美卡多 (MELI) 2012 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the MercadoLibre fourth quarter and fiscal year 2012 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will hold a question-and-answer session, and instructions will follow at that time. (Operator Instructions) And, as a reminder, this call is being recorded.

I would now like to turn the conference over to your MercadoLibre hosts. Please go ahead.

Hello everyone, and welcome to the MercadoLibre earnings conference call for the quarter ended December 31, 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, our Chief Executive Officer, 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 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 Factor sections of our 10-K and other filings with the Securities and Exchange Commission, all of which are available on our Investor Relations website.

Now, let me turn the call over to Pedro.

Thanks, Alex, and good afternoon to everyone. Today, I'll be reviewing what has been another successful year in MercadoLibre's evolution. We feel that over the past 12 months we have continued to take important steps in improving what has become the leading ecommerce ecosystem in Latin America. Our combination of Marketplaces, Payments, Classifieds, and Advertising solutions, alongside a growing number of services tied to each of these, now offers a more comprehensive set of ecommerce tools for online buyers and sellers throughout the region than ever before.

Let me start out the recap of our results by providing you with an overview of key business metrics for the year and a recap of our main initiatives and progress towards our strategic objectives. Summing up our year-on-year performance during 2012, items sold on our Marketplace grew 28%, to $67.4 million. Gross merchandise volume grew 29% in constant currencies, to $5.7 billion. Transactions through MercadoPago, our payment service, grew 64%, to $23.5 million. Total payments volume grew 56% in constant currencies, to $1.8 billion. Revenues grew 39% in constant currencies, to $373.6 million. And, net income grew 44% in constant currencies, to $101.3 million, surpassing $100 million in annual net income for the first time, a noteworthy accomplishment.

It's interesting to note that five years ago, the year of our IPO, our top line was only $85 million, showing the potential for rapid growth that we believe will continue to be a key trend of our business as ecommerce in Latin America continues to grow.

More importantly, perhaps, at MercadoLibre we remain convinced that innovating on behalf of our customers is what allows internet companies to thrive. This conviction explains our constant focus on improving user experience while adding new formats, features, and services to our business portfolio. Consequently, our strategic goals and plan continue to be structured around leveraging innovative technology to facilitate more, and more efficient transactions for our users.

At the beginning of 2012, we laid out a series of initiatives that we believed had the potential to positively impact the user experience on our ecosystem, and thus drive long-term growth. These were -- continued Payments expansion, both on- and off-platform; mobile commerce; an open platform approach; vertically expanding into more categories; offering shipping and fulfillment services; and upgrading our customer experience operations. Let me now review for you the advances made on each of these.

Let's start with MercadoPago, our payments solution. On-platform MercadoPago has gained penetration of our Marketplace consistently, gaining almost 200 bps by the end of the year, measured versus the same quarter last year. Much of this penetration growth occurred organically, as buyers made the natural transition to paying online, simplifying their shopping experience. Additionally, value-added offerings we have structured, such as our financing options and our buyer protection programs, create additional incentives for transactions to settle through MercadoPago.

Simultaneously, we continue to proactively yet cautiously channel a growing number of transactions through our payment solution by making MercadoPago settlement obligatory for certain buyers and sellers, based on reputation, and on certain product categories, where mandatory usage of MercadoPago is most beneficial. As we continue to improve and streamline this obligatory payment process with simplified options and highlighted benefits, we expect to become more aggressive in expanding MercadoPago penetration.

Off-platform MercadoPago was another very important driver of our growth in payments during 2012. Our client acquisition efforts continue to complement the very healthy growth of existing accounts, allowing off-platform processing to post triple-digit growth for the year, as we saw significant adoption of MercadoPago among certain vertical online retail categories.

Moving on to our mobile initiatives, which were introduced in the fourth quarter of 2011, it is encouraging to report that by the end of 2012 mobile already contributes, with almost 10% of our daily traffic and nearly that much gross merchandise volume. This is definitely an exciting trend and one we will continue to support through product initiatives, such as the recent integration of both our Payments and Shipping solutions into our mobile checkout.

Another strategic objective we remain firmly committed to is our open platform initiative. You may remember that early in the fourth quarter, we publicly launched our Marketplace API and hosted our first-ever MercadoLibre developer conference. A growing number of developers and potential partners are working with these APIs to develop tools and integrations for third parties wishing to transact on our Marketplaces. We look forward to seeing many of these go live during the course of the next few quarters and updating you on them.

Moving on to our work with vertical product categories, there have also been important inroads made throughout the year. We have substantially upgraded our real estate category through a complete redesign of the user experience, improved commercial coverage of realtors and developers, and technology integrations that have allowed us to integrate listings from other real estate websites. As a result, listings and traffic in the category have shown solid growth.

