MercadoLibre (NASDAQ:MELI) reported third-quarter financial results on Wednesday. The transcript from the company’s third-quarter earnings call has been provided below.
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Summary
MercadoLibre reported a 41% increase in net revenue and financial income year over year, with Brazil showing the fastest growth.
E-commerce gross merchandise value (GMV) in Brazil grew 36% year on year, with increased shopping frequency among users.
Fintech saw monthly active users grow 29%, assets under management up 67%, and credit portfolio growth of 62%, while managing stable non-performing loans (NPLs).
Operating income was $676 million with a margin of 6.3%, down due to higher shipping and marketing costs, which are part of strategic investments.
Shipping costs increased due to logistics expansion and higher energy prices, while sales and marketing rose due to investment in the affiliate program in Brazil.
Management emphasized the strategic importance of social commerce and affiliate marketing, noting a 240% year-on-year growth in orders via the affiliate channel.
The company remains focused on disciplined investment to strengthen its competitive position, with a positive outlook for future earnings.
AI investments increased by $30 million sequentially, improving customer engagement and operational efficiency.
MercadoLibre sees opportunities in quick commerce but is cautious with investments, focusing on leveraging existing capabilities.
The company is optimistic about continued growth and market share gains in both commerce and fintech sectors, with a strategic emphasis on long-term shareholder value.
Full Transcript
Richard Cathcart (Senior Director, Investor Relations)
Hello everyone, and welcome to the MercadoLibre earnings conference call for the quarter ended September 30, 2026. Thank you for joining us. I’m Richard Cathcart, Investor Relations Senior Director at MercadoLibre. To begin today’s call, Martin de los Santos, our CFO, will share a few opening remarks, after which we will begin our live Q&A session, which will also include Ariel Szarfsztejn, our CEO, and Osvaldo Gimenez, President of Fintech. Before we go into our results, I’d like to take a moment to highlight the launch of the MELI IR Assistant available on our investor relations website. This is an AI tool that provides real-time answers to questions about our financial results, operations, and strategy based on our public disclosures. I invite you to explore it after today’s call at investor.mercadolibre.com.
As a reminder to participants on today’s call, management may make or refer to forward-looking statements and non-GAAP measures, so please refer to the disclaimer on screen and in our earnings materials that are available on our investor relations website. Please note that this call is being recorded, and a replay will be made available on our IR website afterwards. With that, let’s begin with a message from our CFO.
Martin de los Santos (Chief Financial Officer)
Good afternoon and thank you for joining us. MercadoLibre delivered another quarter of strong growth with net revenue and financial income up 41% year on year on an FX-neutral basis. Growth was broad-based across businesses and countries, with Brazil standing out with the fastest growth rate. We’re particularly pleased with commerce in Brazil where GMV growth remains strong at 36% year on year. Users are shopping more frequently with us, which is exactly the habit our investments are designed to build.
Before we lowered the free shipping threshold last year, items per buyer were growing at a single-digit pace; in Q3’26 they grew 16% year on year, still double digits even after fully lapping the change. Fintech delivered another solid quarter with strong profitability. Monthly active users grew 29%, assets under management 67%, and the credit portfolio 62%, while NPLs remained stable despite a weaker credit environment in Brazil and Argentina. Turning to profitability, income from operations was $676 million with a margin of 6.3%, down 40 basis points from last quarter. Two factors drove this: higher net shipping costs and higher sales and marketing spending as we continue to develop our affiliate program. These are deliberate investments. They reflect the trade-off we described in the shareholder letter. We are investing part of today’s margin to accelerate the shift of commerce and financial services online in Latin America and to build lasting habits across our ecosystem.
Let me spend a few minutes on each of these two factors that compressed margins this quarter. Shipping was a net headwind of approximately 60 basis points versus last quarter for four reasons. The first is last year’s decision to lower the free shipping threshold. Still working through, buyers responded by purchasing more often and in smaller baskets, and that means less revenue per shipment. We expected that, and the engagement numbers say it’s doing what we wanted. The second is capacity. We added almost 20% to our fulfillment square meters quarter on quarter ahead of peak.
That cost lands before the volume does, a pattern we have seen many times since we started operating fulfillment almost 10 years ago. This decision reflects our strong momentum and our confidence in future growth across the region. The third is higher energy prices, which raise transportation costs. The fourth is temporary recruitment costs related to the expansion of our shipping network, which are booked in G&A. The first two are strategic choices: investment in a stronger value proposition that builds online buying habits, and investment in capacity to support the growth we see ahead.
The third is outside our control and we manage around it through pricing and efficiency. The fourth is temporary. While shipping compressed our margins in Q3, we’re pleased that our network continues to become more efficient due to scale, specifically in Brazil. Despite the headwinds from new capacity and higher energy prices, cost per shipment on an FX-neutral basis declined 5% year on year and 14% since before we lowered the free shipping threshold, and in September, free shipments in the 1979 reais range were variable contribution positive for the first time.
