Good day, ladies and gentlemen, and welcome to the MercadoLibre Second Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr.
Federico Sandler. Sir, you may begin.
Hello, everyone, and welcome to the MercadoLibre Earnings Conference Call for the quarter ended June 30, 2017. I am Federico Sandler, Head of Investor Relations for MercadoLibre. Our Senior Manager presenting today is Pedro Arndt, Chief Financial Officer. Additionally, Marcos Galperin, Chief Executive Officer and Osvaldo Jimenez, Executive VP of Payments will be available during today's Q and A session. 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 current available information, you are cautioned not to place undue reliance on these forward looking statements. Our actual results may differ materially from those discussed in this call for a variety of reasons, including those described in the forward looking statements and risk factors sections of our 10 ks and other filings with the Securities and Exchange Commission, which are available on our Investor Relations website. Finally, I would like to remind you that during the course of this conference call, we may discuss some non GAAP measures.
A reconciliation of those measures to the nearest comparable GAAP measures can be found in our Q2 2017 earnings press release available on our Investor Relations website. Now, let me turn the call over to Pedro.
Thanks, Federico. Hello to everyone and welcome to our Q2 conference call for 2017. We are pleased to see the continued execution of our business plans and sustained top line momentum throughout the first half of the year. This first half has marked the initial stages of the deployment of our free shipping and loyalty programs, meaningfully improving and deepening the already powerful value proposition that we offer our buyers. We believe that the sustained rollout and broadening of these 2 major initiatives over time will foster the ongoing switch from offline buying to online buying as the cost and time of delivery are significant barriers to adoption to online shopping.
This in turn should serve as a catalyst for sustained growth as we gain scale advantages and benefit from a leadership position within an accelerating e commerce market. Just as we continue making significant strides in improving this value proposition on the marketplace retailing business, we are also thrilled of what we are building in the realm of FinTech and payments. Although still in early stages, one of the most interesting things about this nascent and growing industry is that large portions of financial services still remain untouched by digital technologies. Just to put this in perspective, less than 1% of loans currently originate online. This means that there will be a significant demand for new digital products to transform existing financial services in the coming years.
And we believe that MercadoPago will be at the forefront of this transformation, generating financial inclusion for millions of people in the region where we have a presence. The success we have seen so far this year continues to give us confidence to further invest behind key initiatives that will help us grow the business as fast as possible and continue to gain market share in what is still early stages of e commerce and payments throughout Latin America. Before I get into greater detail on the specific advances we've made during the quarter, let me walk you through key operational metrics from a consolidated perspective that we were able to deliver during the Q2 of 2017. Units sold accelerated 41% to $61,500,000 one of the highest growth rates in unit volumes we have observed throughout the last 5 years. Gross merchandise volume reached $2,700,000,000 accelerating sequentially to 36% year on year in U.
S. Dollars, while on an FX neutral basis, GMV grew 56% year on year. Total payment volume grew 76% year on year on an FX neutral basis, reaching $3,200,000,000 Total payment transactions accelerated to 63% year on year, reaching $52,100,000 the 10th consecutive quarter of growth above 60%. As a result, we delivered solid revenue growth both in U. S.
Dollars and on an FX neutral basis, growing 58.5% 65%, respectively. And finally, registered users were up 21% year on year, reaching 191,000,000 after we added 9,000,000 new users during the quarter. As we look ahead into the second half of the year, we will continue to focus on consolidating our position of regional market leadership and evolving our local scale advantages. We will do so by carrying on with the execution roadmap started this year with the final goal of offering the best online shopping and payments experience in Latin America to our community of users. Let me begin my detailed remarks with what has been the evolution of our marketplace business during the last quarter.
Our Brazilian marketplace delivered stellar performance this quarter across multiple KPIs, even with a combination of increasingly tougher year on year comparisons and a still challenging macroeconomic environment. Brazilian units sold accelerated sequentially to 56.5 percent year on year, one of the highest quarterly growth rates in the last 5 years and 23 percentage points above its 4 year compound annual growth rate. Equally stronger the results when looking at gross merchandise volume in Brazil On an FX neutral basis and on a comp of 64% growth during the same period last year, gross merchandise volume accelerated sequentially to 48% year on year. We attribute these results in large part to the investments in our shipping and loyalty programs in Brazil, which were carried out from mid May onwards. Furthermore, not only are we driving more value to our sellers in Brazil as items sold per unique seller grew 23% versus the same quarter a year ago, but active buyers are also purchasing more as we improve retention rates, engagement and conversion.
