Table of Contents UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549 FORM 10-K (Mark One)☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934For the fiscal year ended December 31, 2016OR ☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGEACT OF 1934For the transition period from to Commission file number 001-33647 MercadoLibre, Inc.(Exact name of Registrant as specified in its Charter) Delaware 98-0212790(State or other jurisdiction ofincorporation or organization) (I.R.S. EmployerIdentification Number)Arias 3751, 7th FloorBuenos Aires, C1430CRG, Argentina(Address of registrant’s principal executive offices)(+5411) 4640-8000(Registrant’s telephone number, including area code)Securities registered pursuant to Section 12(b) of the Act: Title of Class Name of Exchange upon Which RegisteredCommon Stock, $0.001 par value per share Nasdaq Global MarketSecurities registered pursuant to Section 12(g) of the Act: None 1 Table of Contents Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days. Yes ☒ No ☐Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data Filerequired to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for suchshorter period that the registrant was required to submit and post such files). Yes ☒ No ☐Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulations S-K is not contained herein, and will not be contained,to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or anyamendment of this Form 10-K. ☐Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:. (Check one): Large Accelerated Filer ☒ Accelerated Filer ☐ Non-Accelerated Filer ☐ (Do not check if smaller reporting company) Smaller reporting company ☐Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒The aggregate market value of the registrant’s Common Stock, $0.001 par value per share, at June 30, 2016, held by those persons deemed by theregistrant to be non-affiliates (based upon the closing sale price of the Common Stock on the Nasdaq Global Market on June 30, 2016)was approximately $3,571,841,858. Shares of the registrant’s Common Stock held by each executive officer and director and by each entity orperson that, to the registrant’s knowledge, owned 10% or more of the registrant’s outstanding common stock as of June 30, 2016 have been excludedfrom this number because these persons may be deemed affiliates of the registrant. This determination of affiliate status is not necessarily aconclusive determination for other purposes.As of February 21, 2017, there were 44,157,364 shares of the registrant’s Common Stock, $0.001 par value per share, outstanding.Documents Incorporated By ReferencePortions of the Company’s Definitive Proxy Statement relating to its 2017 Annual Meeting of Stockholders, to be filed with the Securities andExchange Commission by no later than April 30, 2017, are incorporated by reference in Part III, Items 10-14 of this Annual Report on Form 10-K asindicated herein. 2 Table of Contents MERCADOLIBRE, INC.FORM 10-KFOR FISCAL YEAR ENDED DECEMBER 31, 2016 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS 4 PART I ITEM 1. BUSINESS 5 ITEM 1A. RISK FACTORS 15 ITEM 1B. UNRESOLVED STAFF COMMENTS 33 ITEM 2. PROPERTIES 34 ITEM 3. LEGAL PROCEEDINGS 34 ITEM 4. MINE SAFETY DISCLOSURES 36 PART II ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDERMATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES 37 ITEM 6. SELECTED FINANCIAL DATA 39 ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS 42 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 73 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 78 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING ANDFINANCIAL DISCLOSURES 78 ITEM 9A. CONTROLS AND PROCEDURES 78 ITEM 9B. OTHER INFORMATION 79 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 79 ITEM 11. EXECUTIVE COMPENSATION 79 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENTAND RELATED STOCKHOLDERS MATTERS 80 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTORINDEPENDENCE 82 ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES 82 PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES 83 INDEX TO FINANCIAL STATEMENTS 83 SIGNATURES 87 EXHIBIT INDEX 88 3 Table of Contents SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTSAny statements made or implied in this report that are not statements of historical fact, including statements about our beliefs and expectations,are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21Eof the Securities Exchange Act of 1934, as amended (the “Securities Act”), and should be evaluated as such. The words “anticipate,” “believe,”“expect,” “intend,” “plan,” “estimate,” “target,” “project,” “should,” “may,” “could,” “will” and similar words and expressions are intended toidentify forward-looking statements. These forward-looking statements are contained throughout this report, for example in “Risk Factors,”“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.” Forward-looking statements generallyrelate to information concerning our possible or assumed future results of operations, business strategies, financing plans, competitive position,industry environment, potential growth opportunities, future economic, political and social conditions in the countries in which we operate andtheir possible impact on our business, and the effects of future regulation and the effects of competition. Such forward-looking statements reflect,among other things, our current expectations, plans, projections and strategies, anticipated financial results, future events and financial trendsaffecting our business, all of which are subject to known and unknown risks, uncertainties and other important factors (in addition to those discussedelsewhere in this report) that may cause our actual results to differ materially from those expressed or implied by these forward-looking statements.These risks and uncertainties include, among other things:·our expectations regarding the continued growth of e-commerce and Internet usage in Latin America;·our ability to expand our operations and adapt to rapidly changing technologies;·government and central bank regulations;·litigation and legal liability;·systems interruptions or failures;·our ability to attract and retain qualified personnel;·consumer trends;·security breaches and illegal uses of our services;·competition;·reliance on third-party service providers;·enforcement of intellectual property rights;·our ability to attract new customers, retain existing customers and increase revenues;·seasonal fluctuations;·political, social and economic conditions in Latin America in general, and Venezuela in particular, and possible future currencydevaluation and other changes to its exchange rate systems such as the “Sistema Marginal de Divisas” (“SIMADI”).Many of these risks are beyond our ability to control or predict. New risk factors emerge from time to time and it is not possible for managementto predict all such risk factors, nor can it assess the impact of all such risk factors on our company’s business or the extent to which any factor, orcombination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.