MercadoLibre (MELI) Q1 2023 Earnings Call Transcript

MercadoLibre (MELI 3.09%)
Q1 2023 Earnings Call
May 03, 2023, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, and thank you for standing by. Welcome to the MercadoLibre earnings conference call. At this time, all participants are in a listen-only mode. Due to some technical issues, we will begin this call with the Q&A segment.

After the Q&A, we will have the video available to play on this call. Thank you for your understanding. So, at this time, we will conduct the question-and-answer session, as I mentioned. [Operator instructions] One moment please while we compile the Q&A roster.

Our first question comes from the line of Andrew Ruben from Morgan Stanley. Your line is now open.

Andrew Ruben -- Morgan Stanley

Hey, great. Thanks very much for the question. I'm interested on the commerce take rate. It was a strong quarter.

We see the increase of about 50 bps for the seller final value fees, about 60 bps on the shipping fees. I'm curious if you could dig in a bit further on both of those items. Was there any change in your pricing policy? Was it mix? Anything maybe on the contra revenue line? Just trying to understand what drove the take rate expansion would be helpful. Thank you.

Questions & Answers:

Operator

One moment, please. Yes, Pedro, we can hear you now.

Pedro Arnt -- Chief Financial Officer

Can you hear me now?

Operator

Yes, we can, Pedro.

Pedro Arnt -- Chief Financial Officer

Sorry. So, we were just encouraging everyone to please take a look at the video after we're done with Q&A and apologize for the technical difficulty. Andrew, it's a little bit of the three things you mentioned. So, we have begun or continued to selectively change shipping prices on select routes and zones in different markets.

And so, the net revenue from shipping has improved as a consequence of those pricing actions. Mix has been a driver of improving final value fees as there's some mix shift toward higher take rate categories. And typically, at the beginning of the year in the first quarter, we also carry out selective pricing on seller fees across different geos in the marketplace.

Andrew Ruben -- Morgan Stanley

Great. And as a quick follow-up, you mentioned the pricing on select routes and zones in different markets. Is that more the core logistics fees? Or any change in how you've implemented some of the tests for fulfillment and warehousing specifically? Thanks again.

Pedro Arnt -- Chief Financial Officer

Yeah, no. So, this is driven more by passing on cost increases to transportation costs within our network and less related to us beginning to ramp up the monetization on fulfillment. If anything, as I always said, the first sequential priority on fulfillment is to continue to drive incremental usage of the fulfillment service. We've seen some really solid pickup of fulfillment adoption throughout the first quarter, primarily in Brazil exiting on a high note in terms of a historical high for Brazilian fulfillment penetration.

So, we continue to accomplish that first sequential goal. The ramp-up in monetization, we always said, is probably the second one sequentially once we've reached more Mexico-like levels of fulfillment in the other markets. So, the monetization improvements on logistics are not driven by incremental monetization on fulfillment services, but much more by price increases on transportation costs.

Andrew Ruben -- Morgan Stanley

Great. It's very clear. Thanks again.

Operator

Thank you. One moment while we prepare the next question. Our next question comes from Irma Sgarz from Goldman Sachs. Your line is now open.

Irma Sgarz -- Goldman Sachs -- Analyst

Hi. Thanks for taking my question. So, the continued rise in your product and technology development expenses leave relatively little doubt about your commitment to invest behind innovation. But my question is other than ad tech, are there any other specific new areas to which you're incrementally deploying more tech spend in 2023? And in the second part of the question is, is related.

I imagine you already use AI and machine learning across a number of products and functionalities. But with the advances on these technologies over the last six months or so, are there any new areas of application and opportunity that you're particularly excited about? And will they require, either through the opex or the capex line, greater investment cycle into the future? Thank you.

Pedro Arnt -- Chief Financial Officer

Hi, Irma. So, on product development, a couple of important, I think, clarifications. Yes, it continues to be the most significant line in terms of deleveraging, I think, on super solid top line when we look at margin expansion. We've been able to generate incremental margin across most of our cost lines.

The two that haven't on a year-on-year basis are certain sales taxes, primarily in Brazil, and then 220 basis points from product development. Bear in mind that the rate of incremental hirings has come down from about 4,000 engineers to 2,000. And so, a significant portion of those 220 basis points are a consequence of the annualization of all the engineers that we hired last year and not a continued acceleration in rate of engineers hirings. So, for next year, we should begin to see a slowdown down in the level of deleveraging from product development, unless we significantly ramp up hirings again, which is currently not on the plans.

