MercadoLibre (MELI) Q4 2018 Earnings Conference Call Transcript

MercadoLibre (MELI 3.09%)
Q4 2018 Earnings Conference Call
Feb. 26, 2019 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants
  
  See all our earnings call transcripts.

Prepared Remarks:

Federico Sandler 

Hello, everyone, and welcome to the MercadoLibre earnings conference call for the quarter ended December 31, 2018. I am Federico Sandler, head of investor relations for MercadoLibre. Our senior manager presenting today is Pedro Arnt, chief financial officer. Additionally, Marcos Galperin, chief executive officer; and Osvaldo Gimenez, executive VP of Payments, will be available during today's Q&A session.

This conference call is also being broadcast over the Internet and is available to the Investor Relations section of our website.I'll remind you that management may make forward-looking statements relating to such matters as continuous growth prospects for the company, industry trends, and product and technology initiatives. These statements are based on currently available information and in our current assumptions, expectations, and projections about future events. While we believe that our assumptions, expectations and projections are reasonable in view of the currently available information, you are cautioned not to place undue reliance on these forward-looking statements. Our actual results may differ materially from those discussed on 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 in 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 fourth-quarter 2018 earnings press release available in our Investor Relations website. Now let me turn the call over to Pedro.

Pedro Arnt -- Chief Financial Officer

Thanks, Federico. Let's kick off today's call by doing a quick high-level recap of the year that has just ended. We've closed out a challenging year that has combined a few significant challenges with transformative positive initiatives. On the more challenging front, changes in our logistics cost structure in Brazil forced us to claw back our free shipping initiatives and to introduce a flat fee structure that negatively impacted vibrancy on our marketplace.

These changes in free shipping, combined with year-on-year comps that already lapped the launch of free shipping during the prior year, led to deceleration in our marketplace business as the year progressed despite two-year average growth rates that have remained fairly stable and still above market. On the flip side, 2018 was also a year of significant positive developments that set us up extremely well for the long run. During last year, we launched and have begun to scale our own logistics network that will, in time, allow us to deliver better service levels at lower cost in both Mexico and Brazil. We've expanded our installed base of mPoS devices in Brazil and Argentina with strong results in terms of devices sold and total payment volume while in Mexico, we are beginning to gain traction.

We also successfully launched our Wallet and QR initiatives in Argentina, and are already replicating those initiatives in Brazil and Mexico. And finally, we redesigned our pricing and incentive programs by meaningfully optimizing investments so as to consistently improve EBITDA and accelerate constant currency's net revenue growth during the four quarters of the prior year. It's with this positive second half momentum that we move into the first quarter of 2019 and beyond. Our efforts going forward will continue to be centered on capitalizing on the adoption of e-commerce in the region as millions of consumers move their purchasing share of Wallet online and increasingly pay through digital and mobile means.

The trend is clear for us. As we improve the online shopping and payments experience, customer trust, confidence, engagement, and retention go up, which ultimately drive further adoption of our ecosystem, and positively flow through into our financials. Let me now delve into the fourth-quarter results. Perhaps most importantly, meaningful advances were made on the logistics front.

On a consolidated basis, mean delivery times improved 30% on a year-over-year basis, allowing us to deliver 50% of our shipments in three days or less. Specifically in Brazil, over the last year, we have been able to improve by 10 percentage points, the amount of packages being delivered in 48 hours or less while we also reduced median delivery times by two days. This is not only a consequence of improved service levels of our main shipping partner in Brazil, but also the result of the advances we have made in moving volume onto our managed logistics network. On a consolidated basis, over 20% of all shipments were already done through our network of fulfillment and cross-docking centers.

Penetration of these managed network reached 17% in Brazil, 15% in Mexico, and 55% in Argentina during the fourth quarter of 2018. Overall adoption of the MercadoEnvios solution in Brazil, Mexico and Argentina are also worth calling out. Brazil gained 11 percentage points to 91% of all packages being delivered on our managed network. Argentina gained 16 percentage points to 49% and Mexico gained 14 percentage points to 94%.

Depths of inventory and selection, another key area for our Marketplace business, also remains robust. During the quarter, we improved product discovery and deepened breadths and depths of selection. In Brazil, for example, live listings grew for the fourth consecutive quarter above 50% year on year to 57%, reflecting MercadoLibre is still the marketplace of choice when it comes to assortment and depth of selection in that country. Our Official Stores initiatives also delivered positive results, further improving the quality and discovery of inventory on our marketplace.

Driven by special dates in the shopping season, Official Stores gross merchandise volume penetration was solid in main countries: Mexico at 14%, up from 7% last year; Brazil at 13%, up from 9% last year; and Argentina also at 13%, up from 10% last year. The growth in Official Stores penetration is attributed not only to solid hunting commercial efforts in on-boarding well-known brands but also driven by the rollout of a more complete Intellectual Property Protection program, which is giving brands better tools to increase their comfort level to sell on MercadoLibre. During the fourth quarter, we on-boarded the likes of Estee Lauder cosmetics, MAC, the GAP, just to name a few. As a result, GMV, on an FX-neutral basis, excluding Venezuela that has been deconsolidated, grew by 31% year on year.

Keep in mind, this is on the back of the toughest comp from 2017, where GMV grew 67% year on year. The combination of both years yield a two-year average yearly growth rate that nearly hit 50%. For a regional overview, let me start in Brazil. During the fourth quarter of 2018, on a local currency basis, GMV grew 24.4% year on year.