Items purchased per unique buyer grew by almost 15 percentage points when compared to the same quarter a year ago. Moving on to Mexico now. As a consequence of penetration gains from MercadoPago, aggressive free shipping offerings complemented with our loyalty program, MercadoPuntos, and an aggressive investment in customer acquisition, we continue to drive performance in our marketplace in Mexico unlike we have seen in the 17 years of operations in that country. Units sold growth in Mexico accelerated for the 7th consecutive quarter to an all time high of 95% year on year, up from 31.5 percent a year ago. That's an impressive 65 percentage points above its 4 year compound annual growth rate of 30.5%.
Likewise, gross merchandise volume is also trending well, accelerating for the 7th consecutive quarter to 53% year on year, also on an FX neutral basis. On the buyer growth front in Mexico, we are pleased to report that during the second quarter, we delivered the fastest growth rate of both new buyers and unique buyers in over 5 years. This is a notable milestone for us in Mexico as it confirms that the investments we have embarked on in enhancing the user experience and offering our free shipping and loyalty program are accelerating user demand in that country's marketplace. We've sped up even further our progress in Mexico in terms of improving conversion rates and consequently driving more volume to our sellers. As a result, during the quarter, units sold per unique buyer in Mexico grew an impressive 44% versus the same quarter a year ago, while items sold per unique seller increased by 53% when compared to the Q2 of 2016.
Just like in Mexico and Brazil, when taking a look at active buyer growth on a consolidated basis, it is also demonstrating that our enhanced marketplace vision and our focus and execution on delivering an ever improving shopping experience is the right one. Unique buyers grew 23%, the 6th consecutive quarter of growth above 20%. Additionally, we are pleased to report that all our user cohorts, new buyers, repeat buyers and recovered buyers accelerated growth in the double digits during the quarter. Although we continue to deliver sound top line growth from our Argentine operation during the quarter, the country continues to underperform versus others and growth there decelerated across certain metrics in supply, demand and vibrancy. The persistent slowdown in the Argentine business can be attributed for the most part to the delays in rolling out many of the latest innovations across logistics, loyalty and seller tools.
Also delaying the rebound of our Argentine operations is our decision to postpone incremental customer acquisition investments in that country until we are able to fully update the technological platform it runs on. Rounding up, in Chile and Colombia, our marketplace business also delivered top line growth, but at a decelerated growth rate in terms of gross merchandise volume and units. As a result, and leveraging that we have logistics partners who are able to deliver efficiently and swiftly, we have launched our free shipping and loyalty programs in both these countries during the month of June, so as to improve our value proposition and reaccelerate our businesses there. I look forward to the subsequent quarters in keeping you updated on our progress on that front. During the Q2, we were also able to make a few important strides on the product front.
Exiting the quarter, we launched our marketplace shopping cart in Mexico with promising results in conversions and buying flows. We've also continued to make advances on our mobile initiatives as it now not only represents 2 thirds of all visitors to our platform, but also 43% of total GMV, let me remind you that this is a 900 basis point improvement versus where we were the same quarter of last year. MercadoPago's results during the quarter are a direct reflection of the advances we have made helping our users transact in the digital economy. Our vision of democratizing money and finance in the same manner we democratized commerce over the past 18 years is propelling us to the front of the pack in leading the transition from cash to digital payments in the region, allowing our users to greatly benefit from the move to an increasingly digital payments and retail landscape. On a consolidated basis, penetration of MercadoPago on our marketplace rose 15 percentage points versus the Q2 of last year, reaching 81% of total gross merchandise volume.
This solid penetration gain was driven for the most part by Argentina with a 93% penetration versus 70% during the same period last year and Mexico at 91% penetration versus 59% during the Q2 of 2016. Colombia and Chile are also making strides in terms of payments adoption. Colombia increased 33 percentage points versus last year to 71%, while Chile grew 28 percentage points, reaching 50% of gross merchandise volume being paid for through MercadoPago during the same time period. An essential benefit of MercadoPago is its capacity to deliver new consumers and enhance sales growth to our merchants in an environment that is becoming predominantly digital. As such, off platform total payment volume accelerated sequentially to a healthy 103% year on year on an FX neutral basis.
