Hello, everyone, welcome to the MercadoLibre Earnings Conference Call for the quarter ended December 31st, 2022. Thank you for joining us. I'm Richard Cathcart, Investor Relations Officer at MercadoLibre. Today, we will share our quarterly highlights on video after which we'll begin our live Q&A session with our Chief Financial Officer, Pedro Arnt, and President of our Fintech business, Osvaldo Giménez. Before we go on to discuss our results for the Q4 of 2022, I remind you that management may make, and this presentation may contain forward-looking statements, please refer to the disclaimer on screen, which will also be available in our earnings materials on our investor relations website and our Form 10-K for the year ended 2022. With that, let's begin with a summary of our results.
Hi, everyone. I'm happy to share the key messages about MercadoLibre's performance during the Q4 of 2022 and the year as a whole. We're particularly pleased to have been able to deliver an attractive combination of growth and profitability throughout the year. Alongside strong operational KPIs and market share gains, all while sustaining a high level of investment in products and technologies. We've successfully navigated a challenging environment. We've reached new records across the business despite uncertainty around consumer spending, interest rates, and inflation. With a strong Q4, we end 2022 with record results in GMV, TPV, items shipped, and net revenue, as well as EBIT. Revenues, for example, for the first time ever, surpassed the $10 billion mark for the year. Quite a milestone for our company.
EBIT also came in at a new landmark level, surpassing $1 billion while delivering margin expansion. Perhaps even more unique is the combination of record EBIT and margin expansion while still growing revenues at roughly 50% year-on-year. During 2022, MercadoLibre strengthened its leadership of the e-commerce market in Latin America, as our data indicates that we achieved market share gains across the entire region with Brazil and Mexico standing out. These market share gains are grounded in our consistent investment and execution around all aspects of our commerce value prop, and also over an extended period of time. Our ability to offer a very broad product assortment from sellers of all sizes at competitive prices and with fast deliveries continues to be a key differentiator for the company.
The profitability of our commerce business also improved substantially year on year during the Q4, helped by the expansion of Mercado Ads revenues, better management of promotional budgets, a healthier margin on 1P merchandise sales, and the continued overall scaling of our business. Development of technology for Mercado Ads has been a major focus during 2022, increasing presence of ads and their monetization as well. Ads penetration, for example, grew another 10 basis points in the Q4 despite strong growth of GMV while maintaining its attractive EBIT margins. We still see plenty of opportunities for ads growth ahead of us as we continue to improve technology to better serve our advertisers. 2022 was also a fantastic year for Mercado Pago, with TPV growth exceeding our expectations while delivering take rate expansion on a year over year basis.
On the acquiring business, first of all, we maintained our strong growth and margin performance driven by QR payments and our POS business in Brazil, Mexico, and Chile. On the other side of Pago, the digital accounts business, both pay-payments and cards TPV continued to grow at triple digits in 2022, highlighting the traction in becoming the digital account of choice for many of our users. Mercado Crédito performed well in the Q4 once again and in the year as a whole, positively contributing to our profit growth despite tougher economic conditions. Throughout the year, we were able to manage the performance of our book closely and adjust to the changing realities. These effective risk controls resulted in record profits. We remain optimistic about the positive ecosystemic effects of Mercado Crédito as well going forward.
2022 has been a year of adjustments, on the other hand, for the credit card product. With improvements to the underwriting models, we've seen a much improved performance from the most recent cohorts on the credit cards. That leaves us encouraged by the performance of that product, which will remain a key element of the wider Mercado Pago value proposition and strategy going forward. All of these credit products complement our wider Mercado Pago offering, for which 2022 has been an important years in terms of broadening the scope of financial services we're able to offer. We think we now have a product stack in place that is sufficient to meet our users' core day-to-day needs, which will enable us to accelerate our efforts to achieve principality within that user base.
All of these strong results have been made possible by top-notch execution from the team and discipline in leveraging our scale to deliver continued cost dilution. You have a much more detailed review of all of these Q4 operational and financial results made available to you, both in our shareholder letter and also presentation, which are published on our investor relations website. With that, but before turning to the live Q&A section, I'd like to hand it back to Richard to go through some of the latest business and product updates of the quarter and year. Thank you.
