美卡多 (MELI) 2014 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the MercadoLibre third quarter 2014 earnings call. (Operator Instructions)

As a reminder, this conference call is being recorded.

I would now like to turn the call over to your host, Martin de los Santos, Vice President of Finance.

Hello everyone, and welcome to MercadoLibre's earnings conference call for the quarter ended September 30th, 2014.

I am Martin de los Santos, VP of Finance and Head of Investor Relations for MercadoLibre. Our senior manager presenting today is Pedro Arnt, Chief Financial Officer. Additionally, Marcos Galper?n, Chief Executive Officer, and Osvaldo Gimenez, Executive Vice President of Payments, 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 Factors" sections of our 10-Ks and other filings with the Securities and Exchange Commission, 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 those measures to the nearest comparable GAAP measures can be found in the third quarter 2014 earnings press release available on our Investor Relations website.

Now, let me turn the call over to Pedro.

Thanks, Martin. Good afternoon and welcome, everyone, to MercadoLibre's third quarter 2014 earnings call.

As we approach the end-of-year shopping season, we are as enthused as ever for the work that lies ahead of us and the opportunities to build upon our recent success.

As most of you know, we recently hosted our second Investor Day and shared with the market our long-term vision for MercadoLibre and its strategic initiatives. As we highlighted then, e-commerce remains below 3% of total retail in Latin America, but all the conditions are set to keep expanding that share at a fast pace. Our region's e-commerce could double by 2018, and MercadoLibre finds itself at the center of this trend, with a leading market share and a clear game plan ahead.

And while Latin America has a unique set of challenges, we feel that our domain expertise, region-specific experience, and commitment to continuous innovation allow us to maintain our leadership role. We are believers that these unique advantages will allow us to not only partake in the region's fast-growing market, but actually to impact the rate at which that market grows.

Our best effort at doing this is through our ecosystem approach, building key service offerings and technological solutions for our platforms, and spreading these benefits to as many users as possible, even beyond our own marketplaces.

We are pleased with the results of this approach, judging by the success we are having at penetrating and promoting our commerce solutions. The results we are seeing so far are strong indicators that our strategic initiatives are driving value for all involved, that MercadoLibre offers a more enhanced platform than it did a year ago, and that the business is reflecting these benefits in its financial health.

With that in mind, let's get started with my review of a positive third quarter, by and large a continuation of our successful efforts in the first half of 2014, both from an operational and from a financial perspective.

During the quarter, versus the same prior-year period, registered users were up 21%, now at 115.2 million, adding 5.6 million new users in the period.

Successful items grew 22%, reaching 26.9 million items sold.

Gross merchandise volume grew 79% in local currencies, reaching $1.7 billion.

Total payment transactions grew 49% to $12.5 million.

Total payment volume grew 99% in local currencies, to $975 million.

Revenue growth in local currencies came in at 89% year over year. Excluding our Venezuelan operations, revenue growth in local currencies came in at 59% year over year. Despite currency valuations, revenues in US dollars grew 20% year on year, and excluding our Venezuelan operations, revenues in US dollars grew 39% year on year.

On this last point, it is particularly pleasing to see such solid growth, even in US dollars, despite reigning foreign exchange headwinds which included the first full-quarter impact of our transition to the SICAD II rate for Venezuela reporting purposes.

What allowed us to accelerate revenues to this level was notable acceleration across each of the volume metrics that I called out, as our volume and monetization were favored by the strong cross-usage of new formats and services that we are offering.

In the third quarter, mobile sales also continued to penetrate GMV in each of our country operations. MercadoEnvios, our suite of [shipping] solutions, surpassed 30% of total items sold in Brazil. Our Mall initiative continued in full gear, as we onboarded 138 new brands as official stores in Brazil, Argentina, and Mexico, and by the end of the third quarter had 364 official stores active in our Marketplace. And finally, non-consumer electronics vertical categories kept gaining share of total volume.

Here is a more detailed quarterly update of what has been happening around some of these strategic initiatives.

Let's start with our Payments and Shipping solutions, which keep proving effective facilitators for e-commerce. They are visibly eliminating friction by offering a shopping experience that is uniform and consistently trustworthy, which explains the leap in penetration both of these services have experienced over the past year.

