Good day, ladies and gentlemen, and thank you for standing by. Welcome to MercadoLibre's 4th Quarter 2017 Earnings Call. At this time, all participants are in a listen only mode to prevent background noise. And as a reminder, this conference is being recorded. Now I would like to welcome and turn the call to Federico Sandler, Head of Investor Relations.
Hello, everyone, and welcome to the MercadoLibre Earnings Conference Call for the Quarter Ended December 31, 2017. I am Federico Sandler, Head of Investor Relations for MercadoLibre. Our Senior Manager presenting today is Pedro Arndt, Chief Financial Officer. This conference call is also being broadcasted over the Internet and is available through the Investor Relations section of our website. I remind you that management may make forward looking statements relating to such matters as continued growth prospects for the company, industry trends and product and technology initiatives.
These statements are based on currently available information and on our current assumptions, expectations and projections about future events. While we believe that our assumptions, expectations and projections are reasonable in view of the currently available information, you are cautioned not to place undue reliance on these forward looking statements. Our actual results may differ materially from those discussed in this call for a variety of reasons, including those described in the forward looking statements and risk factors sections of our 10 ks and other filings with the Securities and Exchange Commission, which are available on our Investor Relations website. Finally, I would like to remind you that during the course of this conference call, we may discuss some non GAAP measures. A reconciliation of those measures to the nearest comparable GAAP measures can be found on our Q4 2017 earnings press release available on our Investor Relations website.
Now, let me turn the call over to Pedro.
Thanks, Federico. Hello, everyone, and welcome to our Q4 conference call for 2017. Let me kick us off today with a general comment regarding the state of the Internet and digital businesses throughout Latin America. We believe that we continue to be in the early phases of the change in consumer behavior towards online offerings that drive the growth of our ecommerce and FinTech in Latin America continue to take shape through the growth of the installed base of smartphones, increasing consumer familiarity and affinity with buying and transacting online, greater number of broadband users, rising demand for online financial services and growing interest on behalf of traditional retailers and brands to find technology partners to support them in developing their growth strategies. All of these aforementioned structural factors, we believe, are the catalysts that will continue to fuel the growth of MercadoLibre for many years to come.
As a consequence of these macro factors, combined with our own improved consumer offering, we've been able to close one of the strongest quarters in our history, on the tail end of one of the strongest years our business has had. We're excited to see how the company continues to benefit from these strong secular tailwinds, while we continue to outperform and grow aggressively. And we are even more excited about the prospects for our company as we move into 2018 and beyond. Let's now take a look at how we closed this record 2017 with an outstanding 4th quarter that carries us into 2018 with great momentum. Let me just remind you that greater detail on this can be found in the accompanying presentation to these prepared remarks.
The following key performance indicators represent quarterly results versus the same period last year. Units sold grew 57.5 percent reaching $81,200,000 Gross merchandise volume rose 132 percent on an FX neutral basis, reaching $3,600,000,000 Excluding our Venezuelan operation, gross merchandise volume accelerated on an FX neutral basis to 66.5 percent year on year, reaching $3,200,000,000 Total payment volume grew 94.5 percent on an FX neutral basis, reaching $4,300,000,000 And excluding total payment volume in Venezuela on an FX neutral basis, grew 85.2 percent year on year, reaching $4,300,000,000 Total payment transactions in number grew 72 percent to 73,200,000 payments processed. And registered users were up 36.2 percent year on year after we added 10,700,000 new users during the Q4 of 2017. As units sold, GMV and TPV metrics indicate, both our marketplace and payments businesses had a stellar quarter and we are pleased to see this strength is evenly spread across multiple geographies. Our Brazilian and Mexican businesses performed well, while Argentina, Colombia and Chile also delivered encouraging results.
This aforementioned strength across multiple geographies has also translated into solid top line results. Excluding our Venezuelan operations, top line accelerated for the 2nd consecutive quarter to 75 0.3% year on year. Revenues in U. S. Dollars grew at a healthy 70.5% year on year.
The results we delivered during the Q4 are a consequence of our customer centric approach anchored around our free shipping and loyalty programs. And as a result, we have increased our investments in branding and customer acquisition as we've seen positive effects of increased marketing spend on acquiring customers and engagement from existing ones, improvements which, as I've just outlined, also had an immediate impact on our revenue growth. Before I delve into greater detail in the quarter, I'd like to take a moment to quickly go over a few annual highlights for 2017 that accentuate how the market potential I just talked about has impacted our business positively, allowing us to deliver a historic annual result. During 2017, we crossed the $1,000,000,000 mark for the first time, delivering record net revenues of $1,400,000,000 a growth rate of 65.6 percent versus 2016. Units sold accelerated for the 3rd year a row to 49.1 percent year over year, reaching 270,100,000 items sold for the year.
Gross merchandise volume rose 87.8 percent year on year on an FX neutral basis, reaching $11,700,000,000 Excluding Venezuela, that same metric accelerated to 45.9 percent year on year, reaching CAD 10,600,000,000 Total payment volume grew 77.1 percent on an FX neutral basis, reaching $13,700,000,000 Excluding Venezuelan TPV, growth on an FX neutral basis of payment volume was 77.8% year on year on year and reached $13,500,000,000 while total payment volume and transaction numbers grew at 66.8 percent year on year and reached 231,400,000 payments processed throughout the year. Finally, registered users grew by 21.7 percent as we reached 211,900,000 registered users after having added 37,700,000 incremental users during the year. Now let's take a look at the key initiatives and quarterly results by business, starting with the marketplace. We are encouraged by how strong execution continues to be on that front. Case in point, our focused marketplaces in Mexico and Brazil were the high points for the quarter, delivering exceptional results in key metrics such as units sold, gross merchandise volume growth, depth of selection, user engagement and revenues, while also meaningfully growing the penetration of the value added services that we offer our users.