Additionally, we continue to advance on the other vertical category we identified as key for the year -- apparel. The advances there have been increased supply throughout the category, new features that make it easier for sellers to handle inventory, and improved search that has made it easier for shoppers to find what they want. These initiatives have helped us grow our non-consumer electronics product mix considerably throughout 2012. As ecommerce penetrates traditional retail across all product categories, we will continue to offer more vertical formats to match this growing demand.

MercadoEnvios, our integrated shipping solution, is a promising new strategic driver for our business. While its penetration of our volume is still small, we are seeing rapid growth in its seller base and in the transaction volumes being serviced. As results continue to prove positive, we are widening the base of sellers onboarded to the solution in Brazil and are also laying the groundwork to launch our shipping platform in other markets.

Finally, customer experience is the strategic initiative outlined I have not covered yet. By year-end, we complemented a successful migration of our CRM tools to the salesforce.com platform and opened new customer experience centers in Uruguay and Venezuela. This has resulted in improved customer satisfaction, retention rates, and a net promoters score that grew year on year in both Brazil and the Spanish-speaking countries. We are pleased with our success which validates the need to keep up our efforts and investments in customer service in order to continue seeing returns by way of user satisfaction and increased engagement.

Looking forward, we expect 2013 to be a year of continued execution on the vision laid out and deployed during 2012, understanding that we have identified the correct set of ongoing strategic initiatives that will take our business to the next level and now need to consistently execute behind them. Therefore, we expect 2013 to be a year where we focus on growth in Payments and Shipping, eventually including fulfillment initiatives, that allows us to eliminate friction points while ensuring the best possible shopping experience and level of service on our platform. Hand in hand with an excellent customer experience team assisting through multiple channels at each stage of a transaction, these initiatives will continue to add growing value for our platforms.

Our mobile and vertical offerings allow us to adapt to the changing demands of consumers shopping from new devices and for a wider array of products. We want to stay at the forefront of these trends that increase our ubiquity in the ecommerce space.

Finally, our work on open technology will allow third parties, retailers, and developers alike to take advantage of our platform to grow and, in some cases, build their businesses, thus enabling MercadoLibre to position itself as an operating system of sorts for our region's ecommerce.

As you can see, these are all transformative processes aimed at meeting the full potential of what is already the largest and most complete ecommerce hub in the region. We look forward to keeping you updated as we make this happen.

With that, let's now focus on our most recent quarter, starting with a detailed overview of our key operational metrics. Growth rates are year-on-year unless I specify otherwise, and I'll include constant currency growths when applicable to give a better idea of how our business is growing without foreign exchange headwinds.

In the fourth quarter of 2012, 4.3 million new registered users came onto our site, growing our base of confirmed registered users 24% year on year. Successful items grew 19%, reaching 19 million. Number of payment transactions grew 43%, to 6.7 million.

Gross merchandise volume was $1.6 billion, growing 14% in US dollars and 21% in local currencies. And, total payment volume reached $525 million, growing 30% in US dollars and 47% in local currencies.

This positive operational performance flowed through to our P&L. Also, during the fourth quarter of 2012, net revenues were $103.8 million, growing 20% in US dollars and 31% in local currencies.

Gross profit margin was 73.6%.

Income from operations was $39.1 million, with an operating income margin of 37.7%. Year on year, operating income grew 35% in US dollars and 50% in local currencies.

Net income before income and asset tax expense was $42.2 million, growing 37% in US dollars and [50%] in local currencies.

Net income was $30.2 million, a 40% year-on-year growth in dollars and 48% in local currencies.

That resulted in earnings per share of $0.69 for the quarter.

Addressing our top line results first, solid growth in each of our revenue streams came despite the toughest year-over-year comparisons we have had. Our improved platform was newly launched at this time last year, gaining the most traction during the fourth quarter of 2011, particularly so in Brazil, our largest market. The result is an expected deceleration in our items sold this quarter, mitigated by a sequential lift in average selling prices as consumers raised their spending in the holiday season, resulting in a slight acceleration in local currency GMV.

Core Marketplace revenues grew practically at the rate of GMV, since there was no significant impact from pricing or mix shifts during the quarter.

Revenues outside of our core Marketplace represented 30% for the fourth quarter of 2012, up from 27% in the same period last year.

Total Payments revenues grew 51% in local currencies, year on year, during the fourth quarter. This results from off-platform processing fees that kept outpacing the rest of our ecosystem on volume strength and continued growth of installment purchases carried out through MercadoPago.

Classifieds and Advertising both performed strongly throughout the year and continued to do so in the last three months of 2012, growing at a rate of 46% in constant currencies during the fourth quarter. This combined growth is led by strong Classifieds listings momentum, upgrades, and better monetization than a year ago for the business unit.

Here is a breakdown of our top line growth by largest countries. During the fourth quarter, consolidated net revenues in local currencies grew 19% for Brazil, 62% for Argentina, 19% for Mexico, and 43% for Venezuela.