The drivers of this growth story is a result of solid execution in Brazil, delivering TPV growth on an FX neutral basis of 159% year on year, as well as solid TPV growth in Argentina, Mexico and Chile, where the country's TPV has grown north of 60% year on year for over 8 quarters. One final comment on our progress on the FinTech front. As we continue to innovate and expand our financial services and technology that enable our merchants to build and grow their businesses online, I am pleased to report that we have begun to offer working capital loans and cash advantages to our merchants in Brazil and Argentina through our lending product Mercado Credito. Through Mercado Credito, we are able to leverage Mercado Pago's technology and our unique marketplace granular data to assess and rate our merchants creditworthiness, while also being able to service those loans in ways traditional banks and financial institutions are unable to. Eligibility is weighted on our merchants MercadoPago history and marketplace sales rather than a business or personal credit score.
We believe we are just scratching the surface and filling the void in the traditional retail banking environment throughout Latin America, where our merchant base has been underserved for decades. Not only that, but our merchants also greatly appreciate MercadoCredito as we are observing that many of those merchants who paid off a loan or advanced cash immediately reapply for funding. Additionally, we also observe higher growth rates and better net promoter scores from those merchants who adopted the credit product. With Mercado Credido, we are not only addressing 2 of the main merchant pain points, access to credit and the lengthy application process of traditional lenders, but we are also generating exceptional synergies in terms of accelerating trading on our core marketplace business. We observe that those merchants who adopt our credit experience higher sales and unit volumes and thus allows us to offer better rates to them.
Adding more service layovers is clearly translating in more value to our merchant base, which in turn also results in growing faster our top line, take rate and monetization. We are excited in having the privilege to be able to empower even further our ecosystem of entrepreneurs and look forward to be a trusted partner to them for many years to come. Moving on to our shipping initiative, as MercadoEnvios penetrates items sold and gross merchandise volume, it continues to evolve as a critical tool to help us maintain the high growth rate and conversion rates we delivered in our marketplace businesses, while contributing to increased customer satisfaction of our users. During the quarter, 54% of all units sold on MELI are already being shipped through our shipping solution and network of carrier partners. Items shipped in Mexico was a highlight this quarter as they grew an impressive 2 87 percent year over year, gaining 8 percentage points of penetration versus the Q1 of 2017.
Along those lines, let me give you a quick update on the free shipping front. During the quarter, we launched our free shipping and loyalty program in 3 additional countries beyond Mexico. In Brazil, we are offering free shipping on items above $40 and we share the cost of free shipping with our merchants and only extend the subsidy to specific cohorts of our professional sellers. In line with that, and as described in the engagement metrics earlier, we are seeing meaningful elasticity of consumers to free shipping in Brazil. Additionally, during the month of June, we also launched our free shipping and loyalty program in Colombia and Chile on all items above $23 $22 respectively.
In the case of these two countries, we are taking an approach similar to that of Mexico, where we are subsidizing 100% of all items above the aforementioned threshold irrespective of merchant cohort. Although still early, we expect this feature to accelerate the business and strengthen our moat in both of these countries as our Cartier partners offer world class service levels and the level of subsidies we are now offering is very aggressive. Let's now take a look at how these operational highlights I've walked you through flow into our financials for the quarter. I'd like to remind you that greater detail on this can be found in the accompanying presentation to these prepared remarks. Net revenues for the Q2 of 2017 grew 58.5% year on year, rising to $316,500,000 delivering fast growth rates in over 4 years and well above its 4 year compound annual growth rate of 22.6 percent and this was also the Q1 in our history that we exceeded $300,000,000 of revenues.
On an FX neutral basis, top line results are equally promising as they grew 65% year on year, delivering the 13th consecutive quarter in a row of growth above 60% in revenues. Monetization continues to be robust on a country per country basis as well. For the Q2, revenue growth was as follows: Argentina 44%, Brazil 60.5%, Mexico 80%, Colombia 23%, Chile 29.5% and Uruguay 59%, all of these expressed on a ForEx neutral basis. Brazil and Mexico's accelerating unit growth explained again for most part the solid marketplace revenue growth. On an FX neutral basis, total marketplace revenues grew at a remarkable 85% year on year, the 3rd consecutive quarter of growth above 70%.
