美卡多 (MELI) 2013 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the MercadoLibre first quarter 2013 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 management.

Hello everyone, and welcome to the MercadoLibre earnings conference call for the quarter ended March 31, 2013. 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 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 Factor sections of our 10-K and other filings with the Securities and Exchange Commissions, which are available on our Investor Relations website.

Finally, I would like to remind you that during the course of this conference call, we may discuss some non-GAAP measures. A reconciliation of these measures to the nearest comparable GAAP measures can be found in our first quarter 2013 earnings press release, also available on our Investor Relations website.

And, now, let me turn the call over to Pedro.

Thanks, Alex, and good afternoon to everyone joining us today.

The MercadoLibre ecosystem was off to a good start in 2013. Our key business metrics accelerated in the first three months of the year, as our ongoing initiatives showed strong momentum despite still facing some tough comps that will continue to get easier as the year progresses.

During the first quarter, 4.2 million new registered users came to our site, growing our base of confirmed registered users by 23% year on year.

Successful items grew 20%, reaching 18.1 million.

Our number of payment transactions grew 38%, to 6.7 million.

Gross merchandise volume on the platform was $1.6 billion, growing 30% when measured in local currencies, and total payment volume reached $532 million, growing 62% when measured in local currencies.

Additionally, the growth rates for new users, items sold, payments volume, and merchandise volume all accelerated versus the prior quarter, gathering momentum that we hope to build on across our businesses as we move forward with the year.

Perhaps even more important than this acceleration to current growth rates are the sustainable long-term prospects for our business, as ecommerce takes center stage in our region, penetrating traditional retail on the basis of continued growth in both the number of online shoppers and per-capita online spending driven by better connectivity, improved trust, and better usability and efficiency of online offerings.

Currently, ecommerce in Latin America represents roughly 3% of total retail commerce. This is clearly still very early stages and underscores that the most relevant competitive dynamic we face is the rate at which we can convert offline shoppers to online shoppers. We are confident that our scale, brand ubiquity, and focus on offering a better shopping experience on line than what consumers can find off line will allow us to capture this shift in consumer behavior and maintain the growth rates that we are seeing for the foreseeable future.

Now, let me quickly update you on some of the strategic initiatives discussed in previous quarters, which we believe have aided the reacceleration this quarter, primarily in Brazil, where many of these are most developed.

First of all, Payments, an intrinsic part of our platform, were on a roll during the first quarter. Total Payment volume reached 34% of our GMV, more than 6 percentage points above what it was this time last year, and approximately 215 bps above last quarter. We are pleased with this new high in adoption, reflecting the value-added that MercadoPago brings, particularly to a growing number of more experienced e-consumers demanding increasing ease and efficiency in their transactions. TPV accelerated not only within MercadoLibre but also off our platform, with very strong demand for our financing options, all contributing to very good top line growth during the quarter.

Our mobile initiatives continue to gain traction, as more users than ever visited our site through their smartphones and tablets, and record buying took place through both. Further proof of how accretive this channel is, is that users registering through our native app or through our web mobile access represented a percentage in the high single-digits of total registrants for the quarter.

Our shipping solution, although still a small share of overall volume also continues to show strong momentum, steadily adding sellers and covering more of our sold items in Brazil. These positive results have given us sufficient confidence to initiate the regional rollout of the platform. This quarter, we started with Argentina, where it has gone live through a partnership with OCA, one of the country's largest parcel couriers.

Going forward, we will focus on continuous iterations that will improve the service, as well as further regional and partner rollouts during upcoming quarters. It's our belief that as shipping penetrates, it also generates a step-function improvement in both the buying and selling experience that will translate to higher customer loyalty and improved trading velocity throughout our platforms.

Our work around vertical categories is another initiative gradually changing paradigms for our sellers. Take, for example, the category where we have made the most progress. During the first quarter, roughly one-fourth of all apparel listings took full advantage of the vertical formats and, as a consequence, accounted for more than 75% of the GMV in apparel. Consequently, as more sellers continue to onboard these vertical formats, we expect to see improved conversions spreading throughout the entire category.

Ending my review of ongoing initiatives, customer experience also continues to progress, closing the first quarter with a better contact rate than any other quarter of 2012, while our net promoter scores follow its positive trending since we began tracking it over a year ago. We are pleased with the results of the investments we have made in customer services so far, as we continue to improve the service and see new and more direct contact channels, such as chat, gain share of the overall way our users are contacting us. We plan to keep bettering these efforts, as we strive continuously for a best-in-class customer experience.

Finally, before moving on to financial results, I'd like to say that, beyond the specific highlights I've just walked you through, we are pleased with the overall execution we are seeing across business units and the results that we have consequently achieved.

With that, let's take a look at our P&L. Please bear in mind that all the growth rates I will call out are year-on-year, unless specified otherwise, and I will include constant currency growth rates.