In terms of areas of investment, it really is across the board. We see our product and our technology as a competitive advantage. And those engineers are really split across the multiple different products and services that we are either building out or improving constantly. So, they're fairly evenly distributed among the existing businesses you're well aware of.

In terms of AI, I think as most companies, we do see some very relevant short- to midterm positive impact in terms of engineering productivity. And we are also increasing the amount of work being done on what elements of the consumer-facing experiences we can deploy AI on. I think the focus right now is on some of the more obvious use cases, improving and streamlining customer service and interactions with reps, improving workflows for reps through AI-assisted workflow tools, and then deploying AI to help better search and discovery in terms of better finding products on our website and better understanding specific specifications of products where existing LLMs are quite efficient. And then, beyond that, I think there's a lot of work going on, and we hope to come up with other innovative forms of AI that we can place into the consumer-facing experience.

But the ones I just mentioned are the ones that we're currently working on the most.

Irma Sgarz -- Goldman Sachs -- Analyst

Great. Thanks very much.

Operator

Thank you. Please stand by while we prepare the next question. Our next question comes from Marcelo Santos from JPMorgan. Your line is now open.

Marcelo Santos -- JPMorgan Chase and Company -- Analyst

Hi, good evening. Thanks for taking my question. I wanted to ask about the improved logistic economics you mentioned in the release. Is this mostly because of pricing that you pass to? Or are you experiencing also benefits of scale, more efficiency like cost-based improved economics? Thank you.

Pedro Arnt -- Chief Financial Officer

Yeah. So, it's not just driven by price increases. We continue to see improvements in terms of productivity across different portions of our network. So, it's a combination of pricing and scale increases and scale benefits.

Marcelo Santos -- JPMorgan Chase and Company -- Analyst

Perfect. Thank you.

Operator

Thank you. One moment please while we prepare our next question. Great. Our next question is from Thiago Macruz from Itau BBA.

Your line is now open.

Thiago Macruz -- Itau BBA -- Analyst

Thanks, guys. And thank you for taking my question, and congrats on a great quarter. You mentioned that the 1P operation has reached a turning point in this Q1. Can you shed some light on the main differences that you're seeing in the economics of the business today? And, also, you're generating plenty of cash.

Would it make sense to invest a tad more and accelerate the consolidation of the market, chiefly in Brazil, where we now see a somewhat softer competitive environment? Thanks, guys.

Pedro Arnt -- Chief Financial Officer

Great. So, I think as we signaled over the past few quarters, we had slowed down the first-party business, in large part because we had grown it initially very fast. And there was a significant amount of internal operations that we wanted to be able to fix, which would allow us to then reaccelerate that business with a healthy margin structure and much better internal operations. What you're beginning to see now are the initial phases of that turnaround.

So, we're -- we feel a lot more confident in how that business is being run. We're beginning to see margin improvements across different product lines in 1P, and, hence, you're seeing some of the acceleration. And going forward, if we continue to see these positive trends, you should continue to see the 1P business accelerating growth going forward, which should give us some interesting benefits across the categories where 1P can be an important competitive factor. On your point of investing even more aggressively to consolidate market share, I think if you look at our 1P results, and you look at certain things like marketing spend, certain couponing efforts, investment behind the logistics network, you will see that we did lean into the market, especially in Brazil, where there is more market share up for grabs short term.

The return on those investments was a very strong acceleration in top line, which actually meant that, margin-wise, it contributed from a dollar perspective. So, we do feel that we are investing more aggressively to try to more rapidly strengthen our leadership position, and we do see that reflected in market share numbers. Investing even more probably gets us into areas where the return on those incremental investments don't make as much sense thinking long term. And so, I think we continue to manage the PNL in an aggressive way, striving first and foremost for market share gains and above market growth, but at the same time, understanding that, at the scale we have, we want that incremental market share to come in a way that's profitable.

And that continues to be the way that we're managing those incremental investments across different markets.

Thiago Macruz -- Itau BBA -- Analyst

Makes sense. Thank you very much.

Operator

Thank you. One moment please while we compile our next question. Our next question is from Pedro Pinto from BBI. Your line is now open.

Pedro Pinto -- Bradesco BBI -- Analyst

Thank you, guys, for taking my question. I would like to hear from you your ambition on commerce business across regions. As long as market share gains in Mexico and Brazil seems to be in good shape, do you think it's time to increase focus in other regions, such as Chile? So, basically, I would like to know what are the intended timing and main deliverables in this round.

