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MercadoLibre (NASDAQ:MELI)
Q1 2021 Earnings Call
May 05, 2021, 5:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Ladies and gentlemen, thank you for standing by, and welcome to MercadoLibre's first-quarter 2021 earnings call. [Operator instructions] It is now my pleasure to introduce Investor Relations Officer Lissa Schreurs.

Lissa Schreurs -- Investor Relations Officer

Hello, everyone, and welcome to the MercadoLibre earnings conference call for the quarter ended March 31, 2021. I am Lissa Schreurs, investor relations officer for MercadoLibre. Our chief financial officer, Pedro Arnt, will be leading today's prepared remarks. Joining him on the line is chief executive officer of Mercado Pago, Osvaldo Gimenez, who will be available during today's Q&A session.

I remind you that management may make forward-looking statements relating to such matters as continued growth prospects for the company, industry trends and product and technology initiatives. These statements are based on currently available information and our current assumptions, expectations and projections 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 included in this conference call for a variety of reasons, including those described in the forward-looking statements and Risk Factors sections of our Form 10-K for the year ended December 31, 2020, Item 1a risk factors in Part 2 of our Form 10-Q for the quarter ended March 31, 2021 and any of MercadoLibre, Inc.'s other applicable filings with the Securities and Exchange Commission, which are available on our investor relations website.

Now let me turn the call over to Pedro.

Pedro Arnt -- Chief Financial Officer

Hi, everyone. And welcome to our first-quarter 2021 earnings call. Our financial results were once again marked by accelerating growth due to strong demand for e-commerce and fintech services within an improving but still challenging environment. While some key markets began to gradually open physical retail, in others, lockdowns were enforced in major cities toward the end of the quarter.

Online consumption throughout remains strong, and we experienced favorable consumer trends as digital services share of wallet continue to grow. Our solid quarterly performance illustrates our commitment to executing our long-term strategic priorities as we remain focused on our purpose of democratizing access to commerce and money in Latin America, recognizing the important economic role we play in the countries where we operate. Let me start us off with the results from our commerce business in Q1. We generated triple-digit growth in items sold and maintained record levels of transactions per buyer quarter on quarter.

This constituted a formidable level of engagement given seasonal differences between Q4 and Q1. Volume-wise, consolidated gross merchandise volume grew 114% year over year on an FX-neutral basis. Across our geographies, all countries either maintained or posted higher growth rates compared to the fourth quarter of 2020. In Brazil, our largest market, we doubled items sold and nearly doubled GMV versus the prior year.

In Mexico, we continue to accelerate our sequential growth in items sold and GMV. All other geographies showed positive trends in GMV growth as well, with Chile, in particular, increasing its share in our business substantially. Product diversification is becoming an increasingly important driver of growth to overlay on to our ever-improving delivery service levels and highly competitive pricing. To achieve this, we are focusing on both category and merchant type expansion.

For example, during Q1, we made significant strides in amplifying our experience in consumer packaged goods. We established initial partnerships with traditional large food retailers in Mexico and Brazil and reached new record levels of inventory depths across categories. User experience in CPG is also benefiting from our logistics footprint. In Brazil, over half of CPG items are already being shipped from our own fulfillment centers, helping us improve user experience and deliver consumer expectations.

On the merchant front, as you know, our marketplace is composed of a mix of small sellers and big brands, and we have been attracting more global and local household name brands across multiple verticals as we continue to strengthen our e-commerce ecosystem. In consumer electronics, for example, we have added partnerships with Panasonic, ASUS and Intelbras, while our CPG portfolio now includes stores by JMacedo and Mondelez. As a result, approximately 20% of our marketplace sales are already coming from official stores, an increase of 7 percentage points over the same quarter last year. Overall, product depth also continues to improve as live listings have reached almost 300 million listings this quarter, increasing versus the fourth quarter in all major geographies.

Part of this increase was driven by the growth of unique sellers in our marketplace with almost 1 million total sellers with successful sales during the quarter. We will continue to grow our already ample seller base, adding almost 200,000 new sellers to our marketplace this quarter. Before moving on to logistics, let me briefly address our growing loyalty program. We continue to expand our content offering while delivering great value in terms of new subscribers for our initial content partners, Disney Plus, Deezer and HBO.

More importantly, we are seeing strong signs of incremental engagement from user cohorts that purchase content through our loyalty program. Building on this initial success will be a growing focus for us. Let's now move on to developments relating to Mercado Envios, a primary contributor to our commerce business. During Q1, our logistics capabilities were a focal point of our operating strategy, reaching new company records in terms of reach, speed, scale and cost.

Our managed network reached a penetration of 80% on a consolidated basis, with Argentina, Brazil and Mexico at 87%, 83% and 79%, respectively. Our expansion in Brazil was particularly notable, and we are also pleased with our progress in Colombia and Chile, which demonstrate our speed in execution. We have now reached 63% and 53% penetration of items shipped through our managed network in those markets, respectively. We view this as a remarkable progress considering we began implementing our managed network operation in Colombia and Chile only a little over a year ago, at the height of the COVID-19 pandemic outbreak.