Brazil, our largest market, has proven the template to follow, as Payments reached more than 70% of its Marketplace transactions during the third quarter, a record gain of 27 percentage points year on year. Brazil's on-platform payments also penetrated 14 percentage points quarter on quarter, aided by our newest, interest-free credit offerings in Brazil.

These new listings offer zero-interest installment to buyers. The financing charge is covered by a higher Marketplace fee paid for by the seller, but which is amply justified by the additional sales these listings generate. Free installments have obviously proven an incentive for buyers to adopt MercadoPago in the process: good for buyers, good for sellers, good for the marketplace, and good for MercadoPago.

Our shipping solution, which is offered exclusively through MercadoPago, is obviously also boosting the success of Payments. As I mentioned earlier, more than 30% of Brazil's sold units were shipped through MercadoEnvios during the third quarter, more than we could have imagined a year ago. Our Payments and Shipping methods are definitely becoming the norm in Brazil's marketplace, and we intend to spread this dynamic gradually across other countries.

Argentina, the runner-up on this trend, also made strong gains in both Payments and Shipping penetration this quarter. Penetration of Payments on our consolidated Marketplace, or the percentage of total gross merchandise volume paid through MercadoPago, therefore rose by 12 percentage points quarter on quarter, accumulating 21 percentage points year on year.

Moving on to another area of strategic focus for us, we are pleased with the advance of mobile on our platform. In the third quarter, we continued to perform usability enhancements that apply to mobile web as well as our mobile apps, continuing to capture the spread of e-commerce to smartphones and tablets. Mobile kept gaining share of our GMV in the third quarter and also contributed a higher proportion of new users to our platform than ever before: four out of 10 new users registered through mobile devices in the quarter, an indicator of the potential of mobile commerce.

But beyond a simple snapshot of current success, mobile is strategic for us because it is a key potential accelerator of e-commerce. And for that reason, our progress in the quarter also extended to new initiatives we are seeding in the mobile payments space, which should also build momentum for us going forward.

In the same way that we are extending our desktop leadership to mobile, creating new formats for more sophisticated buyers, we also keep advancing our specialized formats for large-volume sellers in all categories. This includes our growing vertical solutions for the sale of sports and apparel goods and also our storefronts for branded retail, which totaled 364 by the end of the third quarter, growing above 60% quarter on quarter, while we kept improving their traffic and sales, promoting them in commercial events such as our 15th anniversary sales event.

Our vertical and official store formats fall under the umbrella of our Mall initiative, as they both contribute to the ongoing sophistication of solutions for professional sellers, widening both our reach of consumers and of supply, and generating new, customized markets for incremental trading on our platform. Our improved selling formats are evidently increasing our success at drawing large retailers onto our platform, as in the third quarter we opened official stores for the largest electronics retailer in Brazil, RicardoEletro, as well as for Walmart in Argentina.

Our Mall initiative is therefore advancing nicely, also aided by our open platform, as it connects us directly to outside developers and to large retailers requiring tailored solutions on our platform.

As a final stop in our review of strategic initiatives, all the penetration and cross-usage of services I just mentioned is generating solid improvements in the user experience we provide. We are also going the extra mile by continuing our investments in customer experience, growing our online contact channels, shortening queues, and improving our tools for dispute management -- part of the checklist that we accomplished in the third quarter yet again elevating our net promoter score.

This wraps up our strategic progress report. We are pleased with the way each of these aspects of our business are coming together to visibly strengthen our platform, like different pillars supporting the same structure, something that is evident in the health of our key metrics and also in the financials that we will now review.

Before calling out our financial highlights for the third quarter, I would like to provide an update on MercadoLibre's reduced exposure to Venezuela. As I reminded you earlier, in mid-May we transitioned to the SICAD II exchange rate for reporting of our Venezuela operation. So, the third quarter of 2014 was the first full quarter with Venezuela reported at that rate.

The SICAD II rate averaged VEF50 to the dollar in the third quarter, marking a sharp devaluation versus the average SICAD I rate of VEF10 to the dollar employed during the first quarter of 2014 and also versus the average reporting rate for the previous quarter, which was VEF18 to the dollar.

This implies that our Venezuela operation was further devalued during the third quarter, reducing its share of our total top line from 17% during 1Q 2014 to only 6% in the current quarter. This greatly reduces the impact of future Venezuelan macro developments on our consolidated results.