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 arecautioned not to place undue reliance on our forward-looking statements. These statements are not guarantees of future performance. They aresubject to future events, risks and uncertainties—many of which are beyond our control—as well as potentially inaccurate assumptions that couldcause actual results to differ materially from our expectations and projections. Some of the material risks and uncertainties that could cause actualresults to differ materially from our expectations and projections are described in “Item 1A—Risk Factors” in Part I of this report. You should readthat information in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of Part IIof this report and our audited consolidated financial statements and related notes in Item 8 of Part II of this report, as well as the factors discussed inthe other reports and documents we file from time to time with the Securities and Exchange Commission (“SEC”). We note such information forinvestors as permitted by the Private Securities Litigation Reform Act of 1995. There also may be other factors that we cannot anticipate or that arenot described in this report, generally because they are unknown to us or we do not perceive them to be material that could cause results to differmaterially from our expectations.Forward-looking statements speak only as of the date they are made, and we do not undertake to update these forward-looking statementsexcept as may be required by law. You are advised, however, to review any further disclosures we make on related subjects in our periodic filingswith the SEC. 4 Table of Contents PART I ITEM 1.BUSINESSMercadoLibre, Inc. (together with its subsidiaries “us”, “we”, “our” or the “Company”) is one of the largest online commerce ecosystems inLatin America. Our platform is designed to provide users with a complete portfolio of services to facilitate commercial transactions. We are a marketleader in e-commerce in each of Argentina, Brazil, Chile, Colombia, Costa Rica, Ecuador, Mexico, Peru, Uruguay and Venezuela, based on numberof unique visitors and page views. We also operate online commerce platforms in the Dominican Republic, Honduras, Nicaragua, Salvador, Panama,Bolivia, Guatemala, Paraguay and Portugal.Through our platform, we provide buyers and sellers with a robust environment that fosters the development of a large e-commerce communityin Latin America, a region with a population of over 610 million people and one of the fastest-growing Internet penetration rates in the world. Webelieve that we offer technological and commercial solutions that address the distinctive cultural and geographic challenges of operating an onlinecommerce platform in Latin America.We offer our users an ecosystem of six integrated e-commerce services: the MercadoLibre Marketplace, the MercadoLibre Classifieds Service,the MercadoPago payments solution, the MercadoLibre advertising program, the MercadoShops online webstores solution and the MercadoEnviosshipping service.The MercadoLibre Marketplace, which we sometimes refer to as our marketplace, is a fully-automated, topically-arranged and user-friendlyonline commerce service. This service permits both businesses and individuals to list merchandise and conduct sales and purchases online in either afixed-price or auction-based format.To complement the MercadoLibre Marketplace, we developed MercadoPago, an integrated online payments solution. MercadoPago isdesigned to facilitate transactions both on and off our marketplace by providing a mechanism that allows our users to securely, easily and promptlysend and receive payments online. Mercado Pago is currently available in: Argentina, Brazil, Mexico, Colombia, Venezuela, Uruguay, Perú andChile. MercadoPago allows merchants to facilitate checkout and payment processes on their websites and also enables users to simply transfermoney to each other either through the website or using the MercadoPago App, available on iOS and Android. Additionally, during the fourthquarter of 2016, we launched MercadoCredito in Argentina, which is designed to extend loans to specific merchants. Our MercadoCredito solutionallows us to deepen our engagement with our merchants by offering them additional services.Through MercadoLibre Classifieds Service, our online classified listing service, our users can also list and purchase motor vehicles, vessels,aircraft, real estate and services in all countries where we operate. Classifieds listings differ from Marketplace listings as they only charge optionalplacement fees and never final value fees. Our classifieds pages are also a major source of traffic to our website, benefitting both the Marketplace andnon-marketplace businesses.To enhance the MercadoLibre Marketplace, we developed our MercadoLibre advertising program, to enable businesses to promote theirproducts and services on the Internet. Through our advertising program, MercadoLibre’s sellers and large advertisers are able to display ads on ourwebpages and our associated vertical sites in the region.Additionally, through MercadoShops, our online store solution, users can set-up, manage and promote their own online store. These stores arehosted by MercadoLibre and offer integration with the other marketplace, payment and advertising services we offer. Users can choose from a basic,free store or pay monthly subscriptions for enhanced functionality and value added