Tougher comparisons versus last year where Brazil grew at 71% year on year as well as pricing adjustments we implemented to improve the unit economics in low-ticket items and allow us to rebalance our growth and profitability explain, for the most part, the year-on-year deceleration. In Mexico, we continue to have a position of strength when we look at share of purchases and GMV. Additionally, during the fourth quarter of 2018, on a local currency basis, GMV sustained solid momentum, growing at 56% year on year. Just like in Brazil, tougher comps over the same period of last year explained for the most part the lower growth rates delivered during the quarter.

Staying on Mexico and the results of having greater control over user experience by pushing for greater mandatory adoption of MercadoPago, and more recently, of MercadoEnvios, we've observed an 11 percentage point improvement in our Net Promoter Scores over the previous year. This is a clear indicator that we can drive greater customer satisfaction as we become more and more involved with the end-to-end buying experience. Finally, Argentina continues to demonstrate resilience in spite of strong macroeconomic headwinds and the rollout of caps to limit the number of free listings per seller that we allow. GMV, on a local currency basis, grew by 48% year on year during the fourth quarter.

Let's now move on to our FinTech and Payments progress report for the quarter, another area of strategic importance for us. We believe that not only are we facilitating payments and credit on MercadoLibre's marketplaces through MercadoPago and Mercado Credito, but we continue to deploy our online-based payment solution off of MercadoLibre. Given the size of this structural opportunity, we've been accelerating the distribution of our online-to-offline products and services as we envision MercadoPago as a powerful disruptive provider of inclusive financial technology solutions, in particular, for those segments of the population who have been historically underserved and which, in many instances, operate in the informal or partially formal economies of the region. As a result of the aforementioned push into offering [Inaudible] services away from our Marketplace, total payment volume surpassed the $2 billion mark for the quarter for the first time ever, reaching $2.1 billion during Q4 '18.

Within those online-to-offline solutions, mobile POSs are still the most relevant. mPoS TPV continued growing at triple digits both in dollars and local currencies, and continued to gain incremental share of our total payment volume. On a consolidated basis, mPoS TPV grew by 365% year on year on an FX neutral basis, driven by sustained growth of our installed base and devices in Brazil and Argentina where TPV, on an FX-neutral basis, grew north of 300% and 500% year on year, respectively. During the quarter, we also made inroads into the build-out of our alternative payments network through our mobile Wallet initiative.

For the three months ended on December 2018, our digital mobile Wallet was used by millions of active payers, reaching an active base that was 4 times larger than it was a year ago. Mobile Wallet TPV transactions also delivered solid results, growing north of 450% year on year. One of the several payment usage cases we are focusing on to scale our mobile Wallet is QR payments in stores. On the latter, we have begun to see encouraging results in Argentina since it was the first country where we were able to offer our full line of online-to-offline payments solutions.

We've successfully on-boarding both lighthouse merchants that bring brand equity and ubiquity to our Wallet as well as smaller stores. A case in point, within less than two months of launching, McDonald's has become the No. 1 ranked QR in-store payments in terms of TPV on our network. It's also important to highlight that QR in-store payments already represent more than 40% of total Wallet TPV for Argentina.

We continue making progress in expanding our innovative products in order to align the right incentives for our users to begin to fund their digital Wallets with cash as opposed to credit or debit cards. As such, in December, we launched our asset management solution in Brazil for individuals and merchants. Results have been encouraging so far, as the amount of money invested as a percentage of MercadoPago stored balances in Brazil is already higher than what it is in Argentina with only one month of launch. In Argentina, the asset management product continues to gain traction.

As within only six months of launch, invested funds already represent 40% of MercadoPago stored balances. Our merchant and consumer credit products are also scaling nicely, further strengthening the portfolio of financial services we are able to offer our users. Loan originations reaccelerated again, growing by 31% during the fourth quarter to a total loan book of roughly $96 million. We've also expanded financing sources for the loan products, raising third-party funding in Brazil and Argentina as our merchant credit business continues to gain traction.

During the quarter, we were able to raise over $31 million from the Inter-American Development Bank while in Argentina, we issued our second public trust, which successfully gained its access to capital markets to off-loan the loan book. Finally, our merchant services business has reaccelerated growth during the quarter. Successful execution in Argentina through our gateway solution, complemented by fast growth in Brazil, Colombia, Uruguay and Peru, explained the solid results in this business during the quarter. Now that I've covered the key operational highlights for the quarter, let's move on to our financial progress report.

The steps we've taken over the past year to recalibrate our growth and profitability has made significant strides as we deliver the second consecutive quarter of positive EBITDA. Our improvement in profitability is, in large part, a consequence of our better understanding of how to optimize, leverage, and distribute shipping subsidies to maximize sales and conversion rates. Going forward, we'll continue to make adjustments to our shipping subsidies and prices as we see fit in order to fully achieve this goal. Let's move now to P&L, starting with gross billings.

We delivered the 19th consecutive quarter of consolidated gross billings growth above 60% year on year on an FX-neutral basis. The robust growth we delivered during the quarter was driven in part by improved monetization on our marketplaces as well as continued pace of execution in our off-platform revenue streams, particularly in payments. On a by-country basis, gross billings delivered positive results throughout the most important regions. Mexico accelerated to 88% year on year, Argentina to 93% and Brazil reached 60% year-on-year growth.