2022 was another important year for investment in technology at MercadoLibre. Today we want to share some of the key impacts that these investments have delivered to our ecosystem as we continue on our mission to democratize commerce and financial services in Latin America. We're now able to offer a full stack of day-to-day financial services and products to our millions of Mercado Pago users after 18 months of intense technology deployment. We are leveraging our data in order to cross-sell new products and services to our users. Users of our digital account have access to debit and credit cards, along with QR code payments and online transfers, making Mercado Pago more useful for their day-to-day needs. This is an important step in building towards achieving principality.
Mercado Pago also offers saving buckets dedicated to our users' specific objectives, and they are able to choose from different risk profiles with a minimum investment of just 1 BRL in Brazil. Users can now also make investments in a quick and simple process via the Mercado Pago app. This includes banking deposit certificates from our financial institution with a fixed rate, and more recently, users in Brazil have access to three simple investment funds. Mercado Pago also offers different insurance options to suit our users' needs with life, personal accident, and online transactions insurance. This offers protection against uncertainties that many of our customers may face in their daily lives. With a complete product stack, Mercado Pago is well positioned to become a leading financial services provider in the region, enabling us to foster financial inclusion across the region.
Our commerce platform currently serves millions of buyers and sellers. By offering a world-class experience, we've surpassed the mark of 1.1 billion items sold in 2022. We are investing in technology to continue to improve the online shopping experience of our users as we believe this will drive more retail spend online, particularly in categories where e-commerce penetration is low. We deployed improvements to several categories in 2022, including home and decor, fashion and beauty, and auto parts. For example, in the auto parts category, we have simplified the search and filters in order to create a more specialist experience, whilst in the home and decor category, we've further developed our discovery-led navigation experience. New features have enabled sellers to promote their products in different formats.
Short videos recorded by sellers to promote their products have reached millions of monthly views. Improvements in our advertising platform have increased the presence of ads in product pages. MercadoLibre continues to have the fastest delivery times in all of our key geographies. We're also investing in technology to improve the efficiency of our logistics network. In 2022, we were able to deliver significant improvements in the productivity of our fulfillment centers, which means that even with a higher penetration of fulfillment deliveries, our overall net shipping costs as a percentage of GMV remained broadly flat year-over-year. Our MELI Places network grew to over 7,000 locations with over half of the returns already done through Places. These returns have a higher NPS than other options, such as the local postal service.
For buyers that choose to pick their items up from the MELI Places network, the MPS is the same as for deliveries made to the buyer's home. We also delivered improvements in lead times with the MELI Air operations, reducing over one day in lead times as well as optimizing costs. We ended 2022 with a stronger ecosystem and great opportunities ahead of us, We are as confident as ever that the best is yet to come.
As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. We do ask that you limit yourself to one question and one follow-up. Again, we ask that you limit yourself to one question and one follow-up. One moment for our first question. Our first question comes from Andrew Ruben from Morgan Stanley. Your line is now open.
Hi, thanks very much for the question and the detail. You made a comment in the release about operating in a fast-changing, competitive landscape in Brazil. I'm curious if you could elaborate and specifically, in that type of competitive environment as you run your business, what changes, and what doesn't? Thank you.
Hi, Andrew. In general, I think the area we operate in, both consumer commerce and fintech, and specifically the technology areas, are low barrier of entry, highly competitive markets which generate extremely dynamic market situations and structures. I think one of our characteristics over the last 20 years has been speed to adapt and speed to change course, while at the same time having a very clearly defined long-term focused strategy. That's what we consistently refer to when we talk about how dynamic the segment is. Our long-term vision for what we're building is very consistent. The areas we focus on are consumers, are merchants.
The quality of our products and our technology has remained incredibly consistent over time, and tactically, we try to adapt very quickly to changing market dynamics, to changing technological dynamics and consumer habits. We think that we've served our consumers and shareholders well because of that speed of adaptation that we've built into our culture and how we operate.
Great. Thank you. If I could just follow up quickly. In terms of how you're thinking about the 1P business, I know it was an area that slowed down a bit in the past year, but you've talked about a greater opportunity over time. Any updated thoughts about how you're feeling about that business, the economics, et cetera? Thank you.
We've continued to see improvements, first and foremost in capabilities, how we operate the technology that we've built in-house to run that business in terms of pricing, of buying, of promoting. A consequence of those improvements in capabilities has been improved PPMs and better economics coming out of the 1P business. That bodes well in terms of our expectations going forward for the 1P business, in that we feel we're closer and closer to the point where the combination of capabilities and also what those P&Ls look like allow us to re-accelerate that business again sometime over the next few quarters.
Very helpful. Thank you.
Thank you. One moment for our next question. Our next question comes from Irma Sgarz from Goldman Sachs. Your line is now open.