Wrapping up our top line, even after factoring in our [step function] in volume at the end of last year, which had its largest impact on Brazil, total revenues in constant currencies grew at an above-market rate of 31%.

Now, let me move on to the rest of our P&L. Gross profit grew 16% in the fourth quarter, to $76.4 million. Gross profit margin came in at 73.6% of revenues, versus 76% in the fourth quarter of 2011 and 73.6% in the third quarter of 2012. Gross margin contraction versus last year results from our faster growth in Payments, which is a lower gross margin business.

COGS from Payments grew at the rate of total payment volume, representing approximately 270 bps in margin contraction, while incremental expenses primarily related to our investments in hosting and customer service represented 67 bps in gross margin contraction. These effects were partially offset by efficiencies in sale-related taxes generating 92 bps in margin improvement.

Operating expenses for the period totaled $37.2 million, only 1% higher than in the fourth quarter of last year. Operating expenses as a percentage of revenues were 35.9% in the fourth quarter, versus 42.5% for the same period last year, as our business showed impressive scale which I'll now break down line item by line item.

Sales and marketing, our largest line item expense, decreased 1%, to $19.2 million, dropping to 18.5% of revenues, versus 22.4% for the same period last year, as we continue to improve our bad debt ratio in addition to posting improved returns on our marketing spend.

Bad debt fell from 7.1% of revenues in the fourth quarter of 2011 to 4% of revenues in the fourth quarter of 2012, representing 311-bps improvement resulting from increased efficiency in our collection efforts and also including a non-recurring $900,000 recovery that aided OpEx margins by 87 bps.

Online and offline marketing decreased 8% year on year, as we optimized our mix of traffic sources, scaling a combined 158 bps on both of these concepts.

One additional note, we're pleased to report that our work around remedies and scoring led to the lowest rate of chargebacks over total payment volume for the year, an issue we had highlighted as an unexpected operational challenge during past quarters. For the fourth quarter, this expense line scaled versus last year despite being a function of payments volume which grow faster than our average revenues.

Moving on, product development expenses also fell 1%, to $6.7 million, representing 6.4% of revenues in the fourth quarter, versus 7.8% in the same period last year. Scale was driven by a $644,000 accrual related to our long-term retention program during the fourth quarter of 2011 and greater capitalization of salaries versus the prior-year fourth quarter.

G&A only grew 7% year over year, to $11.4 million in the fourth quarter, contributing additional scale to our business, going from 12.3% of revenues during the fourth quarter of last year to 10.9% of revenues during the current quarter.

As a result, operating income for the fourth quarter of 2012 was $39.1 million. Operating income margin for the quarter was 37.7%, versus 33.5% during the fourth quarter of 2011.

Below operating income, we benefitted from $2.9 million of interest income, $100,000 short of last year due to lower interest rates, while ForEx was positive at $488,000, greater than the $272,000 in the fourth quarter of 2011.

With this, we arrive at pretax income of $42.2 million, 37% higher than in the same quarter of last year, in dollars, and 50% higher in local currencies.

During the fourth quarter, income tax expense was $12 million, resulting in a blended tax rate of 28.4%, versus 29.9% during the fourth quarter of last year and 27.5% during the third quarter of this year. The year-on-year improvement in our blended tax rate resulted from Argentina's highest share of volume in the current quarter versus the same period a year ago. Let me remind you that we continued to be the beneficiaries of a tax advantage in that country throughout 2012.

Net income for the three months ended December 31, 2012, was $30.2 million, 40% higher than last year's $21.6 million. Net income in local currencies grew an impressive 48% year on year during the fourth quarter.

Net income margin was 29.2% for the fourth quarter, versus 25% for the same quarter last year, resulting in a basic net income per common share of $0.69.

Property and equipment and intangible asset purchases for the quarter totaled $5.1 million and, consequently, for the period ended December 31, 2012, net cash provided by operating activities less purchases of property, equipment, and intangible assets -- our non-GAAP measure of free cash flow -- totaled $51.1 million, versus $25.1 million last year.

Cash, short-term investments, and long-term investments at the end of the quarter totaled $281 million.

Wrapping up my review, our financial performance was robust during the fourth quarter, ending the year on a note of strong earnings and with a very solid balance sheet. As noted, we recorded our first-ever quarter of over $100 million in revenues and our first year of over $100 million in net income.

As we enter 2013, we believe we are in an optimal position to keep pursuing the growth initiatives discussed today and to continue investing in this virtuous cycle that brings value to our users and investors and keeps us at the forefront of our region's ecommerce.

I look forward to the work and to the opportunities we have ahead of us this year and also to keeping you informed along the way.

With that, we will now take your questions.

(Operator Instructions) Stephen Ju, Credit Suisse.

