$MELI · The Intrinsic Value Podcast · 2026-11-07

Melly is now one of our top five positions. So, it feels timely to give an update. Margins are depressed because of the current investment cycle. But Melly has accelerated growth and improved user metrics across the board.

The big question will be what we think about margins. If Melly can turn the switch and return to the margin profile pre-investment, this will be a stock returning well over 20% for the next few years.

(00:24) If not, there could be some more downside.

And we're not the only ones with a bullish outlook either. Bill Miller recently started a position and so did Tom Gainer, although a small one for now. So, we're in good company.

and Mellie's profit driver comes from its payment and credit arm. (04:14) So not yet from advertising. I would say that advertising is still a great opportunity for them, but there's no dependence on that yet, at least not to the same extent as Amazon is experiencing it.

And I don't see how payments or credit would be disintermediated through AI or agents. And in fact, it might yet actually turn into another advantage looking out for the next 5 to 10 years.

>> It comes with its own risk, but perhaps we start there just because it is such an important topic for Melly. And so let me ask you, I mean, has anything changed in terms of how you think about Marcato Pago or Marcato Gito in the Melly thesis here?

>> That was a very good pronunciation. I almost thought you were Brazilian for a moment here, but I would say if anything, um, I'm just more bullish. But just to give some background, especially for listeners who didn't listen to the first episode.

So Mado Pago and Macado Credit are why they're so powerful for the flywheel, right? So what Macado Pago is doing, it's basically the payments arm for Mac Libra. And people often compare to PayPal.

I think if you're a striving business as Macado Pago is basically what they do is they make money through online checkout and QR codes and so forth. (05:28) And they also have these point of sales devices in physical stores.

It's a very small part of how they actually make money, but at least they get some dominant market share in parts of the market that you know they don't have on the marketplace.

So on Mac Libra and what they do is that they take a small fee per transaction.

(05:44) And now we actually see that Mac Pablo processes more volume off Mellie's marketplace than on it. And I think that's a very important step in the evolution of Macato Po because initially it was created to basically enable more people to order online on Mac Libra.

It was a clear extension of the marketplace viral.

But so, you know, you had buyers in Latin America that didn't trust the product would actually arrive and then sellers didn't trust they would actually get paid when they sent out the product.

So then Pago basically sat in the middle and held the money until both sides were happy. And Marcato Pago could offer great deals for shoppers. (06:18) So it made a lot of sense for Marcato Libre customers to use Marcato Pago.

And Pago customers in turn shopped more often on Marcato Libre because of the offer. So it was a great engine for customer lock in and and then with scale pago also turned into a really important data aggregator.

And so a seller who lists on Melly gets paid through Marcato Pago. (06:38) And once Melly knows how much that seller sells, how seasonal their business is and how reliably they ship their products, it can offer them a working capital loan to help them buy more inventory.

And the the seller uses that loan to stock up and sells more on Macra Libre. And then the data gets better. (06:55) then you have more supply and it lowers prices and it's all again part of this flywheel that is very very strong for Marcato Libre

and on the buyer side when for example you're at checkout Melly can offer you a Marcato pago credit card or even an installment plan right there which in Brazil that's how a lot of people pay with using these installments whenever they check out and that offer directly improves conversion obviously and then more conversion means more GMV and then more GMV means you get now even more data than you had before (07:21) and the data makes the next credit decision even better so then basically ally the customer acquisition engine is driving down in cost where in the end your customer acquisition cost is essentially zero

and by now Mado Pago is the sixth largest credit card issuer in Brazil and as you said so-called ecosystem customers so basically customers that use Pago and Macado Libra instead of just one of them generate about 70% more GMV than someone who only shops on Macado Libra and about 90% more payment volume than someone who only (07:50) uses Macato pyro so the share of those users the ones that use grow has actually increased 8 percentage points since the end of 2023 and that's the flywheel of PGO of the marketplace

and on the marketplace well you mentioned GMV and so just to clarify stands for gross merchandise value and refers to everything sold on the platform all the transaction the total transaction value of the commerce that Marcato Libre facilitates not necessarily the revenue that it takes

It seems like we can't stop saying it. >> We might, but I would say it's not our fault. Mellie is just incredibly good at building them. And perhaps we can call it a mix of a network and scale effect for the part outside of the marketplace.