Additionally, we're also pleased to report that several of the product enhancements that have allowed us to gain significant traction in Mexico and Brazil are beginning to deliver positive results in Colombia and Chile as well, where we are seeing the fastest pace of growth in over 5 years in terms of units sold and gross merchandise volume. Let me get more specific on these issues. Mexican units sold grew triple digits for the 2nd consecutive quarter to 126% year on year growth, up from 46 point 9 percent a year ago. In Brazil, units sold also delivered strong results, growing year on year 68.2%. That's the 7th consecutive quarter of unit volume growth above 50% and also the fastest pace of growth in over 5 years in Brazil.
Gross merchandise volume was also very strong during the quarter and reflects the same trends that we have just outlined in items sold growth. On an FX neutral basis, Brazilian GMV accelerated for the 3rd consecutive quarter to 71.3 percent year on year. Mexican GMV growth was another high point, not only accelerating for the 9th consecutive quarter on an FX neutral basis to 90.6%, but also delivering the fastest pace of growth in over 5 years. In line with that, Colombia and Chile are also delivering multi year high gross merchandise volume growth rates on an FX neutral basis, accelerating to 32.6% 50.9% year on year, respectively. Moving on, our business vibrancy metrics continue to demonstrate healthy growth rates across most geographies as well.
Specifically, on a consolidated basis, unique buyers for the quarter grew over 20% for the 8th quarter in a row and almost 12 percentage points higher than a year ago. In this respect, I'd like to take a moment to highlight Brazil and Mexico as each grew unique buyers to multi years highs of 48% year on year for Brazil and 70.7% year on year respectively. In this respect, I'd like to take a moment to highlight Brazil and Mexico as each grew unique buyers to multiyear highs of 40.8% year on year and 70.7% year on year respectively. As a consequence of this, we have been able to drive greater user engagement as well during the year. For 2017, items bought per buyer in Brazil has grown almost 25% versus 2016, while during the same period in Mexico, units purchased per buyer has grown by almost 60%.
On the supply side, we continue to make strides onboarding more inventory as our SKU assortment continues to deepen. Live listings being offered on MercadoLibre's marketplaces accelerated for the 2nd consecutive quarter to 50 6% growth year on year during the Q4 reaching 114,100,000 live listings. Seller vibrancy and engagement was another high point of the quarter in both Brazil and Mexico. Unique sellers accelerated for the 3rd consecutive quarter to 34.2% in Brazil year on year, while Mexico accelerated for the 4th consecutive quarter to 28.9% year on year. Additionally, during 2017, items sold per seller in Brazil grew 25% versus 2016, while during the same period in Mexico, units sold per seller has grown an outstanding 66%.
Let's take a second to give you an update on the momentum we are generating on mobile, another key avenue for growth and investment for us as we transition from a desktop centric to a multi device ecosystem. The important metric here is that exiting the quarter for the first time ever, gross merchandise volume for mobile devices exceeded 50%, reaching 53% of total GMV. When looking at monetization levels on our marketplace, results are also reassuring. On an FX neutral basis, marketplace revenues in Mexico, Brazil, Argentina and Colombia as well as Uruguay are all growing above 50% year on year. Mexico is worth highlighting here as its FX neutral revenue growth rate was the highest in over 5 years during the quarter, reaching an outstanding 124.5 percent, while Brazil accelerated for the 4th consecutive quarter to an equally solid 79.9% year on year.
Throughout the year, we continue to move forward in our efforts in carrying out critical technical and operational capabilities around the development and management of warehousing and transportation networks in Brazil and Mexico, added additional carriers across multiple geographies and grew our free shipping initiatives in most of our main markets. All of these significantly contributing to the positive results I've just outlined. If we look on a country per country basis, during the 4th quarter in Mexico, adoption of Mercado and Vios reached 75% of units sold versus 50% during the same period in 2016. It's important to note that shipped volume in Mexico has been outstanding as well as it has grown items shipped by over 200% year on year every quarter since the Q1 of 2017. Brazil also had highlights on the logistics front.
Items shipped through Mercado and Vios grew over 70% year on year for the 2nd consecutive quarter reaching 35,800,000 items. Envios penetration gains in Colombia and Chile have also been worth noting as they have gained 21 percentage points 36 percentage points reaching 60% of all sales and 47%, respectively. Additionally, on the free shipping front and confirming how high demand elasticity seems to be to the product, we are pleased to report that exiting the quarter, over 70% of our gross merchandise volume that is shipped through Mercado and Vios is already being done so free to the buyer. Let me now move on to our payments business, Mercado Parvo. Let me start by saying that we are satisfied with the results that we've delivered during the last quarter.
We're operating at a time when change is sweeping through the financial services industry in the region, driven by a rise of mobile technologies and the acceleration of money becoming increasingly digital. And we continue to make significant progress towards our vision of building out a next generation digital financial platform to service our consumers. Starting with our on platform payments business on MercadoLibre's marketplace. On a consolidated basis and excluding Venezuela, penetration of MercadoPalo rose 4 percentage points versus the Q4 of last year, reaching 89% of total gross merchandise volume. These solid penetration gains were driven in part by our decision to make adoption of our MercadoPalo platform mandatory for 100% of listings in Mexico and all new item listings in Chile.