Pedro Arnt -- Chief Financial Officer

Yes, great question. I think we continue to see a very attractive midterm opportunity in the Andean markets, Chile, Colombia, Peru. Chile has some very tough comps based on macro issues in the previous year. A lot of money was put into consumer pockets that went in large into consumption.

And so, that means that the rate of acceleration in Chile has been significantly down and even negative over the last few quarters. And we're beginning to see that beginning to turn around. GMV growth was already slightly positive this quarter, and revenue growth rebounded and was much more positive than in previous quarters. So, we're confident that Chile should continue that turnaround and that improvement.

Chile, not so long ago, was one of our fastest growing markets throughout the pandemic. And so we think that once the comp issues are behind us, there's a lot of potential from that market. Peru is still quite small for us. We are increasing our customer acquisition and marketing spend there this year versus prior years.

Nothing that dramatically impacts the consolidated P&L. But for the size of that market, that is a significant ramp-up in marketing spend over last year. And, hopefully, we see enough returns on that then we can continue to double down on Peru. And Colombia is potentially the market that's been most challenging for us.

I think, in general, that's true for all of e-commerce. But we still see that as an attractive market. And, eventually, I think we will try to figure that out. I don't think it's a matter at this point of investing more.

We actually have a P&L in Colombia that is not profitable and that receives the right amount of investment. It's more a matter of waiting for the market to mature a little bit and for us to continue to improve on execution and product rollouts so that we can see better results coming out of that market.

Operator

Perfect, thank you. Just one moment while we compile the next question. Our next question comes from Geoffrey Elliott from Autonomous. Your line is now open.

Geoffrey Elliott -- Autonomous Research -- Analyst

Hello. Thanks very much for taking the question. Wanted to ask one on the credit side. It looks like the IMAL is down quite a bit sequentially.

And I know in the slides, you mentioned an element of seasonality around bad debt. But if we look at the bad debt provisions, they're a bit higher than 4Q, but quite a bit lower than 2Q and 3Q when the IMAL was higher. So, can you help us understand a bit better what's going on there or there's a mix shift? Has pricing changed about funding cost? What's driven that down and how should we think about it going forward? Thank you.

Osvaldo Gimenez -- Chief Executive Officer of Mercado Pago

Hi, Geoffrey. Yes, IMAL's down from what I think was an exceptional high fourth quarter, still 39% for the quarter. And I think it was -- it came down for a combination of things. On the one hand, we had slightly lower revenue.

You know, the fourth quarter typically is a quarter where we see a higher participation of merchant credits and usually comes down the first quarter. Also, in the first quarter, we increased the issuance of credit cards, which initially -- you book the losses initially, but then the most of the volume does not generate revenues because it gets paid in full, and that brings down a little bit IMAL. Also, as you book the losses initially, that also increases the [Inaudible]. And finally, as the portfolio grows in the quarter, this is the third thing that impacts the change in the portfolio that impacts IMAL.

That's why it came down and was still comfortable with the 39% volume.

Geoffrey Elliott -- Autonomous Research -- Analyst

And you mentioned accelerating in credit cards, what have you seen that's given you confidence to do that? And, you know, how much more potential is there to continue to ramp up growth in costs?

Osvaldo Gimenez -- Chief Executive Officer of Mercado Pago

We feel confident we'll always look at cohorts and at roll rates, and we felt comfortable that toward the -- I would say in the second half of the first quarter. We were comfortable that we're willing to issue more cards. So, we issued significantly more cards in the first quarter than we did in the fourth quarter of last year. And we'll see how conditions remain.

But so far, we are comfortable with the roll rates that we're seeing and with the latest segment of cards we have issued.

Geoffrey Elliott -- Autonomous Research -- Analyst

Great. Thanks very much.

Operator

[Operator instructions] So, at this time, I'm going to prepare the next question. And Jamie Friedman from Susquehanna International Group, your line is now open. Hi, Jamie Friedman from Susquehanna International Group, your line is now open. One moment please.

All right. Thank you for your patience. We will be cueing our next question. Deepak Mathivanan, your call is now open, from Wolfe Research.

Deepak Mathivanan -- Susquehanna International Group -- Analyst

Great, thanks for taking the questions. Pedro, first question, ads penetration gains were a little bit lower than we expected. I understand there is some lumpiness to it. But can you talk about the product roadmap in 2023 and kind of the efforts to accelerate the penetration? And then, second question, can you talk about the drivers of the credit book growth, particularly on the consumer side? What signals are you seeing in the market to enabling, you know, growing the book? And is there kind of like a level for IMAL margins that we can expect you to hold as you sort of, you know, lean in and grow the book again? Thank you so much.