Regarding our fulfillment operations. On a consolidated basis, we now have over 32% of all items sold on our platform originating in our fulfillment centers. This is driven mainly by expansions in Brazil, Argentina and other countries in the Indian region, while Mexico maintains the leading position with 60% of items being fulfilled by MercadoLibre, but stable in penetration sequentially. During Q1, we shipped over 208 million items, and for the third consecutive quarter, registered a year-over-year growth above 130% in shipments.

Our lead times per shipment set a new record for speed. We significantly improved the share of same-day and next-day delivery in every single country, even while sustaining high levels of growth in total items shipped. Overall, 74% of all volume was delivered in less than 48 hours, a notable 21-percentage-point improvement versus a year ago. These results were driven by the sustained expansion of our logistics network.

We recently started operating two new fulfillment centers, one in Santa Catarina, Brazil and another near Monterrey in Mexico. New service centers were also added to our network in Brazil. Simultaneously, our same-day logistics solution gained greater participation in Brazil, Colombia and Chile. This advances our objective of increasing fast deliveries within major urban centers, and we are now operating deliveries during weekends as well.

As you can see, the Mercado Envios team is operating at an outstanding pace while unlocking greater levels of efficiency within our network. Additionally, recognizing that free shipping is an attractive value proposition for our customers, in March, we reduced our free shipping threshold to BRL 79 in Brazil. This delivers several benefits. First, we now have an even more comprehensive free shipping program for buyers in the region, a key differentiating factor for MercadoLibre.

Second, we expect to cover a greater portion of our GMV and items that ship for free. We strongly believe that these developments within our logistics services will be drivers of sustained improvements in customer satisfaction and experience. Finally, on a related matter, we are also proud of our ecological conservation initiative, Regenera America, following the issuance of our sustainability bond earlier this year. Integrating sustainable practices that complement our logistics operations and get us closer to carbon neutrality is a growing part of our strategy to positively contribute toward stopping climate change over time.

With that, I'll now address the fintech side of the business, a critical lever within our ecosystem to democratize money and access to financial services. For the first quarter, Mercado Pago total payment volume reached $14.7 billion on a consolidated basis, growing almost 130% year over year on an FX-neutral basis. This represented a total of 630 million transactions for Q1 at a growth rate of 117% compared to the same quarter last year. On-platform payments volume grew by 119% on a consolidated basis, largely driven by the strong performance of the commerce business in Brazil.

For our off-platform payments, TPV grew by 136% compared to Q1 '20. We are continuing to successfully build our network of active collectors and payers. On the collector side, we have over 11 million off-platform merchants on a consolidated basis, with almost $7 million in Brazil alone. Additionally, during Q1, we reached almost 35 million off-platform unique payers during the quarter.

I'll now detail the various segments of our off-platform payments business, starting with Point, our point-of-sale offering. Point was resilient throughout the lockdown. Despite reduced physical retail volume, point payment volume grew 90% on an FX-neutral basis, setting new volume records in Brazil, Mexico and Argentina. New device sales reached almost 1 million units, with strong growth in Mexico.

POS sales in Mexico benefited from the launch of our top-of-the-line device geared toward larger merchants, where we improved our value proposition by distributing debit cards to point device holders as well. On the flip side, POS sales in Brazil were challenged by increased restrictions on mobility, as well as seasonality, resulting in 650,000 new merchant POS sales this quarter, a very solid number, but down from previous quarters despite the record-high volume processed through POSs in Brazil. Online payments grew 139% year over year on an FX-neutral basis. Underlying this growth are two opposing trends.

On one hand, we continue expanding our services to online merchants and SMEs, establishing ourselves as a payment solution of choice for many new online businesses. During the quarter, we maintained our small, mid- and larger-sized merchant acquisition productivity with no indication of volatility in seller churn. On the other hand, long tail sellers that boosted activity during the peak of lockdowns in the region have decreased in volume as economies open and also driven by seasonality. To complete the review of our portfolio of financial services, let me address the growing number of financial solutions for payers offered through our digital wallet.

Total payment volume associated with the wallet on a consolidated basis was $2.9 billion. This represents a deceleration to 192% year over year on an FX-neutral basis. The slowdown was driven by Brazil and Argentina, where diminished government financial aid this quarter negatively impacted growth in total payers on the wallet, while less marketing spend as a percentage of wallet TPV reduced user growth but improved profitability. Although we are pleased to see nearly three times FX-neutral growth in wallet payments volume, our ultimate goal is more ambitious than primarily payments.

Our strategy is to transition from being primarily a digital payments platform to a principal financial services provider. To accomplish this, we are beginning to better balance the investment required for growing the number of payers in our ecosystem with investments in driving higher levels of adoption of our multiple financial services, thus setting the foundation for product diversification toward a more balanced and sustainable revenue and profit mix between payment, credit, insurance and savings tech offerings. To advance this objective of broadening our service offerings within the wallet, we made important product development steps during Q1. On the insurance front, we saw consistent acceleration in our extended warranty product in Brazil, Argentina and Mexico, with solid multi-quarter sequential improvements in sales attach rates.