As always, we remind you that we are in Venezuela for the long term, running a cash-positive business, and currently converting a limited amount of bolivars to dollars under the SICAD II mechanism based on the quotas we are allowed, an improvement versus the previous status.

I would now like to call out our consolidated financial highlights for the quarter.

Net revenues were $147.9 million, accelerating to 89% growth in constant currency and 20% growth in US dollars. Excluding Venezuela, net revenues grew 59% in constant currencies.

Income from operations was $47.1 million, up 26% in dollars year over year and 145% in constant currencies, and 75% in constant currency excluding Venezuela.

Net income before income/asset tax expense was $51.8 million, year-over-year growth of 26% in US dollars, 134% in constant dollars, and 69% in constant dollars excluding Venezuela.

Net income was $33.8 million, growing 16% year over year in US dollars, 114% in constant dollars, and 43% in constant dollars excluding Venezuela, resulting in an earnings per share of $0.76.

Taking a look at our top line performance, our consolidated revenues saw year-on-year acceleration in local currencies and, notably, also in US dollars. Despite currency headwinds that include the strong devaluation of our Venezuelan business, our consolidated revenues grew 20% in US dollars. Excluding Venezuela, consolidated revenues grew an impressive 39% in US dollars, despite other FX headwinds.

Marketplace revenues accelerated to 95% growth in local currencies, driven mainly by an acceleration in items sold on a consolidated basis and individually across Brazil, Argentina, Mexico, and Venezuela. Excluding Venezuela, Marketplace revenues also accelerated, growing 50% in local currencies.

Brazil in particular posted strong growth in underlying metrics, rebounding after World Cup headwinds subsided early in the quarter, accelerating items sold growth to its highest level in the past four quarters: a year-on-year growth of 29%, versus 21% during the second quarter.

Non-Marketplace revenues also experienced notable growth in the third quarter, accelerating in both local currencies and US dollars on a consolidated basis and also in each of our largest markets. The main contributions to this growth came, in order of relevance, from the following.

Financing revenues accelerating to local currency growth north of 70% year on year, driven by our new interest-free financing listing types in Brazil.

MercadoPago processing revenue growth, which posted above-60% growth in local currencies for the third consecutive quarter thanks to the increased adoption and usage of MercadoPago off of the MercadoLibre platform.

Strong growth in advertising revenues, which make up a small but relevant component of non-Marketplace revenue.

Classifieds revenues, which accelerated to 42% year on year in local currency, including Portal Inmobiliario, our recent acquisition.

All of these effects resulted in acceleration of total net revenues to 89% year-over-year growth in constant dollars, also accelerating to 59% year-on-year growth if excluding Venezuela.

Total revenue growths in local currencies for each country were: 49% for Brazil, 84% for Argentina, 23% for Mexico, and 220% for Venezuela.

Moving down our P&L, gross profit grew 18% year over year in the third quarter, to $104.5 million.

Gross profit margin was 70.7% of revenues, versus 72.3% in the third quarter of 2013 and 72.4% in the second quarter of 2014. Lower gross margins were driven primarily by a 192-basis points contraction related to collection fees for MercadoPago, as payment volume continues to show strong growth both on and off our platform. These effects were somewhat offset by scale in customer support and site operations.

Operating expenses decelerated to 11% growth year over year, reaching $57.4 million, representing 38.8% of revenues, versus 41.9% in the same quarter last year and 39.4% in the second quarter, excluding one-off impairment costs due to the transition to SICAD II in Venezuela.

Let me break that down for you.

Sales and marketing grew 22% year over year, to $29.4 million, or 19.9% of revenues, versus 19.6% for the same period last year and 20.1% last quarter.

This slight contraction in margin represents 168 basis points of increased customer acquisition costs and 115 basis points of higher costs related to our buyer protection program associated with the growth of Payments and Shipping. These effects were partially offset primarily by an improvement of 114 basis points as Payments penetration has aided the reduction of our bad-debt ratio, in addition to 47 basis points' worth of scale in salaries and 67 basis points of improved fraud loss provisions, or chargebacks.

Product development expense grew 12%, to $13.6 million, representing 9.2% of revenue in the third quarter, versus 9.8% in the same period last year and 8.9% in the second quarter of 2014. Scale versus last year is mainly related to a prior-year, one-time cost.