Additionally, I would like to point your attention to the fact that this past quarter was negatively affected by certain noteworthy events -- the devaluation of the Venezuelan bolivar, an extended electoral calendar in Venezuela, and more than 200 bps of headwind to volume growth coming from the combination of leap year and Easter holidays occurring during the first quarter this year.

For the first quarter of 2013, net revenues were $102.7 million, an acceleration of growth to 23% in US dollars and 36% in local currencies.

Gross profit margin came in at 72.1%.

Income from operations was $28.6 million, with an operating income margin of 27.8%. Year on year, operating income grew 15% in US dollars and 26% in local currencies.

Net income was $17.5 million, decreasing 11% year on year in US dollars and 2% in local currencies.

This resulted in earnings per share of $0.40 for the quarter.

Very importantly, had there been no foreign exchange losses incurred as a consequence of the Venezuelan devaluation, net income would have grown 31% in local currencies, and adjusted earnings per share would have been of $0.53.

Let's go into more detail, first looking at our top line results. Revenue acceleration occurred across Marketplaces and Payments. Specifically, core Marketplace revenues saw faster growth on the basis of strong supply and demand metrics across the board. Final value and insertion fees both accelerated over the previous quarter, as buyers and sellers grew at a faster rate than before, an indication of the traction we are generating. This was also visible in terms of strong listings growth, with live listings growing at 33% year over year.

This acceleration in growth of buyers, sellers, and listings, combined with pricing, allowed Marketplace revenues to outpace GMV growth for the quarter.

Moving on to Payments' top line, each of our Payments revenue streams topped their year-on-year growth over last quarter. Off-platform revenues on the one hand continue to grow above all other business units, primarily on volume strength. Financing revenues came in strong, from a combination of both volume growth, as more payment transactions were done on credit; higher average tickets; and a favorable installment mix shift, as more consumers opted for longer installment plans.

All this resulted in an impressive year-on-year jump of 65% for total Payment revenues during the first quarter, when measured in constant currencies.

Classifieds and Advertising revenues grew a combined 32% in constant currencies during the quarter, a deceleration year on year, but mainly driven by Venezuela's higher share of Classifieds' mix and the specific headwinds we have mentioned for the quarter coming from that country.

Regardless, these growth rates, we believe, continue to be above market ecommerce growth rates and result in a 30% share of revenues coming from adjacent business units -- Payments, Classifieds, and Advertising -- presenting no variation over last quarter, but higher than the 28% of overall revenues that these business units represented for the same quarter last year.

Concluding the top line discussion, consolidated revenue growth for each of our largest countries during the first quarter, when measured in local currencies, came in as follows -- 28% for Brazil, an important improvement over the past two quarters and what we believe is an above-market rate of growth; 63% for Argentina; 15% for Mexico; and 49% for Venezuela.

Now, turning to our cost structure, gross profit grew 18% in the first quarter, to $74.1 million.

Gross profit margin was 72.1% of revenues, versus 74.8% in the first quarter of 2012 and 73.6% in the fourth quarter of 2012.

Two major trends explain COGS outpacing revenues during the quarter and generating 270 bps of gross margin compression. First, the continued and expected mix shift towards our Payments business, which accounted for 110 bps of this contraction. Even as scale and efficiencies are improving the gross margins associated with Payments over time, they are intrinsically lower than those of the Marketplace business.

Additionally, we continue to invest in customer service and technology. Upgrades to the technology used to run our site accounted for 107 bps of margin contraction, from increased hosting and connectivity costs, while growing customer experience investments accounted for another 63 bps of margin contraction. We believe that these are the right investments to make and that they generate the right conditions for future leverage.

Moving on to OpEx, operating expenses for the period totaled $45.5 million, 21% higher than in the first quarter of 2012.

Operating expenses as a percentage of revenues were 44.3% in the first quarter, versus 45% in the same quarter last year, 75 bps of margin improvement.

As addressed at this time last year, the first quarter has the largest sequential increase in payroll costs, due to annual inflation and merit compensation adjustments. Consequently, total salary and wage expenses, a component of our COGS as well as our OpEx lines, grew 25% this quarter on a sequential basis, and 30% versus last year, while headcount only grew slightly more than 10% year over year as we added 200 employees over the past 12 months.

Reviewing line item by line item within OpEx, sales and marketing, the largest one, grew 28%, to $22.3 million, or 21.7% of revenues, versus 20.8% for the same period last year.

Increased investments in brand and advertising account for 107 bps of this margin compression, since throughout the quarter we began to accrue production costs for our new TV and branding campaigns that will air during the second quarter.

Scale losses from chargebacks, or fraud loss provisions, on credit card transactions account for another 110 bps of margin compression, growing as a function of accelerating payments and driven by TPV, not revenues.

Both of these factors were in large part offset by successful collection efforts that have greatly improved our bad debt as a percentage of revenues, improving OpEx margins by 200 bps.