Yeah, thanks for the opportunity. The CapEx for the year came in just a bit lower, actually, quite a bit lower than we had maybe imagined at the outset of the year. Obviously, no negative impact to the overall results there. I was just trying to think a little bit how you would characterize maybe the path for CapEx going forward, just in terms of what you still have to deploy specifically on the fulfillment of the technology side, within those fulfillment centers and automation equipment, et cetera, as you take your logistics network to the next level. Then, shifting to payments. In the release, you point to share gains that you've been driving in the mPOS business in Brazil as you've been shifting a little bit more upmarket.
Can you talk about how your offering is different from the competitors and how crowded you see that space? As a function of that, sort of how you're thinking about room for pricing adjustments and how you expect churn to develop? Thank you.
One moment, please.
Sorry. Hi, Irma. Let me take the CapEx one first. If you look at the cash profile that we delivered both in the Q4 and full year 2022, I think 2022 was a stellar year in many aspects. Cash generation was one of them, both from an operational cash flow but also some of the disclosures we offer in the PowerPoint around available cash and change in free cash generation. Part of that cash generation was because we are operating close to peak utilization in some of our geographies in terms of our logistics fulfillment centers and sortation centers. We do anticipate some incremental investments when we look at 2023 versus 2022 in terms of CapEx, primarily on the logistics front as we build incremental capacity that we are needing in some markets, primarily in Mexico.
In terms of the other big CapEx item, which is developers and capitalize product development. I think what you're seeing going forward is a bit of a slowdown in the pace of net new adds of developers. I think we're still going against most others in that we continue to hire, but probably at a somewhat more measured pace than we had been adding engineers over the past few years. That will also, in a way, generate a lower cadence of capitalized R&D when we look into the future years. Net net 2023 should come in higher than 2022 did in terms of CapEx, at least as we see it right now.
Thank you.
With regards to the payments question regarding our POSs and our move upmarket in Brazil. In Brazil and in all of the regions, it's something we are very excited about when we look at how we have been able to grow TPV. It's not because we are selling a whole lot more devices than we were a year ago, but rather because we have been able to significantly increase the TPV per device. This growth has been driven by rolling out and deploying rolling out the pro-products that we believe are more robust, that have better connectivity, better approval rates, and better NPS than we had in the past, and that is recognized by some of our users. What we're seeing is significant increase in these TPV per device.
Also we are deploying a larger sales force than we did in the past. Most of it is a third party sales force. It's not our own, but nonetheless, they are enable us to scale in the SMB segment.
Thank you.
Thank you. One moment for our next question. Our next question comes from Marcelo Santos from JP Morgan. Your line is now open.
Hi. Good evening. Thanks for taking my question. I hope you can hear me. The question is about the provisioning on the credit business. I think in the presentation you mentioned that the provisioning went down partially because of better credit quality. Does this mean that you reduced the amount that you provision per in terms of like fast to payment? I think in the previous quarter, you showed a range of how much you provision per cohort. Did that change because you improved the quality or it didn't change? Thank you.
Hi, Marcelo. I think let me describe in more detail what has happened over the last few quarters. As you recall, during the Q2, towards the end of the Q2, as we saw that market conditions were worsening, we decided to be more restrictive and to lower our exposure to higher risk segments. That has been the case throughout the third and Q4, and where in each of the countries and in each of the businesses, we lower our exposure to the higher risk segments. As a consequence of that, we had lower NPLs and that reduction in NPLs drove a reduction in provisions.
Nonetheless, as we are originating loans that are less risky, the new provisions have slowed down proportionally. Nonetheless, they accurately reflect our best estimate on what the risk is. We are comfortable with the level of provisions we have. It's just reflecting an improvement in the risk we are taking.
Thank you. One moment for our next question. Our next question comes from Robert Ford from Bank of America. Your line is now open.
Thank you very much. Hey, Pedro, Osvaldo, Richard, congratulations on the quarter, and thanks for taking my question. Pedro, how are you thinking about the disruption to Americanas, your relative competitive advantage in near-term market share opportunities? Is that dislocation having any impact on the promotional support from suppliers in 1P categories?
Hi, Bob. Thanks. In a way, it's a continuation of the answer to Andrew Ruben's question at the beginning. Our strategy has never been driven by what competitors are doing or not doing, but much more focused on what we're doing and on our consumers. On a tactical level, I think if there are market share opportunities that become available, then without changing strategy, we will see how we can potentially lean into those and try to take advantage and gain some of those shares or gain some of those share gains that are being lost potentially by other competitors. We are seeing the market being disrupted in some ways positive, in some ways negative. We do have short-term tactical plans to see how we can potentially take advantage of that.
