MercadoLibre (MELI) Q4 2022 Earnings Call Transcript

MercadoLibre (MELI 2.42%)
Q4 2022 Earnings Call
Feb 23, 2023, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Richard Cathcart

Hello, everyone, and welcome to the MercadoLibre earnings conference call for the quarter ended December 31st, 2022. Thank you for joining us. I am Richard Cathcart, investor relations officer at MercadoLibre. Today we will share our quarterly highlights on video, after which we will begin our live Q&A session with our chief financial officer, Pedro Arnt; and president of our fintech business, Osvaldo Gimenez.

Before we go on to discuss our results of the fourth quarter of 2022, I remind you that management may make, and this presentation may contain, forward-looking statements, so please refer to the disclaimer on screen, which will also be available on our earnings materials on our investor relations website and our Form 10-K for the year ended 2022. With that, let's begin with a summary of our results.

Pedro Arnt -- Chief Financial Officer

Hi, everyone. I'm happy to share the key messages about MercadoLibre's performance during the fourth quarter of 2022 and the year as a whole. We're particularly pleased to have been able to deliver an attractive combination of growth and profitability throughout the year, alongside strong operational KPIs and market share gains, all while sustaining a high level of investment in products and technologies. We've successfully navigated a challenging environment, and we've reached new records across the business despite uncertainty around consumer spending, interest rates, and inflation.

With a strong fourth quarter, we end 2022 with record results in GMV, TPV, items shipped, and net revenue, as well as EBIT. Revenues, for example, for the first time ever, surpassed the $10 billion mark for the year. Quite a milestone for our company. EBIT also came in at a new landmark level, surpassing $1 billion while delivering margin expansion.

And, perhaps, even more unique is the combination of record EBIT and margin expansion while still growing revenues at roughly 50% year on year. During 2022, MercadoLibre strengthened its leadership of the e-commerce market in Latin America, as our data indicates that we achieved market share gains across the entire region with Brazil and Mexico standing out. These market share gains are grounded in our consistent investment and execution around all aspects of our commerce value prop and also over an extended period of time. Our ability to offer a very broad product assortment from sellers of all sizes at competitive prices and with fast deliveries continues to be a key differentiator for the company.

The profitability of our commerce business also improved substantially year on year during the fourth quarter, helped by the expansion of Mercado Ads revenues, better management of promotional budgets, a healthier margin on 1P merchandise sales, and the continued overall scaling of our business. Development of technology for Mercado Ads has been a major focus during 2022, increasing presence of ads and their monetization as well. Ads penetration, for example, grew another 10 basis points in the fourth quarter despite strong growth of GMV while maintaining its attractive EBIT margins. We still see plenty of opportunities for ads growth ahead of us as we continue to improve technology to better serve our advertisers.

2022 was also a fantastic year for Mercado Pago, with TPV growth exceeding our expectations while delivering take rate expansion on a year-over-year basis. On the acquiring business, first of all, we maintained our strong growth and margin performance, driven by QR payments and our POS business in Brazil, Mexico and Chile. On the other side of Pago, the digital accounts business, both payments and cards TPV continued to grow at triple digits in 2022, highlighting the traction in becoming the digital account of choice of our users. Mercado Credito performed well in the fourth quarter once again and in the year as a whole, positively contributing to our profit growth despite tougher economic conditions.

Throughout the year, we were able to manage the performance of our book closely and adjust to the changing realities. These effective risk controls resulted in record profits. We remain optimistic about the positive ecosystemic effects of Mercado Credito as well going forward. 2022 has been a year of adjustments on the other hand for the credit card product.

But with improvements to the underwriting models, we've seen a much improved performance from the most recent cohorts on the credit cards. That leaves us encouraged by the performance of that product, which will remain a key element of the wider Mercado Pago value proposition and strategy going forward. All of these credit products complement our wider Mercado Pago offering, for which 2022 has been an important year in terms of broadening the scope of financial services we're able to offer. We think we now have a product stack in place that is sufficient to meet our users' core day-to-day needs, which will enable us to accelerate our efforts to achieve principality within that user base.

All of these strong results have been made possible by top-notch execution from the team and discipline in leveraging our scale to deliver continued cost dilution. You have a much more detailed review of all of these fourth quarter operational and financial results made available to you both in our shareholder letter and also presentation, which are published on our investor relations website. With that, before turning to the live Q&A section, I'd like to hand it back to Richard to go through some of the latest business and product updates of the quarter and year. Thank you.

Richard Cathcart

2022 was another important year for investments in technology at MercadoLibre. And today, we want to share some of the key impacts that these investments have delivered to our ecosystem as we continue on our mission to democratize commerce and financial services in Latin America. We're now able to offer a full stack of day-to-day financial services and products to our millions of Mercado Pago users after 18 months of intense technology deployment. We are leveraging our data in order to cross-sell new products and services to our users.