And, finally, as alluded to earlier, beginning-of-the-year salary and wage adjustments explain an additional 76 bps of margin contraction.

Moving on to product development, these expenses grew 24%, to $9.4 million, representing 9.1% of revenues during the first quarter, flat over the same period last year. This year's headcount increases and salary and wage increases were basically offset by the effects of devaluation in Argentina where we have a majority of our development costs and higher long-term retention plan accruals that had occurred during the same quarter last year.

G&A grew 9% year over year, to $13.8 million during the first quarter, decreasing from 15.2% of revenues in 2012 to 13.4% for this year. Once again, headcount and wage increases were offset by scale, the positive impact of devaluations in Argentina, and higher long-term retention plan accruals that impacted this quarter last year.

As a result, operating income for the first quarter of 2013 was $28.6 million.

Operating income margin was 27.8%, versus 29.8% for the same quarter last year.

Below operating income, we benefitted from $3.4 million of interest income, a 10% year-on-year increase as a consequence of higher cash investments that were partially offset by a lower interest rate environment.

Foreign exchange was negative $6.2 million, versus only $1 million a year earlier, as the Venezuelan devaluation negatively impacted our cash positions held in local currencies in the country.

As a result, pretax income was $25.4 million, 6% lower than in the first quarter of last year, in dollars, and 4% higher in local currencies.

During the first quarter, income tax expenses were $7.8 million, which resulted in a blended tax rate of 30.9%, versus 27% for the first quarter of 2012 and 28.4% for the fourth quarter of 2012. Our tax rate during the quarter was higher, mainly driven by the nondeductible nature of the foreign exchange losses incurred in Venezuela. Had those losses not occurred, our blended tax rate would have been 26.4%.

Net income for the three months ended March 31, 2013, came in at $17.5 million, 11% lower than last year's $19.6 million. Net income in local currencies was 2.1% below last year's first quarter results. Very importantly, had there been no foreign exchange losses incurred as a consequence of the devaluation of the Venezuelan bolivar, we estimate net income would have grown 31% in local currencies, and earnings per share would have been of $0.53.

Reported net income margin was 17.1% during the first quarter, versus 23.5% for the same quarter of 2012, resulting in a basic net income per common share of $0.40.

Payments for the acquisition of property, equipment, intangible assets, and acquired businesses net of cash during the quarter totaled $6.1 million. Consequently, for the period ended March 31, net cash provided by operating activities less purchases of property, equipment, intangible assets, and acquired businesses net of cash totaled $24 million, versus $15.3 million one year ago.

This free cash flow generation resulted in a cash, short-term investment, and long-term investment position at the end of the quarter of $292.7 million.

Wrapping up, I'd like to say that we feel we've started the year off as we wanted to. Our businesses are reaccelerating heading into the back half of the year that will present progressively easier comps. Our strategic initiatives continue performing very well and gaining traction. Looking at our businesses regionally, we see sustained growth even in the more complicated macroeconomic environments such as those presented in Venezuela and Argentina, signaling the resiliency of our business model and our ability to adapt to both positive and negative macro conditions. And, finally, we are very pleased with the good results coming out of our largest and most important market, Brazil.

The combination of all this has us excited about the prospects for our business, and I look forward to updating you as matters advance throughout the year.

With that, we'll now take your questions. Thank you.

Thank you. And, at this time, we would like to begin our question-and-answer period. (Operator Instructions)

Jordan Rohan, Stifel.

I'm sorry. I had it on mute. Can you hear me?

Yes we can, sir.

Yes, Jordan. How are you?

OK. Fantastic. Great. So, the question is --. Listen, you guys are doing a great job in Brazil. A lot of this seems to be led by Payments. Not so coincidentally, there's pressure on gross margins. Can you give me an idea on how much lower you expect gross margins to trend? And, if you're indeed bundling the pricing of MercadoPago into the Marketplace listings here, or final value fees, if you will, how can you forecast growth without also increasing the take rate? As penetration of Pago increases, it seems like the costs associated with providing Pago, which are driving up your cost of goods sold, could actually continue to crimp margins over time. Can you talk about that balance? Thanks.

Great, Jordan. So, I think what we've always said is the following. There are a clear connect between the gross margin compression and the evolution of the Payments business, but there are also drivers going forward that help to offset that gross margin compression. And, let me run quickly through those.

The first one, which you anticipate, is pricing, obviously, which we haven't really acted upon for quite some time now. Take, for instance, our largest market, Brazil. The last time we increased the bundled final value fees was in October of 2010. So, as we've always said, we take the long-term approach here. We're not managing to short-term take rate increments, but we understand that that is a strong driver to offset gross margin compression going forward.

The second one as the business scales is obviously we have increased negotiating power with the credit card processors. We have seen improvements over time in what we pay, in terms of average MDRs. And, going forward as the business continues to grow, that should continue to be the trend.