Again, I think much more importantly, from a strategy perspective, from the business lines that we're trying to develop, nothing changes as a consequence of what might or might not happen going forward with Americanas.
No, that makes sense. In terms of the ad business, can you provide a little bit more color in terms of the incremental functionality on the Ad Server and the demand side platform, as well as any expected timing of improvements?
Yeah. I think over the last probably two or three quarters, we've been very consistent about talking about the new product deployment and how we've accelerated our focus and investments on technology and Ad Tech business. We've doubled the engineering headcount there over the last probably half a year. We also, I think, have been very consistent in saying that between the product launches and the technology improvements, and when we actually see the results coming in, there is a lag, and it's hard for us to predict how long that lag might take. We'll need to see how that plays out throughout most of this year. We've continued to push significant product enhancements in the advertising business in Q4 and into the beginning of 2023.
We remain optimistic about eventually being able to reap the returns of those improved investments in the ad stack. Hopefully we'll be able to report something over the next few quarters. We continue to see consistent penetration gains from advertising revenues as a percentage of GMV, and that continues to be one of the most attractive revenue streams when we look at the margin structure there. I guess we all are very focused on this, and let's keep you posted as we go forward into the year on how the results begin to flow in.
Yeah. We'll look forward to it. Thank you very much.
Thank you. One moment for our next question. Our next question comes from Thiago Macruz from Itaú BBA. Your line is now open.
Hi, guys. First congratulations on the quarter. Two questions from us. First, regarding the Mercado Crédito business, I think that achieving a lower cost of funding is key here. I just want to understand if that is entirely dependent on the e-wallet reaching further usage and principality or if there's another avenue to that end. A follow-up on the ads question just a few minutes ago. Is it fair to say that technology is not a restriction for the marginal growth of the business and rather generating further demand by eventually showcasing the economics of what you guys are offering from the seller standpoint? Those are my two questions. Thank you.
Hi, Thiago. I would say we have started to grow the CDBs we offer to users. We in the past used to do this through third parties, and it's something that we have done more and more since we launched and in the Q4. I don't think it has had a yet relevant impact in the overall cost of funding because since we are promoting the growth of CDBs at Mercado Pago, the cost we have is similar to the one we are getting from third parties. As we expand this could be relevant in the future. So far I think it's still early days of our funding with CDBs.
Thank you. One moment for our next question.
All right. Sorry, one second. There was a second part to the previous question. On the ads piece, Thiago, if I understood the question correctly, we do think that technology is not just a nice to have or an additional benefit. It is a core necessity of being able to scale out the advertising business and have it reach the long-term size that we would like to reach. So the improvements we've made in terms of incremental positions and inventory for advertising, the improvements in the Ad Server technology that delivers display advertising throughout the platform, the launch of a self-service DSP platform for ad displays, the improvements in self-service reporting for advertisers to be able to see their results in near real time and react to that quickly. Equally important, the ability to better target audiences within 15 minutes.
All of the focus in terms of technology over the last few quarters probably begins to put us on equal footing with some of the largest and most successful technology platforms, whereas before we simply weren't there. This really is, I would say, a necessity to have launched this technology and get it right. We're very encouraged by the fact that it's now out there, and hopefully we'll see over the next few years adoption of all these different pieces of the stack deliver the kind of results that we envision.
Fantastic. Thanks, guys.
Thank you. One moment for our next question. Our next question comes from Geoff Elliott from Autonomous. Your line is now open.
Oh, hello. Thanks very much for taking the question. The release talks about a sequential increase in fulfillment penetration, looks like in Brazil, Mexico, Chile, kind of across the board. Can you give us a bit more detail on that and an update on where we stand on charging for fulfillment? Thank you.
In terms of the model, we charge for both rental space, and we charge for inventory that doesn't rotate quickly enough and generates inefficiencies in terms of floor space. What we've been saying over the last few quarters is that we have dual objectives of introducing monetization behind fulfillment, yet at the same time, still push adoption and usage of that service, primarily outside of Mexico to Mexico-like levels or in the direction of Mexico-like levels. In a way, those two levers are opposing levers. We've introduced the full model, but we've kept pricing relatively low. If you look at the Q4 results, the monetization overall in the logistics operation in Mercado Envíos was actually higher.
