Good day, ladies and gentlemen, and thank you for standing by. Welcome to the MercadoLibre second quarter 2015 earnings conference call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. As a reminder, this conference is being recorded. I would now like to hand the conference over to Martín de los Santos, Senior Vice President of Finance and Head of Investor Relations. Please go ahead.
Hello, everyone, and welcome to MercadoLibre earnings conference call for the quarter ended June 30th, 2015. I am Martín de los Santos, Senior VP of Finance and Head of Investor Relations for MercadoLibre. Our senior manager presenting today is Pedro Arnt, Chief Financial Officer. Additionally, Osvaldo Gimenez, Executive Vice President of Payments, will be available during today's Q&A session. This conference call is also being broadcast 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 our current assumptions, expectations, and projections for 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 those 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-K 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 second quarter 2015 earnings press release available on our investor relations website. Now, let me turn the call over to Pedro.
Thanks, Martin. Good afternoon, and welcome to our second quarter conference call for 2015. MercadoLibre's results for the reporting period further demonstrated the successful execution of our enhanced marketplace strategy as the company continued delivering robust growth and operational metrics during the second quarter of 2015. The positive progress we are seeing across our e-commerce ecosystem has us feeling strongly about our prospects, and we want to reemphasize our commitment to investing behind our business in order to scale it for the long term. This commitment to long-term sustainable growth will maintain us focused on building a more robust, efficient, and complementary group of services and solutions for our buyers and sellers, both on and off platform, including marketplaces, payments, financing, shipping, advertising, and e-commerce system solutions. This commitment remains unfaltering, even in periods such as the current one, where strong FX headwinds impacted our financial model.
Let me now walk you through some key high-level operational metrics from a consolidated perspective. Successful items grew 28%, reaching 30.2 million. Gross merchandise volume rose to 85% in local currencies, reaching $1.65 billion. Total payment transactions grew 76% to 18.1 million, the seventh consecutive quarter of acceleration in payment transaction volume. Total payment volume grew 108% in local currencies, reaching $1.2 billion and representing over 70% of our GMV for the quarter. Registered users were up 21% year-on-year, reaching 132.3 million after adding 5.6 million new users during the quarter. As you can see, these operational highlights have led to solid revenue growth in the quarter, particularly in local currencies, which rose 88% year-on-year. Excluding our Venezuelan operations, year-on-year growth in local currencies came in at an equally solid 61% for revenues.
Despite currency devaluations in most of our markets, the BRL has weakened 28%, the ARS 10%, and the MXN 16%. Revenues in US dollars grew 17% year-on-year. Excluding Venezuelan operations, where the bolivar devalued by 75% since June 2014, revenues in US dollars grew 29% year-on-year. As mentioned earlier, in this quarter, we continued to make significant strides in our main strategic initiatives and across our business units on and off our platform. Let me start my quarterly update of what has been happening around some of our strategic initiatives with our marketplace business unit. Units sold sustained high growth rates, as I said earlier, accelerating to 28% year-over-year. While units sold using at least one of our payments, shipping, official stores, or credit offerings as a measure of the success of our enhanced marketplace deployment grew 72% year-over-year during the quarter.
In local currencies, gross merchandise volume grew 85% for total net, and 33% if we exclude our Venezuelan operations. We also continue to see selection expanding nicely as the number of listings being offered on Mercado Libre's marketplace grew by 59% year-over-year, the fifth consecutive quarter of acceleration in that metric. The growth in listings has been driven in part by the continued uptake of our credit offerings that have attracted more inventory onto the site, which I will cover shortly, and in part by a more aggressive premium strategy that allows us to capture inventory that sellers are unwilling to pay for, but which generates greater content for our buyers. The fact that we can couple free listings with our payments, credit, and shipping solutions makes our listings highly competitive for sellers and buyers, while also offering us incremental sources of revenue to monetize on those otherwise free listings.
Growth in GMV for free listings as a measure of success accelerated this quarter, growing its mix of inventory available on our marketplace. Our official stores initiatives also impacted positively on marketplace results, albeit to a lesser degree, given that they are still single digits of our total GMV. Total branded stores selling through our marketplace grew to roughly 1,000, confirming that we can effectively provide e-commerce solutions to all retail players, regardless of their size and needs. Moving on to our payments platform, Mercado Pago continued to be a key facilitator and catalyst for our marketplace as it paves the way for brighter transaction quality and frequency in our platform. During the second quarter, penetration of Mercado Pago on our marketplace rose to 57%, up by 23 percentage points versus the same period last year.