A third one that's very relevant is also mix. Credit card obviously has the highest cost structure. It represents roughly two-thirds, or slightly more than two-thirds, of processing mix today. We have not very actively managed that, but other payment processors similar to ours do manage that more actively, and that's something we could do going forward -- shift the mix to other less expensive funding sources.

And, so, having said that, obviously we don't guide going forward, but I think what we've always said is that we're comfortable in managing a healthy gross margin profile as the business grows, understanding that you will continue to have declining margins, but that there are offsets to operate and, at the end of the day, really what we're managing is for maximizing earnings and not any specific margin profile.

OK. And, do you see a significant amount of volume yet off of the MercadoLibre Marketplaces for Pago?

So, that business continues to grow at a very strong pace. I think in the past we used to indicate that off-platform total payment volume was less than 10%. We can certainly no longer say that. So, it's already in the double digits and continues to show very strong evolution.

Thank you.

Gene Munster, Jaffray.

Good afternoon and congratulations. We still haven't seen a lot of the impact from some of the platform changes in the results and obviously a year ago we saw that -- or, a year and a half ago, we saw the big jump in some of the growth rates based on some of the platform improvements. How should we be thinking about the potential for reacceleration, maybe late this year, beginning of next year, as some of these -- the API, and some of the shipping initiatives -- start to become more available and more impactful to the overall platform? Thanks.

Hi, Gene. This is Marcos. We look at our opening up of the platform as really a long-term project and a process really. We announced also last quarter a $10 million plan for companies that will be developing applications on top of our APIs. We are seeing many things going on. We are very excited. To begin with, internally, our ability to execute faster and more rapid changes and our ability to execute across different platforms, different mobile devices, and also to connect our platform with the different, for example, shipping couriers in the region.

So, we're seeing lots of things going on. We are talking to many developer companies that are in the process of integrating our platform to different solutions in the region, be them ERP solutions, be them shipping solutions, even tax solutions across the different countries. We believe there are really many, many opportunities for developers to do many applications that can save time and money and enable our sellers to sell larger volumes more efficiently and, also, even to navigate MercadoLibre in a friendlier way.

So, we believe there's lots of opportunities for developers, and we're very excited with our opening up of the platform.

We are also working a lot with the developers community. We're doing hack-a-thons. We did two conferences in the last six months. So, we will continue to focus a lot in fostering the developers community.

Do you know when those two factors -- the shipping and the API -- could start to have a measurable impact on the overall GMV? Just in theory, is it 2014?

As I was saying, we don't like to quantify it on a -- GMV on a quarter-by-quarter basis. We like to think of this really as a (inaudible) change in the Company, one that would enable us to execute substantially faster and more efficiently and to capture significantly more opportunities than the ones we have been capturing up to now, because we will ourselves be able to develop faster and, in addition, enable thousands of developers across the region to develop on top of our platform and, therefore, produce solutions that can help our buyers and sellers trade more efficiently. So, we believe it has -- the impact is going to be in the next 10 years, not in the next several quarters.

OK. That's helpful. Thanks, and congratulations.

Thank you.

Mark Miller, William Blair.

Hi. First question is, could you expand on what you've learned about fulfillment? And, as you've structured these deals with the couriers, what portion of the listings are now having -- are covered by these distribution agreements? And, what are you seeing in terms of repeat purchase rates? Then, looking ahead, as you roll this out to more countries, what portion of the product mix might we see with a more controlled environment for fulfillment? Are we talking 10%, 25%? Some sense for where this could go by year end would be great. Thanks.

Mark, this is definitely still the early stages of our efforts in shipping. Let me clarify for everyone what it is that we have live and working in Brazil and now Argentina, is goods are still being shipped from the locale of our sellers. There is no centralized fulfillment hub that's being run by us or a partner.

So, really, what we've done is we've launched a technology overlay that essentially connects carriers with sellers, that establishes a volume arbitrage, if you will, in that prices are negotiated on behalf of the entire volume of sellers. And, perhaps the most insightful thing for us is that it now gives us visibility into sellers' packing times, shipping times, and delivery times and also gives us confirmation of delivery.

So, by having set out that technology overlay, we now have an end-to-end tracking of the process, which begins to serve us with data that we think we can leverage very intelligently to improve buying and selling on the platform. It will allow us to have higher demands on sellers, in terms of picking and packing and handling time, and it will allow us to understand end-to-end delivery of goods.

Perhaps even more importantly, to your question, this is literally the very tip of the iceberg. In Brazil, we're still doing single digits, more towards low single digit thousands of units shipped per day on a platform that does multiples of that overall.

So, again, we don't usually try to guide or forecast. I think what (technical difficulty) product is working. It's working well. And, it's being rolled out to different markets and to different carriers and, more importantly, it really changes the ballgame in terms of the way Marketplaces used to be run and the way they can be run in the future, where the Marketplace manager really begins to have significant data and oversight over the shipping piece, as well.