The second source of margin compression was sales and marketing, which rose 40 basis points sequentially to 11.6% of net revenue, still within our range of recent years. We calibrate this spend quarter by quarter, and in Q3 we decided to invest more in our affiliate program in Brazil to strengthen our presence on social media. Orders through the channel grew 240% year on year. Consumers increasingly discover and buy products through creators on social media.
In Brazil, more than 40% of social media users say finding products to buy is one of their main reasons for using these platforms, and we expect social commerce to keep gaining relevance across Latin America. Since we started investing in affiliates last year, our network has grown to more than 12 million affiliates across the region. As more sellers and brands co-fund campaigns, we see a path to better economics for the program over time based on performance.
We calibrate affiliate spending, dialing it up or down as opportunities evolve across markets. In summary, these investments weighed on margins this quarter, but the underlying economics of our business continue to improve. Our logistics network is more efficient, our credit card economics are better, we gained operating leverage in product development even as we invest more in AI, and we are building new channels to acquire and engage customers. We believe these are the foundations for stronger earnings power over time. We remain focused on disciplined investment decisions that strengthen our competitive position and generate sustainable long-term returns.
With that, we’ll open it up for your questions.
OPERATOR
Thank you. We’ll now begin the analyst question and answer session. To join the question queue, you may press star then 1 on your telephone keypad. You’ll hear a tone acknowledging your request. If you’re using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, press star then 2. Please limit yourself to one question, and if you have any further questions, you may re-enter the question queue. The first question is from Andrew Rubin with Morgan Stanley.
Please go ahead.
Andrew Rubin (Analyst)
Hi, thanks very much for the question. I wanted to dig in more on the social strategy as you referenced it. I’m curious how big a part of the market you see social commerce being over time and how MELI’s right to win transfers in an environment where more shopping is social and you’re competing against some with that direct social focus. And then related to that, you framed the Brazil affiliates investment as tactical. I’m curious that framing, as opposed to something more structural, if the market’s evolving in this manner.
Thank you.
Ariel Szarfsztejn (Chief Executive Officer)
Hey Andrew, how are you? Ariel here. Thanks for your question. So on the one hand we can do as much as we can or want to design the way we want to capture demand, but in the end we need to be where the demand and the attention is, and affiliate marketing is part of that playbook. There is some broader shift in how consumers discover and potentially buy some products. Social media in general is becoming an additional channel for discovery, many times incremental, and that happens whether we like it or not.
So that’s a bit on the framework and the way we are thinking about buying incremental transactions through affiliates. In general terms, we continue to think that organic traffic driven by frequency, by the very best value proposition coming from price, selection, the best shipping and the best financing will continue to be the majority of the volume in e-commerce in the future. But still, we need to be where the consumers are. And in that regard, building our network of affiliates and building a value proposition around that for consumers is part of our strategy in order to continue building what we think is the very best place to buy online in Latin America.
Clearly we see other social players growing in the region. They are mostly focused on low-ticket items for certain categories. Our value proposition is a bit broader across categories, across price ranges. But on top of that we have been building our own social capabilities for the last two years. And that’s not only affiliates, it’s also lives, it’s also clips and videos within our infinite scroll, and so on. And we are sure that us combining those social capabilities with the assets that I was referring to before in terms of brand, in terms of selection, pricing, financing and shipping put us in a unique position in order to capture the opportunity in commerce in LatAm and which combined with our ability to deploy our ecosystem in financial services really gives us an edge to continue competing and continue gaining market share across the region.
Martin de los Santos (Chief Financial Officer)
If I can complement, Andrew, the mention around it being tactical is the intensity. This particular quarter we intensified a little bit the investment, but it’s a strategic initiative for us to develop this channel. We have been doing it for several quarters now, and as I mentioned we have reached 12 million members of the affiliate program. So that’s an area of investment that we will continue to pursue. And as we improve the unit economics, it should contribute to margins eventually.
OPERATOR
The next question is from Irma Skaerz with Goldman Sachs. Please go ahead.
Irma Skaerz (Analyst)
Yes, hi. Thanks for the opportunity. You very helpfully laid out the sources of pressure to logistics costs, but also the progress that you’re making from an underlying basis and across cost to serve more broadly. And you also characterized in both your prepared remarks and just now in the answer the step up in affiliate marketing spend in Brazil tactical. So with the overall top-line metrics and engagement KPIs also remaining so strong, and putting this all together, it does feel like the inflection point for margins should be coming within the line of sight here.
So my question is, are there any other potential new larger investment buckets, perhaps of the size of what you did in Brazil in terms of lower ASPs, that you’re looking to lean into, or perhaps a combination of a couple of different buckets that you’re looking to lean more aggressively into from here? This is a question around cadence of investment cycle. And connected to that, perhaps as you think about moving to the next investment frontiers in e-commerce, I was hoping to just get an update on how you’re thinking about the opportunity set in quick commerce specifically in Brazil, and whether we should think of that as more of a gradual effort or one where the investment curve could steepen, and if so, what could trigger that decision. Thank you.