(08:34) So, how basically works off the marketplace is that you have a small shop in, for example, Sao Paulo or Mexico City that puts a Macau PGO point of sales device on the counter or it just prints a QR code.

And Melly actually has a lot of these devices. Again, they don't make a lot of money from it because it's a very low margin business, but it helps them expanding the business. (08:53) So for example, in Mexico alone, you have 1.4 million of these devices.

And now that those shops sales basically flow through MacOG, Mel can also lend to a merchant that has never sold anything on Mac Libra because it still sees all the shops actual daily revenue.

And then once you as a consumer pay at, you know, your local corner store with Macado Pago, it only makes sense for you to also keep money in the wallet because Macado Pago is actually paying your return.

(09:18) And that matters a lot, especially in these countries where usually inflation is quite high. you need to weigh your savings and it's also why assets under management are now $23 billion and that's up almost 70% in a year.

So incredible growth there at basically every part of the business and again once your money is in the app you basically pay your bills through it. (09:35) You send money to friends and you also use the card for things that have nothing to do with e-commerce.

So imagine groceries, maybe gas or just going out regularly.

And I think the data advantage of the off-marketplace use is that Marcato Liber now has a complete picture of someone's financial behavior. And so we talked about how people are more likely to repay Melly loans because they don't want to lose access to the Melly ecosystem, which is really essential to everyday life in some ways.

(10:02) But with the offmarketplace data, Melly can now also spot when consumers are more cautious with their spending with unrelated merchants. And that's really crucial to doing better underwriting, which helps make credit cheaper overall and safer to offer. Then that can bring in more users.

And if Melly ever comes close to that I think that would be the ultimate bull case but that's unlikely given that I don't ever see them reaching super app status. (10:58) And I also don't think they would need that.

So the numbers already show how strong this second flavor is.

For example, the marketplace sold about $22 billion of goods last quarter. Macato Pago processed about $101 billion of payments. So payment volume is more than four times the size of the marketplace.

And Macato Pago has 88 million monthly active users. (11:19) That's roughly the same as the 89 million people who bought something on Macad Liu in the last quarter. And again, we're always talking about all that growth.

This one is growing 30% a year. So fintech is already 43% of revenue excluding currency effects. And it grew even faster than commerce in each of the last three quarters.

(11:36) And that's why I don't think it's actually crazy to say that Mata Pago could one day and maybe that day is not even that far away be bigger than Mac Libra the legacy business

So I don't think Melly would ever spin off MacO PGO The difference with PayPal is obviously that Marcato Libre has this massive lending business and they lend to both consumers and merchants.

(12:38) And the credit portfolio is growing fast. It was 16.5 billion at the end of June, up 75% year-over-year. And in January, we said it had been compounding at 80 to 90% a year for 5 years.

So, it's still growing at similar rates despite having this much bigger base. And in the second quarter alone, Melly put $2.1 billion of new money into it.

And you always want to be careful when credit portfolios are growing that fast, but especially so when it happens with South American consumers where the market there just tends to be a bit riskier for lenders. The markets are definitely less stable.

And the lending business is called Maca Citor just to say it once again. And it's become a major profit driver for Melly, especially in recent years. (13:18) And it's not a new business unit.

So Melly first started underwriting loans in the mid- teens. I think it was 2016. And then they quickly followed up with consumer loans. So they first started loaning money to merchants and then they went into consumer loan which is how a lot of companies do it also the ones that we covered.

(13:33) So they basically have a track record already of lending money for about a decade and merchant loans again a pretty safe bet to start off which is why so many companies start out with them.

and if you're a seller on Melly and for example you need inventory for Black Friday which is coming up. (13:51) A bank would ask for collateral and probably years of tax returns before they would actually give you a loan.

Melly, on the other hand, they know exactly how much that seller sold last Black Friday and how often customers actually come back and then also how reliably they ship. So it can basically offer a short working capital loan and then collect the repayment straight out of the seller's future sales on the platform because they go through MacO. (14:14) the risk is pretty low because Melly has the best information possible and also controls the cash flows and basically you know that's how the loan gets repaid.