Your users accelerated for the second quarter in a row. Are you doing anything different in terms of the user sign-up path to increase conversion rates? And, second, it seems like you saw a bit of a drop-off in Payment penetration rate as a function of GMV on a sequential basis, which is something we're not really used to seeing for the fourth quarter. Can you give us any color in terms of why this might be happening? Thanks.

Sure. So, I think the first question, Stephen, was regarding the rate of new registrations. There haven't been any significant changes in what we're doing. We are seeing improved and accretive registrations coming from mobile. That's one part of the story. But, other than that, no significant changes. I think the fourth quarter many times is one of more online shopping, and that could have helped.

And, with respect to Payment penetration, we launched in Q1 the checkout for Payments on mobile. Obviously, as mobile starts to gain traction on the overall mix of gross merchandise volume, it's becoming increasingly important to have our Payments solutions working adequately on the mobile, as well. So, that might have an impact. Although on a sequential quarterly basis, we will continue to -- continually see variations in penetration rates.

Thank you.

Robert Ford, Bank of America Merrill Lynch.

Good evening everybody, and congratulations on the quarter. I had a question with respect to listings. It looks as if listings are beginning to accelerate in Brazil, post the introduction of the merchant API. And, I was curious as to how those listings are converting?

Great. Bob, this is Pedro. I think the API certainly will be a key piece of the strategy in terms of attracting more supply going forward. The open technology approach, we think, will be instrumental in bringing on more and more retailers and partners that will list through our ecosystem. But, we've also, I think, consistently said that this is an ongoing process. So, similar to what we had disclosed last quarter, the area that continues to show the greatest strength there continues to be the Classifieds areas, where we're getting significant lift in listings and, to a lesser degree, in the other core categories, where there's a lot of work being done by third-party developers and retailers, now that the fourth quarter is behind is and they're once again focusing on new channels. And, we're high up there on their priorities for new channels. But, most of the growth is still in the Classifieds categories.

And, in terms of conversion rates, they seem to be fairly consistent with what we've seen in the past. So, hopefully, going forward, we'll have more news, but that in theory will bode well, because it will be more listings at similar conversion rates for the future.

Great. And, then, you touched on adding to the number of verticals that you have right now, with respect to supply. But, there are also several categories that you under index in where the existing interface is sufficient. Right? Can you talk a little bit about your efforts to go after those categories of merchandise and how they may be contributing to maybe this acceleration in listings growth in Brazil?

Yes. So, I think I understood the question. I would say that the sufficiency of the product is something that we could talk about at end. I think the longer-term vision is that many of these categories will benefit from a more vertical approach. We've already talked about real estate, classifieds, and apparel. We've also in the past identified other future opportunities like car parts. So, I think verticalization will be a piece of growing more rapidly in many of these categories, going forward. So, I think that answers your question. We do believe that there is room for verticals in any of these categories.

And, in the other ones that we under index that we mentioned, I think really we've identified the ones that we think are more relevant, being apparel, some of the home and garden and appliance categories, and auto parts. All of those are growing very fast. So, the level of under indexation is smaller and smaller, and it's one of the things we pointed out in the prepared remarks, is that when you look at consumer electronics, they have been consistently shrinking their share of our overall mix, which we think is very positive.

Great. Thank you very much.

Mark Miller, William Blair.

Hi. Good afternoon. Pedro, I was hoping you could give us some perspective around what portion of the seller base or categories are now compulsory for MercadoPago? What kind of change that is year to year? And, my sense is that maybe you slowed back the pace of implementation on that -- is that fair? -- in the fourth quarter.

Yes. So, it's still very small. It's not a material percentage of overall transactions. And, in large part, that is because of what you mentioned, which we have experimented. The fourth quarter is not always an ideal quarter to experiment. In addition, as we mentioned in the past, the initial very controlled launches showed us that there was significant room to improve conversions on the obligatory payments. So, a lot of work and AB testing has been going on on this small, controlled segment of transactions where we're testing this.

We're seeing consistent improvements in conversion rates and in the processes we have. So, I think going forward we're cautiously optimistic -- I think I said in the remarks -- that as we improve these flows and we improve conversions, we will be able to get more aggressive going forward. But, it's still a small overall portion of GMV that has compulsory payments.

Great. And, then, could you give us some perspective on the take rate, how that changed for the core Marketplace? We can make our own estimates, but it would be helpful to get your perspective on that?

Yes. So, there haven't been significant take rate changes in the core Marketplace, year over year. Slightly up, but very low. So, I would say trend-wise, relatively flat quarter-on-quarter for last year's quarter.

Good. Thanks. Pedro, just one last one if I can. The expense control was quite tight here at the end of the year and also earlier in the year. Is there a way for us to think about expense growth into 2013, and whether these are going to be tough comparisons for you? Thanks.

