美卡多 (MELI) 2012 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the MercadoLibre third quarter earnings conference call. (Operator Instructions). And, as a reminder, this call is being recorded.

I would now like to turn the conference over to Alex de Aboitiz. Please go ahead.

Hello, everyone, and welcome to the MercadoLibre earnings conference call for the quarter ended September 30th, 2012. My name is Alex de Aboitiz, and I am the head of Investor Relations for MercadoLibre.

Our senior manager presenting today is Pedro Arnt, Chief Financial Officer. Additionally, Marcos Galperin, Chief Executive Officer, and Osvaldo Gimenez, Executive Vice President of MercadoPago, will be available during today's Q&A session.

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

I remind you that management may make forward-looking statements relating to such matters as continued growth prospects of the Company, industry trends, and product and technology initiatives. These statements are based on currently available information and are 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 on this call for a variety of reasons, including those described in the Forward-Looking Statements and Risk Factor sections of our 10-K and other filings with the Securities and Exchange Commission, which are available on our Investor Relations website.

Now, let me turn the call over to Pedro.

Thanks, Alex, and good afternoon to all those joining us on today's call.

As you've just seen from our released results during the third quarter of 2012, our business has continued to perform well on the basis of strong fundamentals from our multiple businesses, marketplaces, payments, classifieds, advertising, stores, and now also shipping.

In fact, this overall strength of the ecosystem has compensated for the anticipated year-on-year slowdown in the growth of our core marketplace as it began to comp against the successful launch of our new technology platform in the third quarter of last year.

Consequently, third quarter revenues grew a solid 37% in local currencies, as businesses other than the core marketplace came to represent a record 31% of revenues. It's also worth noting that, in addition to a ramp-up in revenue contribution, these newer service offerings increase the efficiency of our ecosystem as a whole, providing great long-term synergies for our marketplace and, perhaps more importantly, generating a better user experience on our platform.

We have always identified innovation as the key to adding value in e-commerce, and we believe the results we are seeing across the board are proof of our sustained focus on delivering the innovative solutions and formats required by our fast-growing and increasingly sophisticated user base.

So, before going into a detailed overview of our operational and financial performance in the quarter, let me first take a brief moment to update you on the progress of some of the key initiatives that we believe are driving growth across our platform that I have just mentioned, therefore representing key strategic drivers for the long-term success of our business.

One of these is the on-platform piece of our payments solution, MercadoPago, which in the third quarter continued to grow its marketplace penetration, as we continue to make its use compulsory on select seller profiles and product categories. This process of integrating payment through MercadoPago into the buying flow will necessarily move forward in a slow and careful manner, but we expect it to keep delivering gains in payments penetration and user experience, as we have seen in the third quarter of 2012, where on-platform penetration grew by more than 250 basis points versus the third quarter of last year.

We believe this cautious rollout is the correct approach for now, since the long-term benefits of integrated payment have short-term costs in terms of lower conversion rates as we change the way we have allowed our users to transact on our platform over the past 12 years.

Staying with payments, off-platform MercadoPago is a growing part of our total payment volume that requires its own approach, including a strong commercial push to keep spreading the MercadoPago brand beyond our marketplace. Leveraging on the brand and production recognition afforded by being the exclusive payments solution for our marketplace, we have continued to grow off-platform payments at consistent triple-digit rates.

The sum of payment volume transacted on and off our marketplace affords us growing scale that makes us increasingly competitive in terms of processing costs, an efficiency that we pass on to our clients in the form of competitive pricing.

We are growing our payments business on a firm foundation of quality and value, positioning us well in the future. In the third quarter, the number of payment transactions off our platform continued their impressive streak, posting a growth well over 120%, year on year.

In the meantime, our mobile effort keeps picking up speed. This initiative is proving to be more than a novelty to our buyers, and is quickly becoming a format where transactions occur. It accounted for more than 4% of our gross merchandise volume in the third quarter, with certain countries already having more than 10% of transactions coming through mobile devices.

With approximately 4.5 million accumulated downloads at the close of the quarter, we are confident that mobile volume, originating from both our native apps as well as our HTML5-side versions of the site, are just getting started.