Pedro Arnt -- Chief Financial Officer

Great. So, on advertising, the business continues to grow very nicely. It grew at 62% year on year, which is very much in line with the growth rate over the past three quarters. This is dollar growth.

So, momentum is still quite strong. GMV did accelerate this quarter versus prior quarter, so that makes it a tougher comp for the ad business, given that we're dividing revenue by GMV on the penetration metric. If GMV growth had been similar to prior quarter, we would have had a 10 basis-point increase Q-on-Q in advertising penetration, or something along those lines. And then, potentially, bear in mind that Q1 is also seasonally less of a season for advertisers to invest as aggressively as in Q4.

So, the rollover on a sequential basis from a Q4 to a Q1 is not necessarily one where we should see significant penetration gains. And then, finally, a lot of the technology that's being launched over the last few quarters, as we've been saying, potentially, takes some time before it gets fully adopted by advertisers. And so, the next few quarters, we would expect to see increases once again in penetration, given that we'd like to see advertising revenues outpacing GMV growth. Finally, if you look at the year-on-year penetration gains to strip out seasonality, those continue to be quite encouraging.

Osvaldo Gimenez -- Chief Executive Officer of Mercado Pago

Deepak, with regards to credits, we saw -- we felt comfortable increasing origination mostly in Argentina and Mexico. Mostly, I would say Mexico and Argentina in that order; to a lower degree, in Brazil. And the reason was that we always continue having control groups and seeing if those are profitable. And we thought there was profitability.

I was willing to take more risk and expand the number of consumers who we're reaching out to in Mexico and Argentina. And we did so. In the case of Brazil, it was mostly -- the increase in origination was in the credit card business toward the second half of the quarter. And in terms of merchant trades, it has remained stable from the prior quarter mostly.

And you had a further question regarding IMAL. I'm not sure I got that one.

Deepak Mathivanan -- Susquehanna International Group -- Analyst

Yeah, I was curious --

Pedro Arnt -- Chief Financial Officer

Yeah, I think I can jump in here. Look, I think there is a growing number of credit products out there that could affect credit. So, I think we're not giving any kind of directionality on where we think the interest margin after losses might trend. We'll report those back to you guys on a quarter-per-quarter basis.

Also, because as we begin to see, as Osvaldo was just saying, an improvement in credit conditions and the credit cycle that potentially encourages us to start opening the spigot again in originations. And even within customer segments, we could see lower margin segments that when you risk adjust are actually very attractive to move into and will generate incremental dollars from credit, but won't necessarily be incremental in terms of IMAL. So, we'll keep you guys posted as this moves forward. I think the books are still very, very young.

And you could see potential volatility in margin structures because of segment and product mix shifts that might occur going forward.

Deepak Mathivanan -- Susquehanna International Group -- Analyst

No, that's fair. Thank you so much, Pedro.

Operator

Thank you. One moment while we prepare the next question. Our next question comes from Stephen Ju from Credit Suisse. Your line is now open.

Stephen Ju -- Credit Suisse -- Analyst

OK, thank you. Hi, Pedro. So, the Argentina unit growth has reverted back positive, but it's still a little bit unusual to see that number in the single digits. So, you know, I get that we can't grow high double digits forever, but can we talk about what you may be seeing from either a cyclical or a secular perspective that might be moving that growth around? And second, you know, undoubtedly, you've probably seen the one of the mobile operating system owners release a savings account product.

And I think it was able to gather a pretty large sum of deposits, you know, immediately on the release. So, you know, you're already pretty well on your way with the credit products. But, you know, does this event directionally prompt greater urgency on the asset management product development for you? Thanks.

Pedro Arnt -- Chief Financial Officer

Stephen, thanks. Argentina. I would attribute the weakness in that business primarily to very volatile macro conditions. You're correct.

I think it's a business that we've historically seen it perform well even in weaker macro as generally as the case for MELI. I think over the past few quarters, currency restrictions have made it difficult to import goods. So, I don't see anything structural there. Argentina still has a level of e-commerce penetration of retail that is lower than Brazil, for example.

It's a market where we have probably the strongest market share and is far from saturation. So, that should be an attractive market for us mid and long term, and we will just have to navigate through the short-term volatility. Bear in mind that also because, structurally, it's a less competitive market, it's also a market where we are more focused on profitability than growth. And if you look at the bottom-line results coming out of Argentina, those are still extremely, extremely strong.