>> The focus now is on the consumer side and credit cards though is my understanding. They're almost half the entire lending book and Melly keeps issuing effectively two and a half to maybe 3 million new credit cards each quarter which is just insane.

(14:37) And as you said earlier, Marcato Pago is now the sixth largest credit card issuer in all of Brazil, which is a huge market. Sometimes the numbers are so big that I just have to Google if they actually make sense. 2 and a half to 3 million credit cards per quarter.

That's just an insane amount. But you know, these are the numbers that a company like Melly can pull off because they just operate in one of the biggest markets in the world, which is why we find it that they have incredible tailwinds, which is why we like to invest in them.

You just (15:03) mentioned that with the shift, basically the mix shift to credit cards, it's also the reason for why the margins have shifted and we will get to that.

But the difference between the merchant loans and the consumer loans through credit cards is especially the time horizon. So a merchant loan is usually quite short. (15:17) Mellie sees, you know, the merchant sales and it pays back within months.

A credit card is obviously a sort of revolving line to a consumer with a long tail and the only thing that Mellie sees is that person's behavior. So that's still a lot of data, more than a bank sees, but it's also a different kind of risk compared to these merchant loans.

And on the accounting and margin front, what changes is that when Macago issues a new card, it has to book the expected losses over the upcoming period for that card more or less on day one.

While the interest income from the card comes in at a lag. So if you grow a card book slowly, you would barely notice that, but if you grow 90% a year, you're recognizing losses on millions of cards that haven't earned anything yet.

(15:56) So basically your reported profit looks worse the faster you grow it even if every one

And Melliey's cards are very profitable we found once they mature the card portfolio as a whole is still lossmaking. Its net interest margin after losses was minus 2. (16:18) 5% last quarter versus roughly break even a year earlier because card issuance had accelerated.

But management says a cohort of cards reaches break even within about 12 to 18 months and as a result of the Q4 results. About 3/4 of the Brazilian card book had already reached that point.

And the estimates are that the card business will lose a bit less than 450 million in operating profit this year and that will break even by 2028 and then it should earn around 1. (16:48) 5 billion a year by the end of the decade.

And obviously that also depends on this continued growth and the credit card side of things.

So the bull case for credit really is that today's losses are tomorrow's profits, right? And the bare case is that those losses aren't just timing, but they're really structural issues for the business model.

(17:08) So how would you say uh we tell the difference between those two things? >> Well, what you usually do is you look at the loans that go bad, not the provisions, which is basically the money that is booked as losses up front.

So the metric is the non-performing loan ratio and you check two points in time usually. (17:24) So there are loans that are 15 to 90 days late and that's essentially your early warning sign.

And then there are loans that are late more than 90 days which in most of the cases that means they're gone. So the 15 to 90day ratio was about 7% in Q2 down from 8% in Q1. So there was a slight improvement there.

(17:41) And then for C specifically it's only about 4 and a.5% which the company says is close to an all-time low. So despite 75% growth, credit quality hasn't deteriorated, at least in the early pockets.

And then the 90-day plus NPLs, they did move up slightly. So they went from 17 1.5% to 18 1.5%. So you also saw loss provisions for the Brazilian consumer go up earlier this year since Mele stretched, and I think this is what we discussed in the latest update, the length of the personal loans from 5 months to 8 months to reach new customers. and that already normalized (18:11) in Q2, but it definitely does show that the book does react when they push into these new segments of customers.

>> And they're really doing this at a pretty tricky moment. Honestly, according to Brazil central bank, household delinquency hit 6% in August, which is up more than a percentage point in a year.

(18:29) And across the whole financial system, delinquency is at its highest level since 2011. So Melier is trying to grow its card book 90% year-over-year into what is really the worst Brazilian consumer credit environment we've seen in 15 years.

But isn't it kind of reassuring how well they are holding up? And also the fact that you can follow the numbers so well and just see how they change within just a quarter and what you know Melly can do to change and basically adjust to what the numbers are telling them.