As you may recall, mobile is one of many efforts enabled by our new technology platform. Similarly, we expect growing number of developers to link up to our APIs and begin building innovative integrations and applications for our users.

Just yesterday, we hosted the first MercadoLibre Developer Conference in Sao Paulo, and were extremely pleased, not only with the turnout, but also with the intense networking it generated.

We believe this is just the first step in a crucial initiative to open up our business, which will have important implications as we continue opening up the platform and making it publicly available to third parties so that customized solutions and functionalities can be built that will allow for more efficient trading on MercadoLibre.

Moving on to our work with vertical product categories, this is another good example of developing a consistently richer supply and delivering new formats and features to meet the demands of our users. As I mentioned earlier, during the quarter, we saw very strong results coming from our accelerating classifieds verticals, and, in addition to that, we have continued advancing with more verticalized apparel categories in Brazil and Argentina, and have also started to lay the groundwork for further verticalization across other relevant categories, such as auto parts.

We are also looking ahead in terms of our shipping efforts, rolling out our solution to a wider base of sellers than last quarter. As the number of sellers offering integrated shipping grows, we are also giving these listings more prominent placement throughout the site. This will ensure that this added value penetrates our marketplace at a faster pace, and an increasing number of purchases made on MercadoLibre offer sellers integrated payments and shipping, greatly improving the convenience of the purchase.

There is still plenty of work to be done, but we are positive about the initial results and see this as a truly transformative initiative that we look forward to updating you on in the future.

Finally, a brief mention of our customer experience efforts, another important area of focus for us, where our investment in new resources and a growing team is paying off. We continue to further integrate Salesforce.com CRM tools with our existing platform, and feel better equipped than ever to keep delivering improvements in customer satisfaction and retention rates.

Having just covered some of the more relevant initiatives for the quarter, let me say that we are very pleased with our focus and the direction in which we are headed. These initiatives point at strengthening our already broad ecosystem, getting a better wrap around the user experience that we offer, and ensuring the excellence of service that our users deserve.

Advancing on these lines, we trust that we will keep building the most comprehensive e-commerce hub in all the markets in which we operate.

Now, let me give you a detailed overview of our key operational metrics in the quarter, those that best illustrate the underlying foreign-exchange-neutral growth of our business.

During the third quarter of 2012, 4 million new users registered on our site, growing our base of confirmed registered users 25%, year on year. Successful items grew 22%, reaching 17.6 million for the quarter. The number of payment transactions grew 65% to 6.4 million. Gross merchandise volume was $1.44 billion, growing 20% when measured in local currencies. And total payment volume was $480 million, growing 55% when measured in local currencies.

These operational metrics translated to a solid financial performance, as well. More specifically, in the third quarter of 2012, net revenues were $97.3 million, a 37% growth in local currencies. Gross profit margin came in at 73.6%. Income from operations was $33.7 million, with an operating income margin of 34.7%. In local currencies, operating income grew 27%, year on year.

Net income before income/asset tax expenses was $36 million, and grew 16% in local currencies. Net income was $26.1 million, a 14% year-over-year growth in local currencies.

Diving into further detail on our top line, our core marketplace revenues outpaced GMV rate of growth. This revenue growth was attributable mainly to final value fees growing slightly above GMV, based on higher average pricing than one year ago, and growth in listings driving additional placement fee revenues versus last year, as our supply has broadened considerably, illustrated by a 29% year-on-year growth in live listings on our platforms.

As for payments revenue, off-platform processing fees kept outpacing the rest of our ecosystem on the strength of triple-digit growth in volumes, while revenues from installment purchases accelerated versus the second quarter of this year, resulting in total payments revenue growth higher than 60% in local currencies, year on year, during the third quarter.

Classifieds and advertising also had a good quarter. Classifieds new listings growth remained solid through the quarter. Monetization improved. Dealers continued to gain share of listings, year on year.

In the meantime, advertising contributed to revenue growth through improved volume of inventory displayed and higher CPCs than last year. As a result, classifieds and advertising accelerated their growth trajectories to a combined rate north of 50% when measured in local currencies.