Yes. Great question, and thanks for asking that. So, certainly, I think this has been a year that we've been very disciplined in terms of OpEx. Some of that, as we've consistently pointed out, is a consequence of improvements in bad debt ratios, which is one of our sales and marketing expenses. Part of that is one of the benefits of MercadoPago. Part of that has simply been improving our collections processes and how easy it is to pay us. And, I think the other significant trend, obviously, has been our investment in user acquisition and online marketing where, really over the last 18 months, our vision has been, let's focus significantly on the product. Let's significantly improve the product. And, once we feel we've made these improvements, we can get more aggressive again with user acquisition.

So, without delving into too much detail and forward-looking statements, which we don't make, I think it's fair to say we do feel a lot better about the product today than we did 18 months ago, and it's possible that we will get more aggressive in terms of customer acquisition, going forward. So, these do set up tough comps in terms of continuing to deliver this kind of scale going forward, because two of the most significant drivers of that scale aren't necessarily trends that roll over easily into next year.

Ross Sandler, Deutsche Bank.

Just two questions. One more follow-up on the take rate. So, when you say that the take rate, kind of, unchanged from a year ago, is that excluding the impact of the higher-margin, faster growing areas like Classifieds and Advertising? Or, is that inclusive --? Or, is take rate, including that, going up, is basically what I'm trying to get a sense of? And, if not, what's offsetting it?

And, then, on the OpEx, I think you called out a few different items, totaling somewhere between $1 million and $1.5 million that were one-time items in the quarter. We've had these happening in years past, and you guys have consistently said that you don't expect EBITDA margins to increase over the long term. Yet, they continue to. So, any update on where you think margins are going in 2013 and beyond? Thanks.

Great. So, let me start with take rate first. The question that Mark had asked me was specifically about core Marketplace take rate. So, that excludes the overall take rate. It doesn't include many of the business units that today account for already roughly 30% of overall revenue. When you look at consolidated take rate, the trend continues to be positive and continues to be upward. Consolidated take rate is up about 35 bps, 34 bps, year over year. So, that was a comment on specifically just the Marketplace business, excluding Classifieds, excluding Payments, excluding Advertising.

And, then, in terms of margins, again, we don't guide. I think just referring back to my previous question and, more conceptually, we feel we've made significant strides in terms of the user experience we offer. We feel we're overlaying a more complete set of services with the Shipping initiative, more penetrated Payments. So, we do feel in a position where perhaps it makes sense to start getting more aggressive with customer acquisition. And, so, we continue to say what we've said before. This is early stages of the internet. It probably doesn't make sense to have EBIT margins in the mid- to high-30%s. It probably makes sense to reinvest some of that in customer acquisition and growth, and that's the way we're viewing the financial model over the next four, six, eight quarters.

Jordan Rohan, Stifel.

Thanks so much. So, I can't help but notice the disproportionate growth that you seem to be seeing both from Argentina and from Venezuela and what may or may not be a coincidence in the country-specific currency risk, in particular the devaluation of the Venezuela which was announced recently. Is there any relationship between those? Has any demand been pulled forward when the currencies were stronger in anticipation of a consumer -- consumer anticipation of a devaluation later that would make things more expensive? And, separately, when do you expect to incur any charges related to the carrying value of any Venezuelan currency you had on your balance sheet in that country at the time of devaluation? How much will that be? Is that a meaningful change to your first quarter? Thank you.

Hi, Jordan. This is Marcos. In general, macro trends impact our growth and our business model substantially less than other business models, just because ecommerce is still a relatively small percentage of retail in the region, and that's why we like to look at this in a five- to ten-year horizon. Typically, the things that we do to product have a substantially higher impact on our business metrics and our financial metrics than macro trends.

Having said that, when there are large devaluations and high inflations, as we have in Venezuela and Argentina, consumers tend to protect their purchasing power by accelerating consumption and having more transactions. So, typically, these are --. Obviously, in the long term, we want to have stable and growing economies, not high inflationary economies. In the short run, when you have higher inflation, you tend to have higher frequency in the purchasing decisions on behalf of consumers.

And, Pedro will help out with the second part of your question.

Yes. So, definitely, the Venezuelan devaluation does generate a loss during the first quarter. The Q that's coming out towards the end of the week will have more detailed disclosures. It's nothing that's very material. I would expect, looking at what our balance sheet looks like today and that could still change before the end of the quarter, something in the range of maybe $5 million to $8 million, probably not more than that, of impact from the devaluation.

And, a follow-up question to what Marcos said, if I could. With the acknowledgement that there may be some acceleration of purchase behavior, does that also mean you would expect a deceleration of purchase behavior on the other side of the currency deval? Is that how it has worked historically, going back to 2010 and other times, in Venezuela? Thank you.

Jordan, with the specific Venezuelan issue, I think let me try to build on what Marcos was trying to convey. It's a very unique case, in that when you look at the way that the economy was running, it was really running at a parallel rate already. And, because it's a highly inflationary market, I think your point is valid in that consumers are more inclined to buy things than they are to try to store value in a currency that's devaluing. But, the trajectory hasn't varied significantly because of the official devaluation. So, although the devaluation is very significant for accounting purposes and for our books, I would say the impact on actual consumer spending is more mitigated than what you're seeing in the official rate.