General and administrative expenses decreased 6% year over year, to $14.4 million, representing 9.7% of revenues, versus 12.4% a year ago and 10.4% during the second quarter of 2014.

198 basis points of scale came from a one-time benefit, as we were able to use a previously written-off tax credit related to the software development law in Argentina. The rest of G&A scale came from salaries and wages, 65 basis points specifically from a larger long-term retention plan accrual in the third quarter of last year versus this-year quarter.

As a result, operating income for the third quarter was $47.1 million, or 31.9% of revenues, versus 30.4% in the third quarter of 2013. I remind you that currency continues to be a relevant driver for scale. Of the 148-basis points improvement in EBIT margin year on year, approximately 100 of those were generated by the devaluation of the Argentine peso year over year.

Below operating income, we saw $4.9 million in financial expenses, a majority of these corresponding to interest accrual on our convertible bond.

Further down, interest income was $4.4 million, up 57% year on year due to higher interest rates on larger invested amounts, as our MercadoPago stored balance has increased considerably versus the third quarter of last year.

Our ForEx line is positive $5.2 million, due to the appreciation of US dollar balances held by our subsidiaries. Brazil alone accounts for $4.7 million of this amount.

Net income before taxes totaled $51.8 million, up 26% year over year and representing 35% of revenues, versus 33.5% in Q3 of last year.

Income tax expense was $18.1 million in the third quarter, representing an effective tax rate of 34.9%, up from 29.3% in Q3 of last year. The year-on-year increase results mainly from a higher tax rate in Argentina due to the expiration of the software development law in September; also by our convertible bond's financial expenses which are only deductible in the US, where we do not generate significant revenues; and finally, by a higher proportion of pretax income coming from Brazil, which has a higher tax rate than other countries.

Net income came in at $33.8 million, or 22.8% of revenues, versus 23.7% in the third quarter of 2013.

All this resulted in basic net income per common share of $0.76.

Purchase of property, equipment, and intangible assets net of cash acquired during the quarter totaled $8.4 million.

For the period ended September 2014, free cash flow, defined as cash flow from operations less payment for the acquisition of property, equipment, and intangible assets net of cash acquired, was $42.1 million, versus $25.7 million in the same period last year.

Cash, short-term investments, and long-term investments at the end of the quarter totaled $566.2 million.

Finally, wrapping up, we declared our quarterly dividend of $7.3 million, or $0.166 per share, payable on January 15, 2015, to shareholders of record as of the close of business on December 31, 2014.

That concludes my review of our third quarter.

Heading into the fourth quarter, our focus is to continue to enhance the Marketplace, scaling our businesses, driving Payments growth both on-platform and off-platform, and seeking new avenues and clients.

We will continue striving to consolidate our desktop leadership over to mobile, rolling out mobile use-cases for our entire ecosystem and providing an easy and optimal way to access our users' transactional needs across all devices, all this while perfecting our Mall concept, broadening vendor categories, building new relationships with large retail and within the development community.

I look forward to reporting back to you on our progress on all these fronts next quarter.

Thank you very much, and we can now take your questions.

(Operator Instructions) Scott Devitt, Stifel.

I don't want to put words in your mouth, but at the Analyst Day you seemed to be happy growing in line with some of the faster-growing e-commerce markets, in particularly Brazil. You just saw a meaningful acceleration in your two largest markets to levels that seem to us to be market share gaining. And several of the reasons you provided as an explanation for the improved growth seem like they're going to continue into the future.

And so, I'm just wondering -- and there is a question here -- do you think the format service improvements you've invested in may just be beginning to drive a sustainable inflection in growth rate of the business? I'm trying to get an understanding in terms of how to model this as a forward basis.

Let me break down your question very quickly. Yes, we do believe that a lot of the drivers behind the solid revenue numbers are the coming together of the different pieces of the ecosystem: payments, shipping, financing, what-not. And hopefully, those are sustainable in time.

Having said that, I think we've also said that our growth trajectory historically has been somewhat jagged over time, but that if you take a step back and you look at longer periods of time, we've typically been able to gain share gradually over time and that we set as a floor for ourselves the rate of growth of the market, because we see no reasons why we should be losing share.