Brazilian penetration continues to lead the way as in previous quarters, ascending to 90% in the quarter, up 32 percentage points from previous years, while Argentina and Mexico continue to grow at healthy rates, increasing penetration by 13 percentage points and 12 percentage points respectively. During the second quarter, we also continued to witness compelling advances in our free consumer credit initiatives. In Brazil, adoption of this product rose to a remarkable 52% of all GMV as of the end of the second quarter. In Mexico, where we launched this plan in November of last year, our interest-free installment plan accounted for a healthy 21% of all transaction volume and continues to show very solid adoption and growth rates. On the merchant services business front or the payments processing and credit that we service away from our own marketplaces, total payment volume accelerated to 108% year-over-year in local currencies.
When measured in USD, total payment volume also showed a healthy growth rate, accelerating to 73% year-over-year. It's important to highlight that all the countries where we offer our merchant services solutions have been showing triple-digit growth rates when looked at in local currencies, and very solid growth in US dollars despite the ongoing cycle of strong currency depreciation. Brazil and Argentina, for example, where most of the off-marketplace payment volume is transacted, experienced local currency growth rates of 106% and 103% respectively. The strength of our merchant service businesses come with continued improvements in user experience and renewed success and execution on the commercial front to sign up new merchants.
Case in point in these fronts is the solid traction in onboarding large clients whom we are now working with, such as Airbnb and Nestlé, while also experiencing declines in our merchant churn rates as a direct consequence of an improved product offering that continues to differentiate us from many of our competitors. Moving over to our shipping initiative, it continues to prove itself as an effective facilitator for e-commerce, serving as a powerful tool in contributing to eliminating friction and offering a better shopping experience for our customers. Let's go over some of the key highlights. Shipping continues to perform very well overall, reaching another important milestone in Brazil during this quarter, where 56% of all units sold were shipped through Mercado Envios. On a consolidated basis, items shipped through Mercado Envios hit 41%.
This latter metric is particularly relevant as it underscores the growing adoption of our shipping solution beyond Brazil. Since in Argentina, it's already at 24% of all sold units, and in Mexico, within just eight months of launching our shipping platform, penetration is already at 10% and growing at double digits when compared to the prior quarter. In addition to the ramp-up in our three largest markets during May 2015, and consistent with the expansion of our enhanced marketplace strategy across all geographies, we rolled out Mercado Envios in Colombia. We remain very confident that the rollout of this service will continue to offer a robust ecosystem. A shopping experience that is more uniform and consistently trustworthy, which we believe will ultimately result in sustained growth rates for our business going forward.
During the quarter, we also continued stepping up our efforts to provide best-in-class customer service to our user base. We are excited with the results we are seeing there, which continue to be promising. Through redesigned internal processes and investments in technology and people, we have experienced sustained reductions in total turnaround time for complaints and improvements in Net Promoter Scores, which have increased by 15.7 percentage points over the same quarter last year on a consolidated basis. One final disclosure on operational highlights from the corporate development front. During the quarter, we closed another two strategic acquisitions as part of our goal of acquiring innovative companies that fit into the e-commerce ecosystem we are building. First, we acquired Metros Cúbicos, a leading real estate portal in Mexico that, combined with our existing portfolio of real estate classifieds, continues to consolidate us further as the market leader in that country.
Our strategy of combining the Mercado Libre brand in classifieds, motors, and real estate with recently acquired brands has begun to pay off in the results we're observing for our classifieds business unit this quarter. To give you some color on the success of this strategy, growth in automobile dealers selling through our platforms was 19% year-over-year, while revenues from these sellers grew 26% in local currencies, and growth in real estate realtors was 14% year-over-year, while revenues coming from these sellers grew 50% in local currencies. During the second quarter, we also acquired KPL, a market leader in the provision of ERP systems for e-commerce in Brazil. With the acquisition of KPL, we are making an additional inroad into servicing our clients' e-commerce needs by embedding the technology that is used to integrate brick-and-mortar warehousing and own e-commerce front ends together with our marketplace.
