.

Operating income margin 33%, and net income was $7.9 million.

The key factors driving revenue growth in the quarter were the addition of 1.7 million new confirmed registered users, bringing the total to 33.7 million users of MercadoLibre, and the acceleration in the growth rate of successful items to 22%.

Also, continued growth of ASPs in local currencies, driving strong year-over-year growth of GMV and PPV in local currencies ahead of unit volume growth, solid performance in our classifieds and advertising businesses, and higher interest rates charged to MercadoPago users that were adopting buyer financing options.

These positive trends were partially offset by a negative foreign exchange effect in the quarter as the US dollar strengthened in relation to local currencies.

If we excluded the impact of currency rate changes and calculated Q4 2008 top line using Q4 2007 exchange rates, the year-over-year growth would have been 45%.

Foreign exchange accounted for $5.6 million less revenue than in Q4 of '07.

Specifically, our Marketplace gross merchandise volume grew 14% to $523.7 million, while its ForEx neutral growth was 32%.

Our total payments volume decreased 3% to $55.3 million, while its ForEx neutral growth was 20%.

Additionally, there were some one-time site related factors in Q4 that had a negative impact on our GMV and particularly on our TPV, as Marcos described.

Also, during November we decided to suspend buyer financing for one week until we reanalyzed our options in the new economic environment, and this step obviously had an impact on TPV.

We then reintroduced financing with a pricing approximately 80% higher than before to match the increases in financing costs we were having.

By doing so, we increased MercadoPago's take rate and sustained margins, but clearly the volume on MercadoPago was affected.

Towards the end of the quarter, we began to see some loosening of interest rates in the market and we gradually began to reduce our pricing.

Our take rate on a consolidated basis increased to 6.4% from 5.8% in Q4 of 2007 due to growth in both Marketplace and Payment's take rates.

As always, we remind you that take rate is the measure of net revenues as a percentage of GMV.

Seen independently, Marketplace segment take rate rose to 5% from 4.6% in Q4 of last year, and Payments segment take rate rose to 13.4% from 10.2% a year ago.

The Marketplace take rate growth versus last year was driven by solid growth in classifieds and advertising.

The Payment take rate was driven by our financing revenues which, for the first time, were higher than our processing revenues.

Taking a look at revenues broken down by segment, Marketplace revenues grew 24% to $26 million, and Payments revenues increased 28% to $7.4 million.

The Marketplace represented 78% of revenues and Payments the remaining 22%, the same breakdown as Q4 of last year.

Gross profit grew 29% to $27 million, representing 80.7% of revenues versus 78% for the same period one year earlier.

Operating expenses for the period totaled $15.8 million, an 18% increase year-over-year, reflecting continued leverage of our infrastructure combined with a sustained disciplined approach to our spending and investing across the organization.

This focus on costs has been a part of our culture since we started up, but we have reemphasized the need to be extremely cautious with discretionary expenses to ensure we have resources to invest in the business drivers while continuing to deliver a solid bottom line.

We should review some specific drivers per expense line.

Product and technology development remains a strategic area of focus for us.

Expenses in this area grew 72% versus the same quarter last year, reflecting mainly expansion of our team.

Sales and marketing grew 14% for the quarter, continued to be our largest expense item, and represented 27% of sales versus 30% of sales in the prior year quarter.

We achieved economies mostly via improved ROI in online marketing and lower bad debt.

G&A expenses grow only 10% year-over-year.

As a result of the factors just discussed, income from operations was $11.2 million, representing a strong 33.4% operating income margin.

Below the operating income line, there were two significant results this quarter that we should explain.

First, we recorded $5 million of interest expense and other financial charges which were mainly due to the cost of discounting MercadoPago credit card coupons in Brazil.

This included approximately a $3 million one-time impact in October when we discounted 100% of the receivables outstanding at that time.

As part of our decision, we continued discounting all of the MercadoPago receivables during November and December as they were generated.