Moving down the P&L, net revenues also continue to grow at a healthy clip, with an FX-neutral growth rate of 62% year on year. Gross profit remained stable versus last year, ascending to $205 million, representing 48% of revenues during the quarter. Warehousing and shipping costs, net realizable value discounts on mPoS devices and increasing costs of deploying our infrastructure on public clouds explain the gross margin compression over last year. We've included a detailed breakdown of these and also of the OPEX margin evolution I'm about to cover in the slides that accompany this presentation.

As reported, operating expenses ascended to $206 million or 48% of revenues versus 75% of revenues last year due to the Venezuelan deconsolidation charges. If we exclude the cost of deconsolidation, operating expenses would have been $182.2 million or 50.9% of net revenues the prior year, resulting in a year-on-year OPEX scale of about 285 basis points. The main drivers of this OPEX scale during the fourth quarter of '18 can mainly be attributed to sales and marketing, product development, and G&A. For comparative purposes, if we exclude the Venezuelan deconsolidation, OPEX as a percentage of gross billings was 38.3% this quarter versus 41.7% the same quarter a year ago, a 335-basis-point leverage in operational expenses.

As a result, operating losses contracted by 98.8% versus last quarter despite higher shipping discounts on a sequential basis as we better optimize the availability of our shipping program. The low operating income, we saw $16.4 million in financial expenses attributed, for the most part, to interest accrual on the new convertible note we issued last quarter due 2028, and also working capital facilities we took out in Argentina, Uruguay, and Chile. Interest income increased by 61% year on year to $14.3 million, mainly attributable to the stability of the Argentine peso and rising interest rates in that country, increased invested volume in Brazil as well as the proceeds of the convertible note issued in August 2018, which also generated more investment returns. Our FOREX line was negative $4 million, attributed for the most part as a result of the $4.7 million loss from the U.S.

dollar revaluation over our Argentine peso net asset position in Argentina, which was partially offset by a $0.9 million gain arising from the appreciation of the Mexican peso over our U.S. dollar net liability position in Mexico. As a result of all these, net loss, as reported for the fourth quarter, was also lower versus the previous quarter at $2.3 million, resulting in a basic net loss per share of $0.05. That concludes our review of the fourth quarter of 2018.

I'd like to end the call by saying that we remain as confident as ever of the improving value proposition we are offering our users across the region. With this validation of our product and market fit, execution will be as always our main focus going forward. We must remain laser-focused on leveraging the scalable platform businesses we've built in retail, marketing, logistics, and FinTech to differentiate ourselves in an ever-more competitive market as we push forward with the democratization of commerce and money throughout Latin America. Thank you.

And with that, we can take your questions now. 

Questions and Answers:

Operator

Thank you. [Operator instructions] Our first question comes from Mike Olson from Piper Jaffray. Your line is open.

Mike Olson -- Piper Jaffray -- Analyst

Hey, good afternoon. You reported kind of an interesting set of metrics in Q4 with accelerating revenue growth, profitability was better, but then decelerating GMV growth and it seems like some or all this impact on GMV was self-inflicted. But just going forward should we expect GMV and revenue growth to kind of more closely align with each other or continue to diverge? And then a second question I had is just on the competitive environment. There's obviously been some media chatter in the past couple of months of some larger e-commerce players potentially getting more aggressive in Brazil.

I'm just wondering if you see anything on your end? Thanks.

Pedro Arnt -- Chief Financial Officer

Hi, Mike. So, there is a balancing act between growth and profitability, and that's the balancing act that we've been carrying out throughout the back half of last year after the changes in our pricing structure in shipping in Brazil. And part of that is just the underlying business nature of finding the right level of incentives to find the right equilibrium between growth and profitability. The other piece is just an accounting manner that sense a significant portion of our shipping subsidies flow through the P&L as contra revenue as we optimize rows.

It's natural to see an acceleration in net revenues. I think going forward, certainly the comps will get progressively easier as we move into '19 on the GMV front and that's probably the key trajectory we're comfortable commenting on in terms of forward-looking statements. Competitively, I think we've always said we look at all our competitors. We try to understand what others are doing.

Brazil has always been a very competitive market. We continue to deliver above-market growth in this quarter. If you look at the two-year stack, I would say significantly above-market growth to account for the tough comp from last year. I think there are quarters where certain smaller players potentially grow more than us.

But if we look over longer terms, our trend in terms of market share has been very solid and continues to be encouraging and we need to continue focusing on our users. We need to continue building out our logistics network, rolling out our ecosystem of payments and that will give us what we believe is the most robust platform play to continue to grow both our retailing and fintech initiatives for the long run.

Mike Olson -- Piper Jaffray -- Analyst

Thank you.

Operator

Thank you. Our next question comes from Edward Yruma from KeyBanc Capital Markets. Your line is open.

Edward Yruma -- KeyBanc Capital Markets -- Analyst

Hi, good afternoon guys. A couple of quick questions on the proprietary logistics network. Obviously you're seeing some strong results to date. Help us understand the capacity outlook and how much slack do you have in as usage of this grows and how should we think about your build out capabilities as we think about '19? Thank you.

Pedro Arnt -- Chief Financial Officer

Great. So I think the way that we're approaching future in long-term capacity is by ensuring that this network that we're building has multiple sources of delivery capacity whether that be first mile, last mile, long-haul, whatever. So it's a combination of large established carriers of smaller regional carriers and even of more localized small and midsized businesses that can do deliveries for us as well as independent truck drivers. And we're trying to stitch this all together through our technology, so that ensures that we are able to scale that logistic demand that we will have from multiple sources.