Osvaldo Gimenez -- Chief Executive Officer of Mercado Pago

And then, with regards to the -- how to call it, to the virtual account that offers a return, it's -- I would say it's very similar to what we have been offering for the last four or five years in all of our top three markets. And what has happened recently is with interest rates going up, there's a -- clearly, there's an incentive to move money out of savings accounts from banks, which usually pays zero and into money market accounts. And the ones we offer in each of the market has the advantage that we have instant availability. And returns vary with local interest rates.

But in Brazil, it's in the order of 13%. In Argentina, given the incredibly high rates, it's in the order of 69%. And Mexico is aligned with interest -- it's in the order of 6% or 5%. So, what we have seen is a significant increase in asset under management, which is growing over 100% year over year.

And we believe that this flow is likely to continue. And so, I believe that this is a product, the one that launched and the one we have that has a huge opportunity, given that banks continue to pay zero or very close to zero, in most cases, in Latin America savings accounts. Thank you.

Operator

Thank you. One moment please while we prepare our next question. Our next question comes from Neha Agarwala from HSBC. Your line is now open.

Neha Agarwala -- HSBC -- Analyst

Hi. Thank you for taking my question. I gather that you are more open to accelerating gradually the pace of 1P. What impact should we see coming from that in terms of margin cost, take rate? Anything that you can express about that that would be very helpful, the impact of the 1P acceleration.

And my second question is on the credit business. There was a bit of acceleration in terms of credit origination. I understand it's mostly from Mexico and Argentina. But should we see a continued acceleration in the coming quarters as things are stabilizing in Brazil? Or would you still remain vigilant and kind of maintain originations and grow selectively for the rest of the year? Thank you so much.

Pedro Arnt -- Chief Financial Officer

So, on 1P, the 1P business has been improving its margin structure across pretty much all categories, but continues to have a lower margin than the rest of our businesses. To be more precise, it continues to be negative in terms of EBIT margin. So, a growth in the 1P business now should be instrumental in strengthening categories where we under-index and having a better selection for our consumers, which are all long-term positive. It should help us continue to gain scale within 1P purchasing and logistics, which should continue to improve the margins within 1P until eventually turning positive.

But short term, they're detrimental on margins. In terms of take rate, it's the opposite story. Obviously, there, we book the full revenue base. And so, it's a catalyst of accelerating revenue and improving take rates.

But again, all-in, we believe 1P is going to be critical for long-term success in certain specific categories. And so, we think that it's very positive news that we're beginning to pick that business up again in terms of growth rates, given that we feel more comfortable about the user experience and the margin trajectory that we will be able to deliver going forward in our 1P operation.

Osvaldo Gimenez -- Chief Executive Officer of Mercado Pago

In terms of credit originations, I would say that our credit models, one of the most important things they do is to sort users in terms of increased risk. And so, we -- these models are very well calibrated. And so, whenever, in a given cohort, we are seeing that we have good results, we are willing to go to the next one. But beyond that, what we have been doing is keep control groups whenever we want to start giving loans to segment we're not giving loans in the past.

And whenever we see there's profitability in that group, we're willing to expand that segment. That has happened already and is going on now with Argentina and Mexico. It is not yet the case in Brazil. Whenever we see that profitability starts to improve in those control groups, we'll be more willing to originate credit faster in Brazil.

Neha Agarwala -- HSBC -- Analyst

Understood. Thank you so much.

Operator

Thank you. One moment while we prepare our next question. Our next question comes from Robert Ford from Bank of America. Your line is now open.

Rob Ford -- Bank of America Merrill Lynch -- Analyst

Thank you, and congratulations on the quarter. Can you discuss trends in terms of items per box coming from the distribution centers across your various markets? And as you enable the drop-off returns in your places or agencies, you know, how is that driving new category trial and GMV growth versus areas without those return services? Thank you.

Pedro Arnt -- Chief Financial Officer

Rob, items per order has had a very gradual trend up as fulfillment penetration continues to grow and as we get better at co-locating inventory, but the numbers have not been significant or material. It's been very, very slightly steeping up into the right. So, I think as we continue to grow fulfillment penetration, and like I said, we exited Q1 on a record high for Brazil, hopefully that allows to drive that number up. We are also going to be innovating significantly on network design on certain options for consumers at checkout that will allow them to bundle purchases into single deliveries, or bundle greater numbers of delivery slots, which should also help us drive up items per order, lower cost, and to be able to give some of those cost improvements back to the consumers who select that slower option.