So, I wouldn't say that there's an acceleration of spend and then a holdback of spend, looking forward. I think if anything, we need to look at what's happening at a macro level in Venezuela and, as Marcos said, that typically doesn't hurt our business, or impact our business, as much. So, I wouldn't be expecting this very specific trends you're looking at tied to what happened with the official rate.

All right. Thank you very much.

Gene Munster, Piper Jaffray.

Good afternoon, and congratulations. And, just in terms of the overall growth rate, can you remind me what the local currency growth was in Brazil? And, how fast you believe the overall ecommerce market was growing, just specific to Brazil?

And, my second question is related to a potential devaluation in Argentina. That's often debated whether that is a reality or not. Just would love your updated thinking on that? Thanks.

So, Brazilian revenue is reais grew 19% for the quarter. That's somewhere around what the market grew for the quarter, I think, our best estimates. Some of the other large public companies have released numbers that are significantly below that for ecommerce.

And, let's not forget that Brazil is coming off of the toughest comp it's ever had. So, Q4 last year really was a monster quarter for us and that, I think, is a significant factor in understanding the growth rates for Brazil year over year. The first quarter is still a difficult comp, but certainly not as difficult as this one. And, then, once we get into Q2, we return to a more normalized growth rate on the previous-year Q.

Devaluation in Argentina. So, very different to Venezuela, Argentina has a moving currency. The Argentine peso has been devaluing consistently over time. It does have some foreign exchange controls which generate a parallel rate that's lower than the official rate. That is similar to Venezuela. But, I think the case is different in that the official rate is sliding, and I think most forecasts has it -- it's at 5 today. I think most forecasts has it devaluing towards 6, towards the end of the year. So, it's not like Venezuela where you have these huge step function movements.

And, more importantly, also for Argentina unlike Venezuela, we have significant cost basis in that country still, and so the devaluation, although it's not accretive to earnings, certainly gets offset, because it does reduce our local currency costs in line with whatever the peso is devaluing.

Great. Thank you.

Marcelo Santos, J.P. Morgan.

I have two questions. The first is, you mentioned you have some customer support services in Venezuela. I wanted to understand if you intend to move more costs to that country so to offset the fact that you have difficulties to take resources out of there and, then, you could protect yourself against devaluation? So, that would be the first question.

And, the second, I just wanted an update on the competitive environment in Brazil. Although you had a very tough comp this quarter, do you feel that the deceleration might also be to abnormal competitive activity? Or, it's really the tough comps, only?

So, in terms of Venezuela, I think what we've done is opportunistic. When it makes sense to incur costs in Venezuela, we've done so. A lot of those service directly our Venezuelan business, that we used to service from outside of Venezuela, and we can service from there. So, it's something we'll continue to look at, but don't expect any significant ramp-up of costs in Venezuela or large scale reallocation of cost centers there.

Hi, Marcelo. And, with respect to the second part of your question, I would say, similarly to what we just mentioned, we believe what impacts our growth rates is substantially more impacted by the product decisions that we take and the product execution that we do.

In the case of Brazil, we've been working throughout the year really in laying the groundwork for a substantially different product experience with Payments and Shipping integrated into our platform. We did a lot of experiments into our search results, our view item pages, and the checkout process, trying all sorts of different positions and bells and whistles to see what converts better. And, in that process, we were pretty conservative with our marketing spend in an environment that, I'm sure you know, we saw lots of other players really being very aggressive with their marketing spend.

As Pedro was saying earlier, we feel -- we're starting to feel very well with the state of our product, the way Shipping and conversion is working, the way Payments are working, the integration of Payments into our mobile platform and, particularly, how we're managing customer support also, in Brazil. So, we're feeling better. We think (inaudible) we will be more aggressive in 2013.

But, the growth rate I think will depend on all those factors, and not that much on what other players in the market are doing. We believe the market is very large. It's still on its infancy. Very, very small percentage of retail is being done on ecommerce. So, there's very likely plenty of room for several players to do very well.

OK. Thank you.

Thank you.

Dan Su, Morningstar.

Good afternoon. Thanks for taking my question. My question is regarding the technology investment. So, my understanding is that for 2012 there is some modest efficiency gains in terms of the product and technology. And, the question is, going forward, given the couple of initiatives that the management has talked about in terms of improving user experience and system integration, what kind of trend is the management seeing in terms of technology investments? And, kind of a related question is, what kind of labor cost trends are you seeing for engineering talents in Latin America? Thank you.

I think conceptually we've historically said that product development was key for us, and it was an area that we typically look to invest whatever we feel is necessary to hire and retain the talent that we need to carry out our strategic plan. And, that continues to be the case. So, if that line isn't scaling versus revenue, it's not something that we get too concerned about, as long as we make sure that we're hiring the right people and that they're showing the right long-term ROI by a consistently improving product, which is what we feel what we've seen throughout the year.