Users of our digital account and have access to debit and credit cards, along with QR code payments and online transfers, making Mercado Pago more useful for their day-to-day needs. This is an important step in building toward achieving principality. Mercado Pago also offer saving buckets dedicated to our users' specific objectives, and they are able to choose from different risk profiles with a minimum investment of just 1 real in Brazil. Users can now also make investments in a quick and simple process by the Mercado Pago app.

This includes banking deposit certificates from our financial institution with a fixed rate and, more recently, users in Brazil have access to three simple investment funds. Mercado Pago also offers different insurance options to suit our users' needs with life, personal accident, and online transactions insurance. This offers protection against uncertainties that many of our customers may face in their daily lives. Now, with a complete product stack, Mercado Pago is well positioned to become a leading financial services provider in the region, enabling us to foster financial inclusion across the region.

Our commerce platform currently serves millions of buyers and sellers. By offering a world-class experience, we've surpassed the mark of 1.1 billion items sold in 2022. We are investing in technology to continue to improve the online shopping experience of our users as we believe this will drive more retail spend online, particularly in categories where e-commerce penetration is low. We deployed improvements to several categories in 2022, including home decor, fashion and beauty, and auto parts.

For example, in the auto parts category, we have simplified the search and filters in order to create a more specialist experience, while in the home and decor category, we've further developed our discovery-led navigation experience. New features have enabled sellers to promote their products in different formats. Short videos recorded by sellers to promote their products have reached millions of monthly views. And improvements in our advertising fuel have increased the presence of out in product pages.

MercadoLibre continues to have the fastest delivery times in all of our key geographies. We're also investing in technology to improve the efficiency of our logistics network. And in 2022, we were able to deliver significant improvements in the productivity of our fulfillment centers, which means that even with a higher penetration of fulfillment deliveries, our overall net shipping cost as a percentage of GMV remained broadly flat year on year. Our Meli Places network grew to over 7,000 locations, with over half of the returns already done through places.

These returns have a higher NPS than other options, such as the local postal service. For buyers that choose to pick their items up from the Meli Places network, the NPS is the same as the deliveries made to the buyer's homes. We also delivered improvements in lead times with the Meli Air operations reducing over one day in lead times as well as optimizing costs. We ended 2022 with a stronger ecosystem and great opportunities ahead of us, and we are as confident as ever that the best is yet to come.

Questions & Answers:

Operator

[Operator instructions] And our first question comes from Andrew Ruben from Morgan Stanley. Your line is now open.

Andrew Ruben -- Morgan Stanley -- Analyst

Hi, thanks very much for the question and the detail. You made a comment in the release about operating in a fast-changing competitive landscape in Brazil. I'm curious if you could elaborate and specifically in that type of competitive environment, as you run your business, what changes and what doesn't? Thank you.

Pedro Arnt -- Chief Financial Officer

Hi, Andrew. So, in general, I think the area we operate in, both consumer commerce and fintech and specifically the technology areas, are low barrier of entry, high competitive markets which generate extremely dynamic market situations and structures. And I think one of our characteristics over the last 20 years has been speed to adapt and speed to change course, while at the same time, having a very clearly defined long-term focused strategy. And that's what we consistently refer to when we talk about how dynamic this is.

Our long-term vision for what we're building is very consistent. The areas we focus on, our consumers, our merchants. The quality of our products and our technology has remained incredibly consistent over time. And tactically, we try to adapt very quickly to changing market dynamics, to changing technological dynamics and consumer habits.

And we think that we've served our consumers and shareholders well because of that speed of adaptation that we've built into our culture and how we operate.

Andrew Ruben -- Morgan Stanley -- Analyst

Great. Thank you. And if I could just follow up quickly, in terms of how you're thinking about the 1P business. I know it was an area that slowed down a bit in the past year, but you've talked about a greater opportunity over time.

Any updated thoughts about how you're feeling about that business, the economics, etc.? Thank you.

Pedro Arnt -- Chief Financial Officer

So, we've continued to see improvements, first and foremost, in capabilities, how we operate the technology that we've built in-house to run that business in terms of pricing, buying, and promoting. And a consequence of those improvements and capabilities has been improved PPMs and better economics coming out of the 1P business. So, that bodes well in terms of our expectations going forward for the 1P business and that we feel we are closer and closer to the point where the combination of capabilities and also what those P&Ls look like allow us to reaccelerate that business again sometime over the next few quarters.

Andrew Ruben -- Morgan Stanley -- Analyst

Very helpful. Thank you.

Operator

Thank you. And one moment for our next question. And our next question comes from Irma Sgarz from Goldman Sachs. Your line is now open.

Irma Sgarz -- Goldman Sachs -- Analyst

Yeah, thanks for the opportunity. The capex for the year came in just a bit lower -- actually quite a bit lower than we had maybe imagined at the outset of the year. And obviously, no negative impact to the overall results there. But I was just trying to think a little bit how you would characterize maybe the path for capex going forward, just what you still have to deploy specifically on the fulfillment of the technology side within those fulfillment centers and automation equipment, etc., as you take your logistics network to the next level? And then, shifting to payments, in the release, you point to share gains that you've been driving in the MPOS business in Brazil as you've been shifting little bit more upmarket.