In U. S. Dollar, core marketplace revenues accelerated to the fastest growth pace in over 4 years at 74% year on year. Non marketplace revenues also delivered a solid performance during the quarter. Already consolidated non marketplace revenues such as our merchant service business in payments continue to either maintain momentum or accelerate across multiple geographies, while businesses that we have begun to seed such as our merchant credits business are growing triple digits, albeit from a small base.
However, as a result of growing the coverage of our free shipping and loyalty program to additional geographies during the quarter, we are experiencing a contraction of our paid shipping revenues. This segment had been a contributor to non marketplace revenue growth and is now focused on being a facilitator of the greater transaction volumes on marketplace rather than a large revenue growth generator. For the Q2 of 2017, these non marketplace revenues grew 34% year on year on an FX neutral basis and in U. S. Dollars 39% versus 82% last quarter and 41% last year.
The main contributors to this revenue growth are as follows. Firstly, MercadoPago off platform payment processing revenues maintained strong momentum versus last quarter, growing at 78% year on year on an FX neutral basis. Brazil was a highlight here as well as it's been growing off platform payment processing revenues north of 90% year on year every quarter for the past 2 years on an FX neutral basis. Following suit are Argentina and Mexico, which also grew these revenues at a solid pace on an FX neutral basis, north of 50% year on year. Secondly, financing fees grew at 20% year on year on an FX neutral basis as financing revenues actually contracted 14% year on year in Argentina during the quarter due to higher financing costs and certain changes in the regulatory environment, which limited to some extent the availability of credit on our platform.
And in Brazil, financing revenues grew on an FX neutral basis 30% versus 36% last quarter and 58% last year. Finally, shipping revenues in Brazil, which account for almost 60% of total revenues in shipping halved versus last quarter to $9,300,000 a 14% contraction year on year on an FX neutral basis due to a lower spread between what we charge users and what we are charged by our carrier partners on the paid portion of our items shipped in Brazil as well as the incremental adoption of free shipping that I mentioned earlier. Consequently, on an FX neutral basis, shipping revenues grew sequentially 20% year on year. Moving down our income statement, gross profit grew 36% year on year during the Q2 of 2017 to $171,600,000 Gross profit margin was 54.2 percent of revenues versus 63.3% in the Q2 of 2016 and 61.6% in the Q1 of 2017. The year on year margin compression reflects the investments we have embarked on, centered around shipping subsidies and marketing investments that, as I've walked you through earlier, have certainly performed up to our expectation in terms of driving revenue growth.
Specifically at the gross margin level, the main drivers of margin compression during the 2nd quarter can be attributed to higher investments in our free shipping initiatives in Brazil, Mexico and Chile, which in total accounted for a reduction of 10.31 basis points of gross margin year on year, as well as higher fraud prevention and hosting costs, which contributed an additional 82 basis points of margin contraction when compared to the same period of 2016. These effects were somewhat offset by 130 basis points of customer support and sales taxes. Furthermore, collection fees contribute 77 basis points due to lower costs of processing credit cards in Argentina. Compounding all the aforementioned effects resulted in a gross margin contraction of 9 0 6 basis points year on year for the quarter. Before I dive into specific details on operating expenses, allow me to make a comment on Venezuela during the quarter.
The country had a significant currency devaluation as a new foreign exchange mechanism, DECOM, was instituted and replaced the previous SIMADI currency exchange platform. This change has resulted in an exchange rate increasing from 709 bolivir per U. S. Dollar at the end of the first quarter to 2,640 bolivir per dollar at the end of this quarter, a 73% devaluation. As a result of this change and taking our traditionally cautious approach, we recorded a CAD25 1,000,000 loss in the quarter that includes an impairment charge on long lived assets, primarily real estate of $2,800,000 and a foreign exchange loss of $22,000,000 which was partially offset by deferred income tax gains of $3,200,000 As a reminder, during the same period last year, we also recorded an impairment charge and FX loss in Venezuela for $13,700,000 $4,900,000 respectively, also related to currency devaluations.
Moving further down the P and L, operating expenses for the quarter totaled $141,500,000 or 44.7 percent of revenues. Excluding the Venezuelan impairment charges that took place during this quarter, operating expenses would have been $138,700,000 or 43.8 percent of revenues. Sales and marketing grew 117.5 percent year over year to $76,900,000 or 24.3 percent of revenues versus 17.7% for the same period last year, resulting in 6.58 basis points of margin contraction. Higher offline and online marketing investments, mainly in Mexico and Brazil, to support the launch of our free shipping and loyalty programs contributed 5.96 basis points of margin compression. The incremental investment in customer acquisition is explained by our rising level of confidence that customer lifetime values are improving in the platform and also that retention and frequency rates are accelerating.