We also expanded the rollout of theft and damage insurance in Brazil for cellphones, a service that we can cross-sell within our marketplace. Regarding our proprietary cards, we issued 3.8 million more cards this quarter, 2.6 million of those in Brazil. The advantage of these recently rolled out cards is that they can be enabled as hybrid debit and credit cards, and they will be our platform to grow our revolving credit product in the coming months. Our asset management services within the wallet are another example of growth in added financial services, having added over 770,000 new users with invested funds in their wallet accounts during Q1 for a total of over 15 million investment accounts with positive balances.

Finally, incoming deposits into our digital account have increased such that payers with account money have doubled compared to Q1 of last year, potentially confirming the increased intention to engage with the financial services provided in our wallet beyond mainly payments. Consequently, we reached 14 million active wallet users during Q1, similar in number to Q4, while seeing growth in per user engagement as payers are increasing the frequency and value of transactions consistently over time, as well as solid growth in adoption of incremental financial services in the wallet, as I have just described above, service by service. We are still in the early days of our journey of becoming a principal provider of financial services through the wallet, and the initial results are very encouraging. Finally, I'll provide a performance update from Mercado Credito.

In Q1, our portfolio surpassed $575 million, more than doubling our volume versus the same quarter the previous year. During the quarter, we originated over $582 million, and our consumer credit portfolio continues to drive growth in all geographies. This growth has come with increases in NPLs. Specifically, we've seen NPLs increase among a particular segment of users who have found it difficult to service small loans once government financial aid subsidies were removed.

Upon observing this at the beginning of the year, we incorporated these new conditions into our credit scoring models in a timely manner, thus exiting the quarter with improving performance on NPLs. Consequently, notwithstanding this quarterly increase in bad debt in the Brazilian consumer credit books, we remain confident that we will be able to continue growing credit originations with sustained profitability going forward. Let me now move on to a review of our financial progress for the first quarter. I'll begin with consolidated net revenues.

We began 2021 booking the highest net revenue growth rate over the last five quarters. Having reached almost $1.4 billion in revenue, we grew 111% in U.S. dollars and 158% on an FX-neutral basis. At the country level, on an FX-neutral basis, Argentina once again grew above the 200% mark.

Mexico nearly grew 150%. We were encouraged by our Q1 net revenue growth in Brazil of 139%, surpassing the growth rates of previous quarters. Gross profit in Q1 was $591 million at a margin of 43%, decreasing from the 48% recorded in Q1 of 2020, but increasing 6 percentage points sequentially. This trend is explained by our growth and expansion of investments, which support our long-term strategy.

Over the past 12 months, we've expanded our 1P business, booking product costs in our COGS line. In addition, as we continue to roll out our own shipping network and have built more fulfillment centers, shipping operation costs have increased as a proportion of cost over net revenues. For greater detail, and as we do every quarter, we've included a detailed breakdown of these margin effects in the slides accompanying this presentation, along with the opex margin evolution as well. We see efficiencies and scale reflected in our operating expenses compared to last year.

Operating expenses were $500 million in Q1, and we have sustained improved operating leverage. Opex as a percentage of revenues improved 17 percentage points year over year, decreasing from 53% to 36% this year. Between our new sustained net revenue growth and continued investments in developing our brand, user base and logistics capabilities, we reached Q1 of 2021 with positive EBIT dollars compared to a loss in Q1 of last year. Moving down the P&L.

The company incurred $91 million in financial expenses this quarter, turning a very strong EBIT quarter into the red. However, the main driver of this is nonrecurring. We recorded a $49 million charge related to our convertible debt repurchase transaction. We also increased year-over-year tax payments from increased earnings in multiple geographies.

This quarter, we also have a foreign exchange loss of a little over $15 million, primarily from share repurchases carryforward in Argentina at the blue-chip swap rate. Interest income was $25 million, a 32% decrease year over year, resulting from lower interest rates on investments versus the first quarter of 2020. Ultimately, Q1 closed with a net loss of $34 million after tax, yet with an improved net income margin of almost 1 percentage point compared to last year, and more importantly, a return to profitability, if excluding one-off charges. To wrap up, I'll note that we've gotten off to a great start to 2021.

Our top-line growth is very solid, and we have successfully executed our plans to drive incremental EBIT through our financial model. We are still facing trying times in Latin America as the COVID-19 pandemic remains present. We remain immensely grateful to our almost 19,000 employees and collaborators for their continuous commitment to provide financial inclusion and democratization of commerce, while keeping us safe and thriving. As has been the case over the past 12 months, we will keep building toward our goals, elbow to elbow with our community of users throughout Latin America.

Thanks, everyone, for joining this quarterly conference call, and we look forward to keeping you updated on our progress in a few months. With that, we can now take your questions.

Questions & Answers:


Operator

Thank you. [Operator instructions] Our first question comes from the line of Andrew Ruben with Morgan Stanley.

Andrew Ruben -- Morgan Stanley -- Analyst

Hi, thanks very much for taking the question. And congratulations on the results. So my question is on wallet. So the color is very helpful, and the strategy is clear.