And this impact was compounded with the market increases in interest rates we mentioned before.

For reference, the average monthly interest expense related to MercadoPago more than doubled in November/December versus the average for January through September.

Second, we recorded a $4.2 million accounting gain on our foreign currency line, of which $3.1 million were generated in Venezuela and $1.1 million in all of the other countries combined.

As in prior quarters, in Q4 we incurred some ForEx losses in Venezuela during the process of transferring funds out of the country.

However, this quarter we also recorded some gains in Venezuela that more than offset these losses.

The gain in Venezuela was a consequence of some local changes in accounting standards that resulted in positive 2008 year-end retained earnings locally.

This positive net income gave us the right to initiate, during 2009, a request for US dollars at the lower official exchange rate to distribute dividends.

As a reminder, Venezuela has a dual exchange rate system that comprises an official exchange rate, which was 2.15 bolivares per US dollar, and a parallel exchange rate that was 5.4 bolivares per dollar at December 31st, 2008.

So, based on paragraph 27 of FAS 52 that refers to foreign currency translation, the Venezuelan subsidiaries have remeasured the assets and liabilities in US dollars outstanding at December 31st, 2008 at that parallel exchange rate and translated them at the official exchange rate.

Specifically, this remeasurement of our year-end assets and liabilities position contributed a positive $5 million foreign currency gain in our P&L in the fourth quarter of 2008, and an after tax impact on net income of $3.3 million.

The remeasurement related to the assets was included as noncurrent other assets for $7.8 million in the consolidated balance sheet.

Important to say the accounting treatment for assets and liabilities in US dollars is based on the current accounting rules and exchange rate situation in Venezuela, all of which could be very different in the future.

And we will be describing this ForEx effect in more detail in our 10-K.

Pretax net income in Q4 2008 was $10.8 million, 82% higher than last year.

And tax expense was $2.9 million, which represented a blended tax rate of 27%.

Net income for the three months ended December 31st, 2008 was $7.9 million, reflecting an increase of 49% and resulting in a basic net income per common share of $0.18.

Non-GAAP net income, excluding the effects of the Venezuelan remeasurement explained a few minutes ago and of the long-term retention plan, was $4.8 million or $0.11 per share.

Now moving on to 2008 full year results.

Looking at 2008 in perspective, it was a very positive year despite the challenges of a complicated macroeconomic and financial context.

The year had two very distinct periods.

During the first nine months, we had strong local currencies versus 2007, and in the last three, the winds changed and we had strongly devalued local exchange rates.

Specifically during 2008, we added 8.8 million new confirmed registered users, Marketplace gross merchandise volume grew 38% to $2.1 billion, and total payment volume grew 62% to $256 million over the same period last year.

Our business generated net revenues of $137 million, growing 61% year-over-year.

Revenue growth for the year was driven primarily by the combined growth in key volume metrics and take rate, which went from 5.6% to 6.6%.

Our Marketplace revenue grew 58% to $109.6 million, and Payments revenue increased 76% to $27.4 million.

If we excluded the impact of currency rate changes and calculated 2008 top line using 2007 exchange rates, the year-over-year growth rate would have been 56%.

TuCarro, and to a much lesser extent DeRemate, also had a positive contribution to year-on-year growth rates.

Total operating expenses for the period were $72 million, a 59% increase.

These expenses represented 52.5% of revenues versus 53.1% in 2007.

As a result of the items described, income from operations grew 73% year-on-year to $37.5 million, representing a 27.4% operating income margin versus 25.4% for last year.

Non-GAAP income from operations margin was 29.1% after excluding the effects of the long-term retention plan and the compensation costs related to the acquisition of CMG.

Other expenses were $1.5 million of foreign currency losses and $8.4 million of interest expense and other financial charges.

In terms of taxes, we accounted $10.6 million in 2008, which represented a full year blended tax rate of 36%.

The effective tax rate was 28%.