Can you talk about what -- how your offering is different from the competitors and how crowded you see that space and, as a function of that, sort of how you're seeing how you're thinking about room for pricing adjustments and how you expect churn to develop?

Pedro Arnt -- Chief Financial Officer

Hi, Irma. So, let me take the capex one first. If you look at the cash profile that we delivered both in the fourth quarter and full year 2022, I think '22 was a stellar year in many aspects. Cash generation was one of them, both from an operational cash flow, but also some of the disclosures we offer in the PowerPoint around available cash and change in free cash generation.

Part of that cash generation was because we are operating close to peak utilization in some of our geographies in terms of our logistics and capex -- logistics fulfillment centers and sortation centers. So, we do anticipate some incremental investments when we look at '23 versus '22 in terms of capex, primarily on the logistics front as we build incremental capacity that we are needing in some markets, primarily in Mexico. In terms of the other big capex item, which is developers and capitalized product development, I think what you're seeing going forward is a bit of a slowdown in the pace of net new adds of developers. I think we're still going against most others in that we continue to hire, but probably at a somewhat more measured pace than we had been adding engineers over the past few years.

So, that will also, in a way, generate a lower cadence of capitalized R&D when we look into the future years. But net-net, '23 should come in higher than '22 did in terms of capex, at least, as we see it right now.

Irma Sgarz -- Goldman Sachs -- Analyst

OK. Thank you.

Osvaldo Gimenez -- Chief Executive Officer of Mercado Pago

With regards to the payment question regarding our POS and our move up market in Brazil, in Brazil and in all of the regions, it's something we are very excited about. When we look at how we have been able to grow TPV. It's not because we are selling a whole lot more devices than we were a year ago, but rather because we have been able to significantly increase the TPV per device. And this has been driven by rolling out and deploying larger -- pulling out products that we believe are more robust that have better connectivity, better approval rates, and better NPS than we had in the past.

And that is recognized by some of our users. And so, what we are seeing is a significant increase in TPV per device. And also, we are deploying a larger sales force than we did in the past. Most of it is a third-party, sales force is not our own.

But nonetheless, they enable us to scale in the SMB segment.

Irma Sgarz -- Goldman Sachs -- Analyst

Thank you.

Operator

And thank you. And one moment for our next question. And our next question comes from Marcelo Santos from JPMorgan. Your line is now open.

Marcelo Santos -- JPMorgan Chase and Company -- Analyst

Hi, good evening. Thanks for taking my question. Hope you can hear me. The question is about the provisioning on the credit business.

I think in the presentation, you mentioned that the provisioning went down partially because of better credit quality. Does this mean that you reduce the amount that you provision for -- in terms of like late, past due payments? So, I think in the previous quarter, you showed a range of how much you provision per cohort. Did that change because you improved the quality, or it didn't change? Thank you.

Osvaldo Gimenez -- Chief Executive Officer of Mercado Pago

Hi, Marcelo. I think -- let me describe in more detail what has happened over the last few quarters. As you recall, during the second quarter toward the end of the second quarter, as we saw, the market conditions were worsening. We decided to be more restrictive and to lower our exposure to higher-risk segments.

That has been the case for the third and fourth quarter, where, in each of the countries and each of the businesses, we lower our exposure to the higher risk segment. As a consequence of that, we had lower NPLs, and that reduction in NPLs drove a reduction in provisions. But nonetheless, as we are originating loans that are less risky, the new provisions have slowed down proportionally. Nonetheless, they accurately reflect our best estimate of what the risk is.

So, we are comfortable with the level of provisions we have. It's just reflecting an improvement in the risk we are taking.

Operator

And thank you. And one moment for our next question. And our next question comes from Robert Ford from Bank of America. Your line is now open.

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

Thank you very much. Hey, Pedro, Osvaldo, Richard. Congratulations on the quarter. And thanks for taking my question.

Pedro, how are you thinking about the disruption to our relative competitive advantage and near-term market share opportunities? And is that dislocation having any impact on the promotional support from suppliers in 1P categories?

Pedro Arnt -- Chief Financial Officer

Hi, Bob. Thanks. So, in a way, it's a continuation of the answer to Andrew's question at the beginning. Our strategy has never been driven by what competitors are doing or not doing, but much more focused on what we're doing and our consumers.

On a tactical level, I think if there are market share opportunities that become available, then without changing strategy, we will see how we can potentially lean into those and try to take advantage and gain some of those shares, or gain some of those share gains that are being lost potentially by our competitors. So, we are seeing the market being disrupted in some ways positive, in some ways negative. And we do have short-term tactical plans to see how we can potentially take advantage of that. But again, I think much more importantly, from a strategy perspective from the business lines that we're trying to develop, nothing changes as a consequence of what might or might not happen going forward with [Inaudible].

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

That makes sense. And in terms of the ad business, can you provide a little bit more color in terms of the incremental functionality on the ad server and the demand-side platform, as well as any expected timing of improvements?