So, it's not unlike what we're seeing being built by certain large e-commerce players in the U.S., where the volume is not entirely done by the large-scale carriers, but it's a combination of multiple sources. So, so far we haven't really hit capacity constraints and I think we continue to build out these different sources of future delivery capacity so as to avoid capacity constraints. This is one of the reasons we've always felt that we believe that building out a logistics network off balance sheet through 3PL is what makes the most sense, is it allows us to scale quickly and guarantees long-term capacity.

Edward Yruma -- KeyBanc Capital Markets -- Analyst

Got it. And one other follow up, if I may. It seems like the MPOS market is getting increasingly competitive. I guess, how do you think about pricing on the devices and kind of the current competitive environment and how that may change adoption rate? Thank you.

Osvaldo Gimenez -- Executive Vice President of Payments

Hi, this is Osvaldo. Hello. It is getting more competitive, but so far most of the competition we're seeing in Brazil has been related to device prices. We have been able to limit the discount we gave recently and continue to grow the number of devices we are selling.

And we have not yet seen competition in the upfront, what the fee charged to the merchants we have seen so far we are very confident that we'll be able to continue delivering growth in this business in Brazil.

Edward Yruma -- KeyBanc Capital Markets -- Analyst

Great. Thank you.

Operator

Thank you. Our next question comes from Irma Sgarz from Goldman Sachs. Your line is open.

Irma Sgarz -- Goldman Sachs -- Analyst

Yes. Hi, good afternoon. Thanks for taking my questions. Firstly, I think if I looked at the numbers correctly the confirmed user growth actually on the margin accelerated a little bit.

So I was wondering if you could -- I mean, it's been impressively consistent growth over the last decade or so and with growth rates in the mid 20s. So, I wanted to just understand the margin, like what are you seeing and what are the big sources of growth, whether it's geographies or customer cohorts? And then the second question, just in terms of the growth that you've seen, on the one hand side, it seems to be two different trends between GMV growth on the one hand side being really driven by the ASP or the average ticket whereas in TPV we see some different trends where it's really mostly the number of transactions or entirely the number of transactions that's been growing -- that's been driving the growth. So if you could just sort of parse out specifically on the TPV front what we should be expecting going forward and whether that's basically a reflection of the multiple initiatives that you have specifically in the off-platform space? Thank you.

Pedro Arnt -- Chief Financial Officer

Hi, Irma. So let me start with the marketplace and payments units versus volume question. So on the marketplace, as you know, we've launched a series of initiatives recently that have affected the units sold of low-ticket items. We've introduced a flat fee and we've also capped the possibility to sell very cheap items on the website, so as to weed out a lot of the stuff that really wasn't worth being sold on the platform and that's generated an increase in average tickets and a significant deceleration entirely focused on these very low-average selling price units on the marketplace.

So that's the explanation for Marketplace. On payments, I would say -- on Payments, it's a very different story as your question I think posed market payments right now has multiple use cases that are being attacked both online to offline and also online with very different average ticket prices, something like a cellphone top-up, obviously will have a lower ASP than in-store QR, utility and service Payments will have high ASPs. And so in Payments I think growth should be robust on both fronts. And the number of transactions we process as we go after more and more use cases, both offline, through our Wallet and QR initiatives and MPOS and also online as we continue to grow the merchant service business.

So I think they have underlying growth trends that are very different and that's why I think in Payments you can see both, [Inaudible] growing very nicely and in marketplace we've seen a deceleration in units sold. In terms of user growth, although there is an acceleration in confirmed registered users, I think really what we've seen is buyers -- it's a metric that I would say in the quarter is not necessarily one that we are particularly pleased with and I think there's a lot of focus on reaccelerating buyer and new buyer growth as we also disclosed. Obviously, we're still in the early stages of the Internet. There are still millions and millions of users, who don't use our services and who we continue to focus on attracting and bringing on to the marketplace.

So I think we should continue to see solid growth from new users, but also more importantly with the large existing base of users we have and whose engagement has continued to trend positively when we look at GMV per user or orders per user that should also be a significant driver of growth, just the higher engagement of existing users.

Irma Sgarz -- Goldman Sachs -- Analyst

Great. Thank you very much.

Operator

Thank you. Our next question comes from Robert Ford from Bank of America. Your line is open.

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

Thank you and good evening, everybody. Pedro, you haven't spoken about merchant loans in a while. Now that you're reaccelerating, can you talk a little bit about your comfort levels in terms of pricing and sizing risk across different risk cohorts and how you see that business scaling both on and offline?

Pedro Arnt -- Chief Financial Officer & Executive Vice President

Yes, so we took a pause in the middle of last year as we were allowing the models to get [Inaudible] and recalibrate some of the loan loss provisions. What we've seen is a reacceleration in originations because we've also seen improvements in loan loss provisions and the margin and profitability profile in the credit books have improved. And so, I continue to think that we're managing in the right way which is when we're comfortable with the loan loss provisions and the margins that we're getting out of the credit business we will step on the gas a little bit more and when for whatever reason we're a little bit more skittish we will slow down originations, so prudent management of that. The opportunity continues to be extremely large and I think over time, continuing in this cautious manner, we should see the size of the book and the amount we originate continue to grow into the foreseeable future.