Very specific to your question, and I think this was called out in the prepared remarks, if you look at the q-on-q evolution of product development costs, some of that scale is because last year's quarter had a ramp-up in compensation driven by the way we account for our long-term retention plan for engineers. And, so really, if you were to take that out, you would see that there's more ramp-up in investment than what you're seeing in the Q, and that should signal the kind of trend that we see going forward, where product development costs might grow above revenue by somewhat, so that we make sure that we're investing there, which is the key to our long-term growth.

Thank you. And, my other question about the labor cost trends in Latin America, please?

Yes. So, one of the strategies we've pursued, and it's been very efficient, is that Latin America has a good talent pool of engineers, and it's fairly distributed throughout the region. You can find very good technical universities in some of the smaller countries and in some of the interior provinces. So, I think we've done a good job in opening an increasing number of development centers in the interior of Argentina, in Uruguay, even in Venezuela. And, so, that way we haven't necessarily found ourselves in the bind of having to hire engineers in only one city where the market could heat up significantly.

So, I think in dollar terms, given the devaluations that we've been seeing in local currencies, I don't expect significant labor cost pressure going forward. Yes, there might be some, but I don't think it's anything that is very high on our concerns in terms of OpEx and how it evolves going forward, because of these new centers we have in areas where you have very good talent and perhaps not as much wage inflation.

Thank you.

Chad Bartley, Pacific Crest.

Yes, I was hoping you could repeat the currency-neutral growth rate in Payment revenue. And, then, I had a follow-up question on operating margin. Specifically, where will your investments in Shipping in essence show up in the income statement? And, could that be a near-term pressure on your operating margin? Thanks.

We don't disclose Payment revenue growths in local currency. I don't think I addressed that. I said that Brazilian revenue -- so, the Brazil segment in our financials -- grew 19% in local currencies for the quarter.

I'm sorry. I thought that along with the Classified and Ad revenue, you broke out something around Payment revenue, specifically.

Oh, sorry. The prepared remarks had a total Payment revenue growth of 51%. You're correct.

OK. That's helpful. And, then, yes, any color on the Shipping investments and impact to margin would be helpful.

That's on a Brazil number. Right? That's an overall Payment revenue, local --.

Right.

Yes. Shipping. So, let me just take a step back and remind everyone what it is we've done in Shipping so far. So, so far, what we've done in Shipping, and to a certain degree it borrows a page from what we've done in Payments, is we've built a technology layer that integrates the transactions that are occurring on MercadoLibre with the existing shipping carriers, so that buyers and sellers have more deeply integrated shipping prices, shipping alternatives without us actually getting involved in that. It's still all done by the carriers. So, there's no incremental cost from operating that, besides the R&D that has gone into that.

And, actually, similar to Payments, although we're running that pretty much at breakeven, if as volumes increase the volume discounts we're able to drive for our users grow, you could even think of that as a spread business over the long run. So, that one shouldn't have an impact on OpEx. It's more of what we charge versus what we pay, and we probably book that net of the cost. Very similar to the way the financing business is run.

Going forward -- but, none of that has occurred -- we've signaled that we are open and exploring a very small pilot program in Brazil where we actually begin to get involved in offering fulfillment services for our sellers. That won't be material this year. It's a pilot program. And, I think we've committed to making sure that we keep you very well informed ahead of time if at some point the investment in that will ramp up. So, as of now, nothing significant there that you should expect in the financials over the next few quarters from that fulfillment pilot program.

All right. Great. Thank you very much, Pedro.

Scott Devitt, Morgan Stanley.

This is Zack, calling for Scott. First, wondering if you could --? I know you emphasized local currency impact for GMV revenue TPV. I'm wondering if you can give us the local currency impact for your operating line items, as well?

So, let me see, Zack, if I can understand that question. So, if you think of the OpEx, there's a greater concentration of OpEx in Argentina than in the other countries. So, trend going forward is you need to be more aware of what's happening with the Argentine peso than other currencies where it's more driven by revenues, and you have that break out.

And then, specifically, to this quarter, actually, if you look at OpEx growth in local currencies, it's higher than in dollars. Dollar OpEx growth was 1%. Local currency OpEx growth was about 13%. So, some of that leverage comes from what we've been mentioning, which is devaluation in the Argentine peso actually helps the dollar-reported cost numbers.

Thanks. And, could you tell us what exchange rate we should use for Venezuela for Q1 and, then, going forward, for 2013, if it doesn't change again?