Pedro Arnt -- Chief Financial Officer

Yeah. So, I think over the last probably two or three quarters, we've been very consistent about talking about the new product deployment and how we've accelerated our focus and investments on technology and ad tech business. We've doubled the engineering headcount there in probably half a year. We also, I think, have been very consistent in saying that between the product launches and the technology improvements and when we actually see the results coming in, there is a lag, and it's hard for us to predict how long that lag might take.

And so we'll need to see how that plays out throughout most of this year. We've continued to push significant product enhancements in the advertising business in Q4 and into the beginning of '23. And so, we remain optimistic about eventually being able to reap the returns of those improved investments in the ad stack. And hopefully, we'll be able to report something over the next few quarters.

We continue to see constant penetration gains from advertising revenues as a percentage of GMV, and that continues to be one of the most attractive revenue streams when we look at the margin structure there. So, I guess we all are very focused on this, and let's keep you posted as we go forward into the year and how the results begin to flow in.

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

Yeah, I will look forward to it. Thank you very much.

Operator

And thank you. And one moment for our next question. And our next question comes from Thiago Macruz from Itau. Your line is now open.

Thiago Macruz -- Itau BBA -- Analyst

Hi, guys. First, congratulations on the quarter. Two questions from us. First, regarding the Mercado Credito business, I think that achieving a lower cost of funding is key here.

And I just want to understand if that is entirely dependent on the e-wallet, reaching further users and principality, or if there's another avenue to that end? And a follow-up on the ads question, just a few minutes ago, is it fair to say that technology is not a restriction for the marginal growth of the business and rather generating further demand by eventually showcasing the economics of what you guys are offering from the seller standpoint? Those are my two questions. Thank you.

Osvaldo Gimenez -- Chief Executive Officer of Mercado Pago

Hi, Thiago. I would say we have started to grow the CDBs we offer to users. And we, in the past, used to do this through third parties. And it's something that we have done more and more throughout the -- since we launched in the fourth quarter.

Still, I don't I think it had yet relevant impact in the overall cost of funding because we are paying -- since we are promoting the growth of CDBs at Mercado Pago, the cost we have is similar to the one we are getting from third parties. But as we expand this, this could be relevant in the future. But so far, I think it's still early days of our funding with CDBs.

Operator

And thank you. And one moment for our next question.

Pedro Arnt -- Chief Financial Officer

Sorry, one second. There was a second part to the previous question. On the ads piece, Thiago, if I understood the question correctly, we do think that technology is not just a nice to have or an additional benefit. It is a core necessity of being able to scale out the advertising business and have it reach the long-term size that we would like to reach.

So, the improvements we've made in terms of incremental positions and inventory for advertising -- the improvements in the ad server technology that delivers display advertising throughout the platform: the launch of a self-service DSP platform for ad displays; the improvements in self-service reporting for advertisers to be able to see their results in near real time and react to that quickly; and, equally important, the ability to better target audiences within the -- so all of the focus in terms of technology over the last few quarters probably begins to put us on equal footing with some of the largest and most successful technology platforms, whereas, before, we simply weren't there. So, this really is, I would say, a necessity to have launched this technology and get it right. We're very encouraged by the fact that it's now out there. And hopefully, we'll see over the course of the year adoption of all these different pieces of the stack deliver the kind of results that we [Technical Difficulty].

Thiago Macruz -- Itau BBA -- Analyst

Fantastic. Thanks, guys.

Operator

And thank you. And one moment for our next question. And our next question comes from Geoffrey Elliott from Autonomous. Your line is now open.

Geoffrey Elliott -- Autonomous Research -- Analyst

Hello, thanks very much for taking the question. The release talks about a sequential increase in fulfillment penetration, looks like in Brazil, Mexico, Chile, kind of across the board. Can you give us a bit more detail on that and update on where we stand on charging for fulfillment? Thank you.

Pedro Arnt -- Chief Financial Officer

So, in terms of the model, we charge for both rental space, and we charge for inventory that doesn't rotate quickly enough and generates inefficiencies in terms of floor space. What we've been saying over the last few quarters is that we have dual objectives of introducing monetization behind fulfillment yet at the same time, still push adoption and usage of that service primarily outside of Mexico to Mexico-like levels, or in the direction of Mexico-like levels. And in a way, those two levers are opposing levers. And so, we've introduced the full model, but we've kept pricing relatively low.

If you look at the fourth quarter results, the monetization overall in the logistics operation in Mercado Envios was actually higher. So, we have gradually been dialing up monetization around the cost side of logistics services, in part to offset cost increases and also in part to better reflect the services we're offering. But it's still being done so at a very gradual pace. Again, repeating myself, bearing in mind that we still need to drive significant penetration growth in fulfillment, primarily in Brazil, Chile, Colombia, and Argentina that are still 20-plus percentage points behind Mexico in terms of adoption.

So, it will be a very gradual and steady process -- it will be a gradual and consistent process over the next many years. But I wouldn't expect any significant step functions in terms of monetization, not anytime in the near future at least.

Geoffrey Elliott -- Autonomous Research -- Analyst

Great. Thank you.