Chargebacks contributed an additional 108 basis points of margin compression, which was partially offset by 50 basis points of scale driven by successful collection efforts in bad debt and our buyer protection program. Product development expenses grew 25.3 percent to $30,300,000 representing 9.6 percent of revenues in the 2nd quarter versus 12.1 percent a year ago. 112 basis points of scale was driven by salaries and wages, notwithstanding enlarging our IT headcount by more than 70 employees during the quarter. The rest of the year on year accretion 142 basis points mainly reflect maintenance costs and office expenses growing less than revenues. As reported, G and A was flat year over year at $34,300,000 representing 10.8 percent of revenues as we compare against the same period last year where we had the aforementioned $13,700,000 impairment exchange rate in Venezuela.
If we exclude the impacts of Venezuelan impairment charges that took place during the Q2 of last year and this year, G and A increased 51 percent to $31,500,000 in the 2nd quarter or 10% of revenues versus 10.5 percent a year ago. The year on year scale in G and A is largely driven by 46 basis points of efficiencies in legal and audit related fees. As a result, operating income for the quarter was $30,000,000 or 9.5 percent of revenues. Excluding all impairment charges that took place during the Q2 of 2016 and during this quarter in Venezuela, operating income would have been CAD32,900,000 or 10.4 percent of revenues versus 23% in the Q2 of 2016 and 23.1% last quarter. Beneath operating income, we benefited from $10,600,000 of interest income, up 32.5% year on year, thanks to higher interest rates on larger amounts invested.
In our ForEx line, we saw a $21,800,000 loss versus a $5,400,000 loss in the Q2 of last year. This ForEx loss is explained for the most part due to the depreciation of our net monetary position in local currencies in Venezuela. The ForEx loss amounted to $22,000,000 during the second quarter of 2017 and was partially offset by appreciation of currencies in other countries. We had a $6,500,000 expense in financial expenses, mostly corresponding to interest accrual on our convertible bond issued in 2014. These effects led to a net income before taxes of $12,400,000 Excluding Venezuela's impairment charge on G and A, ForEx and tax gains, net income before tax would have been $37,200,000 This pro form a result would have been 20% below last year's 2nd quarter as a consequence of the investment cycle I have just outlined.
Income tax expense was $7,100,000 for the 1st quarter, partially offset by deferred income tax gains of $3,200,000 As reported, U. S. GAAP blended tax rate for the period was 57.2 percent, driven by the one time charges in Venezuela previously mentioned, which are non deductible under U. S. GAAP.
As a result of all this, as reported, net income came in at $5,300,000 or 1.7 percent of revenues for the 2nd quarter, resulting in basic net income per common share of $0.12 Excluding the impairment charges during this quarter in Venezuela, net income would have been $26,900,000 a margin of 8.5 percent and an earnings per share of $0.61 This compares to $32,700,000 a margin of 16.4 percent and an earnings of $0.74 a year ago if we also exclude the one time impairment charges that occurred during the Q2 of 2016. Purchases of property and equipment, intangible assets, advances for fixed assets and payments for businesses acquired net of cash acquired totaled $121,600,000 during the quarter. For the period ended on June 30, free cash flow was $99,800,000 We declared our quarterly dividend of $6,600,000 or $0.15 per share payable on October 16, 2017 to shareholders of record as of the close of business on September 30, 2017. And with that, I'd like to end today's call by saying that our vision is yielding solid results, which continue to extend our leadership position and drive our top line growth and scale. We will continue to focus on these scale gains and increased engagement on our platform by placing our customers in front and center of everything we do.
And with that, we can now take the questions you have. Thank
Our first question comes from the line of Deepak Mathivanan with Barclays. Your line is open.
Great. Thanks guys. Two questions for me. First, can you talk about the adoption of free shipping program in Brazil? What is the penetration currently as percentage of units and what is the average order value for the free shipping units?
I know minimum is like $40 And then second, in Brazil, can you help quantify the impact of direct contribution margin hit between free shipping and marketing? Should we sort of expect the incremental marketing investments to continue for driving adoption of free shipping? Or is it some sort of like a launch promotion that you did during launch? Thanks a lot guys.