(18:57) And maybe that's just me showing my confirmation bias here. Maybe it's a bigger risk than I portray it as here. Up until now, the book has never been through an actual Brazilian recession of significant size at least.

And Melly does reserve heavily as we just said. So the allowance for credit losses is 4. (19:12) (19:14) 5 billion against 16.5 billion for the entire book. So more than a quarter of the portfolio is already set aside for potential losses and they're also adding lower risk product.

So I do expect the book to get less risky over time the mod's maturing basically.

So in July, Mata Pago started offering payroll loans to private sector workers in Brazil where repayment basically comes straight out of the borrower's salary and they signed I think 5,000 contracts in the pilot for just the first 4 days.

The net interest margin after losses across the entire book was 21% in Q2, lower than the 23% a year ago, because cards are having a bigger share of the book now, but it's still a very profitable lending business.

Well, I'm still glad to hear that they're d-risking the portfolio from credit cards because I think I would rather have less margin with much less risk of a significant blow up occurring.

>> I'm with you on that. I think we discussed the sort of bad asymmetry of having such a finance business. So, the less risk there is, the better it is for the business.

(22:39) So, it's expected to grow roughly 11% a year over the next decade, mostly driven by higher e-commerce penetration. As I said in the original episode, e-commerce penetration in Latin America is only about 14 to 15%.

In the US, you see that roughly 25%, the UK is actually close to 30%, and China, unsurprisingly, is well above 30%. (22:59) So, usually I would say that you can blindly compare such rates just across countries and even continents.

But in this case, I believe Latin America and especially the big markets like Brazil, Argentina, and Mexico, which are the biggest ones for Mac Libra 2. I think they have all that it takes to reach those levels of e-commerce penetration, too.

>> We're definitely seeing a wave of digitalization in all of those countries, especially in the financial system, which is why we like Marcato Libre and also New Bank.

And you have this really young and techsavvy generation in this part of the world. Countries like Brazil also have a lot of money by global standards. (23:34) Brazil's GDP per capita is about 10 to 11,000 US.

And just for context, in many Southeast Asian countries, that number is closer to $5,000. So the average Brazilian, at least in GDP terms, is effectively twice as wealthy. And it took a while for private companies like Melly to build out the logistics and the payment systems to even enable e-commerce.

(23:55) So the infrastructure wasn't there as it was in the US and Europe. So obviously there was a time lag that they basically had to close and that was a private sector not the public sector but we all say this basically to show that the market is big enough to have multiple players grow profitably for a long time and that said obviously the economics are better the more concentrated the market is and the two competitors worth talking about I think especially when it comes to competing with me on the big scale are C Limited and Amazon although (24:21) (24:21) I personally consider C to be the fiercest competitor.

And for context though, Melly does not disclose its subscriber numbers, but estimates are around the sort of 12 to 15 million range, and they're still growing 70% year-over-year.

But again, I don't think that's where Shopppee has to be for the entirety of their presence in Brazil. >> What I do like is that Mele is not only trying to defend the upper market, but also the lower end of things so that they don't just lose those customers to Shopppee and then sort of the innovator's dilemma where Shopppee can start on the low end and slowly build scale and move up market to better (28:41) challenge Marcato Libre.

While it costs them some margin right now to focus on the lower end, I think lowering the threshold for free shipping and these similar moves that they're making is really a great way for them to win market share and is correspondingly a great long-term investment as they try to fend off Shopppee.

(29:00) It's definitely working. I mean, the Brazilian e-commerce market was estimated to be about hundred billion last year and Melly has about 43% share in that market and Shopppee has 18% and both actually grew three percentage points.

So Melly also made a comeback in users which is important because more and more commerce is obviously moving to mobile and that's where Shopppee is extremely strong first of all given its roots in mobile gaming but then also because of the Southeast Asian company and obviously e-commerce over there has basically skipped the (29:46) desktop era entirely.

So Shopppee had more monthly active app users in Brazil than Melly just a year ago which was about 120 million compared to Mellie's 150 million. In the second quarter of this year, Melly was back ahead actually with 134 million against 130 million for Shopee.