Net income for 2008 was $18.8 million compared with $9.7 million during 2007, a 94% year-over-year growth and resulting in a basic net income per common share of $0.43, 95% above 2007.

Non-GAAP net income was $18.7 million, as the effects of excluding the long-term retention plan and the compensation costs related to the acquisition of CMG were offset by the effect of excluding the Venezuelan foreign currency remeasurement.

Non-GAAP basic EPS was $0.42 for the year.

Now, let's take a look at our segment results.

In Q4 and for the full year, we have begun to disclose Venezuela's Marketplace results within the Marketplace segment.

Overall, the Marketplace represented 80% of revenues for the full year and Payments 20%, versus an 82%/18% breakdown last year.

We delivered margin gains in both segments.

In terms of cash, net cash provided by operating activities for the 12-month period ended December 2008 was $54.5 million versus $6.8 million for the same period of 2007.

As described before, a significant portion of this flow was generated in Q4 when we converted into cash all of our funds receivable from customers in our Payments segment by discounting credit card receivables.

The balance outstanding in this line in our balance sheet was $29.2 million at the beginning of the year, had grown to $34.9 million in September 2008, and was only $2.3 million at the end of Q4.

In addition, we continued to generate strong operating cash flows in our Marketplace segment.

Net cash used in investing activities was $37.6 million in 2008.

The key components were $39 million for the acquisitions of TuCarro and DeRemate.

CapEx was $4.9 million, representing slightly less than 4% of revenues.

Net cash used in financing activities in 2008 was $11.6 million, driven by reductions in short-term debt in prior quarters.

In Q4, we launched a stock repurchase program of up to $20 million.

In Q4 2008, we began to execute on the program.

We repurchased in the open market 249,700 shares for a total amount of $2.6 million.

The repurchased shares were accounted for as a reduction of common stock.

Additionally, in Q4 2008 we sold written put options for 185,000 of our own shares.

Put options can be exercised by the counterparties up to March 21st, 2009 at a strike price of $10.00.

We have collected a premium of $336,000 net of commissions, and have recognized a gain of $157,000 in Q4.

Wrapping up, 2008 was a very good year and the results were excellent in relation to the tough global environment.

We have closed the year with strong growth in the volume of all our businesses, expansion in operating margins, a healthy allocation of resources towards our strategic areas and initiatives, excellent cash flows, and a solid cash position of $58.3 million which includes short-term and long-term investments.

Finally, as you know, we're in the process of undergoing a management transition in which my colleague Hernan Kazah, our current COO, will take over the role of CFO, which I will vacate on April the 1st.

I am pleased to be handing over the CFO responsibilities to such a capable individual, and will stay on through the end of the year to assist Hernan and the rest of the team with the transition.

Related to this, Stelleo Tolda, our current Brazil country manager, will assume the role of COO while retaining his existing responsibilities.

Hernan has joined us to say a few words today.

And after Hernan's remarks, we will be back to take your questions.

Thank you, and good afternoon.

I wanted to take this opportunity to introduce myself to those of you whom I have not interacted directly with yet, and to let everyone know that I'm very pleased to take on this new role with MercadoLibre.

As those of you whom I have met over the past 10 years know, I've been with the Company since the very beginning when it was not more than a business plan on Marcos' notebook in mid-1999, and consider it an honor and a pleasure to be part of such a terrific story.

I look forward to my new responsibilities with the same energy and commitment as I did back then when we were forming the Company and going through initial rounds of financing.

With the help of Nicolas, who we're pleased is staying on with us in the transitional period, as well as with the assistance of the rest of our highly competent team, we expect that the transition in the role of CFO will be seamless.

In similar fashion to Nicolas assisting me in the new role, I will be assisting Stelleo Tolda as he takes on the role of COO.

All of us are very solidly committed to working very closely together, as we always have, to ensure that we continue to manage the Company in the best possible manner, make the most of the significant opportunities before us, and drive long-term sustainable growth.