In terms of greater category trial as a consequence of offering better return options, I'll need to be in debt with you on the answer to that. We do see an improved return experience, and we do see increases in returns on the part of consumers, which are helping our NPS. But I haven't seen the data that allows us to cross-reference that to incremental category growth. So, I don't know the answer to your question.

Rob Ford -- Bank of America Merrill Lynch -- Analyst

No worries. Thanks. Thanks again, and congratulations on the course.

Operator

Thank you. One moment please while we prepare our next question. Our next question comes from Trevor Young from Barclays. Your line is now open.

Trevor Young -- Barclays -- Analyst

OK, great. Just first one dovetailing on that last one, innovating on the network design and so forth, it looks like capex is down on Q-on-Q, and it's below trend in recent quarters. Was there anything like timing-related there? And should we expect that to rebound later in the year as maybe make some of those investments innovating on the network design? And then, second question on market share gains in Brazil, did that come from certain categories where competitors are maybe ceding some share? Or was it more broad based than that? Thank you.

Pedro Arnt -- Chief Financial Officer

Yeah, so the capex improvements do have an element of phasing. There were certain investments in logistics that we initially had budgeted for the first quarter that have been pushed back into second, third, and fourth quarter. So, there is an element of phasing to that slowdown in capex. Our capex trajectory also will be somewhat volatile as new warehouses and new nodes come into play in different markets at different times depending on the specific network rollouts across the multiple geographies where we're scaling out MELI logistics.

But specifically, Q1 did have phasing elements, and the shipping-related capex came in quite low, below $50 million for the quarter. On market share gains, they've been consistent across multiple categories. I do think that, as we said, those share gains in part are because we leaned into the specific change in market structure and the relative balance sheet weakness of certain market participants. So, a lot of that is coming from share that's being given up by other players, but it was fairly distributed across all categories.

So, when we look at category-per-category market share, we're seeing ourselves as market share gainers across most categories.

Trevor Young -- Barclays -- Analyst

That's very helpful. Thanks.

Operator

Thank you. One moment for our last question. All right. Our last question comes from Jamie Friedman from Susquehanna International Group.

Your line is now open.

Jamie Friedman -- Susquehanna International Group -- Analyst

Hi. Thank you for sneaking me back in. So, Pedro or Osvaldo, I wanted to ask in terms of the IMAL progression. I know you called out the typical Q4 to Q1 seasonality.

Can you remind us how to think about IMAL? I know you don't give guidance, but how to think about IMAL typical seasonality, say, in the Q2.

Osvaldo Gimenez -- Chief Executive Officer of Mercado Pago

Hey, Jamie. I'd say that, probably, there's more seasonality in the fourth quarter, given that we usually give more loans to merchants in the fourth quarter. Then, I will say there's any specific seasonality in general going from quarter to quarter. I think it will be, as we mentioned before, more related to what happens to the portfolio, how fast we decide to grow in each of the segments and each of the markets, and then, obviously, how delinquencies evolve.

Jamie Friedman -- Susquehanna International Group -- Analyst

OK, thanks for that. And then, if I could just ask a high-level question about the regulatory environment, especially in Brazil, especially apropos Credito, Mercado Pago, how would you describe it? You know, is it benign? Is the coast clear? Historically, the government's been very supportive, I think, of incubating fintechs. Has that changed? Or how would you, overall, characterize the regulatory, you know, environment in Brazil relative to fintech?

Osvaldo Gimenez -- Chief Executive Officer of Mercado Pago

I'd say that, in general, Brazil has been the one country where the central bank and the government has been the most broad competition. And really, I'll say encouraging both banks and fintechs to compete on equal footing. And so, most of the regulations we have seen in the past has been around that. [Inaudible] has been probably the most successful example but having more recent impacts, such as the caps on interchange fees lately on prepaid cards.

So, I would say it has always been pro-consumer and pro-competition. I think that they have been pragmatic and practical whenever we have been -- we have pointed out that some of the things that we're proposing were not practical, I think, at least, we have heard.

Jamie Friedman -- Susquehanna International Group -- Analyst

OK. Perfect. Thank you for the context.

Operator

Thank you. As I mentioned, that was our last question. As we prepared to play a video, which you can access on the company IR website, I would now like to turn it back to Pedro Arnt, MercadoLibre's chief financial officer, for closing remarks.