In summary, robust contributions from our business units, particularly the newer ones, led to solid top-line growth, despite the tough comparisons brought about by the launch of our new platform in the third quarter of last year. Year on year, consolidated net revenues in local currencies grew 25% in Brazil, 69% in Argentina, 29% in Mexico, and 57% in Venezuela.

Now, I'd like to walk you through a more detailed look at our entire P&L.

Gross profit grew 16% in the third quarter, to $71.6 million. Gross profit margin was 73.6% of revenues versus 75.4% in the third quarter of 2011, and 73.1% in the second quarter of 2012.

Year-on-year gross margin contraction is primarily attributable to our payments business growing faster than our marketplace. COGS associated with payments grew in line with total payment volume, representing approximately 280 basis points in margin contraction, while incremental expenses, primarily related to our investments in hosting and customer service, represented another 70 basis points in margin contraction.

These negative drivers on margin were partially offset by efficiencies in sales taxes that generated 160 basis points of gross margin improvement.

Operating expenses for the period total $37.9 million, a 20% increase versus the third quarter of 2011. Operating expenses as a percentage of revenues were 38.9% during the third quarter versus 38.7% in the same period last year, as the expected scalability of our business model was offset by investments in new development and customer offices, costs associated with hiring and retaining talent in our offices, and the deceleration of our top-line growth.

Let me now walk you through a brief breakout by line item of these operating expenses.

Sales and marketing, our largest line item, increased 11% for the quarter to $18.6 million, dropping, as a percentage of revenues, to 19.1% versus 20.5% for the same period last year.

We benefited primarily from continued efficiencies in marketing spend and a reduction in our bad debt ratio, contributing a combined 250 basis points to margin.

These efficiencies were enough to offset 50 basis points in margin contraction brought about by higher compensation costs than last year, and 60 basis points worth of higher buyer protection program expenses resulting from increased coverage brought about the higher use of MercadoPago on our platform.

Product development expenses grew 35% to $8 million compared with $5.9 million for the third quarter of 2011, reaching 8.2% of revenues versus 7.3% last year. 120 basis points of margin contraction came from higher compensation costs as year on year we grew our investment in a programming team that is crucial to our focus on product innovation.

G&A expenses grew 26% year-over-year to $11.3 million in the third quarter, representing 11.6% of revenues versus 11% last year. Approximately 100 basis points of margin contraction came from compensation costs, and 45 basis points from legal fees, partially offset by scale in other G&A concepts.

As a result, operating income for the second quarter of 2012 was $33.7 million. Operating income margin for the quarter was 34.7% versus 36.7% in the third quarter of 2011.

Below operating income, we benefited from $2.9 million of interest income, practically even with the third quarter of last year, as lower yields, primarily in Brazil, offset the greater cash balances invested at present.

ForEx expenses were $194,000, but bear in mind that in the third quarter of 2011 our ForEx line was aided by the appreciation of US dollar balances held by our subsidiaries, contributing roughly $3 million to this line last year. This generates 420 basis points of margin contraction due to foreign exchange when looking at the third quarter of 2012 versus that of 2011.

With this, we arrive a pretax income of $36 million, 2% higher than in the same quarter of last year in dollars, and 16% in local currencies.

Income tax expense was $9.9 million during the third quarter of 2012, resulting in a blended tax rate of 27.5% versus 25.1% in the third quarter of 2011, and 27.7% in the second quarter of 2012. I'd like to remind you that last year's tax rate was unusually low due to a $2 million reverse tax valuation in Brazil.

Net income for the three months ended September 30th, 2012, was $26.1 million, decreasing 1% when compared with $26.3 million during the same period of 2011. Net income in local currencies, however, grew 14% versus last year. Had we not had the one-time tax benefit last year, net income growth for the third quarter would have been 7% in US dollars and 23% in local currencies.

Net income margin was 26.8% in the third quarter, resulting in a basic net income per common share of $0.59.

Property and equipment and intangible asset purchases for the quarter totaled $3.3 million, and, consequently, for the period ended September 30th, 2012, net cash provided by operating activities minus purchases of property, equipment, and intangible assets -- our calculation of free cash flow -- totaled $21.9 million versus $19.2 million last year.

Cash, short-term investments, and long-term investments at the end of the quarter totaled $237 million.