On a country by country basis, Mexico led with 98% penetration versus 86% during the same period last year, while we also delivered strong penetration gains in Colombia, Chile and Uruguay. Case in point, Colombia increased 22 percentage points versus last year to 82%. Chile grew 34 percentage points to 75%, while Uruguay grew 24 percentage points, reaching 41% gross merchandise volume paid through the MercadoPago platform during the 4th quarter. Complementing these solid penetration gains on platform total payment volume on an FX neutral basis grew in excess of 50% year on year for the 7th consecutive quarter to $3,200,000,000 while total payment transactions reached an all time high of 50,100,000 payments processed. Let me remind you that that's the 14th consecutive quarter of growth in excess of 50 percent for the aforementioned metric.
During the quarter, offed MercadoLibre payment performance was also positive as our Merchant Services business once again grew faster than the overall growth of e commerce. Great execution of commercial initiatives, automated onboarding of merchants, strong seasonal campaigns such as Black Friday Cyber Monday and outstanding results in our MPOS and mobile wallet of initiatives resulted in off platform total payment volume growth on an FX neutral basis of 127.9 percent year on year. That's the 3rd consecutive quarter of triple digit acceleration in that metric. It is also worth noting the solid execution in Brazil, delivering off platform total payment growth on an FX neutral basis of 163.4% year on year, while Argentina, Mexico and Chile have grown off platform total payment volume atorabove60% year on year for in excess of 10 quarters, all this also measured on an FX neutral basis. In terms of our offline mobile payment solutions, sales and adoption of our mobile point of sale devices continue to gather steam in both Argentina and Brazil.
When compared to the Q4 of 2017, we've multiplied the number of mobile POS devices sold in Brazil by nearly 13 times, while in Argentina, we have grown sales of those devices by a factor of 20. Before I move on, I'd like to take a moment talk about our momentum in the merchant credit initiative, Mercado Credito, which complements our digital payments platform. Credit is a flywheel for MercadoLibre, which benefits not only our consumers, but also our merchants. Mercado Credito is helping us to grow payment volume, drive a positive network effect for our businesses and is also allowing us to deepen further our relationships with our merchants, while helping them grow their businesses. As such, we are observing merchant sales increase after receiving these working capital loans that we extend, while we also observe reduced merchant churn and higher satisfaction rates.
In line with that, we're pleased to report that during the quarter, we sustained the traction in originating merchant loans in Brazil, Argentina and Mexico, while still maintaining low rates of bad debt. That wraps up our remarks on operations for the quarter. We've accomplished a lot during 2017 and are confident that 2018 will be a year where we can further consolidate our value proposition and further demonstrate that MercadoLibre can continue to be a leader in a region rapidly moving towards online commerce and digital payments. Before I walk you through our financial results in detail, I'd like to first note that these have been impacted by a recent decision to deconsolidate our Venezuelan operations. We have determined that we no longer have full accounting control of our subsidiaries in that country as a result of Venezuela's recent selective default determination of increasingly restrictive exchange controls, sanctions on government officials and other operating restrictions that have hindered materially our ability to make key financial decisions for that market.
As a result, we have deconsolidated our Venezuelan subsidiaries effective December 1, 2017 and recorded a loss of $85,800,000 pertaining to investments in Venezuela, including net assets, intercompany balances and intangible assets. This deconsolidation implies that beginning December 1, 2017, MercadoLibre no longer includes the results of its Venezuelan subsidiaries in its consolidated financial statements. With that important clarification, let's now take a look at how operational highlights I've just walked you through have flown into our financials for the Q4 of 2017. During the quarter, we delivered record net revenues of $437,000,000 growing at 70.5 percent year on year. By segment, marketplace revenues driven by the business factors we described earlier accelerated to 116.1 percent on an FX neutral basis.
Excluding Venezuela, but also on an FX neutral basis, marketplace revenues grew almost 16 percentage points above the same period last year, accelerating to 76.1% year on year growth. Marketplace revenues in U. S. Dollar came in at a solid 71.2% year on year. Non marketplace revenues also experienced solid growth rates during the quarter.
On an FX neutral basis, non marketplace revenues accelerated to 76.4 percent year over year. Excluding Venezuela and also on an FX neutral basis, non marketplace revenues grew an equally solid 74.4 percent year on year. Non marketplace revenues dollars came in at 69.5 percent year on year growth. Some of the main contributors to the growth in non marketplace segment were: financing fees, which accelerated for the 2nd consecutive quarter to 75.9% year on year growth, driven for the most part by lowering financial costs in Brazil that have improved the spreads on our loans. Adoption of our credit product in Brazil resulted in FX neutral revenue growth of 110.5 percent year on year for that business line.
MercadoPago payment processing revenues accelerated to 103.2% year on year on an FX neutral basis, driven by solid gains in payment volume outside the marketplace through strong mobile and seasonal initiatives combined with gains in merchant onboarding. Brazil led the way again when it comes to off platform payments with an outstanding performance as it delivered the 11th consecutive quarter of revenue growth for that business line above 90% measured on an FX neutral basis. Advertising revenues accelerated to 66.8% year on year also on an FX neutral basis, driven by our product ad solution as new placements and search queries coverage resulted in increased unique impressions. Display advertising also contributed to these strong results, doubling U. S.
Dollar revenues through successful trade marketing and programmatic initiatives. And finally, on the non marketplace businesses, Mercado Credito grew revenues triple digits year on year, both in U. S. Dollars and on an FX neutral basis, as we continue to grow out our merchant portfolio of loans by over 10x over last year and also offer cash advances to a greater number of merchants on our platforms. Moving down our P and L.