Pedro Arnt -- Chief Financial Officer

Thank you, everyone. So, incredibly strong start to the year, top line ahead of our expectations, very strong margin evolution. We're really pleased with how the business has gotten off to the start of the year. We're going to continue to invest throughout the remaining quarters in the year to continue to gain customer preference, expand market share if we execute well.

And hopefully, we'll see the kind of response from our users and consumers from all the hard work going on here at MELI as we did in the first quarter. Apologies on the technical difficulty with the video. We do encourage you to take a look at it. It has some interesting product detail on the advertising product that I know has been the target of a lot of the questions on how we're improving the stack.

So, that should be up and available for you to take a look at, and we do encourage you to do so. And we look forward to speaking with you again when we report the next quarter.

Richard Cathcart -- Investor Relations

Hello, everyone, and welcome to the MercadoLibre earnings conference call for the quarter ended March 31, 2023. Thank you for joining us. I'm Richard Cathcart, investor relations officer at MercadoLibre. Today, we will share our quarterly highlights on video.

After which we'll begin our live Q&A session with our chief financial officer, Pedro Arnt; and chief executive officer of Mercado Pago, Osvaldo Jimenez. Before we go on to discuss our results for the first quarter of 2023, I remind you that management may make and this presentation may contain forward-looking statements. So, please refer to the disclaimer on screen, which will also be available in our earnings materials on our investor relations website and our Form 10-K for the year ended 2022. With that, let's begin with a summary of our results.

Pedro Arnt -- Chief Financial Officer

Hello, everyone. I'm pleased to share the key messages about MercadoLibre's performance during the first quarter of 2023. Our businesses continue to deliver strong growth with continued momentum in GMV and TPV. This quarter, we also hit a significant milestone in unique active users, which surpassed 100 million across our ecosystem for the first time.

In commerce, unique buyer growth accelerated in all geographies, and this helped drive an acceleration of items sold and FX-neutral GMV growth in our three largest geographies, and on a consolidated basis. Moreover, this acceleration translated into market share gains, particularly in Brazil, our largest market. Commerce revenues continued to grow rapidly on the back of faster GMV growth, as well as higher monetization. This is all a consequence of a well-executed value proposition across geographies, which resulted in take-rate expansion.

Our higher take rate was driven primarily by shipping fees, ad revenues, and minor price increases to offset rising costs. On the fintech, strong results were also delivered once again, especially driven by off-platform TPV growth that more than doubled versus the prior year on an FX-neutral basis. We see similar trends as in 2022 in both the digital account and our acquiring businesses. On the other credit side, Mercado Credito delivered another solid quarter of profitability.

We continue to be cautious about the risk that we take on, and, in that context, the portfolio's size was similar to the prior quarter and still focused on lower risk cohorts. Nonperforming loans are at comfortable levels, therefore. And as a result, the business has maintained a high margin. Consequently, these trends in the fintech business lines led to another quarter of rapid revenue growth there, albeit at a somewhat slower rate than the previous quarter as we lap last year's sharp growth in credit revenue.

When looking at bottom-line performance in the first quarter of 2023, we once again delivered operating leverage on strong revenue growth, which resulted in profit expansion, with margins well ahead of the first quarter of last year. During Q1, we have reached quarterly income from operations, accompanied by strong generation of cash flow from operations. This shows our commitment to delivering operational efficiency as our businesses grow at above market rates and scale. Dilution of G&A expenses and a positive mix shift toward higher margin revenue streams, accompanied by growing advertising and net logistics revenues, drove this margin expansion.

At the same time, we continued to invest heavily in technology, as we look to build our competitive advantages for the years to come. In summary, we've gotten off to a great start to the year. We've even been able to surpass our targeted levels for combined growth and profitability. Richard will now share some more detailed business news with you.

Thank you.

Richard Cathcart -- Investor Relations

We continue to innovate and invest to build the technology and capabilities that will strengthen our competitive advantages, and support growth and profitability for the years to come. The development of Mercado Pago continues to play an important role in our growth. We have developed and launched several new products and services over the last two years to position Mercado Pago as a provider of a full suite of financial services to our users. During the first quarter of 2023, we took another important step by launching a marketing campaign in Brazil to raise awareness of this value proposition and Mercado Pago's ability to serve all of our users' day-to-day financial needs.