We are confident this new service line will allow us to offer an ever more seamless way for our customers to sell on our marketplace, while also generating additional share of wallet and customer lock-in as we scale out this business. We will keep you informed of the advances we make on this promising front once the materiality of the overall business justifies it. With these operational highlights in mind, let us now take a look at how they translate over to our quarterly financial results. All growth figures are year-on-year, unless I indicate otherwise. Net revenues were $154.3 million, 88% growth in local currencies, and 17% growth in U.S. dollars. Excluding Venezuela, net revenues grew 61% in local currencies and 29% in U.S. dollars. Income from operations was $34.6 million versus negative $5.9 million as reported in Q2 2014.
Net income before income asset tax expenses was $33.5 million versus negative $19.1 million as reported last year. Net income was $19.5 million versus negative $25.6 million in the second quarter of 2014. All this resulted in earnings per share of $0.44 for the second quarter. With that, let me walk you through a more detailed readout of our top-line results during the quarter. We continue to experience healthy growth in marketplace revenues. In local currencies, marketplace revenues grew 80% as GMV growth in local currencies accelerated to 85% and items sold to 28% versus last year. In dollars, marketplace revenue from this business grew 2%, mainly attributed to currency headwinds given the strengthening of the U.S. dollar against most currencies in the region, and particularly Venezuela. Excluding Venezuela, marketplace growth was 43% in local currencies and 15% in U.S. dollars.
Our non-marketplace businesses also continued to show very healthy growth rates, both in dollars and local currencies. Non-marketplace revenue growth ascended to 108% in local currencies, while revenues for this business line grew 52% in US dollars when compared to the same period last year. In order of relevance, the main contributors to this growth story came from Mercado Pago's merchant service businesses, where revenues grew 108% in local currencies, driven by solid growth of payment volume outside of our marketplace. High growth rates and adoption of our new advertising format, Product Ads. Our advertising business gained share of our non-marketplace revenues in recent periods and continues to show great results, growing 192% in local currencies. High adoption of our free listing type in Mexico and Brazil, and more recently in Chile, where all listings offer free financing options. Financing revenues grew 96% year-on-year in local currencies.
Classifieds revenue growth, including revenues from our acquisitions of Metros Cúbicos in Mexico, classifieds revenues grew 33% in local currencies. Shipping, which contributed approximately $8 million in revenues for the quarter. The compounded effects of the aforementioned factors have resulted in a robust net revenue growth of 88% year-over-year in local currencies. Excluding Venezuela, that revenue growth in local currencies ascended to a healthy 61%. Total revenue growth in local currencies for each country are as follows: 58% for Brazil, 90% for Argentina, 26% for Mexico, and 284% for Venezuela. Consolidated revenue growth in US dollars was 17%, and excluding Venezuela was 29%, given the Forex headwinds in that country. Before walking through the rest of our P&L lines, I would like to discuss some macro effects that are outside of our control and have impacted the quarter's results.
In the first place, and as a reminder, year-over-year comparisons are affected by one-time charges booked in the second quarter of last year for a total of $57.4 million related to the adoption of a new exchange rate in Venezuela back then. As a result, as reported, year-over-year changes in margins are highly distorted by these one-offs that generate a strong margin improvement given last year's depressed margins on the one-off. On a consolidated basis, these non-recurring charges accounted for 4,352 basis points of negative impact in net income in last year's second quarter period. Additional to that, foreign exchange headwinds became particularly relevant during this quarter, compressing as-reported margins by 561 basis points that offset the previous margin enhancements brought about by last year's non-recurring accounts.
These Forex headwinds came about because of currency devaluations across the board in all our geographies, but primarily by the steep devaluation in Venezuela, which was a high-margin segment for us. Specifically, Venezuela devalued its currency from an average of 18 bolivars to an average of 198 bolivars to the dollar over the last year. A factor of 11x year-over-year devaluation. As a consequence of these two offsetting margin distorting events, and in the spirit of easing your comprehension of year-over-year changes in margin structure, I will call out the margin evolutions explanations in this OPEX section, excluding the one-time charges from last year's financials. I will also distinguish margin compression that can be attributed to the foreign exchange fluctuations from those explained by operational performance.
In order to do this, I will use constant currency analysis calculated using the second quarter of this year's exchange rate as the constant rate for purposes of these OpEx explanations. Having clarified that, let's now take a look at our bottom-line results and margin structures as we do every quarter. Gross profit grew 9% during the second quarter to $104 million. Gross profit margin was 67.4% of revenues versus 72.4% in the second quarter of 2014 and 69.8% in the first quarter of 2015. Of the 503 basis points of margin contraction, 291 basis points are attributable to currency fluctuations. The remaining 212 basis points come primarily from payment processing fees resulting from growth in Mercado Pago and incremental sales taxes from growth in payments and shipping initiatives. Let me now break down OpEx line item by line item for you.