But, again, early days. I think your double-digit percentage is probably an aggressive forecast for the next 8 months but, longer term, our vision is to have significant portions of the Marketplace transactions being shipped through our shipping platform.

Just as a follow-up to that, Pedro, could you highlight the things you're doing to try to accelerate as fast as you can the adoption? Because, it sounds like the user experience is going to be enhanced, and metrics you're tracking sound like they're better. So, what can you do to drive that, to the extent it's in your control?

So, the playbook is very similar across trying to drive adoption on any of these value-added services, whether it be payments, shipping, or you-name-it.

The first thing is to continuously innovate on the product and the platform to make sure that it works as seamlessly as possible. And, then the second one is to align incentives. So, certainly, the discounted or the negotiated on behalf of the combined volume of all our sellers is a strong selling point, in that it drives costs down, versus what the sellers could get on their own. And, then the final piece to aligning incentives is obviously around feedback, ratings, and placement on search results, where we are increasingly driving a more important part of the sorting algorithm will come from your shipping capacity and whether you're onboarded or not onto the platform and, likewise, seller ratings. Although they won't be granular ratings that specifically ask for feedback on shipping, we'll most likely begin to incorporate shipping into the feedback algo's.

That's probably the three things we'll focus on for a while now, given that penetration is still low and there's significant growth going forward.

That's great. And, I have one other question which is, the local currency growth in GMV, up 30% versus 20%-plus growth in items sold, in the past there's been a closer connection between these two metrics. So, the question is, why is the average unit price going up? Is this due to product category mix or geography or somehow impacted by currency change? Thanks.

So, it's a combination of the factors you mentioned. So, you have an implied impact on average selling prices is what you're mentioning. Some of that is driven by US dollar inflation or local currency inflation that gets ported over to the reported dollar numbers. Some of that is driven by actual positive mix shift on a sequential basis in terms of category structure and products being sold. And, again, this is something that will probably be volatile, because of those two factors -- relative currency swings and oscillating mix shift between product categories.

Great. Thanks.

Ross Sandler, Deutsche Bank.

Great. Just had one question, Pedro. You guys didn't mention customer acquisition ramp as one of the key factors in your prepared remarks to explain the strong acceleration that you're seeing, and it didn't look like it really showed up in sales and marketing expense. So, was there any ramp-up of online acquisition activity in the quarter?

And, then, can you just talk about the success that you're seeing preliminarily from the TV campaign, thus far in 2Q? Are you likely to see an even greater acceleration from here, especially as the comps get easier? Thanks, guys.

Great. So, if you look at incremental registered users on a sequential basis, it actually came in fairly in line with Q4, around 4.2 million new users.

In terms of the actual incremental spend, I think we tried to mention that we began to accrue the production costs of some of our offline advertising initiatives for the year, so the actual filming of the ad spots and some of the brand redesigns that we're carrying out. And, we'll have updates for those in Q2. But, the campaign actually only started to air about five or six days ago. So, it's still very early to tell whether cable television is having a direct impact, or not. We'll update you on that once we announce the next quarter.

And, in terms of online, again, overall spend still fairly in line with the previous quarter and delivering fairly inline results versus Q4, which are about, I think, slightly less than 20% growth over the quarterly clip of new users we were doing Q1 of last year.

Great. Thanks, guys.

Stephen Ju, Credit Suisse.

Marcos, I guess this is a longer-term question, but are larger retailers' attitudes toward using MercadoPago as a payment platform materially different versus their attitudes in using their ecommerce Marketplaces platform? Because, historically, I think their willingness to use MercadoLibre as a lead-gen platform was stunted by their view of you guys as a competitor. But, do you think their willingness to accept the MercadoPago will be greater over time?

And, I think, Pedro, just to follow up on the prior ASP question, do your new users on the platform tend to buy, for instance, the higher ASP categories like consumer electronics, and then over time they get comfortable buying other categories?

Thanks.

Hi, Stephen. Let me address the first part of your question, then. We believe larger retailers overall across the world are changing their attitudes towards Marketplaces, as [we] start to define their overall digital ecommerce sales strategies. And, we are seeing increased acceptance from larger retailers, not only of MercadoPago but also of MercadoLibre as a platform where they can conduct their sales. As we have opened our platforms and are enabling larger retailers to connect to MercadoLibre as well through APIs and thereby helping them to do their ecommerce in a way that is more convenient for them to what they're accustomed to do, we believe we will continue to be increasingly successful at bringing larger retailers onto both MercadoLibre and MercadoPago.

And, on the second question, the data does show that overall ASPs tend to decline as users become more engaged and have more repeat usage, as they begin to purchase more and more categories. Now, I think there's still room to improve that significantly, because when you look at us historically we have been significantly overweight consumer electronics. And, so, the supply across a broader amount of categories has been improving significantly. Apparel is a testament to that but still has room to improve.