Gross profit grew 25 percent to $203,400,000 which led to a gross margin of 46.5 percent of revenues versus 63.5 percent a year ago. The main drivers of gross margin compression during the Q4 can be mainly attributed to investments in our free shipping and loyalty programs in Brazil and Mexico, which accounted for a reduction of 18 70 basis points of gross margin. Additionally, higher costs of goods sold related to the sales of our mobile POS payment devices and warehousing costs primarily in Brazil contributed to an additional 230 basis points of margin compression when compared to the same period of 2016. These effects were offset to some extent by 190 basis points of sales tax leverage. And furthermore, collection fees contributed 130 basis points of improved margin due to lower costs of processing credit cards in Argentina.
Combined, these effects resulted in a gross margin compression of 15.90 basis points versus the same period for last year. Moving down the P and L, operating expenses totaled 2 $68,000,000 up 173% over last year's Q4. The breakdown of OpEx lines is as follows. Sales and marketing grew 141.9 percent year on year to $117,400,000 or $26,900,000 of revenues. This resulted in 793 basis points of margin contraction from sales and marketing.
Higher offline and online marketing investments mainly in Brazil, Mexico and Argentina contributed 9.56 basis points of this compression and additionally increases in our bad debt contributed an additional 58 basis points, which were partially offset by approximately 220 basis points of scale in PR, buyer protection and salaries and wages. Product development expenses grew 30.1% to $34,200,000 representing 7.8 percent of revenues in the 4th quarter versus 10.2% a year ago. 107 basis points of scale were driven by salaries and wages notwithstanding having grown our IT headcount by almost 200 employees during the quarter. The rest of the year on year accretion 136 basis points mainly reflect maintenance costs and offices expenses growing less than revenues within our product development organization. As reported, G and A was up 31.7 percent year over year to $30,600,000 representing 7% of revenues.
The 207 basis points of scale in G and A are largely driven by salaries and wages and as previously mentioned, as a consequence of the deconsolidation of our Venezuelan subsidiaries, we recorded an $85,800,000 deconsolidation charge during the quarter. As a result, operating income for the quarter was negative $64,600,000 If we exclude the deconsolidation charges from Venezuela and operational results from that market for the entire quarter, operating income would have been $12,700,000 or 3 percent of revenues versus 7.1% in the Q3 of 2017. Beneath operating income, we benefited from $8,900,000 of interest income, down 13 percent due to lower interest rates in Brazil and Argentina. Lower float in the latter country also contributed to the year on year contraction. We had $6,800,000 in financial expenses, mostly related to the corresponding interest accrual on the convertible bond issued June 20 14.
For ForEx, we saw a $2,200,000 loss versus $500,000 loss in the Q4 of last year. These foreign exchange losses are explained for the most part due to the Brazilian real and Mexican peso depreciation over our net liability position in U. S. Dollars. This was partially offset by a ForEx gain due to the Argentine peso depreciation over a net monetary asset position in U.
S. Dollars. Income tax expense was $3,000,000 during the quarter versus $16,300,000 mainly as a result of lower pretax income, taking into account that the loss of deconsolidation of Venezuela is non deductible for tax purposes. As a result of all this, we delivered net loss of $67,700,000 for the 4th quarter, resulting in a basic net loss per common share of $1.53 However, excluding Venezuela, the business delivered net income of $8,800,000 a 2% net income margin and earnings per share of $0.20 If we only exclude the deconsolidation charges, net income would have been $25,300,000 a margin of 5.6 percent and earnings per share of $0.57 All this compares to $51,300,000 and a 20.4% margin on earnings of $1.16 a year ago. Purchases of property and equipment intangible assets, advances for fixed assets and payments for businesses acquired net of cash acquired totaled $31,300,000 during the quarter.
Cash, short term investments and long term investments at the end of the quarter totaled $632,400,000 We declared a quarterly dividend of $6,600,000 or $0.15 per share payable on January 12, 2018 to shareholders of record as of the close of business on December 31, 2017. One important announcement regarding dividends. After reviewing our capital allocation process, the Board of Directors has concluded that we have multiple investment opportunities that can generate greater return to shareholders through investing capital into our businesses instead of a dividend policy. Consequently, the decision has been made to suspend the payment of dividend to shareholders as of the Q1 of 2018 as it will free up capital for investments in multiple projects throughout our different platforms. Before I end the call, I'd like to take a moment to thank all of MercadoLibre's customers and employees for having made 2017 one of our best years ever.
We've made significant advances executing against our strategy, enhancing even further our capabilities in payments and commerce. We look forward to continuing to lay the groundwork for long term sustainable growth in our businesses and updating you on those improvements. With that, we'd like to now take your questions. Thank you very much.
Thank And our first question is from the line of Steven Yu with Credit Suisse. Your line is open.
Okay, thanks. So, Pedro, I guess these are minute changes, so I might be splitting hairs here. But the purchasing velocity per unique buyer, that has been growing pretty much linearly since 2015. That did not grow as rapidly on a sequential basis. So any way to characterize how much is this maybe due to Venezuela or any other factors?
I guess another way to ask this is how much did deconsolidation hurt your unit growth projection? And secondarily, as promised, you continue to try to solve for growth as the marketing dollars have seen a pretty meaningful step up here. So is it safe to presume that the lifetime value of the customers you're acquiring now are pretty similar to what was the case during the second and the third quarter or have things changed a little bit? Thanks.