So Mellie's user base significantly outgrew Shopppee, at least if we trust these estimates.

And the reason it's so important that Melly keeps serving all customers is that Mellie's biggest strength in my opinion is its ecosystem, which is becoming increasingly entrenched.

So a customer finds a product on the marketplace perhaps even through a malad then pays for it using macado car pago and then potentially even getting credit from macado credito and then it gets delivered by macado envious which is me's logistics business and then at some point a customer is just so entrenched that it will be incredibly hard for him (30:33) to you know switch to a different marketplace at least for these highquality products that matter between booking guests coordinating with the team and answering listener emails my inbox doesn't shut off when when the workday ends.

But the entrenchment where you have the marketplace, you have the payments and you have the credit that's mostly happening on Melly for Brazilian customers.

>> You say you'll doubt they'll get there because we're talking about a pretty big gap between them still right. >> Yes. A very big gap. So Melly leases about 3 million square meters of warehouse space in Brazil and Shopee about 1 million.

>> And when you say lease, it's really just about warehouses there. Both companies lease their warehouses to keep the businesses from being more capital intensive to keep them less capital intensive.

And the real difference is in how much of the delivery network each one controls.

(35:41) And so Melly runs its last mile through dedicated carriers where it is usually the main or only customer. And its new 1-hour delivery in Sa Paulo runs through its own network.

(36:06) So Melly has tighter control over speed and reliability, but shopppee has a cheaper, looser network to maintain.

(37:10) So just for context, 20 billion raise is a lot of money, but Melly invests three times that this year. And Mexico is where Melliey's comment grows actually slowed this year, which we will get to later.

>> If you were to have to summarize how you currently view the dynamic between Melly and its competitors, what would be the best way for you to do that? >> Well, I think we hype up Melly so much that I also want to be very honest, even though some mele might not want to hear that.

More competition is never good and (37:57) Shopppee has clearly been more competition than I assume anyone would have thought when they enter Brazil.

As Mango once said, we have found in a long life that one competitor is frequently enough to ruin a business. So I don't think this will be the case here. Otherwise, obviously, we wouldn't be invested in the stock.

(38:14) But I don't believe either that Melly will ever be without a competent competitor again. And that has been the case for many many years before Shopee and some of these other competitors entered the market.

So the question is what does that mean for the mature margins of the business? I think that's a question any uh fundamental investor in Melly is asking themselves.

(38:33) And what has really happened here to current margins is it's been a downward slope from 12% to a little less than 7%. And that's the lowest margins have hit in four years.

And now it seems you really have two camps of investors and how they think about things. And so one camp says, you know, hey look, Melly will never get back to 12% margins because it now faces its most intense competition yet and competition is only going to intensify and so that's one perspective

and then the other camp compares these investments to say what Amazon was doing in the US in the early (39:07) 2000s where short-term investments result in an even stronger moat and thus even more earnings power and margin potential in the long term even if short-term margins are compressed by that reinvestment spending and what underlines that view is really how successful these investments have been at acquiring new customers and improving usage among long-term customers.

(39:32) And Melly posted its fastest revenue growth in four years, up 50% and then it posted its first quarter above $10 billion in revenue. It's definitely incredible just at this scale how fast the business is still growing.

And I know we all want a definite answer to this question of where margins will be. (39:50) And I also know many pretend they have it. I admit that I don't. I can only look at the facts, then compare things to, for example, Amazon back then with their investment cycle, and then add the knowledge that I hope I've gained after looking at all the Asian e-commerce players and how they typically operate.

(40:51) So the big question for me is whether Brazil, Argentina and eventually also Mexico will look more like the US and Europe or more like China with, you know, multiple major players and much more dynamic competition generally.

To me, the former seems probably more likely. While there's still plenty of room to grow, Brazil is not some young market that could still go in any direction by any means.

(41:12) And then it's hard to imagine where all the other competitors are really supposed to come from and what role they would serve. that's not yet being catered to. And as you mentioned, there's also a real political incentive here to help South American companies succeed instead of flooding the market with Chinese players in their products.