I look forward to speaking with many of you personally in the future, and reiterate my enthusiasm and commitment to my new role.

And now, we'd be pleased to answer your questions.

Operator?

Thank you.

(OPERATOR INSTRUCTIONS.) We'll take our first question from Imran Khan with JPMorgan.

Yes.

Hi.

Thank you for taking my questions.

And Nicolas, good luck with your new venture.

Two questions.

First, a question about Brazil.

And I'm not sure if you talked about that in the call.

It seems like Brazil gross merchandise volume was down on a year-over-year basis.

And I was trying to understand, even if you add just for the FX, seems like Brazil came in slightly below.

Trying to understand why, what happened there.

And secondly, take rate defined as auction revenue divided by the gross merchandise volumes seems like declined sequentially.

Could you please help us to understand that?

Thank you.

Yes.

Hi, Imran.

This is Nicolas.

Brazil's GMV in US dollars fell mostly --.

But, their revenue.

Sorry.

The revenue.

Auction revenue was $10 million compared to $11 million --.

Yes.

A year ago.

Yes.

We saw growth in Brazil in successful items, and we saw growth in Brazil in GMV in local currency.

But, when we converted to dollars, the year-over-year result was a decline.

So, you're right with that.

It's mostly a matter of ForEx when we measure Q4 of '08 versus Q4 of '07.

And the second part of the question with take rate --.

Take rate.

Yes, the take rate for the Marketplace grew year-over-year.

Your question was sequentially versus Q3, right?

Yes.

Yes, it declined gradually overall.

I would say one of the effects that we had as part of the site downtime was that we gave some credits back to our users during Q4, and that was a one-time impact.

That probably is what made the difference versus Q3.

Overall, we believe that the take rate is at a healthy level.

And probably in this type of environment, we won't be doing much pricing.

But, we do not expect the take rate to change downwards also.

So, that's basically the answer.

A follow up question, quickly.

What was the local currency of revenue for Brazil was on fourth quarter on a year-over-year basis, and what is that in Q3 of 2008 on a year-over-year basis, so that we just have a comparison to what the trend is?

What was the Q4?

Can you say that again?

Q4 local currency revenue growth for Brazil compared to Q3 2008.

I don't have it here in front of me, but you can do the math.

Brazil has been growing, GMV and successful items, below the average for the full Company.

So, that is what we can tell you now.

But, it seems like the Brazil growth rate decelerated, even in local currency, pretty sharply.

I'm just trying to understand that because if I look at -- if my numbers are right, on a reported basis Brazil's revenue was closer to 50% in Q3, and the fourth quarter was negative 10%.

So, yes, the FX went negative, but I'm trying to understand how much is --.

Yes.

Like local currency deceleration.

The exchange rate in '07, I don't know the exact numbers, but in Q3 and Q4 were very similar.

They were in the order of BRL1.5, BRL1.6 per dollar.

And in Q3, it was pretty much at that level, the same level as in the prior year.

And all of the devaluation happened as of October, and it was a very steep devaluation of close to 50%.

The exchange rate went from 1.5, 1.6 to 2.3, 2.4.

So, I would say that all of the ForEx effect happened in Q4, and we didn't see almost any ForEx effect in Q3.

Operationally -- Imran, this is Marcos -- we had very healthy growth in terms of successful items and local currency GMV in Brazil when we exclude the site outage in October and November.

Okay.

Thank you.

Thank you.

And next we have Steve Weinstein with Pacific Crest.

Great.

Thank you.

I'm wondering if you'd just talk a little bit more about what's happening in Venezuela from a revenue standpoint.

It looks as though it was a major contributor to growth in the quarter, and certainly has a great trajectory.

Have you made changes in there?

Is the market just kind of at that inflection point?

Is there something with currency or something going on so we can help understand the trend there and maybe do a better job of forecasting it for 2009?

Yes, I would say there are three distinct factors.

The first one along the lines of what you are asking is that Venezuela is a very vibrant marketplace.