And it seems like some less focus on TPV and active payers as the markers have progress. So my question, what metrics are you looking at internally? And what would you suggest investors look at to judge the success and traction of the wallet initiatives more broadly?

Osvaldo Gimenez -- Chief Executive Officer

Andrew, thanks for that question. We continue to look at TPV and active payers. Consequently, if you look at what has happened, I would say, in the last two quarters is, on the one hand, warranted, which has been last year, a step function in growth, slowed down or disappeared mostly in both Brazil and Argentina on the one hand. And then, on the other hand, we also saw that there were lockdowns throughout the countries where we operate.

We decided to invest less aggressively on the marketing side to acquire new users. We decided to save those marketing dollars for later in the year where we hope these countries will be open. On the other hand, I'd say, more and more, we are looking beyond just wallet and toward becoming a more comprehensive financial services platform. And so we have been also focusing more on, for example, debit cards in Brazil.

And now we have just launched credit cards in Brazil so that we have a more significant share in total marketing -- total financial spend of our users, and that has been the focus recently.

Operator

Thank you. Our next question comes from the line of Bob Ford with Bank of America.

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

Thank you. And again, congratulations on the quarter. Just a couple of questions. How are you thinking about your dual hat structure these days? And would combining the two help drive greater wallet activation, frequency and more efficient wallet funding? Or is the cost and speed and size too high a price to pay in the technology base that the consumer has? And then, I recall you beginning to accept bitcoin some time ago in the marketplace and now the treasury move and facilitating real estate transactions in bitcoin.

Can you buy bitcoin with ARS? And how are you thinking about the use of bitcoin, both in general terms and as possibly a store of value for your wallet users?

Pedro Arnt -- Chief Financial Officer

Bob, thanks. So first of all, on the app structure. I think going back to the previous question and to the increased focus on widespread financial services distribution. If you think about that as the ultimate goal and how do we move toward principality in financial services for our users, implied in that is that a lot of the payments functionality should expand.

I think there's a lot in the pipeline in terms of incremental financial services, features and products. So trying to cram all that in into a single UX is not the direction we're going. Having said that, if you look at the numbers, we have around 60 million users on the commerce side that we increasingly cross-sell and try to get them to also download the financial services Pago app. So they're bare-boned payments functionalities in the yellow commerce app.

And increasingly, we will try to drive those users over to the financial services app through cross-linkages through promotions. And that's where we are aggressively focused on expanding the amount of financial services that they use from us. At the end of the day, if you look at long term, the real potential in fintech goes way beyond payments and into the distribution of the other forms of financial services: credit, insurance, asset management, savings, all the products we have, and we are now focused on growing. The crypto question is an interesting one.

The crypto positions that our treasury has been purchasing are not usage of ours. This is U.S. dollars that we are purchasing crypto with. I think this has multiple objectives.

One of them is we've always been long-term thinkers, and we believe this is a good use of long-term store value for our treasury at the right amount and at the prudent amounts. But it's also us making sure that we are quickly moving up the learning curve in terms of understanding crypto and making sure that opportunities that we are sure will arise, we are able to move into them and have a good understanding of what's going on. But this is not a way to purchase or store value of Argentine currency. That's not what we're doing here.

And I think, as a company, we are excited with opportunities that probably will emerge in the fintech world around crypto, and we want to make sure that we are learning and well-versed or as much as we can. And that's, I think, one of the reasons we're doing this from treasury and also other parts of the company.

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

Great. Thank you very much.

Operator

Thank you. And our next question comes from the line of Irma Sgarz with Goldman Sachs.

Irma Sgarz -- Goldman Sachs -- Analyst

Yes, hey, good evening. In your marketing expense line, you had an increase after a couple of quarters of sort of having a relatively flatlined expenses given the environment. What contains channels and geographies would you just call out? And was it more commerce so than fintech, it sounded like it from your prepared remarks, but just wanted to follow up and get a little bit more detail. And connected to that, in the product and developed technology expense line, you've -- obviously, altogether, we're seeing a lot of leverage in expenses, but that expense line was also up quite strongly in the fourth quarter and to a lesser extent.

Now when you think about the breakdown of your product and technology development expenses now for 2021 compared to, let's say, 2018, 2019, where have the main shifts taking place? Thank you.

Pedro Arnt -- Chief Financial Officer

Great, Irma. So on sales and marketing, if you look at the sequential evolution, it was actually seasonally up Q4 to Q3, and then it's up Q1 to Q4 again. That increase is not driven by actual customer acquisition, brand, programmatic, couponing, but it's driven by two other elements within that. One of them is the buyer protection program.

So as TPV grows and also as we have more and more fulfillment blueprint items fulfilled by us, we have a larger coverage and guarantee promise. And those numbers are up about -- that's the biggest driver of the sequential increase. And then, the other one, as is disclosed in the financial statements in greater detail is incremental bad debt on the credit book, but that's also because revenues and originations are growing extremely well. So there's a matching revenue growth from that increase in bad debt, which are the loan loss provisions on the credit book.