(41:32) If you compare the characteristics one to one, it seems definitely more likely that Brazil would end up with a US-like structure. So on logistics, for example, the reason new e-commerce players in China could expand so quickly is that the third party carrier infrastructure is so incredibly good.

(41:49) So the so-called Tongda franchise plus carriers like J&T, they move more than 70% of China's parcels at incredibly low prices. In Brazil, on the other hand, an entrant needs to build the entire infrastructure itself.

So for payments, many problems are now solved, but Malo Pago still had the first move advantage. (42:06) And then if you compare that to the US, you had neutral card networks, which is why no competitor could use payments as a sort of weapon or at least major advantage against the competition.

(42:26) So all of this could be an important differentiator because macardo pago is already highly dominant and it's owned by Melly obviously which opens up all sorts of ecosystem benefits and the same goes for credit.

Amazon never had a landing book and in China the space is much more regulated since and financial. So this is the sort of advantage that is pretty unique to Melly.

>> I'm going to show my ignorance here on payments again, but my understanding is that there's a government-led payment network called Pix P I and is that something that could cause any pressure on Marcato Pago's business or are they doing different things? How much overlap is there?

>> Yes and no is the uh the short answer. (43:08) I would say that it could be a problem but also there are a couple of benefits that pago actually has because of pics. So for example the more benefits for me pago customers are in the app especially when they use melly the more sense it makes for customers to use pago to pay.

So I think I'd rather have a government created pics as a competitor than an alternative created by a competitor.

(43:30) So pix is a problem but it doesn't do any lending. only a rail for basically payments to go through. That's not where most of the value is coming from with Macado Pago and Creditor.

And so another difference from when Amazon built its e-commerce business is that the barriers to entry have come down since platforms like Tik Tok have been able to expand into the space and customers no longer have to come through product search.

(43:53) you can actually have hundreds of millions of people find their way through social media, which clearly makes it easier to spawn an e-commerce business out of nothing, especially when that delivery infrastructure is already effectively in place, which I should say is only partly the case in South America.

(44:10) We also need to consider obviously the massive size difference between countries like Brazil and China. So, for example, China's physical goods e-commerce is about $1.8 trillion at an industrywide GMV margin of 2%.

That would mean there's a profit pool of roughly $36 billion a year. So I would personally say that's enough to have four players fight for that pool.

And then even in the US the market is $1.2 trillion. So if you compare that, Brazil's market is only estimated to be 60 to $80 billion depending on the definition of GMV. It could also be slightly higher.

So it's obviously growing fast. But for players currently getting into Brazil, they would need to spend billions of dollars while mathematically not being able to make any profits because the market is just not big enough yet.

(44:53) So most public companies, I would assume, don't want to burn through billions of dollars for years to potentially open up a new market that is far away from their core market, which is true for basically all of the global e-commerce players not yet in Brazil, especially when you already have a dominant and wellexecuting player like Melly in the market.

>> Just to get back to the margin story, I think the reason that margins are down supports the thesis that it's not really all competitive pressure. I mean, sure, Melly wouldn't need to spend all that money if Shopppee didn't exist.

(46:26) Even before Shopppee existed from time to time, they have lowered the free shipping threshold because it's a fantastic way to get new people into the ecosystem. (46:45) And that's about $5 billion of sales a year, now growing 70 to 80%, and the CFO actually said it's still not profitable on its own once you allocate corporate costs.

(47:50) So, the idea is that they will still pay through Macado Pago, but you can use pics through Macado Pago, which in that case is just your digital wallet.

(48:24) And as mentioned, perhaps eventually they will turn into customers that have have you know credit cards for Melly. So that's basically how you make the money back. (48:42) So to me this seems like a smart investment in the long term especially because pics will not go away and I don't think you'll make a lot of money with the simple pay through macado wallet anyway that's basically you know

(49:24) And the more packages you get through this system, the more efficient the operation gets. And Melly said some price ranges below about 80 ryes which is the free shipping threshold for non Melly plus subscribers are already at break even.

(49:44) So conversion in Brazil, meaning the share of visits that end in a purchase, is up about 1.1 percentage points and has stayed there for a full year. And purchase frequency is up around 20%.