Sales and marketing grew 10% year-over-year to $29.1 million or 18.9% of revenues, versus 20.1% for the same period last year. FX headwinds contribute with 87 basis points of this margin contraction. The remaining 207 basis points are driven mainly by successful collection efforts, which led to improvements in bad debt and charge-backs that were partially offset by higher investments in our buyer protection program. Product development expenses grew 67% to $19.6 million, representing 12.7% of revenues in the second quarter versus 8.9% in the same period last year. FX explained 202 basis points of margin contraction. The rest of the year-over-year margin compression, 179 basis points, mainly reflect increases in salaries and wages as we augmented our IT headcount by more than 270 employees through the acquisition of software development companies. Part of these increases also occur due to higher long-term retention plan accruals for our engineering pool.
G&A increased 51% to $20.6 million in the second quarter, or 13.4% of revenues, versus 10.4% a year ago. Of this margin contraction, FX fluctuations explain 115 basis points. Salaries and wages explained 183 basis points of the remaining G&A contraction, also driven by accruals to our long-term retention plan. As you can note, in addition to FX, the other significant driver of margin compression was increased compensation related to the long-term retention plan. Year-over-year, the total impact of the long-term retention factor alone was 256 basis points as our stock went from $95 in June 2014 to nearly $142 by the end of June 2015. As a result of these operational expenses, as reported, operating income for the quarter was $34.6 million, or 22.4% of revenues, versus negative 4.5% when compared to the same period in 2014.
The 2,693 basis points of as-reported scale can be separated into 3,754 basis points of margin expansion due to the one-time impairment charge included in OPEX for 2014, which was offset by 695 basis points of contraction driven by Forex changes. When looked at this way, operating income margin contraction adds up to 366 basis points, a truer reflection of the margin compression brought about by the increased investment cycle as we rolled out our enhanced marketplace. Below operating income, we benefited from $4.7 million of interest income, up 31% year-on-year, as a result of higher interest rates perceived on a larger invested base. We had $5.2 million in financial expenses, mostly corresponding to interest accrual on our convertible bond issued in 2014. The effects described above led to net income before taxes of $33.5 million compared to negative $19.1 million last year.
Income tax expense was $14 million in the second quarter, and our blended tax rate came in at 41.9% versus 32.2% in the same quarter last year, excluding last year's one-offs. As in previous quarters, the year-on-year increase results are mainly driven by the expiration of the software development tax law in Argentina. Net income came in at $19.5 million or 12.6% of revenues in the second quarter, resulting in a basic net income per common share of $0.44 versus -19.4% and -$0.58 as reported last year, respectively, or 24.1% and $0.72 if we exclude all one-timers. Payments for the acquisition of property, equipment, intangible assets, and advances for fixed assets and acquired businesses net of cash acquired for the quarter totaled $61.9 million, primarily driven by the M&A acquisitions I mentioned earlier.
For the period ended June 2015, free cash flow defined as cash from operating activities less payment for the acquisition of property, equipment, intangible assets, and acquired businesses net of cash acquired was -$3.2 million versus $18.7 million last year. Cash, short-term investments, and long-term investments at the end of the quarter totaled $546.9 million. Finally, we declared our quarterly dividend of $4.5 million, or $0.103 per share, payable on October 15, 2015, to shareholders of record as of the close of business on September 30, 2015. This wraps up my review of financial and operational metrics for the quarter. We are pleased to continue to disrupt the ways in which consumers shop throughout the region and, as a result, to remain the platform of choice for a wide array of buyers and sellers, irrespective of their size.
The fact that more and more consumers choose us solidifies management's focus on growing MercadoLibre for the long run. We will do so without getting deterred by short-term downside risks, as evidenced this quarter with the impact Forex had on our financials. As such, we look forward to the next few years and to continue growing and investing in our enhanced marketplace and overall ecosystem. In short, we will continue to move forward with a balanced and disciplined approach to building a business with momentum, but primarily focused on the long-term secular trends that drive our business. Thank you very much. With that, we can take your questions.