Martin de los Santos (Chief Financial Officer)
Martin here. Thank you for your question. I think for the most part the areas of investments will continue to be similar to the ones that you have seen. As you know, we have other initiatives that we’re pursuing at a smaller scale and we can elaborate a little bit on dark stores and so on, but the areas of investments will continue to be the same. Our approach is the one that we have been describing over the past several quarters where we have certain businesses that are growing very nicely that are delivering profits to our ecosystem.
Advertising growing 58% year on year, our credit portfolio growing at 62% year on year, our acquiring business growing at 42% year on year. And we’re using some of those profitability to reinvest in other areas of the ecosystem. The approach is to manage for the long term. We are not targeting a specific short-term margin target. We have a short-term margin target, but we are convinced that it’s the right way to go to capture the large opportunity in front of us.
We are very disciplined in the way we invest. We set out targets of both engagement as well as path to profitability on all of the investment areas that we have in front of us. And when we see that they are performing well, we pursue them. If they’re not, we iterate and in some cases we stop them, so that’s the playbook that we have been following. In the short term I don’t see significant new areas of investment. We announced recently, this quarter in September, expansion of our free shipping program in Argentina, mostly to our Meli Más users.
So that could be an area of investment, but similar to what we have done in Brazil. So I would say that there will not be a significant deviation to what you have seen.
Ariel Szarfsztejn (Chief Executive Officer)
Let me complement Martin with our views on quick commerce and proximity. But before jumping into the general concept, let me try to attack your potentially more relevant concern, which is economics. We have not announced with Envíos Ahora any steep change in investments. We think that we can actually build a business that might be accretive to margins not far from today, but we are piloting and learning. Having said that, let me give you my 30,000-foot view on that one. I think we have proven over and over that the better the speed, the better the conversion rates in our apps, particularly when thinking about quick commerce. Speed matters more for some purchases than others. When someone needs something now, such as medicine or an essential gift, people have historically gone to a local store in order to get those items. Fast delivery is the lever that we think can help us tackle that market segment, and we see proximity as a layer within our marketplace for items where buyers expect that speed.
And we are building that offering initially based on our existing capabilities: Flex, our marketplace, payments, Meli Más, and the network of merchants. And that’s basically what we are testing with Envíos Ahora—shipments from the seller doorstep to the buyer using our crowd of drivers, without committing to any incremental infrastructure. Our ambition continues to be the same: to be a destination for shopping online in Latin America. And this is another layer in the value prop that expands the shopping journey that we can serve. Eventually there are more models that we can test and learn in the future. But as of today, I would say there is no steep change or inflection point in our investment mindset behind quick commerce.
OPERATOR
The next question is from Robert Ford with Bank of America. Please go ahead.
Robert Ford (Analyst)
Thank you very much and good evening. Ariel Martinez, Aldo, Richard, in your letter to shareholders you mentioned the investment in developing habits, but it’s really more than that, isn’t it? It’s also about building a dominant and comprehensive value proposition and ecosystem. And curious, where do you think you are in that part of the journey, especially in things like low ASPs, which were somewhat disruptive, and lower income groups, and social and cross border.
And is there a value prop for the merchant out there as well that we should be mindful of? And how are you thinking about the value prop, you know, for the supply side in comparison with your biggest competitors? Thank you.
Ariel Szarfsztejn (Chief Executive Officer)
Hey Bob, so let me try to address your question from a general view. I think we see a great result beyond what we were expecting with the combination of all the investment levers that we have been pulling over the last, I would say, 18 months. So engagement has been going up from existing consumers, buying frequency has been going up. New buyers has been consistent in our commerce platform. Payments, Mercado Pago, has been growing very, very rapidly.
We see more people using Mercado Pago to save, to invest, and to pay across Latin America. So I would say our whole thesis beyond investing in order to build an ecosystem that can drive engagement and scale, which will in the long run drive efficiencies and maximize shareholder value, is actually evolving exactly how we thought about that. The second part of your question, which is merchant side of our value prop, I think we’ve made tremendous progress as well. We have been growing successful sellers and successful listings at our fastest pace for many, many years. And that’s because of two things. On the one hand, because we see demand growing in the platform and basically merchants follow demand, but simultaneously because we have put in place some adjustments in take rate and value proposition for those merchants to bring more selection into MercadoLibre.
And overall we are excited with the combination of demand flowing in, frequency increasing, and supply increasing at the same time.
OPERATOR
The next question is from Marcelo Santos with JP Morgan. Please go ahead.
Marcelo Santos
Good evening. Thanks for taking my question. I wanted to ask a bit about credit. So, so far you have been doing quite well on the metrics. But when we see countries like Brazil, we see deteriorating trends in the system. You are getting larger. How are you seeing this going forward? I mean, I think the environment is getting a bit tougher. Do you feel the need to step a bit on the brakes, or on the Meli side so far so good and you can keep a good speed?
Thank you.