While daily active users have grown faster than monthly active users in every quarter since the cut, which tells you that the app is becoming part of people's routine and not just a routine, their daily routine.

(50:08) And Melly Plus subscribers, as mentioned, are up 72% year-over-year.

(51:45) So the most important thing is to build the credit business responsibly so it doesn't blow up in bad times, which always comes at some point.

(53:17) So given management comments, they might keep investing for a while. And I can't blame them seeing how much they grow, not only the headline numbers, but as you just showed us, also the numbers that actually show how entrenched the new customers basically become in the Mellie ecosystem.

(54:35) And it's just the kind of thing that happens when you have a company with the growth track record and the growth runway that Melly has and they're sort of relentlessly reinvesting back into the business and harvesting the fruits of what they currently make to keep spinning that flywheel that we've been talking about.

(55:01) So these growth numbers are really more attainable and reasonable and actually maybe even conservative than it might seem at first. (55:25) Meaning the higher margin part of the company will actually grow the fastest, which would be another tailwind for business's overall profitability and for earnings growth.

(55:48) But then again, these models always are based on the timeline and our assumptions for the timeline. And this model assumes that the investment slows down in the next one to three years, which might not be

(56:42) And the free shipping piece is a competitive response, but it's also one that's working pretty well where conversion is up, frequency is up, cost per package is falling, and Melly has grown faster than shopppee while off of a bigger base, right?

We don't have companies increasing take rates when they're trying to undercut each other. And commerce really can run at a thin margin forever as long as it keeps 90 million buyers inside the Mellie ecosystem because the fintech side of things is where the profits come from.

(57:24) You can almost say that the commerce side of the business is just a vehicle for facilitating the fintech part of it whether that's with the credit card lending or the payment processing.

And so it's already 43% of revenue the fintech business is. and it's growing faster than commerce and it earns 20% after credit losses and having that loyal ecosystem of customers obviously also creates huge advertising opportunities too as we've seen Amazon prove they've become one of the biggest advertising marketplaces in the world

and so the credit book is probably the (57:55) one thing that gives me some pause and maybe some anxiety especially when you pair it with the position that we have with our existing stake in new bank making us pretty highly leveraged to the Latin American market and more specifically the Latin American consumer at a minimum and that will make for a volatile ride if history is any guy.

But I do love the idea of owning great companies and to be cliche just letting them do their thing. And we talk a lot about hurdle rates and trying to find investment opportunities that can clear a 12% rate of return for us over a several year period.

And I feel pretty confident that with Melliey's growth prospects and then at the price we're buying into at this moment, which isn't an outrageous valuation, given the growth, I feel pretty good that it can meet our IR hurdle requirement.

That's the bet we're taking, right? Like owning a great company and then just letting them do their thing. When I was still doing my research, you basically asked me whether we should also cover the political debate currently going on in Brazil with all the elections.

And I looked at the Brazilian elections and you know what the win of either Bossaro or Lula could mean for Melly, New Bank and so forth.

(59:27) And ultimately I think I take comfort in the fact that Melly performed phenomenally under the presidency of left-leaning candidates and then also under the presidency of right- leaning candidates and not only in Brazil

And as we walked out in our original episode, Melly works the way it does today because they were able to make a strength out of these shortcomings of Latin American politics.

Right? We talked about some markets that were basically completely gone and how they have these, you know, logistic networks that are not as capital intense because they never know what happens to a specific market.

And as you just said, the idea is to own a phenomenally run business with a strong flywheel and lots of runway. (1:00:04) And if I believe the president of Brazil would make a significant difference, honestly, I wouldn't even want to be invested in Melly anyway or New Bank for that matter.

And with that, if you have nothing to add to the politics of Brazil, let me close it for today with a quote by Melly founder Marcus Galperin. And basically on that exact topic where he said, quote, "Unfortunately, the stereotypes about that market are true.

Infrastructure is not as developed. Regulations are backward. Regulators are just trying to optimize for themselves, not for the people. And it's a very volatile environment. And all of a sudden, you have elections and then a new government comes in and changes everything.

So with Mellie's management team being aware of that, I feel quite confident that they can manage that quite well.