Operator

And thank you. And one moment for our next question. And our next question comes from Jamie Friedman from Susquehanna International Group. Your line is now open.

Jamie Friedman -- Susquehanna International Group -- Analyst

Hi. Thank you for taking my questions. So, for Pedro or Osvaldo, two questions to just ask upfront. How should we be thinking about the journey in the TPV between on- and off-platform? What would it -- I mean, obviously, the off-platform number is great.

What would it take to get even more ubiquitous acceptance off? That's the first one, like the journey on -- especially off-platform. And then, in terms of the [Inaudible] what is the current messaging strategy of the company? Previously, for Credito, I thought that the goal was to syndicate more and more of the credit. Is that still the approach? Or would you be comfortable if credit quality improved, profitability was great today, take it some more on balance sheet? Those are my two questions. Thank you.

Osvaldo Gimenez -- Chief Executive Officer of Mercado Pago

Hi, Jamie. Let me start with the first one regarding TPV. I think that we are very happy with how TPV off-platform has been evolving. TPV on-platform basically now already tracks the gross merchandise volume we do in the marketplace.

We're already at 100%. We have been at 100% for a long time. So, that tracks e-commerce marketplace growth. And with regards to TPV off-platform, I think there are several avenues for growth there.

Probably the one that we have seen growth the most over the last few years is in Mexico and Brazil is the POS volume, which is growing nicely. And Argentina has been more related to the wallet, which is also growing very strongly. There's also online payment, but online payments then is growing at a lower pace than in-store basically because we already have a larger share online than we have in store and because, still, in Latin America, e-commerce or online payments is a relatively small fraction of total retail. The second one is -- I'm not sure I got it right.

If you can repeat, that would be great, regarding the funding for Mercado Credito.

Jamie Friedman -- Susquehanna International Group -- Analyst

So, my understanding [Inaudible] it's on a dollar of origination, $0.60, say, go -- I may mess this up, I'm sorry, goes through the syndication of the [Inaudible] -- and then 50/50. First 100, you own, the next 100 gets syndicated out. My understanding was you were trying to push more through the [Inaudible] when credit was deteriorating. But now, credit looks like it's improving.

So, I'm just trying to figure out would you balance sheet more of Credito.

Pedro Arnt -- Chief Financial Officer

So, no, the strategy remains unchanged. We continue, given the potential size of our credit books, to increase the amount of the [Inaudible] so that we can off balance sheet the incremental growth that should come through while still retaining a subordinate tranche, which has been very profitable for us so far. So, the additional funding source that is becoming potentially more relevant going forward are the CDBs that Osvaldo mentioned in a previous question. So, when we think of the capital structure around the credit business, there will be our own equity investments, the [Inaudible] or the warehouses that should be growing with relationship to the equity piece.

And then the third piece is taking advantage of the CDBs that we can now distribute ourselves in our own digital wallets, in addition to doing so through banking partnerships as we had been in the past as the third very relevant window in terms of capital structure for the credit business. The CDBs, in a way, start to emulate not from a regulatory perspective, but from a business perspective, what a savings account potentially looks like, although at a higher cost. But it's essentially allowing our own users to have a savings product that's CDB that at the same time is efficient funding source for us.

Jamie Friedman -- Susquehanna International Group -- Analyst

Perfect. Thank you, both.

Operator

And thank you. And one moment for our next question. And our next question comes from Marvin Fong from BTIG. Your line is now open.

Marvin Fong -- BTIG -- Analyst

Good evening. Thanks for taking my questions, and congratulations also on the quarter. Two questions from me. So, first one on Credito.

Just at a high level, obviously, the profitability has become very strong, and you've gotten more conservative with your underwriting. Just curious on how you're thinking about the extension of credit and growing -- returning to growing the book a little bit more aggressively? In other words, are you waiting for the macro environment to get a little more favorable? Or do you believe that Credito is in such a strong position that maybe you can start kind of leveraging that strength to extend credit a little more aggressively? And then second question, I saw on the e-commerce side that you partnered with Carrefour for delivering groceries. Just curious if you could kind of expand a little bit more on your strategy with grocery. Should we take this as a sign that you made a definitive decision to proceed with grocery and partnerships and you're not interested in handling that on a 1P basis? Thank you.

Osvaldo Gimenez -- Chief Executive Officer of Mercado Pago

Hi, Marvin. Let me start with the first one. And with regards to the outlook from credit, I'd say that as we -- as you mentioned, over the last couple of quarters, as we saw market conditions worsened, we decided to be more cautious on the risk we're willing to take. And also, we decided to price our lines more expensively to make sure we had a better spread to be on the safe side.

What ended up happening where that collections were better than we expected, and we ended up with very healthy spreads. Now, we'll see when we deem that market conditions are improving. And when that is the case, probably, it will be again more aggressive. And as we become more aggressive, probably, we will allow for some compression in spreads.

But we will be very dynamically and flexible regarding how we see the market evolving. Could you please repeat the second part of the question? I think I lost you.