This is a business that we continue to be very, very encouraged and excited about.

Robert Ford -- Bank of America -- Analyst

And through deployments of capital so far, have they been across wide spectrums of riskiness or have you -- are you going gradually incrementally into cohorts that are incrementally more risky?

Pedro Arnt -- Chief Financial Officer

So I think, again, this is so early stage that it's not just about growth from riskier cohorts. As our FinTech ecosystem grows we begin to have more and more channels of customer acquisition that we can cross-sell the loan portfolio. So, it's not that we're necessarily moving only into riskier cohorts on the marketplace, we're now extending loans to mPOS users. Eventually we can move into Yelp and Wallet users, QR in-store users.

So there is still plenty, plenty of room to grow the loan book within user cohorts that are still attractive and who we feel comfortable managing the risk on and then there's also geographical growth.

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

Of course. Thank you very much.

Operator

Thank you. Our next question comes from James Friedman from Susquehanna. Your line is open.

James Friedman -- Susquehanna -- Analyst

Hi, it's Jamie of Susquehanna. Thanks for taking my questions. Great results here. Pedro, I was just going ask a couple on the Payments and then one on the marketplace.

So I want talk about on the dynamic between off-platform and on-platform TPV. It looked like it was above $7 billion on the off-platform. I guess, when can we anticipate off-platform potentially eclipsing on-platform? And if -- I know you don't like to make forward projections, but is that too specific a question, just what are some of the dynamics there as off-platform gets so much traction now?

Operator

Pardon me speakers, please take yourself off mute.

Pedro Arnt -- Chief Financial Officer

Yes, sorry about that. I'll answer now with the mute button turned off. So the growth opportunity in off-platform is obviously significantly larger than on-platform. To your question, last quarter was the first quarter that in terms of transactions we've already begun to see in TPN for the first time in our history off-platform away from the marketplace being larger than on-marketplace.

And when we look at growth venues, obviously, on-platform we'll continue to grow driven by the growth of our marketplace business. But when we look at everything we're doing off-platform, there are significantly more markets that we're attacking and opportunity for growth. So I think in the not-too-distant future, we will see TPV also being larger off-platform than on-platform. And as we've always said we still aspire for that to be multiple times larger than on marketplace and we can see that with the divergent growth rates already between Payments and GMV.

And also if you were to look at off-platform and on-platform TPV, off-platform TPV is growing significantly faster.

James Friedman -- Susquehanna -- Analyst

Got it. And if I guess, switch gears, thank you for that. So, where are we in the assets, light versus assets heavy journey on the logistics side, how should we be thinking about that, because your previous answer seemed like it was emphasizing asset light, but then we know -- you've described the warehouse build-out strategy in North and South, etc. Yes, so just in general like how should we be thinking about that process over time?

Pedro Arnt -- Chief Financial Officer

OK. So, I think -- and this happens a lot in these industries that evolve. I'm not so sure how useful asset light or non asset light is becoming within retail if you look at the way e-commerce logistics are evolving. So when we look -- when we talk about warehouses, if we talk about last mile, first mile, long-haul, airfreight, none of those vehicles, airplanes or warehouses are on our balance sheet.

And in that sense it's asset light. Now if you were to look at the level of operational control and operational design that we exert over those third-party logistics operators, it's continuously increasing as we try to inject more efficiency in the operations, improve service levels and lower cost. So obviously, we are way beyond, I would say, waist deep in logistics capabilities within the company, hiring out logistics people and having significant oversight over the design and quality of our logistics network, but we don't necessarily own most of those assets for now. And I think for the short term, we haven't signaled any change in that design.

And as always longer term we will do what gets us the best results for our users in terms of if it makes sense moving those things away from OPEX to CAPEX and bringing them on balance sheet. But I think that's more of a longer term decision. Right now, we're focused on continuing to build out the logistics in the different countries, primarily by using 3PLs.

James Friedman -- Susquehanna -- Analyst

Thanks for the color.

Operator

Thank you. Our next question comes from Marcelo Santos from JP. Morgan. Your line is open.

Marcelo Santos -- J.P. Morgan -- Analyst

Hi, thanks for taking the question. Actually, the first is, Pedro, could you conceptually break down the profitability of your various business? And then I'm not asking for a specific number, but what is above LatAm and what kind of level, like you have the MPOS business, you have Wallets business, you have the credits business. So how could we think about the components of the profitability right now? This is the first question. And on the second question and more specific to the Wallet, what are the plans to bring features like money indirectly from accounts, users being able to receive salaries to do bank transfers, what is the outlook for these kind of services to be incorporated into the Wallet into several countries because this could potentially make the Wallet a competitor to more traditional banking services.

Pedro Arnt -- Chief Financial Officer

OK. So always remember that we don't want to unnecessarily handover competitive information. And so therefore, I'll give you a general sense of how we think about the different businesses right now but we don't disclose specific margin structures. So right now, obviously, our marketplace business is a business that is both one that we are investing aggressively behind in the short term in terms of shipping subsidies, build out of the logistics, and it's also a tremendous distribution platform for everything else we do.

And so, we're running that one at a positive margin but a low margin. I think of that business longer term given the scalability it has simply from top-line growth and OPEX scale it's a business that we firmly believe over the long term will deliver improving margins as it gains leverage. And then with Payments it's a combination of things. The point business now that the installed base has gotten to a nice scale is the business that begins to deliver positive EBIT and should contribute more and more EBIT if there aren't significant changes to pricing or cost.