Hey Deepak, how are you? Thanks. So we're very pleased with what we're seeing with our free shipping initiatives in different countries in terms of driving customer engagement, customer loyalty and we can see that in the growth of our business. We haven't disclosed what percentage of our units shipped in any of the markets are free, but we are very pleased with the evolution of the initiative. In terms of cost, in general terms within COGS for Brazil, which I think was your question, the actual free shipping cost represented about 13 percentage points of revenue in COGS from free shipping.
And then across the board, there were investments in marketing. A portion of those were to support the launch of free shipping. But again, the lion's share of our marketing investments have actually in customer acquisition as we see improved lifetime values and we're convinced that we're bringing new customers on to a much improved experience. And so it makes more sense to spend more money on customer acquisition. But yes, there was a portion during the quarter, which was focused on the initial stages of free shipping.
Okay. Thanks, Pedro.
Thank you. Our next question comes from the line of Stephen Ju with Credit Suisse. Your line is open. If your phone is on mute, please unmute.
Hi, guys. Sorry, it's Chris on for Steven.
It seems like we have a
new playbook for customer acquisition and monetization, especially in Mexico. So would you guys be able to walk us through kind of the new and updated math and the return on invested capital? And then secondarily, any way you can characterize the customer acquisition cost in Mexico? And what are the acquisition cost in Mexico? And what are the signs that once you acquire these customers, they continue to stick with purchasing on MercadoLibre?
Thanks.
Great. So let me take those in reverse order. First of all, what we're looking at is a obviously very detailed analysis on cohorts. Those cohorts are both vintages when we acquired them, but perhaps the more interesting ones are the cohorts that look at the performance of users that are purchasing our full ecosystem. So they're purchasing for the first time or in their latest purchases with free shipping plus obviously NDEOs plus payments plus credit.
And when you compare the cohorts, cohorts that have the full usage and adoption of the ecosystem perform consistently better across geographies going forward. So we're really seeing the impact on customer engagement of getting users to buy on MELI with MercadoPago and Vios and free credit. And that's been pretty consistent across the different markets as we roll these initiatives out. We're not giving out any specifics on ROICs or on customer acquisition costs. We're not working to externally communicated targets on that front.
As you know, we don't guide. And I think you use the term a new playbook. As we've been saying, we will continue to solve for growth, for top line, for market share and for continuing to see positive returns in customer engagement metrics and NPS metrics. We feel we found the right levers to invest behind the business and that's what we're going to continue to do as long as we see this kind of growth and of customer engagement and satisfaction metrics.
Perfect. Thank you, guys.
Thank you. Our next question comes from the line of Mike Olson with Piper Jaffray. Your line is open.
Hey, good afternoon. Thanks for taking my question. So you're pressing the accelerator on growth through free shipping and loyalty programs. That's clearly impacting margins in the near term. And I realize you don't provide guidance, but I don't know if you could say qualitatively how long of an investment period would you suggest investors should expect before margins begin to trend higher again?
And then I have another question, which is you mentioned not having the platform rolled out in Argentina to the extent you do in other markets. Is that purposeful because Argentina is just a weaker environment right now? Or is there something slowing down your initiatives in that market that's not as much in your control? Thank you.
Hi, Mike. This is Marcos. Just following up on Pedro's comment before, we are we don't guide, but when we look at this quarter, obviously, excluding the one time in Venezuela, we are very pleased with the numbers in this quarter as we like to focus in growth and in market share and in customer engagement. And we believe the initiatives that we have pursued and will continue to pursue going forward, we'll continue to provide those dynamics. So without giving any guidance that we don't give, we do feel comfortable saying that going forward, we will expect to do the same with regards to how we manage the business focusing in growth, because we believe we now have a product that provides very good customer satisfaction and we see that in the Net Promoter Scores and in the customer engagement that we see when we look at the different cohorts.
With respect to different countries, we have been implementing free shipping and the loyalty program in different geographies. And it's a question of timing and execution and nothing else than that.
And just to complement that, I think on the Argentina piece as Marcos was saying, there is method behind the way that we're approaching the different markets. And our decision was there's a significant investment cycle going on in Brazil, Mexico. We've started now with Chile and Colombia and we felt Argentina could wait a little bit, but eventually we will also look to have the platform rolled out everywhere.