Our growth in metrics there is very strong, has been very strong in '08, and has been very strong in prior years.

So, we're extremely satisfied with the evolution of the business there.

The second one is that we acquired TuCarro in January, and that was a significant business relative to the size of our operation in Venezuela.

So, for most of this year, in the year-over-year comparison, that was favorable.

And as of Q1 of '09, we will be comparing apples to apples there.

And the third has to do with currency.

The reporting in Venezuela, the local currency financials are converted at the official exchange rate of 2.15 bolivares per dollar, and that has not changed throughout 2008.

And obviously, as we have been discussing, the exchange rates in all of the other countries in the region have devalued quite significantly.

So, in several ways, the revenues of Venezuela in dollar terms look higher relative to the revenues in dollar terms of Brazil, Argentina, Mexico, and the other countries.

So, how should we think about the organic growth in that business when thinking about going forward?

Is it (inaudible) --?

I would say -- yes, so far Venezuela, in terms of metrics, successful items, is the one that we look at the most, has been growing faster than the average for the Company.

But, going forward, it's hard to say exactly what's going to happen in each specific market.

But, it's been a very robust trend, and I would say not only in '08 but on the prior years as well.

Okay, great.

Thank you.

And next we have Robert Ford with Bank of America.

Hey, good afternoon, everybody.

I had a quick question just trying to understand the foreign exchange items, because when I look at the $4.2 million that you entered in the income statement net and then the loss that you report on the cash flow statement of $7.8 for the year as a whole, how much did you actually incur in the quarter that's actual cash, that's not just a change in the accounting practice?

And then, I wasn't sure, Nicolas, from your comments as to whether or not you were able to repatriate any of the profitability at -- from Venezuela at the controlled FX rate of 250.

And I was curious if you were able to do that or not.

Yes.

I will start with the second part.

The answer is no, we had cumulative positive retained earnings in Venezuela for the first time this year.

So, we will initiate the process to access dollars at the official exchange rate soon, and that is a process that might be lengthy and complex.

So, in theory, we have the right to access those dollars at that rate, but it's still to be seen how successful we are with that.

So, that is that.

And then, I would say most of the line that we described during the first part of the call, most of it is accounting.

There are some expenses that were associated with taking funds outside of Venezuela, that those are cash.

But, those are netted from the gains that we recorded that, again, are mostly accounting driven.

Great.

And then, there was a sharp increase in your funding costs.

And I think it was Marcos that had mentioned that you had an 80% increase year-on-year in terms of your funding costs for Pago, but those declined over the course of the fourth quarter.

Can you comment a little bit as to how much your funding costs are for Pago year-on-year going into 2009, and what you're likely to do with your payment terms online?

Yes.

The cost of financing increased to approximately, on an average, 80% during the beginning of Q4, mostly around October and the first half of November.

And towards the end of the quarter, they started to go down a little bit.

And that continued to be the case during January as well.

And we had increased our pricing for financing to match the increases in cost during Q4.

And then, as the costs have been coming down, we have been also adjusting downwards our pricing to match that.

Just, Nicolas, year-on-year right now, how much is the price of financing up in Brazil?

Just -- is it up 80% like it was, or is it much less than that?

Yes, now it's approximately 50%, 60% above what it was last year in August/September.

So, it came down part, but still substantially higher than what it was.

And when you look at alternative online retailers or brick and mortar offerings, right, because I would suspect that affordability is what folks are looking for net-net, how do you think your offers are comparing to those alternatives?

Bob, this is Marcos.

Were you referring specifically to the financing, or are you referring to the offering in terms of value?

No, in value I have no doubt where the value leadership is.

I'm specifically referring to the financing, Marcos.

Well, as we've discussed in the past, some of the offline retailers, the brick and mortar or the brick and click, have a more aggressive financing than what we do.

That's why we have had a process for some time now talking with banks to try and offer more aggressive financing.