Marvin Fong -- BTIG -- Analyst

I believe you guys had entered into a distribution partnership on grocery with Carrefour in Brazil. I was just wondering if you could kind of expand on that and your -- how you're thinking about grocery right now?

Pedro Arnt -- Chief Financial Officer

Great. So, we have a 3P partnership with Carrefour, meaning that they will be a merchant on our platform. I think they can bring very necessary and welcome head assortment to the CPG and supermarket category for us. Ideally, they are a key partner in terms of groceries as we experiment with that part of the supermarket offering, which is always one of the most challenging ones.

And the model is one where their inventory will be sent to our fulfillment centers, and we will be able to deliver that through fulfilled by MELI which is always, from a consumer perspective, the best user experience, the one where we have greatest control over logistics and the entire end-to-end purchasing process. So, it's within the context of our continuous experimentation within supermarket. Again, I think we've continued to see improving economics within that subcategory, still a challenging category from a P&L perspective. It has huge potential in terms of repeat purchase behavior and loyalty of users.

But on the flip side, I think for everyone, it's a challenging one from an economic perspective. And so, there's a lot of experimentation and innovation going on there as we try to figure out what is the most appropriate model for our region and with which partners it would make the most sense to do that.

Marvin Fong -- BTIG -- Analyst

Great. Thanks so much, guys.

Operator

And thank you. And one moment for our next question. And our next question comes from Joao Soares from Citi. Your line is now open.

Joao Soares -- Citi -- Analyst

Thank you. Just a very quick one on my side. I was just hoping to get Pedro on margins overall. I mean, 2022 was clearly very impressive in terms of margin expansion as we look at this fourth quarter.

And so, as we go into 2023, I mean, there are a lot of moving parts here, you're advancing on the ad business, which clearly has a very robust margins and also -- but at the same time, we're talking about reaccelerating the 1P business, which even though has a fairly better economics, you know, it's a business that in the past, it was a bit of a more margin drag. So, I was just hoping to get your overall view just how should we think about margins for 2023? Thank you.

Pedro Arnt -- Chief Financial Officer

Sure. So, as you know, we don't guide, but I still think it's a valid question. So, directionally, we remain very consistent in saying that we try to manage the financial model for consistent, sequential, annual increase in EBIT dollars, ideally also modest but consistent margin expansion. That depends a little bit on what happens in terms of mix shift.

But we do try to manage the different businesses and the different sub business units to deliver margin expansion year on year on year going forward. Yet, at the same time, we still continue to see ourselves as a company that wants to deliver market share gains, continue consolidating its leadership position, and, as you mentioned in your question, have a lot of bets on many different future growth engines that today are, in many cases, negative EBIT businesses that we continue to see and we are committed to. So, as always, I think it's consistent sequential increase in EBIT dollars, ideally margin expansion, but don't necessarily assume that the kind of leverage we deliver in one year, you can linearly extrapolate to the next year. I think if we do deliver on this consistency, when we look out three to five years, we have a very, very healthy P&L in our hands, primarily if many of these bets that today lose money begin to through scale and operational efficiencies become profitable business and then the mix in our portfolio between those that are early bets and don't have attractive EBIT generation capacity and those that do get increasingly skewed more and more toward more consolidated, scaled-out, positive margin businesses.

Joao Soares -- Citi -- Analyst

That's clear. Thank you.

Operator

And thank you. And one moment for our next question. And our next question comes from Kaio Prato from UBS. Your line is now open.

Kaio Prato -- UBS -- Analyst

Hello, everyone. Thank you for taking our question. I have one question about profitability as well, but specifically on the fintech business. I know that you don't disclose exact numbers, but if you could please share with us how is the sort of the segment moving across your [Inaudible] driving this if you think the payments business was flat? And finally, your expectations going forward and if you could provide us some update [Technical Difficulty].

Pedro Arnt -- Chief Financial Officer

Sure. So, on a consolidated basis, and again, these are not reporting segments. So, this is to give you directional understanding of the businesses on a consolidated basis. The credit portion within fintech, we disclose interest margins after losses.

And I think we've discussed that the operational expenses there are relatively low, given that there are low spend in acquisition. A lot of the distribution is done to our existing, either Mercado Pago or MercadoLibre users. So, the credit business is a very profitable business. The online payments business, which is the merchant acquisition business, is also a profitable business with expanding and fairly attractive margin still very directionally 150 basis points of TPV.

The MPOS business, which is also a merchant acquisition business, is a profitable business with slightly lower margins than online payments but still positive and a strong contributor of overall EBIT. And then, when we look at the franchise we're trying to build in terms of the consumer financial services business, so the digital wallet, the core digital banks, some of the savings text products, the consumer credit cards. Those continue to be areas that do not have positive EBIT yet but are very significant bets for the future and that have shown very consistent improvements on the economics over the last few years. And then, the final overlay on top of that, which is still fairly small in terms of volume but very attractive from a margin perspective is the insurtech business.

That continues to grow and is already on pace to deliver tens of millions of dollars of annualized EBIT.

Kaio Prato -- UBS -- Analyst

Thank you.