Credit is also a business that we see as a generator of high margins that we can reinvest. Obviously, the Wallet QR in in-store business are ones that we are investing aggressively in right now as we build out this alternative Payments network. So I would say for the foreseeable future, we continue to be more in growth and investment mode, but all of these businesses are businesses that are at the right scale, obviously, have leverage and margin gains that we will be able to deliver once we build out the right scale size behind these businesses.

Osvaldo Gimenez -- Executive Vice President of Payments

With regard to the second part and regarding -- with regards to the second point and with regard to the Wallet and the money in salary and bank process, I think there are, those are things that are straight on at the same time. [Inaudible] on the regulatory front where last year both in Argentina and Brazil, it became legal to pay salaries into virtual accounts. In the past, it was not legal. You have to pay through a bank account.

And so now that it's legal, we need to make it easier to do fund transactions from a bank account. And that is already happening in Argentina and I think this is one country, where we have the front [Inaudible] because now it's very -- it's regulated by the Central Bank that it should be straightforward to transfer money from any bank account into virtual accounts. It's starting to happen. Not all banks have promoted it right yet, but it is starting to happen because it's going to be -- it's being regulated by the Central Bank.

We expect something similar to happen in Brazil and Mexico, but I will say we are several steps behind there because still there's not a central system where you can do those transfers real time and online. Eventually, it is something that has happened in many other places, but it is not yet available in Latin America, but in [Inaudible] to be able to pull funds out of a bank account. This is something that hasn't mandated in Europe with Payments service directed to and it's something that has been in conversation in some countries, but it's not mandated in many countries in Latin America and yet -- and that could be a big difference. At the earnings and salary, the other thing that is starting to happen, well, we need to develop our product roadmap and wanting it to make it easier to pay salaries, because even if it was possible it wouldn't be as easier from our platform.

[Inaudible] to be able to pay supplier. It's starting to happen, but it's scalable yet, because originally our product is more soft as a product to collect funds as well as to pay out funds. And in the meanwhile, what we have done is create the asset management functionality in Argentina and Brazil, so as to encourage users to keep money in the Wallet, so it's more likely for them to make payments out of that Wallet rather than withdrawing from a bank and then make payments. So it is totally on our roadmap this year and we expect to see much progress in several of the countries joining during the year.

Marcelo Santos -- J.P. Morgan -- Analyst

Perfect. Thank you.

Operator

Thank you. Our next question comes from Deepak Mathivanan from Barclays. Your line is open.

Mario Lu -- Barclays -- Analyst

Hi. This is Mario Lu on for Deepak. I have a couple of questions. On the Payments business, now that you see multiple cohorts on the consumer Wallet and have four times more mobile users than last year, any user trends you can call out in terms of stickiness, usage, spending levels compared to traditional credit cards? And secondly, [Inaudible] ihas increased shipping rates multiple times over the past few years.

Can you just give us an update whether you expect to see any this year? Thanks.[Audio gap]

Osvaldo Gimenez -- Executive Vice President of Payments

So, with regard to the Wallet, we are starting to see a cohort with a little more of dating, but keep in mind that only Argentina which was the first country where we launched in-store Payments, we launched that end of May last year so we only have seen pretty much half a year of results. What we're seeing is increased use of multiple products so it's people who sometimes start by getting up the mobile phone, they start paying utilities and then using QR code payment. So we are seeing increase in the number of cohort of people use, have used, and multiple use cases. And I think still the majority of growth is coming from new users that is because it's a new product and was started recently and we are growing 4x year on year.

So when you look at all these numbers, the total number of use cases for each year is still probably flat and -- but it is mostly related to the growth number of users and even the cohort continue to use it more.

Pedro Arnt -- Chief Financial Officer

In terms of [Inaudible], I think we do expect increases in price much more in line with what had occurred in other years, unlike last year where really a change in pricing was absolutely unforecast and, we believe, something that we really were not expecting. That's not what's going to happen this year. I think we have a good sense of what the increase will be. And as we continue to move volume away from [Inaudible] and optimize our subsidies and free shipping initiatives, we don't even think that we necessarily we'll have to pass the full cost of the price increase onto users, but only a portion of that.

So this should be a fairly manageable price increase given all the conversations we've had.

Mario Lu -- Barclays -- Analyst

Great. That's very helpful. Thank you.

Operator

Thank you. Our next question comes from Ravi Jain from HSBC. Your line is open.

Ravi Jain -- HSBC -- Analyst

Hi, good afternoon. I have a couple of quick questions. So, one is on the selection on the product selection and how are you going to kind of broaden that out especially given the competitive environment in Brazil and perhaps in Mexico as well? Could you give us some color on maybe your thoughts and initiatives for consumer packaged goods or is it cross-border e-commerce. And the second question is on the Payments.

I mean, the Mexican Central Bank is now pushing the banks to adopt their payment system coding. Does that mean you need to accelerate the rollout of the asset management ecosystem in Mexico? Do you see Mexico as getting more attractive Payments country? Thank you.

Osvaldo Gimenez -- Executive Vice President of Payments

[Inaudible] Let me start with the second one regarding probably in Mexico. So I think that our first impression we took a look at it and we did not come out very impressed with the product, but so far the Bank of Mexico is mandating these for bank regulated institutions. At this point, we are not a regulated institution yet, so we would not be able to participate in it. However, as I was saying, we were not very encouraged about the resource in that the product we had in Argentina is significantly better than that.