Hi, Stephen. Let me start with the second one first. I think what you're seeing is, 1st of all, a seasonal increase in advertising and marketing spend. Lifetime values sequentially, we haven't seen any changes that are material. We do think that the holiday season is prime for more investment As we see more and more consumers beginning to shift significant portions of their consumption online, we want to make sure that we're capturing those consumers.
And so in general, I think we have said throughout the year that you would see non linear marketing investments quarter to quarter. And our thinking in terms of customer acquisition, given the user experience that we can now offer, is that we're very much in a phase where we will be very acquisitive in terms of new users and also getting existing users to transact online with us. So hence the margin compression both for the quarter but also for the full year when you look at marketing spend. We are investing more in acquiring customers because we're seeing those customers much more active than in the past. On units sold, the month of deconsolidation of Venezuela does affect the numbers.
But because it's only 1 month out of 3, it doesn't necessarily alter the trend. I think we're seeing still very healthy unique buyer purchases during the quarter. It was still an all time high, but sequentially you're right that the improvement wasn't as marked as previous quarters.
Okay. Thank you.
Thank you. Our next question comes from the line of Scott Devitt with Stifel. Your line is open.
Hi, thanks. I haven't come across an 18 year old company growing 100% before, so congrats on that. And I have two questions, if I could. First one, just to maybe follow-up on Stephens about buying rate and you do continue to grow new buyers at a very high rate, but there's a significant contribution still coming from existing users purchasing more items. And the factors seem to be changes to the platform in recent years relating to price or shipping subsidies, speed or access that users are getting to the platform because of mobile, Envios and the improvements in terms of logistics and then payments and lending.
And so I'm just wondering if there's anything that you would identify in there or otherwise that are more significant in terms of the drivers of the increased purchase rate of existing users or is it fairly balanced? And then secondly, Pedro, you mentioned continued strong growth in units sold by merchants. And I'm just wondering if merchants are having any challenges acquiring inventory fast enough to keep up with the pace of the platform growth. And if so, how much success that you're having in bringing new merchants onto the platform as well? Thanks.
Great. So I think as we've said, it's not that easy to parse out what the impact of the multiple improvements in the user experience are and attribute specific amounts of the growth to the different items. What we can do is just notice specific launches or specific product changes and how the cadence of growth changes before and after those modifications. And looking at it that way, clearly, free shipping was the most significant individual catalyst of accelerating. As we've shared our thought process behind that, we really think that, that and the consumers' mindset is what eliminates the most significant friction to moving purchase behavior from offline to online is that it doesn't have that incremental cost on the online purchase.
I think there are other elements that are also helping. I mean our loyalty program is now rolled out and we are seeing lift from consumers that start moving up the loyalty levels, and begin to increment their engagement with the platform. And again, in general, the overall buying experience that also has a lot to do with the mobile app, the functionality has really improved significantly over the past 2 years. So they all contribute if we had to highlight 1, I would say shipping and then the fact that payments Mercado Pabo on is now 100% of all sales or nearly 100% in most of the large market has obviously removed the other huge part of friction that existed. And then shifting over to the merchant question that you asked, selection has continued to improve.
We said 114,000,000 listings, that's an all time high. Obviously, arriving at the site and finding what you're looking at for is huge in terms of improving conversions. Traffic conversions have continued to go up. And I don't think we're seeing limitations with inventory. What we're seeing is that the growth in merchants has picked up.
Q4 had the highest growth rate of merchants year over year for 2017. And so insofar as any individual merchant potentially runs into inventory limitations, there are other merchants that will step in and fill that gap and hence the acceleration in merchant growth.
And so do the shipping subsidies, Pedro, become you're tweaking them as time passes and favoring different types of merchants. And as we think about the business over the longer term, that becomes a component of the expense structure of the business. Is it something that lessens over time or completely fades away when you get to a certain level of scale in terms of GMV where it's less required? Can you just talk about that a little bit more as well in terms of just thinking about the long term ramifications of in the shipping subsidies as the biggest driver of growth?
So I think we don't see this as a promotional action. We see this as something that we would like to build into the value proposition of MercadoLibre. And so in that sense, we've never set any timeline in which we've said we will move away from free shipping. I think we focused elsewhere. We focused on how can we tweak both the revenue model, but also gain as much scale advantages as possible so that we can continue to offer widespread free shipping as part of our value proposition and make the financials more and more favorable to us.
And that's the combination of continuing to share the burden of free shipping with merchants. They are getting in exchange for that, more and more volume that's going through our platform and hence indirectly to them. And then the second part of that is just to drive down the overall cost on our shipping networks. I'd say the focus right now has been more on how do we manage pushing some of that cost onto the merchant base as intelligently as possible and use it to also align incentives. So better merchants with better service levels, we will subsidize more than those that don't have those higher service levels.
And so we're using the push off of cost also to align better overall experience on the platform. And I think mid- to long term, once we've built out the network and we thought it to be faster and more reliable and we have more scale, we will start to increasingly focus more and more on driving down the cost piece of that. And so under current thinking, the long term vision is this is part of our value prop, but we certainly think that we can make the economics improve through playing with the pricing model and just benefits of scale, which in logistics are very, very, very relevant.
Thank you.
Thank you. Our next question comes from the line of Deepak Mathivanan with Barclays. Your line is open.
Hey, guys. Thanks for taking the question. Two questions for me. So first, can you break down the different components of the non marketplace revenues? Our platform processing is growing much faster.
How big is that piece currently versus other components like installment financing and MercadoCredito? And then second question, recently we noticed that you made some adjustments to the seller fee structure in Argentina. Is that precursor to potential free reflection of market trends there? And more broadly, kind of when should we expect a wider logistics push into Argentina? Thanks.