Okay, got it. Thanks.
Thank you. Our next question comes from the line of Irma Skars with Goldman Sachs. Your line is open.
Yes. Hi. Good afternoon or good evening. Just turning back to a question of a comment that you made on the introduction of the shipping card in Mexico. As you think of rolling out this very important innovation also to potentially other markets, How do you think is this to be thought of as one of the key levers that is important to for the free shipping equation to close and eventually sort of start getting some leverage on those investments that you're making?
And to the extent that this may be that you see that as just part of the solution, what other metrics would you are you looking to sort of get out to a more positive effect or a net positive effect on the margin and in absolute terms from the free shipping investment that you're making right now? Is it maybe bringing down the average cost of shipping by working through larger volumes with the suppliers or with your partners? Or is it by shifting the equation of the subsidies a little bit, just for us to understand like which dials you're thinking about there? Thanks.
Hi, Eva. I think you've given the answer in many of the way you frame the question. So, shopping cart I think is one tool. It's early. It's only been launched in Mexico during Q2.
I think we're seeing interesting results in terms of increasing units per order and that obviously helps us longer term in terms of shipping costs. But moving forward, I think there are many levers that we can optimize and drive efficiencies behind. Scale is perhaps the most relevant one and one of the reasons we are focused on top line growth. Think our entire logistics operation from a cost perspective will benefit tremendously from scale as we grow. Logistics are very scale sensitive.
You touched upon some of the other more immediate levers that we've already started working on, pricing and also subsidies and how the subsidies are arranged. As I mentioned in the remarks, we have a different menu of subsidies in different countries. In some countries, we are subsidizing 100%. In others, it's based on cohorts and it's not 100% of the subsidies. And that gives you a good idea of the multiple levers we have to manage the level of investment behind shipping and logistics, always focusing on trying to sustain customer engagement and top line growth.
So there's plenty of work and there are plenty of levers across the board for us to optimize around.
Perfect. Thanks.
Thank you. And our next question comes from the line of Andre Baggio with JPMorgan. Your line is open.
Hi, good afternoon everyone. So Peter, I would like to understand a little bit how the financial calculation of how much subsidy are you willing to throw into each of your clients? Like, how do you do this equation for you to know if it's throwing more free shipping is worth or not, like what's the main metrics that you're using?
Sure. So I think conceptually we've been very consistent when we've said that I think the key elements behind how we're trying to manage the business and obviously we have significant visibility. But essentially, we're going to continue to solve for growth and for engagement. So the results we're getting in those metrics will be critical in how we assess the success of free shipping and the level at which we invest in free shipping. The second piece as I said is there are multiple levers and we look at these levers on a consolidated basis.
We're not necessarily trying to optimize one specific country segment. We're trying to look at the consolidated P and L and make sure that we're comfortable on a full year annualized period on what the results are looking like. And that determines how much we can be in terms of aggressive on one segment versus another driven by competitive factors, by how ready our carrier partners are to deliver great service as we increase volume and other factors that we look at. So, again, I think the most important message is, we think that we're getting the results that we strive for. We think that on an annualized basis we're on the way to deliver the P and L that we'd like to deliver.
And we continue to take a long term view of this business. And as long as we continue to grow market share and grow top line at this rate, we will be in a unique position for the long term.
Thank you.
Thank you. And our next question comes from the line of Thomas Champion with Cowen and Company. Your line is open.
Hi, this is Bill on for Tom. Thanks for taking the question. I was just hoping you could give us a bit of an update on any competition that you're seeing from Amazon in Mexico? Thanks.
Yes, I think we don't really comment on our competitors. I think we're seeing phenomenal results in our Mexican business. You can see that in the top line numbers and the market share gains. It's taking us investing behind the business there, but that's exactly what we need to be doing given what the competitive dynamics are. And the results I think are probably even slightly ahead of the expectations that we might have had in terms of how fast that business is growing and how well consumers are responding to what we're building.
So I think competitively given the results we're having in terms of share and growth, Mexico is a market where we're pleased with the results we're getting.
Okay, great. Thank you.
Thank you. And I'm showing no further questions at this time. I'd like to turn the call back to management for closing remarks.
Great. Thanks everyone. Thank you for the questions. We look forward to continuing to update on the playbook and how things evolve for the rest of the year. So we will speak again in a quarter.
Good night everyone.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a wonderful day.