Martin de los Santos (Chief Financial Officer)
Hi Marcelo. I’ll say that so far so good. We have seen very good results on the credit front across countries. I think you specifically asked about Brazil, I imagine. And I would say that given the information we have and our discipline on risk management, we have been able to continue to grow, but also reducing risk at the margin, basically. So we have been able to continue to grow across most segments. On the most risky segments, we have been a little bit more cautious.
And what we are seeing is stability across products. Our 50 to 90 NPLs was 7%, stable both versus last quarter and a year ago. And we continue growing at 62%. And beyond Brazil, I would say in Argentina, NPLs have improved across all products, are close to historical lows, despite weakness in the industry. And coming back to Brazil, I would say that an important advantage is that the marketplace gives us information before we lend. We see how users buy, how they pay, how they use installments. And this brings us high-quality users to Mercado Pago at a very low cost. And we can adjust very specifically by product, by risk cohort, by the size of the credit line, or by duration.
And if we see signs of deterioration either in the marketplace behavior or in credit repayments, we pull back. So far, as I mentioned, it has been very little and mostly in Brazil. But we will always prioritize risk management over growth. But we will pursue, I would say, opportunities when we are comfortable with the risk.
OPERATOR
The next question is from Rodrigo Gastim with Itaú BBA. Please go ahead.
Rodrigo Gastim (Analyst)
Yeah, good evening everyone. Just would like to double-click here on this topic about credit in Brazil. Just understand if specifically in the quarter you had any positive impact from the government’s debt renegotiation program, if that quite helped during the quarter. And you mentioned during the letter a slight deterioration in NIM for other products other than cards. If you could just give us a little bit more details here—precisely what type of product, what type of country—it would be very helpful.
That’s it. Thank you, guys.
Martin de los Santos (Chief Financial Officer)
Rodrigo, let me start with Desenrola. We did participate in the Desenrola in Brazil from the end of July until the end of the program. I would say that during the period of the program we also joined Serasa’s discount campaign Descontaço and we ran along it. And I would say that overall there was some positive impact this quarter because of that. But I would say overall it’s small compared to the size of our portfolio. We have a $19 billion portfolio, so the impact has been rather small compared to the portfolio.
Nonetheless, it’s interesting. We always like to participate and it has a positive impact.
Rodrigo Gastim (Analyst)
The second—can you repeat the second part of the question, please? Sure. You mentioned during the letter a slight deterioration in NIM of some products other than cards that happened and why, in which country. If you could just give a little bit more details here. Thank you.
Martin de los Santos (Chief Financial Officer)
Yes, I would say that—let me start with credit card. I would say that we are happy with how credit card has been evolving, and basically in Brazil we are seeing improvement in existing cohorts and now we have a larger base of mature and maturing cohorts. And we are also seeing strong unit economics emerge in Mexico and Argentina. And so we are happy with how the business is developing across these markets, but also obviously the pace of issuance matters.
And we issued as many cards as we could this quarter. This was a record for us. And the faster we issue relative to the size of the mature book, the larger the near-term cost, even when the economics of each cohort are sound. And so I would say this has been improving. And with regards to the other products, nothing has changed overall. The change in NIM is due to the change in the relative size of the products, with credit cards growing faster than merchant and consumer loans. But merchant and consumer loans continue to be super healthy.
Ariel Szarfsztejn (Chief Executive Officer)
My compliment: we don’t see any deterioration in any other of the portfolios. If there is a slight compression of margins, it’s because we lowered the interest rate that we charge to certain customers in Argentina because the spreads enable us to do that. But we continue to see very healthy books in all of our portfolios in all of the countries where we operate.
OPERATOR
The next question is from Josh Beck with Raymond James. Please go ahead.
Josh Beck (Analyst)
Yeah, thank you for taking the question. I wanted to ask about some of the AI comments. So I believe you mentioned, you know, internally the investment was up 30 million sequentially, but there are certainly benefits that you’re seeing relative to search and customer support. So if you were to kind of carve that out in terms of flow-through to either contribution profit or operating profit, is it a positive contribution to the business today, or is that something that you see maybe happening over time as you adopt more open-source models, get the cost per token down?
So that’s kind of one question internally. And then externally, we’ve certainly got a lot more questions about agentic shopping, and it has seemingly showed up as a very small percentage of GMV for certain businesses, at least in the U.S. Just kind of curious where you stand on that opportunity. Do you see it as a channel for maybe new lead generation for new customers? You know, are you having conversations with some of these third-party agents? Would you be willing, you know, to let them open up and shop on the Meli platform?
Thank you.
Martin de los Santos (Chief Financial Officer)
Hey Josh, it’s Martin here. Thank you for your question. Indeed, on the letter we explained that we continue to invest behind AI. As you mentioned, we increased the investment quarter on quarter by $30 million, and we continue to see very, very good results, both consumer-facing as well as internal efficiencies. Consumer-facing, we mentioned Mago, which is the AI agent on our fintech platform that continues to increase engagement with our users. We see NPS improving because of Mago. We see better engagement with our platform, more of their funds coming to Mercado Pago. So all positive signs. Because of that, there are certain other initiatives that we mentioned on the letter where we can see the exact return on investment.
