Mercado Libre, Inc 2026 Q2 Earnings Call

Hello everyone. Good evening, thank you for joining MercadoLibre's conference call for the quarter ended June 30th, 2026. I'm Richard Cathcart, Senior Director of Investor Relations. I'm joined this evening by Ariel Szarfsztejn, our CEO, Martin de los Santos, our CFO, and Osvaldo Gimenez, President of Fintech. Tonight's format will be slightly different. I'll start by handing over to Martin for a few high-level opening remarks, then we'll head straight into the Q&A. Before we do that, I would like to remind you that management may make or refer to forward-looking statements and non-GAAP measures. Please refer to the disclaimer on screen, which is also available in our earnings materials on our investor relations website. Please note that this call is being recorded, and a replay will be made available on our investor relations website as well.

With that, I'll pass the call over to Martin de los Santos, our CFO.

Good afternoon, thank you for joining us. MercadoLibre delivered another strong quarter in Q2 2026. Net revenue surpassed $10 billion for the first time, growing 50% year-on-year. Income from operations was $683 million, with a margin of 6.7%, broadly in line with last quarter, the result of a deliberate choice to continue prioritizing investment in long-term engagement, growth, and scale over near-term profitability. Before turning to a few details on this quarter's results, I want to spend a few minutes on what we've learned one year on from the decision we took last year to lower the free shipping threshold in Brazil. In Brazil, items per buyer grew 19% year-on-year in Q2, despite the fact that we've been adding large numbers of new buyers who typically start out purchasing far less than our average user. That's a sign of changed behavior, not just a bigger audience.

It shows existing users engaging more deeply with us, not simply more people showing up. Conversion in Brazil is up 1.1 percentage points year-on-year. This wasn't an incremental gain. It was a step change, it has proven sustainable for a full year. The ratio of daily to monthly active users has inflected too, with daily actives growing faster every single quarter since the free shipping threshold was lowered, new buyer cohorts who joined after the change are a year on purchasing more items across more categories with higher retention than the cohorts that came before them. This is not an isolated case. Across our business, we see the same pattern. Users who engage more deeply with us become dramatically more valuable. The clearest evidence is what we call ecosystemic users, those who use both our marketplace and Mercado Pago, not just one or the other.

These users generate meaningfully more GMV, purchase across a much wider range of categories, and engage far more deeply with our fintech products. Most importantly, they are dramatically more profitable. Contribution profit per ecosystemic user is multiples of the sum of a marketplace-only user and a fintech-only user. That is why we keep investing the way we do. We are changing behavior and building habits we believe will drive this business's profitability for years to come. With that strategic context in mind, I now would like to turn to three topics we believe are top of mind for investors and where we think it is worth spending a few additional minutes. First, our credit business. Our credit portfolio reached $16.4 billion in Q2, growing 75% year-on-year.

We have achieved this growth alongside solid asset quality across the portfolio, which reflects our disciplined approach to risk management as we scale and the shift towards lower-risk users in recent years. Our 50-90 day NPL in Q2 was 7.0% for the total portfolio and 4.6% for the credit card specifically, both close to historical lows. NIMAL improved from 18% in Q1 2026 to 21% in Q2 2026, with gains in our three largest markets. This includes Brazil, where spreads in our consumer portfolio recovered as provisions normalized. NPLs in Brazil were broadly stable year-on-year. These results are not coincidental. They reflect the deliberate move upmarket in our consumer and merchant credit portfolios and the scaling of our credit card, which we only offer to lower-risk users.

This is highly synergistic with our marketplace, where we have a large base of high-quality engaged users to draw from as we continue to grow the book. Second, a quick word on margins. This quarter's EBIT margin of 6.7% was down 550 basis points year-on-year as we continue to prioritize long-term strategic investments over short-term profitability. These investments are consistent with the areas of focus we have described in previous quarters. On a sequential basis, our margin was broadly stable. This is a function of stronger profitability in credit, particularly in the Brazil consumer portfolio, where provisions normalized after a spike in Q1. This was offset by margin compression in acquiring, primarily in Mexico, and incremental investments in commerce. Finally, on cash flow. In Q2, we continued to see the underlying cash generation strength of the business.

We generated $214 million in adjusted free cash flow for the quarter, even after absorbing higher capital expenditure of $441 million and investing $2.1 billion into the growth of our credit book. It also plays a key role in engagement across the ecosystem It's this overall strength, strong cash generation, robust profitability, and a healthy balance sheet that gives us the confidence to keep investing at the pace we are.

With that, we'll open it up for your questions.

Thank you. We will now begin the analyst question and answer session. To join the question queue, you may press star then one on your telephone keypad. You will hear a tone acknowledging your request. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. Please limit yourself to one question. If you have any further questions, you may re-enter the question queue. The first question comes from Irma Sgarz with Goldman Sachs.

Thank you. Hi, Irma. It's Martin here.