Having said that, in this environment, we believe that that shortcoming that we used to have is a significantly smaller concern to us than what it was in the past.

Great.

So, you're seeing other channels kind of roll back, some of the zero interest financing and that sort of thing?

Is that the case?

Well, obviously in this environment I think it's going to be very hard for retailers to -- as you know, zero financing is never really zero financing.

So, it's going to be hard for anyone to offer very aggressive financing terms to consumers.

Fair enough.

Thank you very much.

Thank you.

And we'll move to Stephen Ju with RBC Capital Markets.

Good afternoon, guys.

So, by our math, it seems like the bigger territories saw either flat or an increase in ASPs in the fourth quarter on an FX mutual basis, which, in this current environment, seems a little bit counterintuitive.

Can you give some color as to why you think this is happening?

Yes.

I think we always expected that ASPs would be increasing in local currencies.

We have talked in the past about a partial hedge process whenever there are devaluations.

Some of our products increase in prices in local currency following the devaluation.

The typical example would be an import for $100.00 in Brazil that was selling for BRL150 before the devaluation and now it's selling at BRL230, BRL240.

That is part of our mix, and this hedge is only partial but definitely is in place.

And it's driving local currencies, ASPs, upwards.

Okay.

Thank you.

And moving on to Scott Devitt with Stifel Nicolaus.

Hi.

Thanks.

Two questions, please, the first one related to the direct contribution margin in Venezuela.

Last year fourth quarter, it was 64%.

This year, it was 48%.

I'm just wondering what the underlying driver of that is, if it's TuCarro or something else.

And then I had a follow up.

Thanks.

Yes, I would say two things.

TuCarro clearly has to do with this.

And the other thing is that probably the starting point was too high and not sustainable.

When you look at the Marketplace margin, on average it's slightly above 40%.

So, the 64% probably required that we added some personnel there in the operation or that we incurred some additional expenses versus what we were spending last year.

So, we're very, very happy with 48%, and we don't think that we could keep on at the prior year levels.

And the 48% is a sustainable margin in Venezuela?

It's hard to tell.

It's a very efficient operation.

Probably over time, we're going to see less differences amongst the countries.

But, I think that we would be happy with a margin that can be lower than what it is today, and it would still be a very healthy margin.

Okay, thanks.

And then, I think you mentioned 45% constant currency growth.

And correct me if I'm wrong, but if that's the correct constant currency number, could you then give the constant currency revenue growth rate excluding acquisitions in 4Q '08 and then give that same figure for 3Q '08?

Yes, we do not break out TuCarro or DeRemate.

But, just to give you a sense, we believe that what DeRemate added in Q4 is pretty much comparable to what we lost because of the site outage in terms of the days that we lost and the credits that we had to give out.

So, probably that didn't contribute very much.

And TuCarro, in '07 for the full year, revenues were approximately $6 million last year.

So, that gives you a sense of how much this could have been.

Okay.

Thank you.

And just finally, could you update us on the tax rates?

We still looking at -- is it -- we went to a very high rate earlier in 2008 to a much lower rate.

Are we still targeting 35% as the long-term number?

We think that is a fair assumption.

In the first half of '08, we had a few one-time items that drove that rate upwards.

And we always believe that we should be below 40% in the medium term.

Most of the countries in which we operate are at 35%.

We have some tax benefits in Argentina that make the average rate there lower.

So, if we are capable of doing efficient tax planning, we should be around 35%.

That's a fair projection.

Thanks.

And we have Gustavo Oliveira with Citigroup.

Hello, everyone.

My question is again on the take rate on the Marketplace.

You mentioned that you gave your -- or you're giving some credits back to consumers.

Is this something that is -- you believe it's going to be temporary?

It's just because of the recessionary environment that we are living on, or it's something more structural that you are changing your price structures and therefore your take rate could be delevered for a much longer time?

Hello, Gustavo, this is Marcos.

These credits were a one-time that we gave during Q4 because of the site outage.