The campaign highlights the direct connection between MercadoLibre and Mercado Pago, and leverages the awareness of, and trust in, our yellow world to promote our blue world fintech business. These campaigns reached millions of users, both offline and online, and they show the strength and synergy of our ecosystem. Mercado Ads continues to be a major area of investment for us across geographies as we developed the products and technologies needed to provide a world-class solution to our advertisers. Today we want to share an update of what we have achieved so far, and the many improvements still to come.

MercadoLibre served millions of unique buyers in the first quarter of 2023 with seven out of 10 searches being unbranded. This gives our advertisers an opportunity to position their brands, promote their products, and increase their sales with our proprietary solutions. Mercado Ads currently offers solutions that serve the needs of advertisers in different stages of the customer journey for full funnel strategies for branding and performance. At the top of the funnel, we have our display solution that can be seen on our marketplace home and category pages, and also in the Mercado Pago app, generating awareness and creating brand value.

In the last few months, we completely rebuilt our display solution. Now, our advertisers can influence the entire consumer journey, including high-impact placements, especially for the consideration stage. In Q1 2023, we launched our programmatic platform. Brands and agencies now have an automated display buying platform that leverages one of our main assets, our unparalleled first-party data.

The depth and granularity of our data let us build unique targeting capabilities, accurate real-time bidding models, live reports, and unique insights analysis. Further down the funnel, we have our performance advertising solution focused on helping sellers to increase their product's visibility in the search results and product pages. The media buying process is an auction based on sophisticated algorithms, which takes into consideration the price the seller is willing to pay per click and also the ad's relevance. This enables us to guarantee a good experience to both the buyer and the seller and accomplishes the value proposition of increasing the chance of converting a click into a sale.

With product ads, sellers can boost their products into the top positions in the search results, and also on the product page details in carousels. More placements of carousels are being released, such as the new carousel with products only based on top-of-mind brands. This shows how we continue to innovate in our most advanced ads product. As part of the search advertising products, we are now developing a new product called brand ads, which is being tested with specific brands.

This product focuses on the consideration stage of the funnel to help users discover new products, and the format is based on keyword targeting. It also provides context to a brand to present its storytelling of a category with a group of products in the top position of the search results. Our priority is always to find the best balance between return on investment for the seller, product relevance for the buyer, and monetization for MercadoLibre. Behind all of these products, there is a robust tech stack that enables a seamless experience for consumers and advertisers.

This is where a lot of work has been done, behind the scenes, over the last 12 months. We offer our sellers an ad console, where they can create, manage and optimize their campaigns for each of Mercado Ads' products and stages of the funnel, while analyzing real-time reports to track results and improve campaigns. Behind the scenes, our ads server works to target ads to the right audience, optimize pricing, and determine the placement of each listing. This is done considering several factors, including the quality and price of the product, the seller's reputation, and the budget and expected return of those sellers willing to advertise its products.

Within seconds, this process creates a specific combination of listings, including sponsored and organic content, which optimizes for conversion and GMV. On top of that, our ads measurement technology works to bring real-time metrics to advertisers and guarantee the attribution of the results to the right ads product. We still have an extensive roadmap ahead to improve the insights given to our advertisers. With the development of these products and technologies, we have the first version of a complete ad tech stack that strengthens our ability to develop our ads business and offer a world-class experience to advertising agencies, brands, and other sellers on Latin America's largest e-commerce platform.

We still have more work to do, as much of the technology has been recently launched, so we are engaging with brands and advertising agencies to understand their feedback and incorporate it into the technology. We continue to accelerate investment in ads technology, and this leaves us optimistic about the business' long-term potential to drive growth and profitability. This is yet another example that, as always at MercadoLibre, the best is yet to come.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Andrew Ruben -- Morgan Stanley

Pedro Arnt -- Chief Financial Officer

Irma Sgarz -- Goldman Sachs -- Analyst

Marcelo Santos -- JPMorgan Chase and Company -- Analyst

Thiago Macruz -- Itau BBA -- Analyst

Pedro Pinto -- Bradesco BBI -- Analyst

Geoffrey Elliott -- Autonomous Research -- Analyst

Osvaldo Gimenez -- Chief Executive Officer of Mercado Pago

Deepak Mathivanan -- Susquehanna International Group -- Analyst

Stephen Ju -- Credit Suisse -- Analyst

Neha Agarwala -- HSBC -- Analyst

Rob Ford -- Bank of America Merrill Lynch -- Analyst

Trevor Young -- Barclays -- Analyst

Jamie Friedman -- Susquehanna International Group -- Analyst

Richard Cathcart -- Investor Relations

More MELI analysis

All earnings call transcripts