The actual underlying branding and customer acquisition costs are down sequentially as one would expect from seasonality. Product developments, I think, continues to be an area of strong investment for us in absolute dollars. It continues to scale year over year from a margin perspective. And the single biggest line item there, obviously, is headcount.

We have a lot of development and a lot of product features on our road map. And so we are aggressively trying to ramp up our engineering team. We're looking to almost more than double actually our engineering teams over last year. We're convinced that that's the right place to be investing long term.

And so I think the combination of significant growth in absolute terms, but still scaling from a margin perspective is a good combination for a tech company. We can continue to invest aggressively in growing the engineering talent pool and still deliver margin expansion.

Irma Sgarz -- Goldman Sachs -- Analyst

Great. Thank you.

Operator

Thank you. And our next question comes from the line of Ravi Jain with HSBC.

Ravi Jain -- HSBC -- Analyst

Just quick two questions. First, I think on e-commerce. Could you give maybe some color around purchase frequency and retention rates, particularly about the cohort that came on to your platform in the last two, three quarters? I mean, I'm trying to figure out how do we look at normalization of growth once you start comping the tougher ones next few quarters. And the second one, probably a little bit more on the fintech, just following up on a couple of previous questions, right? You mentioned that you have lowered the marketing spend and the incremental financial services is what it's gonna drive.

So maybe some color on what are the important features that you think will drive incremental adoption from here. What will take it from 14 million users to a number, let's say, a couple of fold from there? We've seen recent salary portability. Is it that? Is it credit? Some color on what you think would drive adoption will be super helpful. Thank you.

Pedro Arnt -- Chief Financial Officer

OK, great. So let me start with the first one. I think on the cohort number, I don't have it off the top of my head. Obviously, there's a seasonal adaptation if we look at Q4 to Q1 cohorts.

But nothing worrying in the cohort analysis. I think if anything, when we look at the growth of our businesses once we started comping with the COVID last year quarter over the last few weeks, we, obviously, will see a deceleration in the headline growth rate, but sequential evolution continues to be pretty solid across most markets. And so we need to continue to closely monitor this. I think as we rolled into May and June, in some markets, the comps get progressively more difficult.

But so far, when we look at the sequential evolution of growth week-on-week and month on month, there certainly seems to be a good amount of purchases that have moved online throughout the pandemic and that are staying online. Now bear in mind also that a lot of our geographies have gone back into lockdown. And so that also, I think, affects demand patterns. So we might have to look at this over a longer period into Q2 and Q3.

But so far, I would say, encouraging results in terms of how much online purchasing has remained online.

Osvaldo Gimenez -- Chief Executive Officer

Going to the fintech question, Ravi. I'd say that there are several features that we have been building or we are building to increase engagement with our wallet. Some of them are how users can use Mercado Pago to pay in new ways. For example, we launched a couple of quarters ago, our debit card.

And the interesting thing about the debit card is that any Mercado Pago user in Brazil has a virtual debit card. So whenever they have funds in Mercado Pago, they are able to generate a credit card number and use that to pay online anywhere. And if they want, they can add for a plastic, but they cannot pay in online. Also, we will continue to increase the amount of credit lines we offer those users for them to have an extra reason to choose us, to drive the credit use.

And combining those two things, we just launched our credit card in Brazil. So the cards we have launched previously, the debit ones, are hybrid cards, and we can add functionality on top of those, and we have started to do that in April. So whenever we get our users who have both a debit card already with them and also a good score with us, we will be able to offer them a credit line on the same plastic. Then we are working on expanding our savings and investment products.

So far, the only product we offer is the money market in Brazil, Argentina and Mexico, and the plan for this year is to expand the investment offerings that we have in Brazil. Then we will continue to grow our insurance products. So far, extended warranty and theft and damage are the two products we have available, the second one only in Brazil. We are finding new ways to increase adoption of both products.

So there are a few other things that are coming that we have not yet disclosed. But basically, the idea here is to increase the cross-sell among products and to increase the engagement. You mentioned salary portability and WhatsApp integration, those are two things that we have called out recently. Still too early to have results of those.

But what we want to achieve is to gain principality in the use of the Mercado Pago account.

Ravi Jain -- HSBC -- Analyst

Thanks. Super helpful.

Operator

Thank you. And our next question comes from the line of Marcelo Santos with J.P. Morgan.

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

Hi, hello, thanks for taking my questions. I have two. The first is on margins. I want to touch a bit on the question that Irma did.

I wanted to understand a little bit better. You saw a big improvement in margin year over year because of lower marketing. And you also mentioned that you saved a bit on marketing dollars in the fintech because there was a lockdown, so you didn't want to spend the money now. So we saw this very high margin.

Is this a margin that is kind of a little bit boosted because you invest less in marketing and we should see a normalization of this marketing? Or is this could be seen as a normal level that you are having. Just -- that's the first question. And the second question, my perception was that the revenue was very strong, like the monetization was very strong. Could you please comment if there was anything positively impacting monetization, either on fintech or on the e-commerce? Thank you.