For instance, we included an LLM in the search algorithm, and we can see through the incremental conversion and the click-through rate that we’re seeing in those search results that the costs of the models are more than compensated by the incremental revenues that we’re generating. Customer experience: for a couple of years now we have seen significant scale because of AI, and obviously the productivity of our developers continues to increase. They’re generating more code, testing better, getting fewer rollbacks. So all the metrics that we measure are very effective in terms of productivity. Now, the way to see it through the P&L, I think a good example is the fact that we continue to scale our product development line even though we have that $100 million incremental spending year over year.
So when you put the cost of our developers plus the cost of AI, we continue to scale. This particular quarter we scaled 70 basis points relative to last year. So we are very comfortable with the investments that we’re making, and we believe we can leverage AI. Being a technology company, we can leverage AI by creating better products and by becoming more efficient—and doing more, better things, faster and cheaper—with the same team that we have today within MercadoLibre.
Ariel Szarfsztejn (Chief Executive Officer)
So let me build on this last comment of Martin and take the question on agentic shopping. We clearly see agentic shopping as an opportunity to accelerate the structural shift from offline retail into online retail. But specifically the way we’re thinking about this is not necessarily by integrating ourselves to third parties, right? So we continue to look at what’s globally happening, trying to learn, and we’re always ready to get new things and adapt.
But for now we have decided not to provide our inventory to any external platform. Our priority is still to build the best agentic experience inside MercadoLibre, taking advantage of the 27 years of first-party data that we have, our unique combination of selection, pricing, logistics, financing, loyalty, and so on. So e-commerce is much more than just search and find. Trust is built farther down the funnel through all the key variables that I was just mentioning, and that’s exactly what we excel at, right?
So we think that we can combine our strengths with an agentic experience within MercadoLibre, and with that we believe that we will be able to sustain the high levels of direct traffic to our app or our properties through that asset that we are building today. Our own agent is already available to a small portion of our user base in our three largest markets. Results are early but promising. It’s too early to share—I’m sure we will do so in the future—but our agentic experience is now a reality, and it’s not just an idea. And taking a step back, the same way I started, I think the broader point is that AI is accelerating the shift from offline retail into online, and our organization, with our technology DNA, is very well positioned to fully take advantage of the power of AI in order to fulfill our mission.
OPERATOR
The next question is from Deepak Matifanan with Canaccord Fitzgerald—sorry, Cantor Fitzgerald. Please go ahead.
Deepak Matifanan (Analyst)
Hey guys, thanks for taking the question. Ariel, first, with the Brazil elections now behind us, can you talk about whether MELI’s strategic priorities have changed at all in any capacity? Is it continuation of the same? Are there any new priorities? You need focus, perhaps more focused on affordability or cross-border or any others? And then maybe one for Martin. You’ve improved the value prop of the loyalty program meaningfully in many of your key markets. Can you talk about what are some of the other ways you can kind of continue to drive penetration for loyalty in the next, say, two to three years, and also maybe share some color on how loyalty members compare versus non-members in terms of frequency, profit, or maybe other KPIs? Thank you so much.
Ariel Szarfsztejn (Chief Executive Officer)
Hey, Deepak, it’s Ariel here. So I will not try to get into predicting Brazilian macroeconomics and dynamics, but let me say that I don’t think these elections actually change the future of MercadoLibre materially. We’ve gone in the last 27 years through governments with many political inclinations, and here we are. In that sense, across many elections and many governments, the secular opportunities in commerce and in fintech have outweighed and outlasted politics dynamics, and we expect that to continue to be the case.
And with that, our focus remains on the same thing, which is capturing the shifts that are happening structurally in the industries where we operate, building a resilient business that users want to return to. And the opportunities remain the same, and we are going to put all of our efforts and focus in capturing them.
Martin de los Santos (Chief Financial Officer)
And in terms of loyalty, we have seen significant progress in terms of our loyalty program. We have seen acceleration in the number of users that enroll into the program, obviously as we improve the value prop. Last year we made a big improvement in the value prop when we lowered the free-shipping threshold, and that resulted in a significant increase in number of users in Brazil. We recently announced an improvement in Argentina, where we expanded the free-shipping offering for our loyalty members, and that also resulted in an increased number of members.
And I think if you step back and you look at our loyalty program, the big difference that we have is the ability—because we operate in an ecosystem—the ability to provide benefits on both sides of the ecosystem. So if you’re a member of the loyalty program, you get faster and free shipping, but also you get better remuneration on your deposits, better interest rates on some of your loans, and better offers in our marketplace, and so on. So that’s the critical competitive advantage that we have.