Thank you. Ladies and gentlemen, if you have a question at this time, please press star followed by the number 1 key on your touch-tone telephone. If your question has been answered or if you'd like to remove your line from the queue, you may press the pound key. Again, if you do have a question, please press star and then 1 at this time. Our first question comes from the line of Mark Miller from William Blair.
Hi. Good afternoon, everyone. You covered a lot there, Pedro. Better operating results underlying top line, more investment and bigger FX headwind. On the latter two, if you can highlight the drivers of the larger investment in the enhanced marketplace and those factors that are going to continue in future quarters? Also just try to help us understand the FX hit that you expect the rest of the year. Is that going to be more or less parallel to what we're seeing now, or how is that going to shift? Thank you.
Great, Mark. If we strip out the FX piece, which is what we attempted to do, if we're looking at COGS plus OPEX, net of the FX impact on those expenses, we're saying there's about 360 basis points of margin compression, true margin compression from investing in the business. The trends there aren't too different in terms of where the incremental investment has been coming from. There's the gross margin compression that's a consequence of the growth in both the payments business and the shipping business that will add incremental payments costs and sales taxes.
In the OPEX line, a majority of the compression is really a consequence of incremental compensation, either as a reflection of the accelerated pace at which we're onboarding engineers, that's primarily to be able to take on all the incremental product development we want to be able to do for the core marketplace. Also, as we highlighted, the stock has performed well over the last year, the portion of compensation that's tied to capital market performance is also part of what's dragging that margin down. In terms of investing, it's primarily the gross margin differential between some of the enhanced business services, plus incremental engineering talent and incremental compensation as we retain and onboard more talent. Going forward, difficult to predict currency markets, a couple of things obviously are steady state going forward, right?
Most importantly, Venezuela, the order of magnitude that we've witnessed is something that will continue to roll through the P&L at the new exchange rate and not the previous exchange rate of 50. The Venezuelan piece really is a reset, if you will, of the margin structure. The other currencies is more of a macro call. I think if you read most analysts, far from me to be an expert on currencies, I think the expectation is that we still are in a cyclical dollar strength cycle through this year. We don't necessarily see strong revaluations of any of our currencies for the remainder of the year.
Pedro, to paraphrase, really the impacts this quarter for both the OPEX and gross margin, also FX, basically all these factors continue in future periods, which actually doesn't look like it's in analyst numbers. The other question I had was on Mexico and other countries, looks like they saw some slowing. Can you mention what you're seeing in Mexico in particular, as Amazon has launched? Is that at all affecting the growth there, particularly into the third quarter? Thanks.
Sure. First of all, I would not look at Q2 results driven by competitive pressures, and particularly not from Amazon. Amazon's play in Mexico is extremely recent, and we need to see how that plays out, in terms of having a local market, in terms of doing cross-border trade, something they had already been doing before. I wouldn't point out necessarily that as a driver. I would say that Mexico decelerated versus the previous quarter. It still grew more in some of the key metrics than it had two quarters ago and three quarters ago. We didn't see sustained levels of growth as we had in the previous quarter. We still saw better than the two quarters before that.
I think as we continue to roll out our payments solutions in Mexico that are nicely growing their penetration levels and are already in the 20s for the full quarter, we roll out the free credit installments, shipping continues to grow in double digits exiting the quarter already. We feel increasingly better about the service and the product we offer in Mexico, and we think that over time, that will pay off in terms of growth rates and market share. Brazil, I would say if you look at unit growth, decelerated very slightly within a tough macro environment, I think really the case with Brazil is still very strong growth overall and continue to perform very well in terms of financials. Argentina obviously had an extremely strong quarter, and really the business there is firing on all cylinders.
Thanks, Pedro, for all the color.
Thank you. Our next question comes to the line of Vera Rossi from Goldman Sachs.
Thank you. My question is also about your costs and expenses and dividing between direct costs and expenses and indirect. I think the biggest increase came on the indirect costs that reached around $31 million this quarter. Could you talk about if you could quantify in US dollars the amount of payment for management and other extra expenses that we won't see going forward? Thank you.
Sure, Vera. First of all, when I called out some of the more impactful line items, compensation clearly was one of them, as I said, and a lot of that is corporate compensation, corporate IT teams, and especially the long-term retention plan is in the indirect costs. If we look at the call-out in the script. Sorry, because I don't remember this off the top of my head, but let me get this for you. The impact from the long-term compensation plan, a big chunk of that, which is going to be in indirect costs, was. One second. Let me get that for you. If you have another question, you can throw it at us while I get you that exact number.