Now that we've gone through the financials, wrapping up, I'd like to reiterate that we are pleased to see the business deliver 37% revenue growth in local currencies, and, in particular, with the performance of our adjacent business units, which represent a growing share of our revenue.

We feel the growth rate, despite decelerating versus Q2, is solid, since this quarter marks the first anniversary of the launch of our new technology platform, and the subsequent acceleration it has brought about in our business, making for tough year-over-year comparisons.

Furthermore, looking beyond 2012, we believe that as a result of the successful launch of this new technology platform we are in a much better position to continue to carry out the plan and vision we have for the Company.

Thanks a lot, and with that, we are open to taking your questions.

Thank you. (Operator Instructions). Our first question is from Nat Brogadir of Stifel Nicolaus. Your line is open. Please go ahead.

Two questions for me.

Quickly, when I do some back-of-the-envelope math, is it possible that marketplace revenue was down on a year-over-year basis, or flattish?

And secondly, just looking at the consensus number for 4Q with the organic growth rates, it seems there's some expectations for re-acceleration from the 37% growth in 3Q. Is that expectation correct, or should people expect the tough comparisons to continue into 4Q?

Thanks a lot.

Great. So, first of all, none of our business units had negative growth in dollars or in local currencies. The core marketplace, excluding classified and advertising, continued to grow year-over-year in dollars and more than that in local currencies, since, obviously, ForEx continues to be a headwind.

In terms of the next quarter, as you know, we typically don't guide, and so we'll be more than willing to over those numbers once we report Q4.

Could you give a -- if marketplace's revenue -- could you give some color if it was up single, double-digit percentages? I mean, I'm just looking at the payments. If payments revenue was up 60%, that implies just modest growth on the marketplace revenue line, if I'm backing out payments.

So, just some color there would be helpful.

So, I mean, you have the financials for the marketplace in the financials. In dollars, marketplace, as reported, grew 16%. So, that's certainly double digits, and even if you were to back into the core marketplace, excluding classifieds and advertising, we're still talking double digits, in dollars. Obviously, more than that in local currencies.

Okay.

Thank you. Our next question in queue is from Bob Ford of Merrill Lynch. Your line is open; please go ahead.

What's your Brazilian GMV growth, please, in local currency?

Yes, Bob, hi. So, we haven't been disclosing local currency GMV by country for a few quarters now. I think the indication of the question you're trying to get at is to get a sense of relative growth among the different markets. I think one way to look at this is if you look at unit growth, which strips out a lot of the foreign currency stuff and puts the different markets on equal footing. Our three largest markets, and all of our markets, except for one of them, are growing very close to the overall corporate average for unit growth, so in the low 20s, and Brazil is included within that.

Okay, that's fine.

And then, when you look at the -- maybe the early experiences right now that you have with the management API, can you talk a little bit about the number of sellers that are piloting the API? And what is it doing in terms of the conversion rates that they're seeing, or the increase in listings you're getting from those sellers?

Great. So, as I mentioned, we had the first developer conference yesterday. It was extremely successful. We had a packed audience, but this is, obviously, very, very early days. We've seen hundreds of thousands of listings being listed via the API since yesterday, many of those in classifieds, from classified integrators. So, in terms of how the technology is holding up and the first attempts by third-party developers to upload listings, obviously, very positive.

But, again, Bob, this is day two. So, I think way too early to give any significant indications of how it's performing.

Next quarter we should be able to give some more color on that.

So, you ended the day yesterday at about 6 p.m. and since then, you've seen hundreds of thousands of listings in classifieds using the API. Is that correct?

So, I don't know if since 6 p.m., but over the last few days, and, more specifically, since the conference yesterday, we have seen hundreds of thousands of listed properties coming into classifieds from web properties we have been working with to list through the API into classified. So, that's correct.

Okay. And then, one last question, if I might. And there's been -- speaking of last week, it looks as if there's going to be some pretty big changes in the regulatory environment for payments in Brazil. And I was wondering if you had time to evaluate the implications of that for Pago yet?

Hi, Bob. This is Osvaldo. I think it's also too early to tell. There's been big rumors going around, but we still haven't got a hold -- they have not yet released the actual changes they are making. So, it's still early. Until we have that, we don't know what the impact will be.