And as we mentioned in the letter, when we look at users that operate on both sides of the ecosystem—we call them ecosystemic users—those users are a lot more engaged with our platform. They tend to buy more at MercadoLibre, they tend to bring more money to our Mercado Pago platform, and they’re a lot more profitable to us. So the loyalty program is a critical part of—it’s a critical tool for us to continue creating more ecosystemic users by bringing users from the marketplace into Mercado Pago and vice versa.
So very optimistic about it and making great progress on that front.
OPERATOR
The next question is from Niha Agarwala with HSBC. Please go ahead.
Niha Agarwala (Analyst)
Hi. Thank you for taking my question. First, on the payment side of the business, you’re showing very strong volume growth. But if I look at the yield for the payment acquiring business, there seems to be a bit of compression that you’re seeing sequentially. Could you shed some light on the trend that we should expect for the take rate for the payment business? Is there any particular geography where higher growth is leading to a bit of margin compression?
And my second question is on size related to asset quality. We’ve seen some slowdown in the growth for the consumer unsecured portfolio, and I understand you’re growing the credit cards on the other hand. But are you strategically a bit more comfortable with growth in the merchant side of the business rather than unsecured personal loans in any specific market, or if that’s a strategy you think could be better for asset quality given the trends in Brazil and Argentina in general?
So any color on that would be very helpful.
Osvaldo Gimenez (President, Fintech)
Hi Niha. So I’ll say that the main change was there used to be some margin pressure in last quarter, and that was driven mostly by an increase in POS devices driven by an increase in memory costs. And I would say the main change from last quarter to this one is the reversal of the temporary POS device restocking effect that weighed last quarter, particularly in Mexico. Last quarter we, on the one hand, had a larger inventory following strong device sales and higher prices for memory chips.
And so what we’re doing is, prices continue to be high, but we have stopped building inventory up front—basically we have enough of an inventory now. This effect has reversed this quarter. That doesn’t mean that the device cost pressure has disappeared. We continue to manage the procurement and inventory while investing in merchant acquisition.
Martin de los Santos (Chief Financial Officer)
Let me complement Osvaldo with one comment on take rates, particularly for acquiring in Argentina. I would say we are very comfortable with the take-rate and margin trajectory for any given segment in acquiring in Argentina and in general out there. Then there’s an issue with speed of growth of each segment, right? So you can see changes in the overall margin or take rate of our acquiring business depending on how fast we manage to move upmarket or to grow our existing user base.
But there is nothing to call out there concerning us and nothing to mention on the expected trajectory of the margin for that business. From a P&L perspective, the business is growing very rapidly, 42% year on year, and even though take rates are coming down because of move upmarket, we continue to deliver very healthy profit margins as mentioned, and then with regards to,
Osvaldo Gimenez (President, Fintech)
I think the second question was regarding both merchant lending and consumer lending and whether we are more comfortable with merchant lending. We, in general, have more leverage with merchant lending, but we’re, I think, nowadays equally comfortable with both. With merchant lending, we have two different kinds of merchants: those who are selling online or selling on the marketplace, and there it’s easy to collect because we can enforce the collection through the marketplace itself. Now, when it comes to POS merchants, usually mostly in Brazil, they have more than one device and therefore they can switch provider, and so it is as important to be able to score them in a good way as it is with consumers. So I would say in both cases we are equally comfortable and we are seeing good dynamics in both markets.
OPERATOR
The next question is from Craig Moorer with FT Partners. Please go ahead.
Martin de los Santos (Chief Financial Officer)
Hi, it’s Martin here, thank you for your question. Let me go a little bit deeper into the margin compression that we’re seeing quarter on quarter. That might help you identify what’s going on in particular on shipping. On the shipping part of the business, we had a compression of roughly 60 basis points. Forty basis points are on COGS and 20 on OpEx. For the most part, the shipping contraction was because of expansion of our logistic footprint. We do this every third quarter moving into peak season.
This particular year, we increased our capacity quarter on quarter by 20%. Given the size of our logistic infrastructure, it’s a lot compared to a year ago where we grew it by only 10%. So there’s a significant growth in our footprint and that creates some headwind in terms of cost in this particular quarter, so we expect that part of that to come back. In Q4 we also saw some increases on fuel costs, on energy costs. We passed some of those to our consumers on pricing, but not all of them. So there’s some pressure there that we expect to remain. And then on the other hand, we had 40 basis points of investment on affiliate, as we mentioned earlier, an affiliate scenario where we are planning to continue to invest. This particular quarter we increased our level of investment by 40 basis points compared to last quarter.
But if you look at a broader perspective, the sales and marketing line of our P&L, we are operating within the range of 11 to 12%, which is the range that we have operated for the past several years. Hope that helps you understand the moving parts in this particular quarter.
Ariel Szarfsztejn (Chief Executive Officer)
And let me complement Martin with a high-level strategic view on margin trajectory. I think for the last 18 months we’ve said the same thing in every one of these calls. We’re investing because the opportunity in front of us is large and because deeper engagement is what builds a durable leadership position in this market. We have accepted a lower margin to do that, and I think we’ve been open in that regard. And our investments are working, which is a very important thing.