We are comfortable with sticking to our plan. Also, it remains to be seen how willing are the banks to encourage these [Inaudible] networks because it will cannibalize their debit card fees, so we will continue with our plan to replicate what we're doing in Argentina.

Pedro Arnt -- Chief Financial Officer

Great. And consumer packaged goods and cross-border trade, just to put in perspective, first of all, I think combined those two marketplace lines still represent less than 5% of GMV, between 3% and 5%. So glass half full is that there is significant room for product mix shift as we grow into those categories, but they're still small. Most of our efforts over the last few quarters there have been around product, features that are tailored for those two different products, improving the logistics of international sales for sellers that are sourcing from the U.S.

or from China in our cross-border offerings and more recently allowing sellers to send bulk inventory that we manage from them in our fulfillment centers for cross border trade and in CPG stocking up on skews on SKU count. I think we've crossed the 5,000 SKU count. The next objective is to get to roughly 10,000 SKUs but that also shows that it's relatively early on in our CPG efforts and this year will be an important year for us as we continue to focus on making both those businesses a more meaningful overall portion of our GMV. And I think both really have a lot of upside potential for us.

Ravi Jain -- HSBC -- Analyst

Thank you. That's helpful.

Operator

Thank you. Our next question comes from Marvin Fong from BTIG. Your line is open.

Marvin Fong -- BTIG -- Analyst

Hi. Thanks for taking my question. Just a quick one on -- I was very impressed with the QR Payments reaching 40% of digital Wallet TPV in Argentina. I'm curious on your thoughts on what's driven that rapid rate of adoption and if you think Brazil might follow a similar trajectory or is there something structural about the countries that might have a different adoption rate? And then just as a follow up, could you disclose what the Payments revenue in the quarter was? Thank you.

Osvaldo Gimenez -- Executive Vice President of Payments

OK. Let me start with a, start and let the financial question to Pedro. And we are very excited with our [Inaudible] Payment in Argentina. We have been able to bring in many large merchants such as McDonald's, Burger King, the major gas stations and coffee shops in the country and they have been a huge drive to adopt QR code payments and that has been a huge driver of growth for monthly active payers.

And I'd say that the 40% after all from top up is one of the most popular use cases in the countries. Now I think we are still in the early days. Integrations are a little more complex in Brazil because we need to integrate with the ERP with point-of-sale machine and that's why it will take us a little bit longer to bring in the larger merchants. We have started with Shell with a major gas station, but it's still very early days and we cannot comment on numbers.

So we expect to have more information in the coming quarters.

Operator

Thank you. Our next question comes from Richard Cathcart from Bradesco. Your line is open.

Richard Cathcart -- Bradesco -- Analyst

Hi. Good evening. Just a quick question on the proprietary shipping in Brazil. I think you mentioned that 17% of GMV was going for in Brazil, and I think a pretty big increase from where we were previously.

So a couple of questions on that, first of all, kind of are you beginning to see kind of better buy-in from the sellers? Are they more enthusiastic about the advantages of working through the proprietary shipping solution? And then the second question just on cost, given that you're now at 17% is beginning to scale, are you beginning to see some improvements in unit costs of products that are being shipped through the propriety solutions? Thanks.[Audio gap]

Pedro Arnt -- Chief Financial Officer

OK. So let me start with the second piece which is the one around unit economics. The first thing is that I think we've always said that our primary focus is on building out the logistics network first and ensuring that we have a network that allows us to deliver best-in-class delivery time or at least competitive with what everyone else might build because that's really the competitive advantage that we need to make sure that we don't hand over to someone else, and then eventually over time with scale and as the network gets more complex driving down unit costs would be something we could be able to do. So having said that, what we see now is from an overall network perspective, items that are fulfilled by us, obviously, do have a lower cost because they eliminate first mile altogether.

Our cross-docking efforts don't necessarily lower cost, they do allow for a better service on many routes and give us greater control over the screen experience. Remember that when you look at our dropship network in [Inaudible], they are, by far, the largest player in Brazil and therefore our cost competitive given their scale and size. So yes, fulfillment is cheaper, cross docking is not. We are fairly confident that over time once we're able to build out the full network with its scale and ability to determine who we send volume to driving down unit costs will be something that we'll be able to achieve.

And then in terms of sellers, I would say it's still early. Obviously conversions are better when we fulfill the items because we give it preference in search ranking orders and we drive greater volume to those listings because they have a better user experience, but I think before we can give you feedback on overall sort of what seller feedback is on that, we need more data and more time. Net Promoter Scores on items that go through more [Inaudible] and that are fulfilled are better than those that don't, and that's something that over time should continue to improve.

Richard Cathcart -- Bradesco -- Analyst

Thanks very much.

Operator

Thank you. Our next question comes from Kunal Madhukar from Deutsche Bank. Your line is open.

Kunal Madhukar -- Deutsche Bank -- Analyst

Hi, thanks for taking my questions. With regard to a certain multi-national e-commerce provider that just about stepped up investment in Brazil, how much of the [Inaudible]

Pedro Arnt -- Chief Financial Officer & Executive Vice President

Can you try to speak a little bit louder? We can barely hear you.

Kunal Madhukar -- Deutsche Bank -- Analyst

I'm sorry. Is this better?