Right. So let me start with the second one. We have launched our free shipping initiative in Argentina during this quarter. The price increase as we carried out in many markets and just relating to my previous answer that part of being able to afford the investments and subsidize the free shipping is to tweak the pricing model was in anticipation of that. So Argentina already has free shipping live.
In this initial iteration, the threshold for free shipping in Argentina is somewhat higher than in many other markets. It's about ARS 1400, which is about ARS 70 so certainly higher than in the other markets. But that's one of the many moving pieces that we can move around, either lower that or increase that if P and L considerations push us in that direction. So yes, we've launched free shipping and loyalty in Argentina as of Q1 and it was launched in mid January.
That's helpful. And then on the breakdown of the non marketplace revenues with respect to off platform processing fees versus installment?
Yes, great. So one second. So in general terms, the mix percentage of the different do you want them within non marketplace?
Yes, or as a percent of total revenues. Just trying to cite the different pieces of the payments business.
Yes, absolutely. So the largest contributor in terms so payments overall is slightly below 30% of our revenue base already. So it continues to grow faster than core marketplace. Remember, this does not include payments that occur on the marketplace. So this is fully the combination of our merchant services businesses.
So of that roughly 28%, about 14.5% come from financing, whether that be and that's not our balance sheet financing. That's just the spread we make on financing that's issued by credit cards and banks to the consumer. There's about 9%, which is the merchant service business, so processing payments for other online properties. They're slightly less than 2%, which is already the sale of mobile POS devices. And then there is slightly below 2% that is our MercadoCredito business.
So it's the actual on balance sheet, primarily merchant lending, but some of that is consumer lending. Those comprise the pieces of the payments ecosystem that have size today. Then the remainder to get to that 28.5% are still very small. It's the digital wallet, which is the QR code business and then some other FinTech initiatives we have that are very, very small.
Great. That's very helpful. Thanks, Pedro.
Thank you. And our next question comes from the line of Mike Olson with Piper Jaffray. Your line is open.
All right, thanks. Good afternoon. Just following up on free shipping in Argentina. It sounds like that's being rolled out maybe less aggressively than in other markets. But either way, how might that initiative impact overall company operating margins as it is rolled out?
Is it material to overall company operating margin or not really in its current form? And then secondly, as you mentioned, you discontinued your dividend to invest in growth of the business. And could that be from the combination of both organic and acquired growth? Or are you primarily implying that it would be organic? And if it were to be from acquisition, I guess you can't say specifically, but conceptually, what type of acquisitions could make sense?
Thank you.
Great. So again, on the free shipping, I think the best we can say is we really believe that this is a strong differentiating factor of our value proposition. It requires significant scale to be able to offer widespread, very low cost or free shipping. I think we've seen globally the impact that can have in customer loyalty, customer lifetime value, even in customer acquisition. And so this is something that we think is a core part of the value proposition we're offering.
And what we're trying to do is to manage the P and L as efficiently as we can as we move forward, continuing to solve in this phase of the business primarily for top line growth, gross merchandise volume growth, market share gains. Like I said in the opening of the prepared remarks, this is still very early days of e commerce in the region. We see enormous opportunity going forward. We see some ever improving customer life time values. And so I think we're much more focused on offering widespread free shipping on our Argentine network, even if that does impact our margins.
And then through pricing, which we've already done through scale, through some of the stuff mentioned before, we'll try to manage the financial model through this investment cycle as efficiently as we can. In terms of the dividend policy and the suspension, by no means are we indicating that this is intended specifically for non organic growth. I think what we're saying is that we see multiple significant areas where we can invest for long term growth, not only in our marketplace business where we've talked about shipping and build out of fulfillment and logistics. We've also talked about category expansion. There are many categories that have significant share of wallet, of consumers that we are still not, very actively participating in and that we'd like to start being more active in offering better user experience for our users in.
And then the many things that we're doing in the FinTech space, which we think also has enormous upside for the company. So given that we are in investment cycle and we're talking about that and you're seeing it in our financial model, we really think that there is a better return to shareholders in using that extra cash to invest in the businesses than the payout of the dividend that we had.
Thank you.
Thank you. And our next question comes from the line of Robert Ford with Bank of America Merrill Lynch. Your line is
open. Thank you and good evening everybody. Pedro, if I'm looking at this correctly, the loan book for Mercado Credito to merchants seems to be in excess of $70,000,000 And I was wondering if you could help us understand the business opportunity. What rates are you charging right now for working capital loans and cash advances? And what do you estimate the addressable market to be for solid credit?
And then as you develop that, could you give us a little update in terms of where you are in the evolution of a consumer financing solution?
Great. So your estimation in terms of the size of the loan book is correct. We see not only because of global peers, but just what we see in the region where working capital loans, especially the medium and small sized merchants are not very available. The existing financial system doesn't necessarily serve them very well. And when it does serve them, it serves them at exorbitantly high interest rates.
So we think we can be very efficient here because of all the data we have on these merchants who use Mercado Cargo and we can charge rates that are very attractive, but that are also sustainable in terms of our merchants. The rates vary obviously by specific merchant credit and merchant risk. I think the average is we disclosed our ballpark around 40 ish percent in Argentina, similar number in Brazil, which is where both those countries as well as majority of the loan book is. And obviously, this is still very early stage, not only because of potential more merchants that we can pre score and start offering this to. But eventually also as we get better, we can start targeting intelligently away from the marketplace.