I don't think that overall philosophy has changed. I think we're very pleased with the way the business is coming together. Definitely seeing that in better financials.

Some of that is also driven by monetization. As you've heard many times, we believe in capturing value when value is being generated, but we've also gone through long periods where our take rates have been relatively flat, and that could be something that could happen again in the future.

Gene Munster, Piper Jaffray.

Congratulations. Two questions. In terms of Envios, the buying patterns, do you have enough data behind an individual who uses the service how they typically buy, versus someone who does not use it?

And my second question is, at the Analyst Day you talked about some -- a little bit greater investment. Can you just clarify, in terms of the magnitude, of how you're thinking about that investment and how we should be modeling that?

In terms of the Envios product, I think what we disclosed is that average ticket items are higher. We haven't disclosed any cohort analysis or any analysis on repeat usage beyond qualitative. Obviously, it's a much improved buying experience; it's a safer buying experience; and we believe that over time it should drive engagement. We haven't gotten into the specifics of the data. It's interesting proprietary data.

But definitely, it's a better experience, and we trust it builds long-term engagement with the platform.

And then, your second question -- which is also forward-looking and we typically like to comment on the current quarter -- but conceptually, I think what we've been saying is we can see a little bit of that in this quarter, and you don't see more of it because currency also helps.

As we grow increasingly comfortable with the platform, we have been investing some margin into customer acquisition. If you look at the sales and marketing line, it doesn't show leverage this year, and I think that gives a sense that what we said we would be doing is playing out; which is, to invest some of the margin that the business is delivering back in the right areas of OpEx, and customer acquisition we've said is one of those.

Thank you.

Ross Sandler, Deutsche Bank.

This is [Depok], on behalf of Ross. Just a question on the Brazil unit growth. The 29% unit growth was a good acceleration despite comps being a little bit easier. But wanted to get a little bit more color on that. What exactly are you seeing that's driving that? Can you give more color in terms of what the customer growth is versus purchase frequency that's driving it?

And then, secondly, can you give a little bit more color on the unit growth in other markets, like Argentina, where revenue growth was strong?

As you can see, definitely there's strong unit growth in Brazil, higher than the previous quarters. A couple of factors there I think worth noting.

First of all is we had highlighted that the second quarter had some hangover from the World Cup that hit primarily in that quarter. So, I did think that we tried to be clear in saying that there is some slowdown previous quarter that was not run rate, but was specifically attributable to the World Cup.

We're seeing a pick-up in our unique buyers in Brazil. So, we're seeing improvement in units per buyer, but we're also seeing a pick-up in new buyers, which is also very healthy.

And then, the final thing I would say -- or, two more things I would add. There continues to be downward trend in average selling prices. So, that's an inclination that we continue to expand into more categories that have lower ASPs than the old core categories in consumer electronics. So, the verticalization of category strategies is playing out nicely in terms of incremental purchases in units.

And then, finally, we also see when we segregate between transactions that have one of our value-added services overlaid, whether that be shipping, payments, credits, we see acceleration in growth of those transactions versus the transactions that are the old model, where there's just a purchase and none of our additional services are overlaid.

So, those are probably the drivers behind the Brazil acceleration: World Cup is behind us; we're seeing growth in buyers; we're seeing expansion into new categories; and we're seeing some really good traction in transactions that have one of the enhanced services.

The Argentina question, Argentina had interesting growth. If we look at Argentina, breaking it out between Marketplace and non-Marketplace, similar growth among both BUs, or segments. In other words, both Payments and the core Marketplace had strong performance in Argentina during the quarter. If we look at local currency growth, it's in the mid-80%s, consolidated, and both segments are close to that. Obviously, Argentina, some of the local currency growth needs to be adjusted for inflation, but even if you back that out, you still see very solid growth in top line, both in the Marketplace and the non-Marketplace businesses.

[Thanks.]

Stephen Ju, Credit Suisse.

Pedro, this is the second quarter in a row in which you posted what looks like an accelerated rate of user sign-ups. So, did you do something to simplify [filer] registration path onto the platform? Or, is this all due to mobile?

And secondarily, I neglected to ask this at the Analyst Day, but MercadoLibre Publicidad looks like a pretty interesting move to adopt a more -- I guess, more the ad-driven models, the marketplace's platforms in Asia. So, how has the seller adoption of this product been so far? And between this and the interest-free listings, there now seems to be multiple ways for you guys to capture some more of the marginal economics. So, I'm just wondering what the seller adoption of these two products have been?