And, so, in terms of category expansion and verticalization, one of our big thesis behind that is that we should be able to increase our share of wallet as we improve the supply, the offering, and the experience and feature set across a greater number of categories.

So, the answer is, yes, there is a tendency for overall ASPs to get lower among more engaged users. It's not yet a significant spread between new and existing users.

Thank you.

Marcelo Santos, J.P. Morgan.

Good evening. My question is about customer care. You mentioned that you had some advances in customer care. I just wanted to explore that a little bit further. Have you started to notice an improvement in the way the users evaluate and how much they complain, how much they enter into those, for example, consumer bureaus, against MercadoLibre, due to the new contact points of customer care?

Yes, I didn't -- I don't think I understood the last part of your question, but I think I understand the overall question. So, let me take it and if there's anything missing please you can [shout out] again whatever is missing.

So, in customer service, I spend personally a lot of time even answering [Qs] from users. We have done a lot of work on the back end, and we are starting to see the results of that work on our users. I still think we have a long ways to go, but we are seeing steady progress in the net promoter scores and also in the contact rates.

As you might know, we have enabled contact buttons all over the site. So, it's much easier now to contact our customer care center, which was a common complaint particularly in Brazil. So, obviously, as we have increased the visibility and the availability of the contact area, those complaints are coming down in Brazil, as well.

So, I would say we are still in the early days. We are now in a platform and with a technology that we can move very fast. We are starting to do things that are really game changers for the way we address our users, and we have seen progress and we expect to achieve much more progress in the next few years.

OK. Thank you for the first question. And, my second question is about reacceleration in Brazil. I just wanted to get a feeling of how much the Marketplace reaccelerated? Because, you had more Pago, obviously, you have more financing revenues. But, what about the Marketplace? Have you seen changes in the market? What has been driving them, if you could just give us a little bit more color?

Sure. So, when we look at the underlying Marketplace metrics, merchandise volume, we've seen a steady improvement, in the ballpark slightly more than 10 percentage points of additional growth versus the previous quarter. I think a lot of that is being driven by the focus on improving the user experience, shipping, customer service, all these issues we've ran through.

I think in all fairness it's also important to point out that there is a somewhat easier comp than Q4 and Q3 in Brazil. The comps for Q1 and Q2 continue to be high, especially in Brazil where Q2 of last year was very strong, but certainly less strong than what Q3 and Q4 were, because those were related to the initial launch of the new technology.

So, I would say -- and we tried to transmit this in the initial remarks -- I think we're pleased with the momentum of the business. I think we're executing well. A lot of our strategic initiatives, although still very nascent, are beginning to take form. And, there also is a comp issue that gets a little bit easier. All in, Brazil did merchandise volume growth this quarter that was slightly more than 10 percentage points higher in terms of growth rate than the last quarter. So, important acceleration.

OK. Thank you very much.

Chad Bartley, Pacific Crest.

Hi. Thanks very much. Two quick questions. In the past, you've given some metrics on mobile as a percent of, I believe, traffic and GMV. Can you update us on that for Q1? And then, also in the past, you've given us growth in your total non-Marketplace revenue. I think you talked about it as a percent of total revenue. But, can you tell us how fast that grew in the first quarter?

Great. So, mobile is a number that we want to be as competitively cautious as we can. I think what we've indicated in general is that the mobile story for Latin America seems to be as potent or even more potent than what you're seeing in the US. So, there's significant growth to come from mobile, going forward, as the installed base of smartphones, which is still fairly small, continues to grow and, more importantly, 3G, 3.5G, 4G connectivity gets rolled out throughout the region.

So, we continue to see good traction. We gave a data point this quarter around percentage of users that register from mobile devices, so signaling primarily mobile usage which we think points out to how accretive this is. And, this isn't only existing users that are now using multiple screens, but actually users that perhaps weren't accessing the platform in the past. That's really the only specific disclosure that I think we're comfortable making on an ongoing basis.

And, the second question, I think we pointed out in the prepared remarks. When you look at year over year, the adjacent businesses -- so, Payments, both off-platform and the financing business, plus Classifieds plus Advertising -- year over year gained 200 bps, or 2 percentage points, of mix adoption, from 28% of overall revenues to 30%. 30% is sequentially flat. So, it's in line with what happened in Q4.

Now, bear in mind that the Classifieds business, which is slightly less than half of those overall adjacencies, was significantly hit by the Venezuelan devaluation. We have a very, very strong Classifieds business in Venezuela. And, so, that had particular impact on that business. Were it not for the devaluation, on a sequential basis the revenue percentage coming from the adjacencies would have continued to trend upwards.

So, am I correct that you don't want to talk about currency-neutral growth in your non-Marketplace revenue? Because, you've done that in the past, but it sounds like you don't want to talk about that for Q1.

We did give out some numbers. So, we said that Classifieds and Advertising grew 32% year over year on a currency-neutral basis, despite the Venezuelan devaluation. And, Payments revenues, which is the other important revenue stream there, combining both off-platform processing fees and consumer financing fees, both on- and off-platform, grew 65% on a currency-neutral basis.