Right now, fair to say most likely favorable, right?

Yes.

Fair enough. Thank you very much.

Thank you. Our next question in queue is from Gene Munster of Piper Jaffray. Your line is open.

(Audio in progress) call, you said 37% local currency, but the business was driven outside of the core marketplace, and that accounted for 31% of revenue outside of that core market. My first question is, what was the 31%? What does that compare to maybe last quarter and last year? And second is, from a big picture, as we think about how the business is going to evolve in this year of three more quarters of tough comps, should we generally think about a little bit more growth in some of these other things, whether it be payments or advertising and mobile, versus traditional marketplace? That's -- and then a follow-up question to that.

Yes, so, year over year evolution of the newer businesses grew, I would say, roughly 4 percentage points in terms of mix versus last year. Going forward, these newer businesses, obviously, have tremendous potential. They're growing from a smaller base. In the case of payments, as we've always said, there's tremendous opportunity and a very large addressable market. So, if we continue to execute well, it gets very likely that those businesses cold continue to gain share of revenues.

Notwithstanding, the marketplace, I think, continues to perform well once we take into consideration the tough comps, and, as has been the history going back, there are certain quarters where maybe the marketplace is outperforming the adjacent business and quarters where the opposite occurs.

And then, in terms of the comps and going forward, again, I think it will make more sense for us to address future quarters once we've actually released numbers around those.

Just on the comps, I now you're going to wait 'til next quarter, but was there any kind of anomalies in terms of the September quarter in terms of how the comp played out? Like, for example, some of the changes a year ago happened two-thirds of the way into the quarter or a third of the way into the quarter, and the December quarter is going to be the first full quarter where we're going to have the difficult comp? Is there any sort of nuances like that, that we should be aware of?

No, I think it wasn't a quarter that was necessarily characterized by any significant differences in either beginning or end.

When you look at the growth trajectory last year, the fourth quarter was the strongest in terms of growth, but that's also because it was comping off a relatively easy quarter. So, I would say nothing very specific, probably a similar comparative trend as the one we witnessed in the third quarter, which is we had a very, very strong back half of last year, and so, that, obviously, affects the headline growth number for this year.

Got it. And then a couple of quarters ago, you guys had kind of given some trajectory about how marketplace was growing, exiting the quarter. I think you kind of said that it exited the quarter growing faster than it entered the quarter, or something to that effect. But is there any sort of details you can give us on just how it trended throughout the quarter in terms of marketplace?

Well, I think, as I just said, no significant divergence in the growth path beginning of the quarter to end of the quarter, nothing that warrants any specific kind of different call-out. Relatively similar growth in the three months.

Okay, great. Thank you.

Thank you. Our next question in queue is from Ross Sandler of Deutsche Bank. Your line is open. Please go ahead.

Hi, guys. This is Conor Irvine, calling in for Ross. A couple of questions for you.

My first question is, hoping you guys can characterize the environment in Argentina right now in terms of consumer demand? Are you seeing any drop-off from macro-related issues at this point?

And my second question is, now that Amazon has officially started to hire, specifically for their warehouse personnel in Brazil, I wonder if you guys can speak more formally about any strategic priorities that have moved up to better prepare for when they enter the market?

Thank you.

Great. So, Argentina, I mean, to your specific question around demand and what we're seeing in terms of consumer consumption, still continues to be an economy that's somewhat driven by consumer consumption. There's an electoral year next year, so I think it's in the government's best interest to try to continue to hold consumer demand high. So, we haven't seen any negative impact from that.

The challenges in Argentina are more around the overall environment to repatriate funds. But, as we've always said, we feel that, given the limitations that are never great, we feel pretty comfortable with our ability to manage that, and also, as we've always said, Argentina is a country where we do think there are strategic assets where we can deploy cash that is generated in Argentina to the benefit of the overall Company.

With respect to competition, as you know, we are used to competing. We have been competing intensely for the last 13 years, and we expect to continue doing so for the foreseeable future. We're operating in a market that we consider very attractive, that we believe has strong secular trends that favor this market. Therefore, this is also seen by other players and it's going to continue attracting competition.