Pedro Arnt -- Chief Financial Officer

Great. So look, I think the margin improvement sequentially are driven by more factors than only marketing, but marketing is a significant one. Marketing tends to have somewhat of a seasonal outlay. So obviously, toward the end of the year shopping season, the margin compresses somewhat.

In Q1, I think this year, as we said, was one of marketing pullback. So I don't think you should expect this kind of margin leverage, but I don't think you should assume numbers similar to Q4 of last year either. I think we do look to drive year-on-year leverage off of the marketing expenses. And given how fast our revenue base is growing, we can do that, while at the same time, being extremely competitive in the absolute number of dollars that we are deploying versus the prior year.

There were also improvements, and this is bleeding over to your second question. There were a lot of operational efficiencies on shipping costs. Some of those are COGS, but also some of those are more efficient contra revenues. I remind you that we -- some of our transportation costs are contra revs.

And as that got more efficient into Q1, that's helped revenue growth. When we look at cost per shipment, those have been coming down sequentially across the board in almost all geographies. And that's also, I think, a consequence of good operational efficiency from the logistics team and also the benefits of scale. And then, we've also seen a return to more mix shift on payments of credit card over debit.

Debit was very prevalent throughout a lot of the government aid usage, and credit has better monetization than debit. And so that's reverted back to levels closer to where we are -- were prior to Q3, and that's also helped improve take rate.

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

Perfect. Thank you. Thanks a lot.

Operator

Thank you. Our next question comes from the line of Stephen Ju with Credit Suisse.

Stephen Ju -- Credit Suisse -- Analyst

All right. Thank you. So Pedro, I think you've been looking to add CPG as a more meaningful part of the consumer offering for some time now. So is there anything you can add there in terms of what the increase in this percentage has done for, hopefully, greater velocity of purchase and hence, as an output, maybe customer lifetime value? And second, I think you've been looking to onboard some lower ASP items from sellers in Asia, perhaps with a faster delivery and service offering versus the competition.

So can you give us an update on how that initiative is going? Thank you.

Pedro Arnt -- Chief Financial Officer

Great. So CPG, there is some initial data that points to better engagement and performance across non-CPG categories from users that purchase CPG. So we are beginning to see data that proves out, I think, the thesis of getting involved in high-frequency CPG categories that it does help lifetime values across other categories. Now bear in mind that -- and especially in the early years of the rollout of the CPG product, that, obviously, does come at a cost, right? So even though lifetime values are improving, the incremental CPG sales are done at a much lower margin than other categories until that business reaches scale and becomes a much better margin business.

But I think we continue to focus on growing that and expanding that, and you will see a lot of innovation on our CPG and supermarket front like you have over the past few quarters. We've already announced a couple of high-profile deals with very large retailers across the region to help them move more sales through our CPG channels, supermarkets. And so this is, obviously, a very large TAM category with very high-frequency and one that the data we are seeing, I think, is leading us in the direction of continuing to build this out going forward. CBT, solid growth, very consistent.

We continue to build out more and more sourcing capabilities in Asia. We now have feet in the ground there. We're seeing very strong impact of that in Mexico, for example, where it's relevant. We're also beginning to now focus on sourcing more and more North American merchants because we are seeing good results as we improve products and features, and users are better able to find cross-border listings and offerings on our site.

So again, I think that's another part of our long-term vision is to turn global supply local for our consumers across Latin America, and we will do that by continuing to expand our sourcing efforts, both in Asia but also in North America.

Stephen Ju -- Credit Suisse -- Analyst

Thank you.

Operator

Thank you. Your next question comes from the line of Thiago Macruz with Itau.

Thiago Macruz -- Itau BBA -- Analyst

Hi, guys. Well, we continue to see a massive activity user growth year over year in Brazil and above competition, even though you're the market leader by a mile. So I was wondering if you had to list in order of importance the top three endorsement factors that are supporting is growth, what would you list? What would you say? Thank you.

Pedro Arnt -- Chief Financial Officer

Sorry. We just want to make sure we got your question, it cut off a little bit. Can you repeat the back end of the question, please?

Thiago Macruz -- Itau BBA -- Analyst

Absolutely. I was just wondering if you had to list the most important factors that are supporting your active user growth in Brazil, indigenous ones, what would it be?

Pedro Arnt -- Chief Financial Officer

Sure. So first of all, I think clearly, on the commerce side, there has been significant uplift in consumers purchasing online and engaging with our platform, initially driven by the pandemic. I think for MELI, the fact that so many users were driven to our platform in the early days of the pandemic and realize that the logistics capabilities we had built out over the previous years really were incredibly efficient, both in terms of the expansiveness of free shipping, but also service levels were fantastic for us. I think had this happened two or three years earlier where our logistics build out had not been where it was, we would have had a very different capability to retain a lot of these new cohorts of users.

So I think clearly, pandemic-driven initial trial or users who had lapsed and then returned to the platform and realize that the overall user experience was dramatically different from either what they anticipated or what they had experienced in the past has been a very, very important driver of growth. And we see that also with the evolution of Net Promoter Scores and the fact that despite the huge surge in volume, our delivery times have consistently improved sequentially quarter on quarter, and the amount of free shipping has expanded. You might have realized in Q1, we lowered the threshold for free shipping in Brazil to BRL 79. So really, MELI has by far the most expansive free shipping program, I think, of online retailers in Brazil.