We have gradually been dialing up monetization around our full set of logistics services, in part to offset cost increases and also in part to better reflect the services we're offering. It's still being done so at a very gradual pace. Again, repeating myself, bearing in mind that we still need to drive significant penetration growth in fulfillment, primarily in Brazil, Chile, Colombia, and Argentina, that are still 20+ percentage points behind Mexico in terms of adoption. It'll be a very-
Great. Thanks very much.
Gradual and steady process. It'll be a gradual and consistent process over the next many years, but I wouldn't expect any significant step functions in terms of monetization, not anytime in the near future, at least.
Great. Thank you.
Thank you. One moment for our next question. Our next question comes from Jamie Friedman from Susquehanna International Group. Your line is now open.
Hi. Thank you for taking my questions. For Pedro or Osvaldo, two questions to just ask up front. How should we be thinking about the journey in the TPV between on and off platform? I mean, obviously, off platform number is great. What would it take to get even more ubiquitous acceptance off? That's the first one, like the journey on, especially off platform. In terms of the FIDICs, what is the current messaging and strategy of the company? Previously for Crédito, I thought that the goal was to syndicate more and more of the credit. Is that still the approach, or would you be comfortable if credit quality improved, profitability was great today, taking some more on balance sheet? Those are my two questions. Thank you.
Hi, Jamie. Let me start with the first one regarding TPV. I think that we are very happy with how TPV off platform has been evolving. TPV on platform basically now already tracks the gross merchandise volume we do on the marketplace. We're already at 100%. We have been at 100% for a long time, so that tracks e-commerce marketplace growth. With regards to TPV off platform, I think there are several avenues for growth there. Probably the one that we have seen grow the most over the last few years is in Mexico and Brazil, is the POS volume which is growing nicely, and Argentina has been more related to the wallet, which is also growing very strongly.
There's also online payments, but online payments then is growing at a lower pace that in-store, basically because we already have a larger share online than we have in-store and because still in Latin America, e-commerce or online payments is a relatively small fraction of total retail. The second one is I'm not sure I got it right. If you can repeat, that would be great. It was regarding the funding for Mercado Crédito.
My understanding, Flora Fiorillo taught us, it's on $1 of origination, $0.60, say, I may mess this up, I'm sorry, goes through the syndication of the FIDIC, and then 50/50. First $100 you own, the next $100 gets syndicated out. My understanding was you were trying to push more through the FIDCs when credit was deteriorating, but now credit looks like it's improving. I'm just trying to figure out, would you balance sheet more of Crédito?
No, the strategy remains unchanged. We continue, given the potential size of our credit books, to increase the amount of FIDCs so that we can off balance sheet the incremental growth that should come through, while still retaining a subordinate tranche, which has been very profitable for us so far. The additional funding source that is becoming potentially more relevant going forward are the CDBs that Osvaldo mentioned in a previous question. When we think of the capital structure around the credit business, there will be our own equity investments, the FIDCs or the warehouses that should be growing with relationship to the equity piece.
The third piece is taking advantage of the CDBs that we can now distribute ourselves in our own digital wallets, in addition to doing so through banking partnerships as we had been in the past, as the third very relevant window in terms of capital structure for the credit business. The CDBs in a way start to emulate, not from a regulatory perspective, but from a business perspective, what a savings account potentially looks like, although at a higher cost. It's essentially allowing our own users to have a savings product, that CDB, that at the same time is an efficient funding source for us.
Perfect. Thank you both.
Thank you. One moment for our next question. Our next question comes from Marvin Fong from BTIG. Your line is now open.
Good evening. Thanks for taking my questions, congratulations also on the quarter. Two questions from me. First one on Crédito. Just at a high level, obviously the profitability has become very strong and you've, you know, gotten more conservative with your underwriting. Just curious on how you're thinking about the extension of credit and returning to growing the book a little bit more aggressively. In other words, are you waiting for the macro environment to get a little more favorable? Or do you believe that Crédito is in such a strong position that maybe you can start kind of leveraging that strength to extend credit a little more aggressively? Second question, I saw on the e-commerce side that you partnered with Carrefour for delivering groceries.
Just curious if you could kind of expand a little bit more on your strategy with grocery. Should we take this as a sign that you've made a definitive decision to proceed with groceries and partnerships and you're not interested in handling that on a 1P basis? Thank you.