Operator

And thank you. And one moment for our next question. And our next question comes from Neha Agarwala from HSBC. Your line is now open.

Neha Agarwala -- HSBC -- Analyst

Hi, thanks for taking my question. First question on your e-commerce business, which showed very strong trends during 2022 with strong market share gains also in some of the markets. What should we directionally expect in 2023? Any headwinds in the e-commerce business that we should be aware of or should be mindful of in any of the markets? And my second question is on the credit book. So, the credit book growth has almost stalled for the last two quarters.

Are you seeing improved or stable asset quality, at least in the beginning of 2023, which could encourage you to start picking up originations in the first or second quarter of this year? Or are you still going to be in a conservative mode? And while you are being conservative in the aspect of your new products, are there any new products that you are thinking about to propel growth in the current environment? Thank you so much.

Pedro Arnt -- Chief Financial Officer

So, let me take the first one. I think in terms of significant headwinds that we anticipate for the commerce business, with the exception of whatever happens at a macro level, and that's information that's available to everyone, I don't think we're honing in on anything. We've seen some consistent take rate improvements in the fourth quarter, a lot of that driven by advertising revenues and the incremental monetization on shipping and logistics that I referred to earlier. And those are levers that if we execute accordingly should continue to be present.

We did see some drag on take rate from reduced 1P sales in the fourth quarter of this year versus last year. And if anything, I've signaled that we feel we've hit a turning point in terms of the 1P business, and we can cautiously reaccelerate that again. And so, that should also be incremental in terms of take rates. And as we aspire to continue gaining share, that should, if we execute well again, maintain us on pace to continue to deliver strong GMV trends as well.

Osvaldo Gimenez -- Chief Executive Officer of Mercado Pago

With regards to the credit book, yeah, we have seen good results in the last quarters, but, again, we will wait until we see market conditions improving before we decide to be more aggressive again. With regards to risk taking and to growth of the portfolio, we don't guide, and it's difficult to foresee exactly when that will happen. And when we see that happening, we will be more aggressive. And in terms of new products, the one product we are pilot testing by now is car loans.

It's still very, very, very small. We're just pilot testing it in Brazil. We believe that it's a pro interesting because it has a strong synergy with our marketplace.

Pedro Arnt -- Chief Financial Officer

The one thing that maybe I would highlight here is, I recall when we entered the credit business, one of the understandable concerns that existed was how would we deal, as a growth company where most businesses are focused on growth, with something like credit where risk management and caution many times are necessary. And if I look back at '22 and we need to reprove ourselves constantly in terms of our risk management capabilities, but I do think it's been very interesting in that the backdrop for credit has been extremely negative. And when you look at how we managed it, the timing with which we slowed down originations and focused on higher-quality segments and the kind of results that you've seen, I think, really gives that team a very strong grade in terms of how they've manage risk within a very tough macro. I think we've been through both a pandemic and now extremely challenging consumer credit environment, primarily in Brazil.

And both of those have been managed from a risk perspective and a focus on profitability perspective, very, very successfully. And that's the way we'd like to continue to manage that going forward.

Operator

And thank you. And one moment for our next question. And our next question comes from Deepak Mathivanan from Wolfe Research. Your line is now open.

Deepak Mathivanan -- Wolfe Research -- Analyst

Great. Thanks for taking the questions. Pedro, many companies here in the U.S. are very focused on improving efficiencies this year.

How do you feel about the productivity at the company level, you know, at MercadoLibre? And then, how should we think about headcount additions for this year in your plans? And then, second question, on the competitive landscape in Brazil, currently with all the recent developments, should we think about any strategy shifts on your side, particularly with the 1P business, given all these developments? Thanks so much.

Pedro Arnt -- Chief Financial Officer

Sure. So, I'll answer in reverse order. Our strategy does not change based on what is happening with competitors. I think our tactics do adapt at the margin.

And as we mentioned earlier, we will lean into specific opportunities that may arise if market share becomes available given changes in market structure and competitive dynamics. But I wouldn't say our strategy changes one bit. On your first point, I think we've had a lot of conversations internally about this in that MELI in a way is in an island within the tech world and that no layoffs. If anything, we've said we will continue to increase the size of our engineering teams.

We see that as a key competitive advantage and one where, because we were disciplined throughout the pandemic, I don't think we over-hired or we overspent on capacity, by and large. That puts us in a unique position now where we can continue to hire. But having said that, I think the rate of hiring will slow down versus what it was over the last few years, but we will continue to grow the engineering team. And in terms of headcount across business and staff positions, again, there, no downsizing necessary because we remain disciplined over the past few years.

But the speed of incremental hires will probably decelerate even more so than the engineering talent. And then, logistics and customer service are much more variable costs, and those are input/output-driven. So, the growth there will reflect the growth in transactions and GMV that are really the KPI in determining how fast those organizations need to grow.

Deepak Mathivanan -- Wolfe Research -- Analyst

Thanks, Pedro.

Operator

Thank you. And one moment for our next question. And our next question comes from Stephen Ju from Credit Suisse. Your line is now open.