Yes. So, again, this is an ongoing picture, depending on if any new data comes out from accounting boards, or what not. But, as far as what we understand so far, the change in the official exchange rate occurred, I believe it's, February 8, or around the first week of February. So, at that point, the exchange rate went from 5.3, which is the rate we were using, to the new official rate which is 6.3. And, unless there's another official devaluation or some new occurrence out of Venezuela, our best understanding at this point in time is that that's the new exchange rate to be used starting on that early February date.

Got it. And, one last question. In terms of TPV penetration of mobile, how is that different than desktop?

So, let me put it this way. The Payments portion of our mobile apps have been rolled out and deployed at a slower rate than the Marketplace one. So, it's a few quarters behind in terms of how long we've been using it and where it's been rolled out. For the initial iterations of the apps, MercadoPago wasn't as deeply penetrated. So, that's slightly behind.

I think if you look at the trends and the speed at which the mobile opportunity is occurring in Latin America, I think our expectations going forward are equally upbeat about both Payments on a mobile device and GMV. But, the numbers we gave out focus on GMV, and the Payment numbers are slightly behind that.

Thank you.

[Ron Grubin, Bruvin Capital Investments].

Thanks for taking my question. In regards to the Venezuela business, what portion of your business overall revenues come from Venezuela? And, as a follow-up, in regards to the devaluation, since it was recently devalued by a little over 30% and you mentioned the loss would be up to $8 million, would it be correct to assume that if it continues to go down to as much as 50%, we should adjust it accordingly, as far as trying to put it on our model? Or, are you exiting out of Venezuela to some extent?

OK. Great. So, the Venezuelan business, last reported numbers, Venezuela represented -- let me give you the exact number, so I don't give you just directional -- about 17% of revenues.

The devaluation, just one clarification here. So, the official exchange rate in Venezuela went from roughly 4.3 to 6.3. However, we were not accounting at the official exchange rate. We were accounting at the [sigma] rate, which was a second government-sanctioned rate that we had to use. So, the devaluation for us was actually less than that. It was from 5.3 to 6.3.

Going forward, I think, we continue to explore ways in which we can invest the bolivars we have in non-bolivar denominated assets. We did some of that last year. We bought real estate. Everyone in Venezuela is trying to do that. So, there aren't that many opportunities. But, if we continue to find others, we will do that, and that could lessen our exposure to future bolivar devaluations if they occur.

If they don't, then you should continue to project the same kind of math, which is whatever the bolivar continues to devalue has a hit on our P&L. But, again, lots of -- ifs -- there, because if we are able to buy more real estate, then that's one way to hedge against future devaluations, and that's something we continue to pursue quite actively.

OK. And, I guess as a follow-up, with this recent change in the currency in Venezuela, did it change your ability to withdraw currency?

So, it certainly has, but let me just put that into greater context. So, the ability to withdraw currency had been in the range of about $300,000 per month. That is currently suspended. So, the last time we were able to take money out was January. We haven't been able to take out any money in February, which doesn't mean that that will continue to be the case. I mean, depending on who you talk to that covers Venezuela, you can get projections that actually think the government will make it easier to move money out, to try to control the parallel exchange rate, and you can also have analysts who predict the opposite.

So, I think Venezuela is still very much, wait and see. The rate of currency expatriation has always been very controlled. So, even if it's kept at low levels, that doesn't signal a change in what we had been facing over the last few years, which is exactly why finding non-bolivar denominated assets in Venezuela is probably the way to go. It's what we've done in the past and what we'll continue to try to do.

And, would you be able to break down what portion of your liquidity is in Venezuela's currency, that's in essence restricted to some extent at this point?

Yes. So, you have detailed disclosures in the Qs. You've had them, I think, over the last three or four quarters. So, you can dig into that with detail. Ballpark figure, we're talking something in the range of maybe $30 million to $40 million of balance sheet position is in bolivars.

OK. Thank you.

Nick Phillips, JANA Partners.

Can you give us any better visibility into the Brazilian Payments growth and, maybe, how close it was to the 51% growth for the whole Company? Thanks.

So, our Brazilian payment volume is, we believe, a sensitive data point. Prices with [ReggieCard] and MasterCard are negotiated on volume. I'd love to know what PagSeguro, PayPal, BCash, and everyone else is doing in Brazil, and I'm sure they'd love to know our numbers. So, we don't disclose that.

I can give you a general directional trend. Brazil is by far the largest of the TPV countries. So, it drives the overall number. However, Argentina, Mexico, and Venezuela are growing at a faster pace than Brazil. They're also coming from a smaller rate. So, Brazil is below that 51%, for sure.

Thanks.

And, with that, I'm showing no further questions in queue. I'd like to turn it back to your MercadoLibre hosts for further comments.

Great. So, thank you everyone for the interest and for the questions, and we look forward to keeping you up to date on a year that we feel will have significant new things coming up and a lot of exciting work going on at the Company. And, we look forward to talking to you again in a quarter. Thank you.

Thank you. And, again, thank you ladies and gentlemen for joining today's conference. You may now disconnect. Have a great day.