What we have always done and has worked for us, thus far, is to look at every competitor, try and learn as much as we can from each one of them, and then focus intensely on what we need to do and doing it the right way. And so, we continue to -- we will continue to do that, and without really having much to say, in particular, with respect to any competitor at any given point in time.

Thank you.

You're welcome.

Thank you. Our next question is from Marcelo Santos of JPMorgan. Your line is open.

I have two questions.

The first question is about the fraud issue that you are facing in MercadoPago. If you could, please, comment if you're improving on that front? But is there much room to improve? Have you already returned to the normal levels of fraud, or still have some room to gain there?

And the second question is about verticalization. I just wanted you to talk a little bit about how that has developed, because I think in the previous quarters it was still going a little bit slow, but now it seems that the speed increased up there. So, if you could talk a little bit about lessons learned?

Sorry, could you repeat the second question? We caught the back half of it, but not the beginning.

Sure. Just on the verticalization initiative, in the previous quarter it looked like that it was still slowly developing, but now it looks like it sped up a lot. So, I just wanted you to comment about, like, lessons learned, how things have developed, just give a little bit more color, please?

Yes, so let me start with verticalization, and Osvaldo can take the one on loss provisions from fraud.

So, verticalization efforts have continued, and I think we've been fairly consistent. We've continued to expand the number of apparel vertical categories where we're rolling out some of the new features for verticalization. And we're also preparing a new vertical category to launch, which will be auto parts. A lot of that is still the back-end work on that category.

So, I think the important thing here is, we are long-term committed to more vertical experiences. It's still early days. There's still a lot of features and functionalities to roll out, but we continue to see positive progress there, and are already beginning to think of additional categories. And, obviously, the more traditional verticals -- classifieds and real estate -- those are performing very, very well, and, as we called out in the financials, are one of the very attractive newer businesses in terms of growth rate, growing north of 50%, year over year.

Let me just add, with respect to verticalization, that we are also doing these efforts, not only the web, but also on the mobile apps. For example, we recently released a click-to-call functionality on the motors classifieds, and real estate classifieds on the iOS app, and it's giving great results.

With regards to fraud in MercadoPago, I'd say the third quarter was worse than the second quarter, but better than the first one. Throughout the quarter, we have identified several improvement opportunities, and we have executed on them during the quarter.

Okay. Thank you very much.

Thank you. Our next question is from Dan Su of Morningstar. Your line is open.

Regarding shipping, so can you please update us on the progress that the Company has made in terms of integrated payment and shipping? Specifically, can you talk about participation among sellers for this program and any patterns in terms of product category, average ticket size, or where the sellers are located?

And then, is it fair to say that the shipping volume for this program is fairly concentrated to a few large metro areas, or is it actually quite spread out?

And then I have another question. Thank you.

I think the most important characterization here is that it continues to be very early days. So, volumes are still insignificant and immaterial in terms of overall volume, but we continue to onboard new sellers, and, more importantly, also, the product has more features and more flexibility, so that it now enables sellers who want to combine their existing shipping capabilities that they already run on their own websites, with what we're trying to do on MercadoLibre. That's become available. And so, that should help us pick up the pace of adoption for the shipping solution.

But in terms of traffic patterns, ASPs, again, I think the volume set is too small, and it would be a mistake to try to derive any conclusions from that.

Thanks. The other question is, can you talk about where the cash on the balance sheet is located right now? And please talk about the priorities in terms of capital allocation in the near future? Thank you.

So, I think the first thing in answering that is we need to differentiate -- think of the cash on the balance sheet in two large buckets. One is funds payable to MercadoPago accounts, in other words, Pago's stored balance. That, which is about, maybe 30%, slightly less than 30%, than the cash equivalents and investments on the balance sheet, are, obviously, located in country, because what we want to do is match the funds payable to the customer with our cash reserve.

The remainder of the cash or cash equivalents, which are actually the corporate balance sheet, are, by and large, in the US, in US bank accounts in dollar-denominated instruments.

We have, depending on the specific date and quarter, anywhere between $20 million to $30 million in Brazil, in Brazilian reais, and that's a bit of a yield play.

And then, obviously, because of cash restrictions, there are slightly more than $25 million in Venezuela, held in bolivars.

