MercadoLibre (MELI.US) recently held its FY25Q4 earnings call. The company expressed high satisfaction with its advertising performance this quarter, attributing a 67% growth in the ad business to AI-driven bidding algorithms and automated marketing tools that deliver better returns for sellers and increase ad adoption rates. However, the company also noted that it is too early to draw conclusions about the revenue impact of AI and agent-based e-commerce. It does not believe that solving a single part of the value chain, such as search, will be a game-changer; the key is providing customers with the best end-to-end experience. Search is just one component, and other services like reviews, on-time delivery, wide selection, competitive pricing, financing, fraud prevention, and customer support are equally important. The overall integrated experience determines where buyers ultimately make their purchases.
The company's focus is on developing its own agent experience internally within MercadoLibre. First-party data helps create the best personalized search and recommendation engines. If agent-based e-commerce becomes a trend, it would mean retail migrates from offline to online more rapidly. MercadoLibre expressed confidence in capturing this traffic through its internal agent experience and views the advertising business as an additional revenue opportunity in an agent-based e-commerce world. Furthermore, such a world could accelerate the shift of ad budgets from traditional offline channels to digital advertising, presenting a larger opportunity.
Regarding cross-border operations, the company stated that local fulfillment is profitable, but international fulfillment requires continued scaling, which will create ongoing pressure in the future.
During the Q&A session, management addressed several topics. On investments impacting margins by 5 to 6 percentage points, they clarified this pressure stems from various areas: lowering the free shipping threshold in Brazil, credit card investments in Brazil, Mexico, and Argentina, the ongoing path to profitability for the first-party business, cross-border expansion into China and the US, and ongoing investments in smaller countries. The cross-border business's local fulfillment is profitable, but scaling international fulfillment creates future pressure. The first-party business is profitable before allocating indirect costs, and scaling will improve profitability. Credit card profitability is improving, especially in Brazil where older cohorts are already profitable. Management is confident these investments serve long-term opportunities and enhance user experience, noting record-high net promoter scores in Argentina, Brazil, and Mexico for both e-commerce and fintech this quarter.
Regarding margin compression in Argentina, management confirmed it remains the highest-margin market. Compression came from new fulfillment center openings increasing costs year-over-year, bad debt provisions for credit cards launched last year, and year-over-year increases in financing costs, despite a sequential decrease from Q3.
On AI deployment and the risk of ad monetization shifting upstream due to agent-based e-commerce, management reiterated it's too early to conclude the revenue impact. They emphasized the importance of the entire end-to-end experience over any single component like search. The focus is on developing MercadoLibre's internal agent experience using its first-party data. They are confident in capturing future revenue streams and see external agent-based e-commerce as an incremental opportunity, currently serving ads to third parties like Google Ad Manager, Disney, and Roku using their unique data and attribution capabilities.
Regarding the Mercado Pago AI assistant, management expressed excitement about its current capabilities for handling user queries and executing tasks like bill payments. Most interactions are handled autonomously. While cross-selling functionalities are not yet active, future plans include using the assistant for promoting credit offers and acting as a personal financial advisor. On the merchant acquisition side, opportunities exist for handling pre- and post-sale issues and integrating payments. For the marketplace, the seller assistant is already active, with about 20% of GMV influenced by its suggestions, successfully helping sellers optimize listings and improve platform reputation.
On the drivers of the 67% ad revenue growth (on an FX-neutral basis), management cited broad-based improvements across the tech stack, including bidding algorithms, placement optimization, and an improved front-end platform. Specific initiatives like a budget orchestrator for reallocating unused funds and AI agents supporting sellers were highlighted. The ad revenue penetration rate relative to GMV remains low, indicating significant future potential.
Regarding balancing strong GMV growth in Brazil with future margin pressure, management contextualized margin pressure as a result of deliberate investments driving growth and market share gains, with revenue up 45% year-over-year in Brazil. They emphasized a long-term focus on capturing opportunities in commerce, fintech, and advertising over short-term margin optimization.
The results from lowering the free shipping threshold in Brazil were very positive, accelerating growth frequency, conversion, and retention, with new buyers showing higher engagement. Logistics unit costs fell 11%, driven by scale, utilizing spare capacity in slower delivery networks, and efficiency gains, a trend expected to continue.
A recent change to Brazil's shipping model, introducing fees based on product size and weight to better align with cost structure, was discussed. The financial impact is too early to quantify.
On Mercado Pago, strong deposit growth is currently not used to fund loans but significantly boosts user engagement across products. Early delinquency rates (15-90 days) increased slightly, mainly in consumer and merchant loans, but the net interest margin after losses (NIMAL) improved due to risk-based pricing. Management is satisfied with the risk profile.
Loan yields increased sequentially while early delinquencies rose. Management does not provide guidance but expressed comfort with current risk levels, noting improved models and pricing. Yield increases were similar across key markets, with more caution exercised in Argentina due to election-related uncertainty.
Sales and marketing expenses increased as a percentage of revenue due to scaling the affiliate program, which saw significant growth. The rate remains within the historical 11%-12% range. Consumer credit acceleration in Brazil and Mexico contributed to higher bad debt provisions, driven partly by successful promotions and improved credit models enabling greater issuance.
While specific figures were not disclosed, users adopting credit products or cards show significantly higher engagement frequency, net promoter scores, and spending. The percentage of GMV paid with Mercado Pago products is growing steadily across key markets, demonstrating synergy.
Credit card issuance exceeded 3 million in Q4, up significantly from 1.5 million in Q2. Growth was driven by Brazil (model improvements), Mexico (better-than-expected returns), and Argentina (recent launch). Older card cohorts in Brazil are profitable at the net interest margin level, but the overall portfolio average is not yet profitable due to new issuances.
For merchant acquisition TPV, the mix between on-platform (counted within marketplace economics) and off-platform (online and POS) transactions affects the blended take rate. Online transactions carry higher risk and complexity, commanding higher rates, while POS transactions have very low risk and lower rates. Online business has higher margins, but offline POS growth is rapid. Regarding interchange fee caps in Mexico, the proposal was not passed and is delayed, so no near-term changes are expected.
On the strategic risks of agent-based e-commerce potentially introducing disintermediation, management acknowledged uncertainties about future shopping models but emphasized that consumers value the best end-to-end experience. They are investing heavily in building their own internal agent and shopping assistant, confident in their competitive position due to their direct consumer relationship, strong brand, and purchase data. They believe MercadoLibre is well-positioned to capture value from this technological shift, which could accelerate online retail adoption in Latin America, a region where online penetration lags behind the US, UK, or Asia by roughly a decade.
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