Hi, Marvin. Let me start with the first one. With regard to the outlook for credit, I'd say that as you mentioned, over the last couple of quarters, as we saw market conditions worsen, we decided to be more cautious on the risk we were willing to take. Also we decided to price our lines more expensively to make sure we had a better spread to be on the safe side. What ended up happening were that collections were better than we expected, and we ended up with very healthy spreads. Now we'll see when we deem that market conditions are improving. When that is the case, probably then we'll be again more aggressive. As we become more aggressive, probably we will allow for some compression in spreads.
But we will be very dynamic on this and flexible regarding how we see the market evolving. Could you please repeat the second part of the question? I think I lost you.
I believe you guys had entered into a distribution partnership on grocery with Carrefour in Brazil. I was just wondering if you could kind of expand on that and your, you know, how you're thinking about grocery right now?
Great. We have a three-tier partnership with Carrefour, meaning that they will be a merchant on our platform. I think they can bring very necessary and welcome broad assortment to the CPG and supermarket category for us. Ideally, they are a key partner in terms of groceries as we experiment with that part of the supermarket offering, which is always one of the most challenging ones. The model is one where their inventory will be sent to our fulfillment centers, and we will be able to deliver that through Fulfilled by MELI, which is always the from a consumer perspective, the best user experience, the one where we have greatest control over logistics and the entire end-to-end purchasing process. It's within the context of our continuous experimentation within supermarket.
We again, I think we've continued to see improving economics within that subcategory. Still a challenging category from a P&L perspective. It has huge potential in terms of repeat purchase behavior and loyalty of users. On the flip side, I think for everyone it's a challenging one from an economic perspective. So there's a lot of experimentation and innovation going on there as we try to figure out what is the most appropriate model for our region, with which partners it would make the most sense to do that.
Great. Thanks so much, guys.
Thank you. One moment for our next question. Our next question comes from João Soares from Citi. Your line is now open.
Thank you. Just a very quick one on my side. I was just hoping to get Pedro, your view on margins overall. I mean, 2022 was clearly a very impressive year in terms of margin expansion. Just look at this Q4. So as we go into 2023, I mean, there are a lot of moving parts. You're advancing on the Ad business, which clearly has very robust margins. At the same time, you're talking about reaccelerating the 1P business, which even though has apparently better economics, you know, it's a business that in the past it was a bit of a margin drag. Just hoping to get your overall view in terms of how should we think about margins for 2023. Thank you.
Sure. As you know, we don't guide, but I still think it's a valid question. directionally, we remain very consistent in saying that we try to manage the financial model for consistent sequential annual increase in EBIT dollars. Ideally, also modest but consistent margin expansion. That depends a little bit on what happens in terms of mix shift. we do try to manage the different businesses and the different sub business units to deliver margin expansion year- on- year on year going forward.
Yet at the same time, we still continue to see ourselves as a company that wants to deliver market share gains, continue consolidating its leadership position, and as you mentioned in your question, have a lot of bets on many different future growth engines that today are in many cases negative EBIT businesses that we continue to seed and we are committed to. As always, I think it's consistent sequential increase in EBIT dollars, ideally margin expansion, but don't necessarily assume that the kind of leverage we deliver in one year you can linearly extrapolate to the next year. I think if we do deliver on this consistency, when we look out 3 years-5 years, we have a very, very healthy P&L in our hands. Primarily, if many of these bets that today lose money begin to, through scale and operational efficiencies, become profitable businesses.
The mix in our portfolio between those that are early bets and don't have attractive EBIT generation capacity and those that do, gets increasingly skewed more and more towards more consolidated, scaled out, positive margin businesses.
That's clear. Thank you.
Thank you. One moment please, for our next question. Our next question comes from Kaio Prato from UBS. Your line is now open.
Hello, everyone. Thank you for the opportunity for asking questions. I have one question about profitability as well, but specifically on the Fintech business. I know that you don't close exact numbers, but if you could please share with us how is the profitability of this segment evolving across your three main geographies today? Which business is not involved in the Fintech or not? What is driving this? If this is the payment business or credit? Finally, your expectations going forward as the business wallets matures more in these markets as well. Thank you.
Sure. On a consolidated basis, and again, these are not reporting segments, so this is to give you directional understanding of the businesses on a consolidated basis. The credits portion within fintech, we disclose interest margins after losses. I think we've discussed that the operational expenses there are relatively low given that there are low spend in customer acquisition. A lot of the distribution is done to our existing either Mercado Pago or MercadoLibre users. The credit business is a very profitable business. The online payments business, which is the merchant acquisition business, is also a profitable business with expanding and fairly attractive margin still, very directionally, 150 basis points of TPV.