We don't typically comment on any pending CapEx investments. I think, as we've always said, the balance sheet is enough, we feel, to carry out our strategic investments, and we continue to be committed to our dividend policy.

Thank you.

Thank you. Our next question is from Phil Boyer of Credit Suisse. Your line is open. Please go ahead.

Yes, I just had a question about the take rate. I wanted to know what drove the take rate increases, year over year, this quarter? And was it mainly the increased usage of MercadoPago? Or is there something else I'm missing? Thank you.

So, briefly covered this in the earnings call. The growth in the newer businesses, be that MercadoPago off-platform processing, the financing business, the classified businesses, have, obviously, been accretive to take rate, since those businesses have grown faster than GMV.

Additionally, if you were to look just at the core marketplace take rates, those have also gone up in the very ballpark figure of about 20 basis points, driven, in part, by final value fee pricing, and, in part, by placement fees that have grown at a faster pace than GMV, as well.

Thanks.

Thank you. Our next question is from Scott Devitt of Morgan Stanley. Your line is open.

Can you talk about your ability to raise prices, and what -- and the plan for that?

I think that continues to remain unchanged. If you look at our take rates, they continue to be lower than US equivalents. If you look at the core marketplace take rate, I would say significantly lower, and we think that's the right way to manage the business, for now, continue to focus on growth and market share, and not necessarily on maximizing short-term monetization.

Implicit in that answer, is that we think there is pricing power in the model, but no hurry to drive that pricing power. We have always said that as payments adoption continues to grow, there's an increasing cost that we're incurring. You can see that in our declining gross margins, and so one way to offset some of that gross margin compression is pricing, but not necessarily have any pricing on final value fee planned for the remainder of the year.

Thanks.

Thank you. Our next question in queue is from Mark Miller of William Blair. Your line is open. Please go ahead.

Hi. Good afternoon. I was wondering why the installment purchases went up in the quarter, given that the growth in Brazil slowed, and how significant was that impact on margins, overall?

Yes, so the biggest driver of increased financing revenues is, obviously, that we're processing a lot more payments volume. So, a greater number of our transactions are flowing through MercadoPago, and that allows us to offer the credit offering. So, Pago penetration is a significant driver of increased financing.

Additionally, spreads have also improved, somewhat, so that also helps the take rate on the financing business.

And I don't remember what the second part of the question was, sorry.

Well, I thought you said that the level of purchases on installment went up, and so I was trying to understand what was driving that?

Yes, so, sorry, so it's essentially what I said. The more payments we are processing through Pago, the more our base of volume that we can cross-sell the financing on is, and, therefore, that drives the growth in the financing business.

Okay, great. And then, can you clarify the comments you made about bad debt? I think you said it was coming down, but then I thought you said the fraud experience was worse than the second quarter but better than the first. Can you tie those two together?

Yes, so bad debt, typically, we refer to marketplace bad debt, so sellers who have sold items on the marketplace, and who -- those accounts go delinquent. Those ratios have been coming down consistently, over time, and have actually been accretive to margins this quarter, about 130 basis points of improvement from bad debt.

The fraud loss provisions are what we call charge-backs, and that's a different account line for us.

Okay. And just the last question, I think you talked about your net promoter scores being up in the first half. Are there any updates on how people are viewing the customer service improvements you've made?

Yes, so net promoter scores on a sequential basis have actually been somewhat flattish. So, I think we gained some very good traction in the beginning of the year, not so, Q-on-Q. Again, another example of something that's relatively early in terms of the Salesforce implementation.

We've done a lot of work. We feel a lot better about the ability of our customer service teams to deliver value, given the new tools. But there's still room for net promoter scores to grow, and we feel confident that they will.

Let me just add there, I think we are probably halfway along the way in all the things that we need to do with respect to our back-end tools. We have a huge effort in terms of converting our front and our side into a platform, which we opened yesterday in the conference.

We are doing an equivalent effort with our back end, and we have done great progress, but it's still very much work in progress and we still have -- we're probably halfway along the way, just for you to set your expectations properly.

Okay, great. Thanks.

Thank you. And with that, I'm showing no further questions. Ladies and gentlemen, thank you for you participation in today's conference. Have a great day. You may now disconnect.