Many of our power sellers -- all of our power sellers and a lot of our sellers could not access their MercadoLibre part of the site for four days.

So, obviously that had an impact in their ability to follow up on transactions they had received, and therefore that impacted our take rate for the quarter.

In addition to them having issues in their ability to following up and closing up transactions, we issued credits for their insertion fees and their feature fees that they had paid, and we extended also the duration of their listings.

In a way, that also implies a credit.

But, that was something that we did just because of the incident that occurred during Q4, and we have taken the measures that -- necessary measures to avoid having a repeat incident like the one we had.

Okay, that's pretty clear.

Thank you.

You're welcome.

And we'll take Mark Argento with Craig-Hallum Capital.

Yes.

Hi, Marcos.

Could you talk a little bit more about your ad sales effort?

Have you built out the sales force, or what's your go to market strategy there?

We have a very small sales force that sells display ads.

What we have launched is more of an automated text ads mechanism which we believe is more scalable and is significantly more strategic for us than our display ads strategy.

We believe that this is a very important feature for long-term, but it's still on a beta format.

The revenues that it are contributing are largely immaterial, but it basically enables us to capture a share of wallet from large retailers or even our power sellers as they open their own sites and will nonetheless like to buy traffic from us, given that we are the e-commerce destination in the region.

Okay.

That's helpful.

And then, switching over, in terms of power sellers, vendors selling product on the site, you guys don't release a metric around the number of new sellers, I don't believe, on the site.

Could you talk a little bit about the trend there, and also any change in terms of the mix of products that's being sold on the site?

Are you seeing a trade down phenomenon, people buying and selling different types of products given the economic environment?

We see very healthy growth in our operational metrics.

We were very satisfied to see successful items accelerating in Q4 to 22% year-on-year growth, despite the site outage.

And typically, that metric grows in par with sellers and buyers.

They go hand in hand.

In terms of category mix, we haven't seen much changes so far.

Thank you.

Thank you.

We'll take Tony Chang with Lucite Research.

Hi.

Good afternoon, and thanks for taking my questions.

First one is regarding your interest expense.

So, you mentioned in the fourth quarter that actually -- well, you mentioned a little bit there's a $5 million charge here.

So, could you elaborate more in detail how did that arrive here, and then how should we look at this number in the future?

Yes, we spent $5 million.

Approximately $3 million out of the $5 million were a one-time event, as we discounted our stock of receivables that went down from $30 million plus to $2 million.

So, $2 million were more the operational or run rate interest expenses.

So, that gives you a sense of where we are at, excluding the one time event.

So -- which means in this quarter, the first quarter '09, so we should see that number coming down around $2 million?

Is that right?

We don't discuss projections for Q1.

Okay.

That's good.

Another question is about Pago, the payment volume here.

Taking -- take the FX effect out, right?

So, pretty much the volume is flat quarter-over-quarter basis.

Could you tell us even more like how the Pago system being adopted by the users?

And then, it seems like it's kind of slow pace here.

What's the general reaction from the '09 users?

And I mean particularly it's coming -- it's going up.

So, Pago had several issues affecting its performance in '04 (sic), we we've mentioned.

It's four days of complete site outage.

We took away financing for an entire week in Brazil where financing is very popular.

Then, we reintroduced financing at rates that were 80% higher.

So, obviously the combination of all those issues had a negative impact in the growth rate of Pago during the quarter.

Many -- all of those issues have been solved and the rates have started to trend downwards, and we expect Pago to continue growing with the business as we move forward.

As you know, we also have launched an open version of Pago that is available in Argentina, Chile, and Columbia, which is still largely a beta version of the product.

And we are working to make this version scalable.

And once we are satisfied with the quality of the product that we have, we will continue with the rollout.

On the meantime, it's growing together with the business.

When do you see the revenue contribution from outside Brazil, in terms of the Pago visitor, and -- will pick up?

Do you see that in two, three quarters time or --?