User acquisition I think this quarter is organic. We had said that some of the user acquisition pick-up last quarter was also driven by the purchases of real estate sites in Chile and Mexico. That's not the case this quarter. This quarter, it's just solid organic pick-up in the rate of new users.

As I had mentioned before, there is a financial offset to that, if you will, which is there are some margin points in customer acquisition that were given up. We're quite comfortable with that tradeoff, and that's exactly what we're managing to. In other words, there's just more spend in bringing in more customers through the door, and we're seeing the results of that.

Obviously, mobile is driving some of that. We've said that more than 30% of new user reg is coming from mobile. A lot of that incremental spend is going into mobile advertising.

So, we're carrying out the investment plan in terms of user acquisition that we wanted, and we're seeing the results.

The advertising business, it did begin to pick up its rate of growth, growing in dollar terms around 20%; it had been sluggish in the past. But it still continues to be quite small. I think what we've always given is as an order of magnitude it's sub-3%. It continues to be sub-3%, quickly moving in that direction.

But given that growth was quite strong across the board, the rate of growth, although it accelerated versus prior quarters for the advertising business, it isn't necessarily higher than the other parts of the business. It's actually in line with what overall revenues were growing in dollars.

And then, interest-free, that is newer. So, it's coming from a slower base, and that has showed some very strong growth. So, that one is a very interesting initiative that, going forward, I think we'll be looking at very closely.

Thank you.

Finance, in local currencies, grew north of 70% year over year, finance revenues. So, a strong contributor.

Okay. Thank you.

Marcelo Santos, JPMorgan.

I had two questions. The first is on the zero-interest feature that you introduced. Just get a little bit more color. Which categories are using more this? I know it's very early, but which categories are using more this tool? And what's the profile of the sellers that are using it? This is my first question.

What we did initially with zero-interest, with (spoken in Portuguese) in Brazil, is limit it to the power sellers. So, it's mostly the larger sellers of MercadoLibre who are able to use it. And now, we are expanding that to some other sellers.

And category-wise, basically we've seen most of the use in higher-ticket items which are the ones that consumers are more willing to pay in installments.

Okay. Thank you. And the second question is about the tax benefit in Argentina. You mentioned that now you're not receiving it, and then there is a new law. Have you been admitted to receive the benefits under the new law? Or, what are the steps for that to happen?

So, the answer is, no. We have not received official notification of our entry into the new law. No one has, that we're aware of. So, it's still pending government implementation. To the best of our knowledge, that is something that should not be an issue. But until its official, I think we need to maintain a wait-and-see position.

Regardless of whether we enter or not, it increases our tax rate because the new law, although it extends the tax holiday, it does so at a slightly higher rate, or with less benefits than the old law.

Okay. Thank you.

(Operator Instructions) Mark Miller, William Blair.

I also have a question on the interest-free financing and wanted to get your sense for how quickly you think this can be introduced and drive penetration in Mexico?

And Pedro, in your comments, I saw you also alluded to, as a market leader, viewing the Company as an opportunity to actually drive faster growth. So, do you think that we could see an acceleration in Mexico?

And then, as you've been tracking this offer be implemented in Brazil, are you able to see whether, effectively, sellers are not passing through the full amount of the value to the consumer with that interest-free financing; in other words, absorbing some of it to drive faster unit growth?

Let me start with Mexico, and then let's move on to Brazil. In terms of Mexico, as we said, we are in the process of rolling out zero-interest financing and that will happen during this quarter, before the end of the year. And we'll start again with a small segment of sellers and then see how we are willing to expand it to other sellers.

And in terms of Brazil, what we are seeing, some users are obviously passing through part of the increase in price, but what we're seeing is that the percentage of transactions done with (spoken in Portuguese) is significantly higher than the percentage of listings with that -- of that type of listings. And therefore, the consumers are finding it more attractive that regular listings, and it's driving volumes.

And then, can you, I guess, share what element of uniqueness or how sustainable you think this benefit is to you?

We believe this to be sustainable. We believe that this is driving part of the volume. We are doing it in a way that is profitable for us, that it's increasing financial revenues. And therefore, we think that we are able to sustain this in Brazil and to roll it out in Mexico.