OK. Thanks very much.

Dan Su, Morningstar.

Hi. Good afternoon. Thanks for taking my question. My question is on branding and the marketing investments. The management actually just touched upon that, but I'm just hoping that you can expand on how you're allocating your marketing dollars, both across geographies and the split between online and offline? And, also, kind of a related question is, how do you look at the marketing RI? Thank you.

OK. So, lots of questions, there. I'll try to take them. If I forgot one, just refresh it for me.

Sure. Thanks.

So, marketing spend is about 75%-plus online for this year, our projection. The remainder is offline. Offline is a combination primarily of cable TV and radio.

The geographical split, by and large, is a combination of relative size, adjusted by how competitive the market is and how much TV competitors are doing. It's also tough to gauge because, in the case of cable signals, in many cases you have spillover. So, you can buy feeds for a specific country and still get airtime is other countries. But, in general, the allocation is made roughly in line with the relative size of the businesses, with an adjustment for specific either competitive situation or tactical needs that we see as opportunities.

ROI is measured, particularly the online ROI, through a multiplicity of measures -- by channel, by merchandise volume, initiated revenues. There's a whole enormous scoreboard, probably not too relevant to get into here.

And, there was one more part to the question, I believe.

Yes. Actually, you've covered the questions, but I just have a related one. So, do you --? Is the marketing on branding of the overall MercadoLibre? Or, is it more product specific?

So, the online marketing is obviously less brand driven and more driven on conversions, whether it be search advertising, which is very little brand driven and very much keyword driven, or if it's display advertising. It's also very much driven on effective CPMs and effective returns, but with a little bit more of emphasis placed perhaps on promoting a specific category or promoting specific events.

The offline campaigns are the ones that have the less specifically measurable ROIs, and they focus more on brand building and brand ubiquity. One way to test the impact of the cable and the offline branding isn't so much the immediate lift on business metrics, but actually what the year-over-year evolution on brand recall and brand awareness are. So, that's more traditional offline marketing.

OK. Thank you.

Aaron Kessler, Raymond James.

A couple of questions. If you have it, can you give us maybe the unit growth by country, if you still give that out? And, can you talk a little bit about maybe your vertical shopping experiences? I know you've talked a lot about retail in the past in fashion. Maybe you can update us on just the progress there and any insights into maybe additional vertical shopping experiences? Thank you.

So, we haven't been disclosing per-country unit growths or volume growths. So, that's an easy one.

And, I think Marcos will take the one on vertical experiences.

On verticals, I would say the first verticals we developed historically have been motors and real estate, where we're doing very well in motors. We basically are the leaders all over Latin America. In real estate, we're seeing dramatic progress, over [20 Fs] in the number of listings that we have on our platform, and we're seeing strong growth in the traffic there, as well. So, we're very happy with that.

We're, in the last couple of quarters, very focused in apparel. We've done a lot of changes to our product to have a better navigation, better finding in apparel. We're seeing good traction. We're also talking to some branded sellers and larger retailers, and we're very excited with the opportunities in apparel. We see apparel being a very large category now that Marketplace is [in the world]. We think we have a big opportunity. We're doing the heavy lifting part of the job, doing product changes and talking to retailers and doing the marketing. But, we think that's a great opportunity there.

Great. Thank you.

Michel Morin, Morgan Stanley.

Hi. I was wondering if you could comment a little bit about what you're seeing on the macroeconomic front? Obviously, you were hit by the devaluation in Venezuela, and it seems like it did impact your Classifieds. Is there anything else that you would flag that might have had an impact in the quarter in any of the markets?

Great. Yes. So, I think we want to be consistent here. We have traditionally always answered macro questions by saying that given how early stage ecommerce is in the region, although macro obviously has to a certain degree an impact, we feel more comfortable attributing both strong quarters and weak quarters to execution and more industry-specific drivers such as broadband rollout, rollout of smartphones, price points of PCs, and whatnot.

Now, there are occasions where macro shifts are significant, and those are the times where we call it out. I think the case of Venezuela, from a headline and reporting angle, obviously when you have a slightly less than 20% currency devaluation, that'll obviously impact your reported numbers. And, more importantly, with the death of Chavez and then the extended electoral calendar, that really was a country that pretty much ground to a standstill for a few weeks during the quarter. But, that's more of an anomaly.

I think in the other markets the combination of a conviction that execution and industry-specific drivers are still much more important than whether GDP grows 2% or 3% leads us to try to usually not explain quarters driven by macro.

One comment we did make is that we see both countries that are showing strong macro performance on a relative basis and those that are obviously tougher environments to operate in, such as Venezuela and Argentina. And, we see the business doing well in both extremes. Merchandise volume growth in both Argentina and Venezuela continues to be extremely high, and I think it's a testament to the resiliency of the business model. This is a business model that has historically performed on a relative basis strongly also in tougher macroeconomic times, as users look to earn additional income or sell goods that they're no longer using in harder macro times.