Sorry, Tony, but I did not understand your question.

Okay.

So, in other words, how much of this payment revenue is coming from inside Brazil?

Yes, we have a significant portion of our Pago business coming from Brazil.

The penetration is higher.

Our overall revenues for Pago Brazil represents a higher percentage of our total revenues for Pago than for our Marketplace business.

And next, we have Jim Hayes with Fidelity Investments.

Thanks.

Hi, guys.

Two questions, if I could.

The first one is, and I know you don't like to say much specific that's forward looking, but just from a qualitative perspective, anything you can say about the outlook or how you're thinking about 2009.

So, the question is the outlook for 2009?

Well, it's a -- any qualitative comments or thoughts about the year head.

Yes, I would say overall what we are seeing for the region in general is looking better than what we see or hear about expectations mostly around the Northern Hemisphere and the US or Western Europe.

The economies in the region are -- have slowed down quite significantly, but still there's some expectation of growth.

And on top of that, we believe that our growth has substantially much more to do with secular growth in broadband Internet users and things like that.

We believe that that is not going to change very significantly this year.

So, overall, we believe that our business should be evolving.

And I think there's not much more that we want to say at this point, but overall we finished the year with a strong Q4 and we're working hard to have a good 2009 as well.

Okay.

And then, in terms of your -- the second question is if the environment proves to be more difficult from a macro perspective than what we or you are currently expecting, can you talk a bit about the levers that you might use?

In other words, from a cost cutting or a marketing or advertising spending perspective, what are you likely to cut first if necessary?

How do -- how would you sort of prioritize things strategically?

We like very much the way in which we finished the year in Q4 with G&A growing 10% year-over-year, sales and marketing growing more than that, and product development growing substantially more than that.

We think that if we continue allocating resources to product, that is where we get the best return.

And so far, that is not a very significant portion of our P&L.

So, even if we invest there ahead of the growth of revenues, we think that the ROI is very strong.

And then, the other levers is continue to invest in marketing.

And we think we have opportunities to continue leveraging our discretionary spending and continue leveraging our G&A infrastructure and sustain high margins, even if the economies or the growth is not what we expect.

Okay.

Thank you.

You're welcome.

And we'll take our final question from Makiko Wynn with Legg Mason.

Yes.

Hi.

Thank you.

Just a quick question.

You had mentioned that the $3 million out of the $5 million interest expense was a one-off related to the discounting of receivables.

But, to the extent that financing is a bit sparse, and particularly in Brazil, I would have expected that you would continue to discount your receivables.

And therefore, should we not expect these kind of charges to be recurring going forward?

I mean, to the extent that you plan to finance your business through the discounting of receivables, I would expect that to be recurring, right?

Yes, it's definitely recurring.

So, the run rate for --.

So, it's not a one-off, then, is it?

No.

No, the one-off is $3 million out of the $5 million.

So, we still have a --.

Yes, but that $3 million is -- the $3 million you mentioned is related to the discounting of receivables, right?

Yes, that's -- I think it's a good question to clarify the issue.

We had a very -- we had built throughout the years a very large receivables position, which we sold in Q4 and brought it down from roughly $30 million to $3 million.

So, that was the -- that produced a very large interest expense.

And that's the $3 million that's a one-time.

So, the $3 million that we currently have in accounts receivable is what we will be discounting on a weekly basis and will produce an interest expense that will vary with the -- according to the interest rates in Brazil.

But, we had a very large receivable asset that we discounted in Q4 and produced a $3 million interest expense that's a one-time.

Before that, the first nine months of the year, we were spending approximately $300,000 per month on interest for discounting.

And in November/December, we were spending approximately twice that much for the discounting that we were doing.

Okay.

All right.

Thank you very much.

Thanks for clarifying this.

Thank you, and thank you all for taking the time to attend our call and ask the questions.

Thank you very much.

Bye-bye.

That does conclude today's conference call.

Thank you, everyone, for your participation.