Pedro Arnt -- Chief Financial Officer & Executive Vice President

Yes, it's better.

Kunal Madhukar -- Deutsche Bank -- Analyst

OK. Great. With regard to the -- a certain multinational e-commerce that just entered Brazil or just stepped up investment in Brazil, in terms of their focus markets, the markets that they're targeting with like and what have you, how much of your GMV is in those markets, the upper income demographic kind of lives in those areas?

Pedro Arnt -- Chief Financial Officer

Sorry. We're having a little bit of trouble getting -- it's somewhat cut off. Can you run that by us again?

Kunal Madhukar -- Deutsche Bank -- Analyst

Sure. So for the e-commerce provider that just enter -- just stepped up investment in Brazil, in terms of the footprint that they're targeting -- the active footprint that they're targeting, how much of the GMV or retail sales in Brazil is in those areas? And how much has been the upper income demographic, what proportion of Brazil's upper income demographic lives in those areas?

Pedro Arnt -- Chief Financial Officer

So I don't want to comment on potentially what competitors are targeting because I might misspeak regarding their strategy. I think one of the attractive things about Brazil and e-commerce and one of the reasons we think it's such a relevant market going forward is that it's a market where we've seen more than in any of the other markets in the region, e-commerce [Inaudible] beyond the higher income demographic portions of the population. Consequently Brazil does have the highest penetration of e-commerce as a percentage of overall retail. So I think the winning proposition in Brazil is not if you try to focus only on high-income individuals.

It's a market where we should have much greater e-commerce penetration as smartphones grow significantly their installed base. And most Brazilians will be in or already are being equipped with a combination of a smartphone and decent broadband connectivity. I think that's what we remain focused on and should give us tailwinds and growth from that secular trend for lots of quarters going forward.

Kunal Madhukar -- Deutsche Bank -- Analyst

Thank you.

Operator

Thank you. Our next question comes from Gustavo Oliveira from UBS. Your line is open.

Gustavo Oliveira -- UBS -- Analyst

Hi, Pedro. Thank you for taking the question. I want to understand. At the beginning of the call, you mentioned that GMV in Brazil decelerated perhaps by self-inflicted adjustments.

You made it in the platform, but when you look forward, what do you think matters most? It seems to me that you're talking about the success you're having and the logistics build-out, you're getting efficiency and so on. Does it allowed you to remove some of your shipping subsidies to invest in other levers of your platform such as credit to consumers and to sellers or investments in the Official Stores. I know there is no silver bullet, but how do you reallocate your resources in 2019-2020 versus from your allocation 2017-2018, which was primarily focused on shipping subsidies and logistics?

Pedro Arnt -- Chief Financial Officer

Hi, Gustavo. So a few -- on that. First of all, a lot of the reallocation is actually within the shipping subsidies. So I think we're moving from subsidizing very low-ticket items that had challenging unit economics for us and they were right for that moment.

We were generating a vibrancy on the platform. Users were associating our brand with free or achieve shipping. But I think from a P&L perspective it was challenging because the cost of shipping an item, obviously, doesn't decrease linearly as the ASP goes down. So most of the capital reallocation is actually within the shipping program, where we now are freeing up more subsidies for higher-ticket items, for routes that we had shut down, like the north to northeast, and we could more intelligently now start offering subsidies to start targeting those consumers as well.

We do look at our P&L as a whole. So in so far as we're freeing up some profit that might help us reinvest it across other business lines, but I would say in general we are in full-out investment mode. When you look at our revenue number and our projected revenue number and the fact that we continue to target a profitable, but relatively low-margin profile for 2019, I think that gives you a sense of how aggressively we're investing across the board, and we feel comfortable with that level of investment to help us carry out the strategic plan we have. So we're investing everywhere we think it makes sense to invest and we're optimizing how we allocate the shipping subsidies to just make it more intelligent.

Gustavo Oliveira -- UBS -- Analyst

Very clear. Thank you.

Operator

Thank you. And that does conclude our question-and-answer session for today's conference. I'd now like to turn the call back over to management for any closing remarks.

Pedro Arnt -- Chief Financial Officer

Great. So thank you, everyone, for the questions. I think those were lots of questions and good questions. I hope we've given you a clear answer.

I think the answer around Payments revenue got lost along the way. We'll make sure to reach out to give you the number. Thank you and we look forward to updating you on Q1, which is the beginning of 2019 and a year, where we have lots of things in store. So, thank you.

Duration: 66 minutes

Call Participants:

Federico Sandler -- Head of Investor Relations

Pedro Arnt -- Chief Financial Officer

Mike Olson -- Piper Jaffray -- Analyst

Edward Yruma -- KeyBanc Capital Markets -- Analyst

Osvaldo Gimenez -- Executive Vice President of Payments

Irma Sgarz -- Goldman Sachs -- Analyst

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

Pedro Arnt -- Chief Financial Officer & Executive Vice President

Robert Ford -- Bank of America -- Analyst

James Friedman -- Susquehanna -- Analyst

Marcelo Santos -- J.P. Morgan -- Analyst

Mario Lu -- Barclays -- Analyst

Ravi Jain -- HSBC -- Analyst

Marvin Fong -- BTIG -- Analyst

Richard Cathcart -- Bradesco -- Analyst

Kunal Madhukar -- Deutsche Bank -- Analyst

Gustavo Oliveira -- UBS -- Analyst

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