And I don't think we've given any indication of TAM, but we think this is a very attractive business. Just also one clarification, I think we've always said that, we don't necessarily plan to hold these books on our balance sheet. A lot of the work that's being done right now is to set up multiple ways in which we can securitize and offload part of these loan books because we think that the size it has will allow us and then sort of it will make more sense to not keep that on our balance sheet, but to securitize those. In terms of consumer, there already is a small consumer book. It's a small fraction of the $70,000,000 It's still sub $10,000,000 That's something that we also think is an even bigger TAM, but one that probably we will grow out slower and more cautiously.
But that also is something that eventually we think could be a very, very large business.
Thank you very much.
Thank you. Our next question comes from the line of Brad Erickson with KeyBanc Capital. Your line is open.
Hi. I just have 2. 1, you may have given it, but did you give the portion or could you give the portion of free shipping units in Brazil? And then should we think that the portion that portion of free ship units should continue to rise? Or are we now approaching a more stable level in terms of mix of overall units shipped in Brazil?
Great. So in terms of the total units that are sold in Brazil, so not of those that go through Mercado and Vios, but of the total platform, slightly less than 50% are already being shipped to the consumer without him having to pay for it. That means that either the seller is paying for it or a combination of the seller and MercadoLibre are paying for it. That's up about 500 bps from the previous quarter. But if you look sequentially, Q3 to Q4 increased less than Q2 to Q3 and less than Q1 to Q2.
So we are seeing that curve flatten out, which makes sense. But again, as I said before, I think what we're trying to do here is to manage as much free shipping for buyers as possible, while reaching the P and L objectives we have. And that's something that will be a constant effort on our behalf. So as we improve cost and as other things happens, we will try to continue to push the percentage of free shipping up for as long as we can.
Got it. That's helpful. And then looking longer term into the second part of your the back part of your answer there, I think you've talked about a multiyear goal of that kind of a $4,000,000,000 number in revenue looking out many years. I guess relative to the scale driven cost reductions you'd hopefully be achieving at those levels, is the thesis that like even with the significant free shipping exposure you're talking about, you'd still hope to see op margins return to historical levels, say 20 percent? Is that too ambitious?
Or does that longer term target assume op margin levels, I guess, below the kind of historical levels? Thanks.
Yes. We don't guide and so I don't think we've ever communicated any sort of short or long term target objectives.
Got it. Thanks.
Thank you. And our next question comes from the line of James Friedman with Susquehanna. Your line is open.
Pedro, I too wanted to ask about the payments Pago business. I was wondering is so is the growth the off platform growth is how would you characterize the dynamic between how much of the growth off platform is coming from new merchants versus penetrating the installed base of existing merchants with your payment solution?
So let's see. We're trying to see if we can get a we call that sort of monthly receivers, which is the number of accounts that receive monthly. It's not a number we disclose. Directionally, there is significant growth in that away from marketplace payments business across the board. So if I look at the number of MPOS devices that we're distributing, which is a proxy for new merchants.
That's growing extremely well, in all markets. And then just on the digital merchants that we're acquiring, we've seen a significant pickup in the mid to long tail merchants as we've improved a lot, self onboarding and some of the automatic usage and deployment of Pago technology on the merchants' websites. So I would say that for the MPOS, the offline to online business, obviously, a lot of that is new merchants, primarily new merchants. And then in terms of the merchant services business, the incremental growth is roughly distributed half from existing merchants growth and the other half is actually onboarding new merchants.
Okay, that's helpful. Thank It's topical because PagSeguro added 1,000,000 merchants in the last year. So we're
trying to calibrate that. And then if
I could ask a follow-up.
So, yes, so when you were decomposing and first of all, those metrics were really helpful, the 28% of total, the 14% for financing, the 9% for merchant services. I appreciated the decomposition there. I was just wondering, the numbers you were given, 28% of total revenue being from Pago, that is correct me if I'm wrong, but that's not including payments on the marketplace. Would you happen to have that number inclusive of the marketplace?
So you're correct. That doesn't include the marketplace. That's all Nelly, that's not Brazil, right? So that includes markets where cargo is newer and less penetrated. And then again, because of our revenue model, we can't really talk of marketplace payment revenue per se, because we charge merchants a single marketplace fee and that includes payments.
So in our U. S. GAAP financials, there are no payment revenues that are that we generate on marketplace. The revenue is all in the non marketplace business. The only payment revenue that we have on marketplace is financing and that is included in the number that I gave you.
Okay, that makes sense. Thank you for the additional color.
Thank you. Our next question comes from the line of Irma Gersh with Goldman Sachs. Your line is open. Yes. Hi.
Thanks for taking
the question. Also another couple of questions into that FinTech direction. Mekadu Kredisto, could you just shed some light of on sort of how you think about the growth there and managing the risk and the book going forward? I know you've said that you'd be looking to not necessarily keep the loans on your balance sheet. But my question is more into the direction of whether you'd be looking for a banking partner to continue to grow the business to sort of leverage the risk models?
That's my first question. And then the second question off platform and I was very up on the earlier question, the detail you provided. But my question is maybe in terms of your off platform strategy, could you just sort of talk a little bit about what your marketing strategy or your go to market strategy there is? And whether you have ambitions to market, the competition is obviously quite intense and that platform offline market, whether we should be imagining that to continue to be a very small side business or whether you actually intend to put some more significant resources behind that?
Sure, Hima. Hi. So I think there's 2 elements to your first question on the loan book. First of all, I think when you look at the merchant business, we're very comfortable with our internal ability to manage risk. As a matter of fact, we think it's a competitive advantage given, as you well know, that these merchants, significant portion of their sales are being processed through our payment products.