The mPOS business, which is also a merchant acquisition business, is a profitable business with slightly lower margins than online payments, but still positive, and a strong contributor of overall EBIT. When we look at the franchise we're trying to build in terms of the consumer financial services business, so the digital wallet, the core digital banks, some of the Savings Tech products, the consumer credit cards, those continue to be areas that do not have positive EBIT yet, but are very significant bets for the future and that have shown very consistent improvements on the economics over the last few years.
The final overlay on top of that, which is still fairly small in terms of volume, but very attractive from a margin perspective, is the InsurTech business that continues to grow and is already on pace to deliver tens of millions of dollars of annualized EBIT.
Okay. Thank you.
Thank you. One moment for our next question. Our next question comes from Neha Agarwala from HSBC. Your line is now open.
Hi. Thank you for taking my question. First question on your e-commerce business, which showed very strong trends during 2022 with strong market share gains also in some of the markets. What should we directionally expect in 2023? Any headwinds in the e-commerce business that we should be aware of or should be mindful of in any of the markets? My second question is on the credit book. The credit book growth has almost stalled for the last two quarters.
Are you seeing improved or stable asset quality, at least in the beginning of 2023, which could encourage you to start picking up originations in the 1st or the Q2 of this year? Are you still going to be in a conservative mode? While you are being conservative in the unsecured lending products, are there any new products that you are thinking about to propel growth in the current environment? Thank you so much.
Let me take the first one. I think in terms of significant headwinds that we anticipate for the commerce business, with the exception of whatever happens at a macro level, and that's information that's available to everyone, I don't think we're honing in on anything. We've seen some consistent take rate improvements in the Q4. A lot of that driven by advertising revenues and the incremental monetization on shipping and logistics that I referred to earlier. Those are levers that if we execute accordingly, should continue to be present. We did see some drag on take rate from reduced 1P sales in the Q4 of this year versus last year. If anything, I've signaled that we feel we've hit a turning point in terms of the 1P business, and we can cautiously reaccelerate that again.
That should also be incremental in terms of take rates. As we aspire to continue gaining share, that should, if we execute well again, maintain us on pace to continue to deliver strong GMV trends as well.
With regards to the credit book, yeah, we have seen good results in the last quarters. Again, we will wait until we see market conditions improving before we decide to be more aggressive again with regards to risk-taking and to growth of the portfolio. It's We don't guide. It's difficult to foresee exactly when that will happen. When we see that happening, we will be more aggressive. In terms of new products, the one product we are pilot testing by now is car loans. It's still very, very, very small. We're just pilot testing it in Brazil. We believe that it's a product that's interesting because it has a strong synergy with our marketplace.
The one thing that maybe I would highlight here is, I recall when we entered the credit business, one of the understandable concerns that existed was how would we deal as a growth company where most businesses are focused on growth with something like credit, where risk management and caution many times are necessary. If I look back at 2022. We need to reprove ourselves constantly in terms of our risk management capabilities. I do think it's been very interesting in that the backdrop for credit has been extremely negative. When you look at how we managed it, the timing with which we slowed down originations and focused on higher quality segments and the kind of results that you've seen I think really gives that team a very strong grade in terms of how they've managed risk within very tough macro.
I think we've been through both a pandemic and now extremely challenging consumer credit environment, primarily in Brazil. Both of those have been managed from a risk perspective and a focus on profitability perspective very successfully. That's the way we'd like to continue to manage that going forward.
Thank you. One moment for our next question. Our next question comes from Deepak Mathivanan from Wolfe Research. Your line is now open.
Great. Thanks for taking the question. Pedro, many companies here in the U.S. are very focused on, you know, improving efficiencies this year. How do you feel about the productivity at the company level, you know, at MercadoLibre? How should we think about headcount additions for this year in your plans? Second question, on the competitive landscape in Brazil currently with all the recent developments, should we think about any strategy shifts on your side, particularly with the 1P business, given all these developments? Thank you so much.
Sure. I'll answer in reverse order. Our strategy does not change based on what is happening with competitors. I think our tactics do adapt at the margin. As we mentioned earlier, we will lean into specific opportunities that may arise if market share becomes available given changes in market structure and competitive dynamics. I wouldn't say our strategy changes one bit. On your first point, I think we've had a lot of conversations internally about this. In that, MELI in a way is in an island within the tech world in that no layoffs. If anything, we've said we will continue to increase the size of our engineering teams. We see that as a key competitive advantage and one where because we were disciplined throughout the pandemic, I don't think we overhired or we overspent on capacity by and large.