Osvaldo Gimenez -- Chief Executive Officer

And then, on the fintech side of the business, I would say that drivers have been a little bit different in each of the verticals. Basically, if you want, online payments have been sort of in sync in the marketplace where the shift toward e-commerce has benefited the merchant services business. Then somehow countercyclical has been MPOS, where we saw a little bit of a slowdown when there was less traffic to stores. Nonetheless, I would say that our shift upmarket enables us to reaccelerate growth in the last couple of quarters, and that has been significant in terms of TPV.

And I think we have already discussed the wallet.

Thiago Macruz -- Itau BBA -- Analyst

Thanks, guys. Thank you.

Operator

Thank you. And our next question comes from the line of Soomit Datta with New Street Research.

Soomit Datta -- New Street Advisors -- Analyst

Hi, guys. Two quick questions, please. One on commerce and one on fintech. Just on the commerce side, do you mind giving us, please, an update on what you're seeing specifically on the competitive side from Shopee? There's been quite a bit of noise about their presence in the Brazilian market potential to expand into Mexico.

I just wondered, I mean, that kind of seemed to coincide with the drop in free shipping to BRL 79. I wonder, was that a response to the competition? Or was that just part of the ongoing business kind of thinking? And then, next, please, just on fintech. Sorry to go back to the wallet again. I just wanted to double check.

My sort of sense was always get usability on the wallet. And use the wallet to then layer on financial services. Should we now be thinking actually that the models shifted slightly and actually, yes, we'll look to sell financial services, but maybe it'll be more focused outside of the wallet going forward? Thank you.

Pedro Arnt -- Chief Financial Officer

Great. So we don't comment on specific competitors. I think as a whole, given the size of the opportunity of commerce and fintech in Latin America, the fastest-growing e-commerce region in the world right now, obviously, there will be competitors. We've always tried to observe and learn from our competitors.

And if things that they are doing better, we can replicate, we will replicate. But no, we didn't lower free shipping as a response to a specific competitor. We've done that across the board in different geographies. We've been doing that consistently over time.

And the vision has always been that as we gain efficiencies from scale and from operational efficiency, we will allow some of those improvements to drop to the bottom line, and we will return some of those to our consumers in the form of more free shipping, which generates a tremendous flywheel. And I think the combination of logistics efficiency and free shipping that we have today across the region is really unrivaled at the regional level. Continuing to add wallet users is a very important part of the strategy. We're not trying to say that that's not the case.

And the wallet continues to be a fundamental distribution channel as our payments to attract users to then cross-sell other financial services. I think what we're trying to say here is that massively acquiring wallet users, if then you are not also investing and focusing in cross-selling other financial services, is not really the long-term strategic blueprint that we've set for ourselves. So we need to increasingly find the balance between, yes, acquiring as many users as we can as fast as we can, but also making sure that those users we are acquiring are interested, and we are able to cross-sell other services to us. So I think Andrew's question at the beginning in a way encapsulates the way we're managing the business, which is number of payers as a KPI is probably still very important if we can also deliver on number of users of asset management, number of users of credit, number of users of Insurtech and the other products that are, obviously, the higher-margin products and the more interesting from the long run.

So wallet users is still core to our strategy, but increasingly more balanced with also consistent cross-selling into that user base of the other better margin financial products.

Soomit Datta -- New Street Advisors -- Analyst

That's very clear. Thank you.

Operator

Thank you. And our next question comes from the line of Deepak Mathivanan with Wolfe Research.

Deepak Mathivanan -- Wolfe Research -- Analyst

Hey, guys, thanks for taking the questions. Just a couple of quick ones. Sorry, if they were asked already. I've been jumping around a couple of calls.

So Pedro, can you talk about how big the first-party business was on e-commerce during 1Q? And then, where do you expect it to reach for the rest of the year? Is the margin profile of 1P kind of at a place where you want it to be? Or is there opportunities to improve that as well? And then, the second question. Can you provide some color on April trends on e-commerce? Obviously, the COVID situation in LatAm is very volatile. But what are you seeing in terms of kind of relative consumer behavior, maybe in countries where vaccination rates are over-indexing with respect to the average? Thank you.

Pedro Arnt -- Chief Financial Officer

Deepak, thanks. Look, so we've improved disclosure on 1P, and you now have 1P revenues broken out in the P&L as a revenue line. It was slightly below $150 million, but you'll have that now consistently as the rule requires. Margin-wise, there is ample room for margin improvement in the 1P business going forward.

This is still a relatively small business, where there are improvements in pure product margins as we drive more purchasing scale and also significant improvements as we become more efficient in the operation overall. So I would say that we are investing in this business now and that the margin structure, the way it looks today is not at all where we envision and are confident we can get it to look into next year and beyond. Very quickly, I touched upon this already. But I think in general, we still need to be cautious and wait.