Okay, we can talk about Brazil and how is the e-commerce environment in terms of moving offline to online, especially during this period of macroeconomic crisis. How you are seeing, or if you are seeing e-commerce as defensive or continues to grow as in the previous phase, the whole e-commerce market, not only MercadoLibre.
I think typically what we've said is that although we don't see our business as cyclical, we do think that in tougher macro environments, definitely the retail space in Brazil is facing a tough environment. Marketplace businesses tend to be more resilient, we see opportunity now. We look at the results that we're showing in Brazil, probably when we look at some of the other Brazilian retailers, their marketplace businesses have been a big part of the growth strategy there. Obviously, we look forward to an improving macro in Brazil, going forward when that eventually happens. We do think that as traditional retailers get more and more pinched by macro situation, they begin to look at the marketplace as an alternative additional challenge.
We're seeing that, for example, with our official stores initiatives, where the pipeline is really beginning to pick up in terms of Brazilian retailers that are increasingly more interested in beginning to use the marketplace as an alternative venue. Hopefully, from a share perspective, the tough macro environment will be good for MELI in terms of marketplace models in e-commerce. Certainly we expect e-commerce to grow at a faster pace than bricks and mortar.
Thank you. Do you already have the numbers for the indirect costs and expenses?
The long-term retention plan were 256 basis points of margin compression. That's what we've disclosed.
A significant portion of that occurs in indirect costs.
Correct.
Corporate expenses, corporate teams. That occurs away from the per-country segmentation.
Okay. These 256 basis points, they are not going to repeat in the next quarters. This is a one-quarter event, correct?
No, Vera. If you recall, a significant portion or an important portion of compensation costs for senior managers and key employees, including engineers, are tied to capital market performance. If the stock continues to go up, then we accrue incremental costs. If the stock comes down, then that's actually a reversal of the accrual. The long-term retention plan generates, if you will, incremental volatility in compensation. To a certain extent, it's a hedge versus how the stock is performing. It's impossible to tell you what the long-term retention plan will look for for the remainder of the year, because it's dependent on how the stock performs.
Okay, thank you.
To give you-
Go ahead.
The same basis point analysis in dollars, the year-over-year increase in compensation as a consequence of the long-term retention plan was roughly slightly above $4 million, $4.2 million.
Okay. That's helpful. Are there any costs in the second quarter under indirect costs that they are not going to repeat in the following quarters? Most of the indirect costs, they are here for the long term, on the $31 million that we saw.
From a indirect cost perspective, there are no significant call-outs that are one-off pertinent to the quarter. I would say the more relevant trend to understand there is more a currency mix issue. The indirect costs are mostly US dollar and Argentine peso costs. Those are the currencies that have seen the smallest devaluation this year. The dollar, obviously, against itself, so no devaluation there. Whereas we've seen strong devaluation in reais and obviously bolivars and some of the other currencies. That's a big reason of the margin compression, is that we've seen the currencies where we have a greater mix of our revenues devalue more strongly than the peso and the dollar, which are the currencies in which most of those indirect costs are denominated.
That's why we've tried to strip out the FX impact on margin compression to give you more of a true operational margin compression. That's the biggest trend to bear in mind when you're looking at direct costs, that these are the currencies where we have higher mix of revenues. The currencies where we have higher mix of costs have devalued less.
Okay. Thank you for the explanation. I get the explanation. Thank you. Makes a lot of sense.
Thank you. Our next question comes from the line of Michelle Moran from Morgan Stanley.
Thank you. Good afternoon. Two quick questions. The first is, you mentioned in the release that financing fees are becoming an important, perhaps one of the most important components of non-marketplace. Pedro, last quarter, you gave us some color around how significant that was. I don't know if you can do the same thing again this time, in particular in Brazil, to help us understand how significant this has become specific to Brazil. Secondly, I think you typically have some dollar-denominated cash balances in the different countries, so that creates some FX gains. I was wondering if you could just remind us how much of that you might have had this quarter and where that's booked, because I don't seem to be able to find that. Thank you.
Let me start conceptually with the second one, in the meantime, we'll try to get you percentage of revenue coming from financing readout for this quarter. The market that has the largest US dollar-denominated cash reserves on its balance sheet is Brazil. We remeasure those on a Q-on-Q basis, not only Brazil, but the other markets as well, and that will generate either a Forex gain or loss. Those flow through the Forex line in the P&L. What we've seen for this quarter versus the prior quarter is that the overall Brazilian exposition to the US dollar diminished versus the previous quarter. That's the primary reason when we look at the Forex line, why on a Q-on-Q basis, it came in with a much smaller gain than it did the previous quarter.