That puts us in a unique position now where we can continue to hire. Having said that, I think the rate of hiring will slow down versus what it was over the last few years. We will continue to grow the engineering team. In terms of headcount across business and staff positions, again, there no downsizing necessary because we remain disciplined over the past few years. The speed of incremental hires will probably decelerate even more so than the engineering talent. Then logistics and customer service are much more variable costs, and those are input/output driven. The growth there will reflect the growth in transactions and GMV that are really the KPI in determining how fast those organizations need to grow.
Thanks, Pedro.
Thank you. One moment for our next question. Okay, our next question comes from Stephen Ju from Credit Suisse. Your line is now open.
Thank you so much. Pedro, just kind of building on one of the comments you made earlier. Can you talk about the adoption levels for your fulfillment services in Mexico and why it has charged ahead there relative to the other markets? Is the profile of the seller different or are there other factors or products at play? Conceptually, you know, are there any impediments for Brazil and some of the other markets to get to Mexico's level? Thank you.
Mexico, for the Q4, actually crossed the 70% mark for the first time ever in terms of the service mix within the different shipping types that we offer. 70% of shipments in Mexico actually initiate in one of our fulfillment centers. I think there's a combination of market dynamics, merchant profiles, and execution as always that has led Mexico to be so far ahead of the other markets. Brazil, if I can round, finally hit the 40% mark, so it has been growing over the past four quarters at a slower pace, but continuing to grow and trend in the right direction. Chile is over 30%. Argentina and Colombia also continue to grow. I don't think there are structural impediments to getting to Mexico levels or at least to continue to grow significantly.
The pace at which we are able to grow the fulfillment service in the other markets clearly varies from geo to geo. If you consider that Chile was launched, significantly after Brazil and is on its way to catch up to Brazil, I think is further indication of that. No, we don't see any structural impediments to continue pushing the adoption of fulfillment. The reason that that is a desired outcome is because it delivers faster delivery times, greater control over the experience, higher Net Promoter Scores. Thank you.
Thank you. One moment for our next question. Our next question comes from John Colantuoni from Jefferies. Your line is now open.
Great. Thanks for taking my questions. As you get closer to clean comparison periods, can you give us your perspective on the runway for e-commerce adoption across your key geographies? You know, certainly the pandemic helped close the gap to other regions, so I'm curious if recent trends in customer adoption and trial still point to a long runway for adoption. Secondly, sticking with customer behavior, can you just talk a little bit about how engagement and repeat rates of cohorts acquired in recent quarters, compares to pre-pandemic cohorts? Thanks.
Latin America has been interesting in that it doesn't seem to have had the effect as physical retail reopened of a return to physical retail to a point where the market began to shrink. The market has continued to grow. Obviously, it slowed down significant from pandemic-type growth. I think even if you look at a Mexico or Brazil, which are the most advanced markets, we still expect market growth to be somewhere in the mid to high teens, and we do strive, as always, to gain share on top of that. We still feel it's early days in terms of the shift from offline to online retail. We think the pandemic accelerated that shift, and we also think that consumers have found in their online purchasing a compelling enough value proposition that a lot of that gained consumer consumption has stayed online.
We continue to be optimistic about the long-term prospects of e-commerce throughout the region. In terms of cohorts, retention cohorts are certainly much higher than they were pre-pandemic. Average usage has been flattish over the last year or so, which means that it remains in line overall with where it went to throughout the pandemic. We haven't been able to continue to grow unit usage since the pandemic, but we have been able to maintain it relatively in line with much better retention per user and higher engagement than pre-pandemic numbers.
Very helpful. Thank you very much.
Thank you. Now I would like to turn the call back over to Pedro Arnt, MercadoLibre's Chief Financial Officer, for closing remarks.
Great. Thank you, everyone. I think we've concluded a phenomenal 2022 with a very strong Q4. It was a year where we hit over $100 billion of payments processed, over $10 billion of revenue, and over $1 billion of EBIT. Congratulations to all the MercadoLibre team for the phenomenal work. And to our shareholders and stakeholders, rest assured that we're already back at work to ideally be able to deliver an equally successful 2023 on behalf of our consumers and our shareholders. Thank you, and we look forward to updating you on things once the Q1 is over.
This concludes today's conference call. Thank you for participating. You may now disconnect.