Users are buying more often, transacting and saving more with Mercado Pago, and we are gaining market share in every major market in both Commerce and Fintech. We are being disciplined about it. We are investing only where we see that economics work and adjusting where they don’t work. We’re also very mindful of risk, which you can see in the evolution of our NPLs, which are close to record lows in every single country and product. And the most engaged user base at scale and a deeper ecosystem penetration is what builds earning power over time.
And this is the approach we believe will maximize long-term cash flow and shareholder value.
OPERATOR
The next question is from Lucas Alves Lusitano with Santander. Please go ahead.
Lucas Alves Lusitano (Analyst)
Good evening. Thanks for taking the question. I want to touch on logistics capacity. Fulfillment square meters increased almost 20% ahead of season, creating pressure in margin and G&A. How quickly do you expect the capacity to be filled, and should the associated costs largely dilute in 2027, or does the current growth outlook require another similarly large—
OPERATOR
Sorry, sorry to stop you. I’m sorry, Mr. Lusitano. Unfortunately your line is cutting in and out and we’re not really able to hear you. Gentlemen, would you like me to promote the next caller? You want to give it another try, Lucas? I would suggest that you dial back in. Okay, so why don’t we move to the next questions and then we can take a look at the end. Thank you. The next caller is Caio Bratto with UBS. Please go ahead.
Caio Bratto (Analyst)
Hello, good evening. Thanks for the opportunity. I would like to double-check two information on credit, please, in Brazil. First is to confirm that you are already reducing the pace of growth given the current landscape, just to understand if this is right. And second, if you can share with us, if it’s possible to share the nominal impact from the Diesel Hollow to your numbers, just to understand what would be the recurring level of provisions or NIM.
And lastly on credit, you mentioned about the NIM pressure coming from lower rates in Argentina. Just trying to understand what is the stage of this today. We have been noticing the banks reducing rate as well, and this seems to be a trend now. So just wondering if we could see further pressure on NIM coming from that in the coming quarters as well. Thank you.
Martin de los Santos (Chief Financial Officer)
Hi Caio. So let me try to address all of those points. Let me start with this enrollment. As I mentioned, it’s fairly small. It’s not a relevant number, so we have not disclosed it, and I think it’s not very relevant. It doesn’t really move the needle. I think the third question was regarding NIM and if there could be some pressure from Argentina. I would say that is not the case. In the case of Argentina, as you know, interest rates have been coming down throughout the year, and we had reflected some of those lower rates in the lower general interest rates in the lower rates we charge to our users. But that has not created a compression in our spreads. Our spreads in Argentina continue to be very healthy.
I would say the change in NIM is mostly related to change in mix. Credit cards are growing faster than the rest of the credit book. Now you mentioned, I think the first one was regarding the speed of growth, and there I would say we have been a little more cautious in Brazil in the last quarters. I would say we have been a little more cautious, but this has been marginal. This has been specific to those segments that were more risky. We have been able to continue growing at a fast pace, but we have been more cautious on those segments that we deem more risky because we were aware of what we have seen in the market both in Argentina and in Brazil with some of our competitors and the rest of the industry.
Again, our spreads continue to be very healthy, but on the margin we have been a little more cautious. In general, what we do is this: we like to seize every growth opportunity we think is profitable, but we always put risk management ahead of growth.
OPERATOR
We have another analyst from Santander who’s joined, so I’m going to promote him next. Lucas Estevez with Santander, please go ahead.
Lucas Estevez (Analyst)
Thank you. Can you hear me better now?
OPERATOR
Yes, we can. Go ahead, please.
Lucas Estevez (Analyst)
Okay, thanks for that. Sorry for the confusion. I wanted to touch on Argentina’s exposure to cross-border competition. The country has historically carried structurally higher margins than the rest of the business. As the market normalizes, competition increases, and the operating environment becomes more similar to your other markets, how should we think about the sustainability of that margin premium? Are there structural reasons Argentina should remain more profitable, or should we expect profitability to gradually converge toward the rest of the region?
And if I may, just another point in logistics, capacity and economics. Fulfillment square meters increased almost 20% quarter over quarter ahead of peak season, creating pressure in both gross margin and G&A. How quickly do you expect that capacity to be filled? And should the associated costs largely dilute in 2027? Or does the current growth outlook require another similarly large capacity step-up next year? Thanks again.
Ariel Szarfsztejn (Chief Executive Officer)
Hey, Lucas, Ariel here. So let me try to answer the question a bit differently to how you ask, given that we don’t give forward-looking statements on where margin trajectory is going to be. I think we have a unique position in Argentina. On the one hand, Mercado Pago is the primary financial institution for many, many, many Argentinians. On the other hand, e-commerce market share for us continues to be very high. And although some of the Asian competitors out there have gained some market share at the beginning of this year and the end of last year, we’ve seen the situation a bit more stable, and we are very bullish on our ability to continue improving our value proposition, removing frictions in the marketplace for consumers to continue choosing MercadoLibre as the primary destination for shopping and for financial services in the country. We’ll see what happens to margin in the future.