Stephen Ju -- Credit Suisse -- Analyst

Thank you so much. So, Pedro, just kind of building on one of the comments you made earlier, can you talk about the adoption levels for your fulfillment services in Mexico and why it has charge ahead there relative to the other markets? Is the profile of the seller different? Or are there other factors or products at play? And, conceptually, you know, are there any impediments for Brazil and some of the other markets to get to Mexico's level? Thank you.

Pedro Arnt -- Chief Financial Officer

So, Mexico for the fourth quarter actually crossed the 70% mark for the first time ever in terms of the service mix within the different shipping types that we offer. So, 70% of shipments in Mexico actually initiate in one of our fulfillment centers. I think there's a combination of market dynamics, merchant profiles, and execution is always that has led Mexico to be so far ahead of the other markets. Brazil, if I can round, finally hit the 40% mark.

So, it has been growing over the past four quarters, at a slower pace, but continuing to grow and trend in the right direction. Chile is over 30%. Argentina and Colombia also continue to grow. So, I don't think there are structural impediments to getting to Mexico levels or at least to continue to grow significantly.

The pace at which we are able to grow the fulfillment service in the other markets clearly varies from geo to geo. If you consider that Chile was launched significantly after Brazil and is on its way to catch up to Brazil, I think, is further indication of that. But no, we don't see any structural impediments to continue pushing the adoption of fulfillment. And the reason that, that is a desired outcome is because it delivers faster delivery times, greater control over the experience, higher net promoter scores.

Stephen Ju -- Credit Suisse -- Analyst

Thank you.

Operator

Thank you. And one moment for our next question. And our next question comes from John Colantuoni from Jefferies. Your line is now open.

John Colantuoni -- Jefferies -- Analyst

Great. Thanks for taking my questions. So, as you get closer to clean comparison periods, can you give us your perspective on the runway for e-commerce adoption across your key geographies? Certainly, the pandemic helped close the gap to other regions. So, I'm curious if recent trends in customer adoption and trial still point to a long runway for adoption.

And then, secondly, sticking with customer behavior, can you just talk a little bit about how engagement and repeat rates of cohorts acquired in recent quarters compared to pre-pandemic cohorts? Thanks.

Pedro Arnt -- Chief Financial Officer

So, Latin America has been interesting in that. It doesn't seem to have had the effect as physical retail reopened of a return to physical retail to a point where the market began to shrink. The market has continued to grow. Obviously, it slowed down significant from pandemic type growth.

But I think if you look at a Mexico or Brazil, which are the most advanced markets, we still expect market growth to be somewhere in the mid to high teens. And we do strive, as always, to gain share on top of that. So, we still feel it's early days in terms of the shift from offline to online retail. We think the pandemic accelerated that shift.

And we also think that consumers have found in their online purchasing, a compelling enough value proposition that a lot of that gained consumer -- consumption has stayed online. And so, we continue to be optimistic about the long-term prospects of e-commerce throughout the region. In terms of cohorts, retention cohorts are certainly much higher than they were pre-pandemic. And frequency -- sorry, not frequency -- and average usage has been flattish over the last year or so, which means that it remains in line overall with where it went to throughout the pandemic.

So, we haven't been able to continue to grow unit usage since the pandemic, but we have been able to maintain it relatively in line with much better retention per user and higher engagement than pre-pandemic numbers.

John Colantuoni -- Jefferies -- Analyst

Very helpful. Thanks very much.

Operator

And thank you. And now, I would like to turn the call back over to Pedro, MercadoLibre's chief financial officer, for closing remarks.

Pedro Arnt -- Chief Financial Officer

Great. So, thank you, everyone. I think we've concluded a phenomenal 2022 with a very strong fourth quarter. It was a year where we hit 110/10/1, over $100 billion of payments processed, over $10 billion of revenue, and over $1 billion of EBIT.

So, congratulations to all the MercadoLibre team for the phenomenal work and to our shareholders and stakeholders. Rest assured that we're already back at work to ideally be able to deliver an equally successful 2023 on behalf of our consumers and our shareholders. Thank you, and we look forward to updating you on things once the first quarter is over.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Richard Cathcart

Pedro Arnt -- Chief Financial Officer

Andrew Ruben -- Morgan Stanley -- Analyst

Irma Sgarz -- Goldman Sachs -- Analyst

Osvaldo Gimenez -- Chief Executive Officer of Mercado Pago

Marcelo Santos -- JPMorgan Chase and Company -- Analyst

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

Thiago Macruz -- Itau BBA -- Analyst

Geoffrey Elliott -- Autonomous Research -- Analyst

Jamie Friedman -- Susquehanna International Group -- Analyst

Marvin Fong -- BTIG -- Analyst

Joao Soares -- Citi -- Analyst

Kaio Prato -- UBS -- Analyst

Neha Agarwala -- HSBC -- Analyst

Deepak Mathivanan -- Wolfe Research -- Analyst

Stephen Ju -- Credit Suisse -- Analyst

John Colantuoni -- Jefferies -- Analyst

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