So, again, Venezuela obviously had an impact. We called that out. But, longer term, I think we're more focused on our own execution than on what's happening at a macro level.

That's fair. Thanks for that, Pedro. And, if I may ask a quick follow-up on that, you've showed acceleration across pretty much every metric. But, by country, I think that was not the case in Mexico. I know it's a smaller market, but is there anything there worth flagging? Or, is it just the calendar effects?

No, I think that's a good point. So, there is a calendar impact. Easter is typically a relevant holiday in Mexico, and it got quarterly shifted this year. But, I think it goes beyond that. I think Mexico, for us, is a market that we longer term expect more growth out of. Ecommerce in Mexico is not something that's booming, and it's not that from a competitive situation we see other competitors performing stronger than what we're seeing. But, we do acknowledge that it's a market that underperforms what the Mexican economy is, and that we hope to see an improvement in growth from.

We did have a few quarters last year where it looked like it was accelerating. This certainly wasn't the case. So, I think we continue to hunker down and focus on continuing to launch MercadoPago in Mexico and drive adoption. Of the big countries, it's by far the one that has the lowest Pago adoption, and at one point also rolling out some of the other value-added services like shipping and the vertical categories that are already available in Brazil, Argentina, but aren't available in Mexico, yet. And, hopefully, that will get the Mexican growth trajectory back to where we think it should be.

Perfect. Thanks very much, Pedro.

Robert Ford, Bank of America.

Hello and good afternoon, everybody, and congratulations on the quarter, guys. When you look at some of the traffic stats, it suggests that traffic may have dropped off a little bit in Brazil in March. Can you talk a little bit about maybe what you're doing to drive frequency of use and whether or not we're getting a right read on some of the traffic you're seeing in Brazil?

Hi, Bob. Let me take that one. The traffic figures we look at, [comparable] figures, I think continue to show us very strongly as a leader in Brazil. Nonetheless, traffic is just one of the many metrics that we focus on. But, we're happy with the way traffic is evolving in Brazil. On the contrary, we think we had a very strong Q1 in Brazil, with acceleration of all the vibrancy metrics that we look at.

But, going to the frequency of use part of your question, clearly, integrating shipping, improving payments, these are some of the key aspects that we are very focused on to deliver a better experience for buyers and for sellers, and increase repeat usage of our platform.

So, I would say we're very focused that integrating and providing a better payments solution, better shipping, better customer service and fraud detection, verticals, navigation, mobile navigation. All these things are the key areas that we have been focusing on for several quarters now, and ones that we expect will continue to help drive our business forward and not only bring new users but increase the usage of our platform from repeat users.

And, Marcos, could you give us a sense in terms of frequency how that's evolving? If you've got so many (multiple speakers)?

Yes, it's evolving positively. We give out the number of unique buyers once a year but, when you look at that number, you will see that the number of successful items per unique buyer is growing every year for the last many years. So, we were not only growing the number of unique buyers every year, but we are also growing the number of transactions on a per-buyer basis.

So, thanks for that question, Bob.

I believe we have time for one more question.

Thank you. Robert Larity, Rose Partners.

(technical difficulty) asked earlier, you mentioned that GMV growth of 30% was much higher than item growth of 20%, and you indicated that the reason that this happened, despite the mix shift into lower-ticket categories like apparel, was because of local currency inflation. I was wondering if you could quantify the effect of that and also explain why that local currency inflation is not reflected in the US dollar translation? Thanks.

OK. I probably didn't answer the question very well, because a lot of those concepts are short-circuited. So, let me start again. The disconnect between units and local currency GMV obviously signal an increase in local currency average selling prices. Those, I was saying, come about on a quarterly basis as a consequence of two things -- people buying more expensive items, which could drive average selling prices up, or in other cases local currency inflation in countries such as Venezuela that until the more recent devaluation have stagnate -- or have non-increasing exchange rates which, now with the devaluation, get corrected, but the devaluation occurred in February.

I think what I was trying to signal in terms of the mix shift is that although on a sequential basis you could have quarters where you have increases in the mix of products being bought, longer term as we move into an increasing number of newer categories that typically have lower ASPs than consumer electronics, the longer-term trend and the one we had been witnessing over the past few quarters, longer term, were of a decrease in ASPs, that in this particular sequential quarter actually went up as we sold more higher-ticket items.

And, then on top of that, you have inflation, where in countries like Argentina and Venezuela, outpace currency devaluation, and you have stronger local currency inflation than dollar.

Does that answer your question, Mr. Larity?

Yes, it does. Thanks.

Thank you. And, with that, I'm showing no further questions in queue.

We'd like to conclude today's conference call and thank you, ladies and gentlemen, for your participation. You may now disconnect. Have a great day.