For Brazil?
Correct. Actually, on the consolidated, that's driven primarily by Brazil.
Okay.
Brazil has roughly $75 million on its Brazilian balance sheet held in the U.S. in U.S. dollars. Financing revenues for the quarter totaled 15%, all MELI, and about 23% for the Brazilian business.
Okay. I think last quarter you had told us that financing fee revenue was up about 100% year-on-year. Is that still the case?
Financing growth for Brazil. In local currencies, Brazil financing revenues, 90% this quarter.
Okay, great. Thank you very much.
Thank you. Our next question comes from the line of Steven Ju from Credit Suisse.
All right, thanks. Just want to make sure I've got the numbers correct here. 1.8% US dollar growth from Marketplace's revenues. It looks like about $93 million or so for Marketplace revenues, which implies, I guess, around $61 million for non-marketplace. This implies a modest take rate compression sequentially for Marketplace. Presumably, is this due primarily to mix and also 52% penetration of TPV for interest-free financing in Brazil. Is there any other type of, or even the legacy sort of buyer-paid financing left at this point? Also on the advertising, just wondering if you can give us any sort of color on the adoption from the sellers for this new product. Thanks.
Let me grab the take rate and start there, and maybe Osvaldo can answer the legacy financing, how much is left. You're correct. There is a slight take rate compression in Brazil sequentially. That's driven in part by the financing alternative. It'll be a good segue to the second part of the question. The reason for that is we are seeing our sellers migrate increasingly to the free finance listing and the financed options. The consolidated take rate on those listings are actually beneficial to MELI as a whole. Because the financing portion of that revenue is booked as non-marketplace, in essence, what we're moving from, if you just look at the marketplace revenues, is from higher take rate listings for the marketplace to lower take rate listings for the marketplace, but that are higher take rate on a consolidated basis.
In this sense, it's a healthy and, if you will, planned, contraction of marketplace take rate. The way it happens, to give you some more color, is the free listings have a strong ponderance on the sort algorithm, and so they make up for the insertion fees that sellers are paying less of.
Got it. I guess whatever remains of the incidence of the old sort of buyer-paid financing on the platform in Brazil.
In Brazil, this is Osvaldo. In Brazil, over the last year when we first introduced no-interest installments, we have growth up to 52%, the percentage of GMV that gets paid in free installments. This has driven up the penetration of Mercado Pago to 90%. I think most of the growth has been driven the last year due to increased using of what we call free financing, but actually we charge to the seller. This has started to happen also in Mexico, when already 21% of the volume is driven by free installments. It's a product that we have introduced from the start in Chile when we launch in mid-May. Still, the penetration in Chile is small, but we believe that this feature will help us drive faster adoption than we've seen in our countries.
Pedro, any color on the advertising segment and the seller adoption rate?
Yeah. We continue to see good growth in the advertising segment. These new Product Ads continue to be well-adopted and successful. They continue to be "limited inventory." Because we don't serve them in core search results yet, we still serve them on the periphery of search results. We're actually seeing very strong demand, and we're beginning to explore alternative ways in which we can generate more positions and more inventory, given that demand has been very strong. Advertising, just to give you an order of magnitude, grew roughly 200% year-over-year in local currencies. The product is really gaining traction. It's still a small business unit, but right now we really think we've hit the right type of advertising formats. Right now we're looking to see how we can expand available inventory.
Okay. Thanks. I'm sorry to keep asking these questions, did you go over in your prepared remarks what the contribution from the two acquisitions were in terms of revenue?
Yeah. They're not very significant in terms of revenue impact for the quarter. In the range of, call it, $2 million probably.
Okay. Thank you.
Thank you. This concludes our question and answer session for today. I would like to turn the conference back over to management for any closing comments.
Great. Thank you everyone for attending. It's been continued great, I think, progress on our business and our enhanced marketplace. Unfortunately, a lot of FX and certain geographies that generate, I think, some noise around the reported numbers. Hopefully, as you go through the script and some of the material we've prepared, that becomes clearer for you, and we look forward to updating you again in a quarter. Thank you very much.
Thank you. Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program, and you may now disconnect. Everyone, have a good day.