The comps get progressively more difficult in some markets into May and June. But so far, in general, I think the trends we've seen for most markets are encouraging. We continue to see sequential growth in our business in line with what we had been seeing at the beginning of the year. So even if the year-on-year growth rates decline, the sequential increases, which is really what you should be looking at have not indicated in any way that consumers are massively moving back offline as soon as they can. I think we've offered enough of a compelling value proposition, but a lot of that demand seems to be sticking.

And like I said before, also bear in mind that lockdowns have been extended or reinstated in many of our markets. So that also is still impacting demand patterns.

Deepak Mathivanan -- Wolfe Research -- Analyst

Got it. That's very helpful. Thanks, Pedro.

Operator

Thank you. And our next question comes from the line of Jamie Friedman with Susquehanna.

Jamie Friedman -- Susquehanna International Group -- Analyst

Pedro, in your prepared remarks, you -- I thought you had said something to the effect that you had seen a slowdown in some volumes in the long-tail sellers as economies reopened. I may have misheard you, but if that's the case, could you elaborate on that one? And then, I'll just ask the other one upfront. In a previous answer, Pedro, you mentioned sourcing more North American merchants. And I'm just wondering, is that where PayPal comes in? Or am I thinking about that the wrong way?

Osvaldo Gimenez -- Chief Executive Officer

Jamie, with regard to the long tail, what we had seen last year was that there were many lockdowns, many small retailers that were using payment link mostly related to delivery. And as there was a greater opening of the economy in Latin America, some of that volume slowed down. But beyond that, we continue to see very strong growth in long tail in POS. So it was mostly in the online payments business related to payment link because of the increase.

Pedro Arnt -- Chief Financial Officer

My remarks on sourcing North American merchants is not related to PayPal. We have seen better results and good product development and user experience in our cross-border efforts. Those efforts so far had primarily focused on sourcing product from Asian merchants. We believe that there is significant inventory in North America that's attractive to users throughout Latin America and not necessarily available.

And so we are moving into that second pocket of global inventory that we think is interesting for our user base throughout Latin America by sourcing directly ourselves and having feet on the street in the U.S. and Canada. But no, this doesn't refer to any specific initiative with PayPal.

Jamie Friedman -- Susquehanna International Group -- Analyst

Got it. Thank you. I'll jump back in the queue.

Operator

Thank you. Your next question comes from the line of Marvin Fong with BTIG.

Marvin Fong -- BTIG -- Analyst

Yes. Hi, thanks for taking my questions. Just two quick ones on fintech. I just wanted to follow up on the 11 million collector number.

I was just reviewing the notes from last quarter, and I think you guys said it was 6 million in the fourth quarter. So just wanted to check to see if that was correct. And if so, what explains the pretty dramatic increase in collectors. But just potentially, in general, could you comment on how your trends are going in terms of adding collectors to the ecosystem? And then, my next question, just on the credit portfolio, the amount outstanding didn't seem to increase as much at quarter end, as we saw last quarter, even though originations was actually greater, still above $500 million.

So the question is, are we seeing any change in sort of the dynamics with borrowers paying back? Anything to call out there, that would be great to provide some insight there.

Pedro Arnt -- Chief Financial Officer

Great. So on collectors, let me just briefly recap the sequencing for you. 11 million is the number of collectors off the MELI marketplace, right? So we exclude MELI merchants, to give you a number of users that are merchants receiving payments through us or P2P people receiving payments. That number is up about 77% year on year.

But if we look at Q4, which is seasonally very strong, it was actually higher than 11 million. It was closer -- slightly below 12 million. So again, nearly 80% growth year on year, but sequentially as expected due to seasonality, down. So I'm not sure what the 6 million number could be.

Maybe it's another data point.

Osvaldo Gimenez -- Chief Executive Officer

Then with regard to the credit portfolio, if I got the question right, it was the relation between the growth in terms of originations and in terms of growth in the overall credit portfolio. Originations grew in the quarter 10% sequentially quarter on quarter. There were $527 million in last quarter and $582 million this quarter. And then, the overall credit portfolio grew 16% from $452 million to $526 million.

But in general, the duration of our portfolio is pretty short, mostly because a big part of that is consumer loans, it typically are for four months. So the growth of quarter on quarter of origination is pretty much in line with the growth in the overall effect.

Marvin Fong -- BTIG -- Analyst

Great. Thank you for clarifying that. Thank you. Appreciate it.

Operator

[Operator signoff]

Duration: 67 minutes

Call participants:

Lissa Schreurs -- Investor Relations Officer

Pedro Arnt -- Chief Financial Officer

Andrew Ruben -- Morgan Stanley -- Analyst

Osvaldo Gimenez -- Chief Executive Officer

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

Irma Sgarz -- Goldman Sachs -- Analyst

Ravi Jain -- HSBC -- Analyst

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

Stephen Ju -- Credit Suisse -- Analyst

Thiago Macruz -- Itau BBA -- Analyst

Soomit Datta -- New Street Advisors -- Analyst

Deepak Mathivanan -- Wolfe Research -- Analyst

Jamie Friedman -- Susquehanna International Group -- Analyst

Marvin Fong -- BTIG -- Analyst

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