And so we have very, very strong data capabilities and risk models to assess these merchants. When we look at the historical default rates of the multiple vintages we have by now and even when we look at the newer vintages, when we start expanding the credit book, we're still extremely comfortable there. You asked about growth. I think we're focused on well managed risk growth. So the business is growing nicely, but we take into account also how well we're managing the risk.
Then the final piece is offloading some of that risk as we securitize the loan book and that also helps the cash profile of that business. So information I think there we're very comfortable with our own internal capability and the data we have to score the merchants. We think it's a competitive advantage. On consumers, which is a larger addressable market probably, the reason that it's still a smaller part of that overall loan book is that we are being very cautious there and we're moving forward more cautiously because of managing the risk profile. I think we'd be open to see if there are additional inputs of data.
We certainly are talking to other financial institutions in terms of buying that book and working together. So that's something that we don't write off. There's nothing that we've announced or nothing in place currently. I think that was the first question. Second question, we've seen the offline, the mobile POS business be one of the fastest growing portions of our payments network.
We think it's a very, very large addressable market, and it's a business that we will continue to increase our investment behind. We've already began to do that because we're seeing very good returns, both in terms of user adoption, but also the economics around that business as we've grown it out. So you will see a ramp up in investment behind that piece of the payments ecosystem as well as the others, the merchant service business that we've been at for a longer amount of time.
Okay. That's very sweet. Thanks.
Thank you. And our next question comes from the line of Thomas Champion with Cowen. Your line is open.
Hi, thanks for the question. This is Bill on for Tom. I just wanted to ask, can you talk a little bit more about the fulfillment initiative in Brazil and just discuss the progress there in the last quarter in terms of volumes? And just how far away we might be from reaching a point of critical mass where it begins to drive down the cost due to economies of scale?
Thanks. Yes. So this is very important for us and it's something that will also be a large area of focus, especially for this year. Moving as much of our inventory from merchants locations to it being co located within our fulfillment centers. We have fulfillment centers live and operational in Brazil and Mexico.
They are still a very small portion of overall sales, low single digits in the case of Brazil. But operationally, it's working very well. It's growing nicely. We're seeing improved service levels of items that are shipped out of the fulfillment center. And obviously, it simplifies the network because you eliminate 1st mile altogether and so that lowers the cost.
So the answer is we're not seeing any impact of that flowing through our P and L right now because it's fairly nascent. But this is one of the areas of greatest focus for us. And hopefully, we can report on update in the upcoming quarters.
That's great. Thank you.
Thank you. And our next question is from the line of Masha Khan with Deutsche Bank. Your line is open.
Hi, good evening. I've got a question on fulfillment. Can you update us where you are in terms of fulfillment in Brazil and what sort of fulfillment costs, if any, you could give us any sense of what they are and where you are in terms of onboarding merchants onto the fulfillment services? Thank you.
Yes. Hi, Moshe. So again, I think, early stage but operational. We're seeing good results coming out of that. I think it's too early to give too much detail on what's the impact of cost versus the drop ship model and whatnot.
It's still a subscale network. But I think again, it's live, it's operational. We're in the process of onboarding merchants. Brazil has complexity in terms of fiscal structures and whatnot that we're working through. We're optimistic about the fulfillment operations and we think that it will be one of the areas of focus in 2018 and that we will be updating you guys on as the year advances and as hopefully those operations begin to grow out.
Got it. Thank you.
Thank you. And our last question is from the line of Marcelo Santos with JPMorgan.
I have two questions. The first is on the classified business. I just wanted for you to explain a little bit more on the comment you made on the press release on the meaningful advances you're doing in Brazil and Argentina on the classifieds. And the second question is just to get an update on how if there is any effect on the sales regarding the changes in Brazil on the packages? I think when you deliver a package to the postal office, you need not to put in fiscal invoice.
So is there any impact on your sales that you have noticed? These are the 2 questions.
Okay. Let me start with the Classifieds one quickly. The vision we have for the Classifieds business is that we think that the latest features that we're launching and they're already live are to try to move the Classifieds business towards more of a transactional model, where if you see a car, a motorcycle, eventually real estate and services that you like rather than simply a listing that you then have to contact the realtor or the dealer or the individual, you can actually reserve that car or that real estate, and that would, until a certain amount of time passes, not allow the realtor or the car dealer to sell that car to anyone else and it starts moving classified towards a transactional model. That's been launched in Argentina and Brazil, gaining good traction in Argentina, but it's a product that we'll continue to work on and tweak. We think it's a great value prop for both the buyer and the seller because it's much more of a qualified lead business model, and we think it will be an interesting value proposition in that market.
In terms of the changes in the documentation required to ship logistics in Brazil, we continue to see our Mercado imbrios penetration and Mercado imbrios adoption in Brazil perform well sequentially. We've had to develop some product tweaks to facilitate the printing out of those incremental data for sellers to include in shipping packages. So we've worked from a technology angle to make that transition easier for our merchants, but we haven't seen any material impact on our business that's been negative. So I think it's something that for now we're comfortable with.
Thank you very much.
Thank you. And this concludes our Q and A for today. I would like to turn the call back to Pedro for his final remarks.
Thank you. Thanks, everyone, for listening in. We are truly excited about everything that's going on in the company. We're very pleased with the rate of growth of our transactional volume, of our revenue. We continue to feel that we're firing on all cylinders and we look forward to keeping you up to date, and hopefully maintain the momentum as we advance in 2018.
Thank you.
And with that, ladies and gentlemen, we thank you for participating in today's conference. This concludes the program and you may all disconnect. Have a wonderful day.