I think, Mark, just to complement that, the interest-free purchase in Brazil is fairly standard among retailers. I think what's interesting for us about this is that it actually allows us to address what was in the past somewhat of a non-competitive offer.

So, I wouldn't say that this is something that we have and others don't, but I think it is very relevant, because in the past it was one of the few areas where we felt a lot of our retail competitors perhaps aggressively pursued this as a growth strategy and we couldn't replicate, since we weren't the retailer; it was our merchants. And with this new feature and listing type, we're now able to allow our merchants to offer interest-free financing. So, that puts us on par, and then we can allow all the other competitive advantages we have to do their work. And I think that's what's driving growth.

So, despite not being something unique, I think it's something that's very relevant, because it puts us back on equal footing on one of the few areas where we clearly weren't in the past.

Great. Thanks for the clarification. Then, just one other, on the customer acquisition investment. So, up 168 basis points as a percent of revenue. Can you help frame what the rate of increase is in customer acquisition? And I'm gathering it's going up faster than what the number of new users are. So, to some extent, there is an investment in future periods. [Ought we] to see that new customer add number actually potentially accelerate in coming periods?

One second, here. Let me give you an order of magnitude of growth in customer acquisitions.

You're accurate in that the investment increase is higher than the increase in the clip of new users. That's by design. One of the ways that we're able to allocate more money is by going after perhaps slightly lower ROI channels, when measured short term, than we were in the past. But, again, we think we need to continue to push more people through the door. Long term, that should be beneficial to us, given where the platform is at, and then the multiple services we have to drive improved engagement.

Terrific work by the team. Keep it up.

So, roughly, just to give you a sense, the increase in customer acquisition cost -- and for us, that's not just marketing spend; it includes a couple of other things -- was roughly 50% year on year.

And Pedro, the other part of the question was since there is some lag in terms of the customer acquisition, it'd be reasonable to think, it seems, that that number might begin to grow faster in future periods?

I'd rather not enter into forward-looking statements. I think what we're saying is were willing to invest more behind customer acquisition. Customer acquisition has many different flavors. There's mobile investment, desktop investment. There is other areas that might have different ROIs in different quarters. So, let's wait and see.

I think the one thing we're committed to, given where the platform is at, is to be somewhat more aggressive in bringing users through the door, and hopefully that will continue to drive positive growth not just in users but obviously in transactions and financials.

Great. Thanks.

Michel Morin, Morgan Stanley.

Two questions. The first is, given in Brazil you talked about getting the World Cup behind you, so should we take from that that during the quarter you saw acceleration of the growth?

And then, secondly, regarding the financing, again in Brazil, can you help us understand the nature of that 70% growth rate? Is it the same if we were to break out the gross, because that 70% is net if I recall correctly? So, I just wanted to see if there's anything that's driving that number, whether it's really gross financing or if it's a change in terms of the financial expenses? And how are you in financing today relative to the peak levels that you had achieved in the past?

The first part of the question, yes. Implied in the World Cup impact was that obviously July still had some World Cup tailwinds. So, July was lower. August and September were probably more in line with each other. So, really, the World Cup was a part of a drag that extended into the back end of the quarter.

In terms of financing, I don't know, Osvaldo, if you want to take an initial stab at that one?

In terms of finance fees, the acceleration we saw in growth is related, in the case of Brazil, to the zero-interest financing. And here, what we see is a growth in volume in the amount of items that get bought with the financing option. Even though we are losing a little bit of margin in those items, overall we have significantly higher revenues.

Okay. So, your gross financing is actually up more than 70%.

Gross financing will be higher than that. Yes, correct.

Okay. And then, as a percentage of your revenues in Brazil, are we are at new record level of net financing fees?

We're trying to see here historical data for back when Selic was lower, because there has been some pressure. Looking over the last few quarters, we're definitely at some of the highest financing take rates and implicitly, therefore, revenue as well.

So, my intuition would be, yes. I'd have to look at a longer historical sequence, which I don't have in front of me, but I would say, by and large, pretty sure that, yes.

That's great. Okay. Thank you very much, Pedro.

Thank you. This ends our Q&A session and the call for today. Ladies and gentlemen, thank you for participating. You may all disconnect.