I’m sure we’ll have time to discuss that, but there’s no particular comment that I can bring in order to answer more specifically the question on margin trajectory.
OPERATOR
The next question is for—
Ariel Szarfsztejn (Chief Executive Officer)
There was a second part of the question. There was a second part of the question that we wanted to address. If you could remind us what it was, please.
Lucas Estevez (Analyst)
Yeah, it was about logistics, capacity and economics. As you increased almost 20% quarter over quarter of fulfillment square meters ahead of peak season, how quickly do you expect that capacity to be filled? And should the associated costs largely dilute in 2027? Or does the current growth outlook require another similarly large capacity step up next year?
Martin de los Santos (Chief Financial Officer)
Let me first say that when you see an increase in capacity in this particular case, which was 20%, as I mentioned earlier, much larger than before, it’s not only for peak season, which is going to happen this quarter, but also for the future growth that we see in that market. So we are optimistic about people moving online and growth remaining there. In terms of the speed at which that capacity fills up, it depends. Obviously, there will be a step-up functioning in Q4, but then over time it will continue to fill up, and that obviously helps in terms of unit economics.
But as you know, we’ll continue to invest in new facilities throughout the year. Maybe not at the pace that we’re growing in Q3 because of peak season, but every quarter we do increase capacity to keep up with the growth of the market. Remember, we’re growing in Brazil north of 40% items shipped for the past five quarters, so you can imagine that that requires a lot of capacity to be put into place. But over time, each new capacity as it fills up obviously improves unit economics, but then you have new ones coming into place in the following quarter.
OPERATOR
The next question is from Pedro Tarazina with XP. Please go ahead.
Pedro Tarazina (Analyst)
Hi Ariel, Martin, thanks for taking the question. Most of the topics I wanted to discuss were already answered, but maybe it would be very helpful if you could share what are your thoughts on the 6:1 workweek schedule approved in Brazil recently. So the labor journey is expected to change, and I would like to know what is the expected impact on our logistics costs for 2027, maybe, and how much of it can automation offset? Or maybe your thoughts on this topic, please.
Ariel Szarfsztejn (Chief Executive Officer)
Hey Pedro, Ariel here. So in Brazil, the standard work schedule has been six days on, one day off, up to 44 hours a week. And that has been the case for many years. As you know, a constitutional amendment approved in October moves the country to five days on, two days off, and shortens the legal work week from 44 hours to 40 with no salary adjustments. And clearly the impact that we’ll see is in our logistics force. I think you were asking about the 5-2 specifically and I would say the following.
In August, before this approval, we proactively reorganized our logistics operation in Brazil to a 5-2 schedule — five days on, two days off — with the same 44 hours weekly work. And we did that because it lets us fit our working hours better with the demand flowing through our fulfillment centers and service centers, with less idle time and lower spending on staff, transportation and meals. And we actually expect that to improve turnover over time.
So because of this, we don’t actually expect any material cost impact of that shift in the future. And we are optimistic about that. On the second change in the country, we are preparing for the next stages where the working week will be gradually reduced. I think it’s a bit early on that regard. Clearly we need the hours in order to process all the demand that is flowing through our network, which in the end will mean that we will need more employees in our logistics operation. I think the scheduling efficiencies from the 5-2 will help absorb part of the change from the 44 to 40 change.
And also the natural turnover in our workforce will give us some flexibility to test different comp schemes in the future as well. So not much more to say. Time will tell how we adapt to these, but this does not change our strategy or our ambition. In Brazil we continue to work in finding efficiencies, automating our warehouses and capturing the benefits coming from scale. I’m sure next quarter we will be able to share more details on what happened.
Maybe to complement on automation, still at a relatively low scale, but we have tripled the automation investments or the volume that we are automating within our fulfillment infrastructure, not only in Brazil but also in Mexico.
OPERATOR
This concludes the question and answer session. I would like to turn the conference back over to Ariel Szarfsztejn for any closing remarks.
Ariel Szarfsztejn (Chief Executive Officer)
Thank you. So the most important thing in this quarter results is the following. Our users are doing more with us and it is costing us less to serve each of them. Those two factors together are at the heart of how we think about this business. Engagement builds scale, scale makes us more efficient and efficiency gives us the flexibility to create capabilities that better serve our users in the future. Our investments are clearly paying off. We continue to gain market share, we continue to bring in more customers.
And frequency and engagement with our platforms are reaching new levels. MercadoLibre is extending its leadership as the go to destination for shopping in Latin America. Mercado Pago is getting closer to its objective of becoming the region’s largest digital financial services provider in the region. And the opportunity ahead of us is huge in commerce and in fintech. And we are convinced that our strategy is the best way to generate shareholder returns in the long run.
We continue to be disciplined, we continue to be mindful of risk and we continue to be bold as well. Thanks all for joining and we are looking forward to engaging with you in the coming days.
OPERATOR
This brings to a close today’s conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
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