services on their store.To further enhance our suite of e-commerce services, during 2013 and 2014, we launched the MercadoEnvios shipping program in Brazil,Argentina and Mexico. During the second quarter of 2015 and 2016 we launched MercadoEnvios in Colombia and Chile, respectively. ThroughMercadoEnvios, we offer our sellers a cost-efficient way to utilize our existing distribution chain to fulfill their sales. Sellers opting into the programare able to offer a uniform and seamlessly integrated shipping experience to their buyers at competitive prices.MercadoLibre also began developing and selling enterprise software solutions to e-commerce business clients in Brazil during the secondquarter of 2015.History of MercadoLibreIn March 1999, Marcos Galperin, our co-founder and Chief Executive Officer, wrote our business plan while working towards his master’sdegree in business administration at Stanford Business School. Shortly thereafter, he began to assemble a team of professionals to implement it. Wewere incorporated in Delaware in October 1999. 5 Table of Contents We commenced operations in Argentina in August 1999 and subsequently began operations in other countries as well. Since our inception, wehad grown both organically and through selective acquisitions. The following table shows the timeline of different launches and events in eachcountry:CountryMercadoLibreMercadoPagoMercadoEnviosLaunch dateLaunch dateLaunch dateArgentinaAugust 1999November 2003February 2013BrazilOctober 1999January 2004January 2013MexicoNovember 1999January 2004October 2014UruguayDecember 1999November 2016ColombiaFebruary 2000December 2007May 2015VenezuelaMarch 2000April 2005ChileMarch 2000September 2007February 2016EcuadorDecember 2000PeruDecember 2004June 2016Costa RicaNovember 2006Dominican RepublicDecember 2006PanamaDecember 2006PortugalJanuary 2010BoliviaJuly 2015GuatemalaJuly 2015ParaguayNovember 2015NicaraguaMarch 2016HondurasMarch 2016SalvadorMarch 2016Our business is on the same technological platform in each of our operating countries. However, each country has its own standalone websiteon the MercadoLibre platform. For example, searches carried out on our Brazilian website show only results of listings uploaded to our Brazilianwebsite and do not show listings from other MercadoLibre webpages.In 2001, eBay Inc. (“eBay”) became one of our stockholders and started working with us to better serve the Latin American e-commercecommunity. From 2001 to 2006, we had a strategic alliance with eBay. During this term, this agreement also provided us with access to certainknow-how and experience, which accelerated aspects of our development. Since the termination of this agreement, there are no contractualrestrictions preventing eBay from becoming one of our competitors. On October 13, 2016, eBay sold its shares in our company. See “Risk Factors—Risks related to our business—We operate in a highly competitive and evolving market, and therefore face potential reductions in the use of ourservice.”In November 2005, we acquired certain operations of a regional competitor in e-commerce, DeRemate.com Inc., or DeRemate, including all ofits operations and the majority of the shares of capital stock of its subsidiaries in Brazil, Colombia, Ecuador, Mexico, Peru, Uruguay and Venezuela.This acquisition increased our user base by approximately 1.3 million confirmed registered users and solidified our market leadership position inBrazil, Mexico, Venezuela, Colombia, Peru, and Uruguay. Futhermore, in September 2008, we acquired the remaining operations of DeRemate.comin Chile, Argentina, Mexico and Colombia; together with certain URLs, domains, trademarks, databases and intellectual property rights.We completed our initial public offering in August 2007, resulting in net proceeds to us of approximately $49.6 million.In April 2014, we acquired 100% of the issued and outstanding shares of capital stock of the companies VMK S.A., Inmobiliaria Web Chile S.de R.L. de C.V. and Inmuebles Online S.A., companies that operate online classified advertisements platforms dedicated to the sale of real estate inChile through the Portal Inmobiliario brand and in Mexico through the Guia de Inmuebles brand. The aggregate purchase price was $ 38.0 million.In December 2014, we acquired 100% of the equity interests in Business Vision S.A., an Argentine software development company located inthe city of Buenos Aires, for an aggregate purchase price of $4.8 million. The objective of this acquisition was to enhance our software developmentcapabilities.In April 2015, we acquired 100% of the issued and outstanding shares of capital stock of KPL Soluções Ltda., a company that developsenterprise resource planning (“ERP”) software for the e-commerce industry in Brazil, for and aggregate purchase price of $22.7 million. Theobjective of this acquisition was to offer an even more seamless way for our customers to sell on our marketplace. 6 Table of Contents Also in April 2015, we acquired 100% of the issued and outstanding shares of capital stock of Metros Cúbicos, S.A. de C.V., a company thatoperates an online classified advertisement platform dedicated to the sale of real estate in Mexico. The aggregate purchase price was $29.9 million.The objective of this acquisition was to increase our participation in the e-commerce business in that country.In February 2016, we acquired 100% of the issued and outstanding shares of capital stock of Monits S.A., a software development companylocated and organized under the laws of Buenos Aires, Argentina, for the purchase price of $3.1 million. The objective of this acquisition was toenhance our software development capabilities.Finally, in June 2016, we acquired 100% of the issued and outstanding shares of capital stock of Axado, a company that develops logisticsoftware for the e-commerce industry in Brazil, for the purchase price of $5.5 million. The objective of this acquisition was to enhance our softwaredevelopment capabilities on Transportation Management System and contribute to our shipping business performance.Our strategyWe seek to serve people in Latin America by offering diverse e-commerce services that provide our users with online commerce tools that fosterentrepreneurship and social mobility, with the goal of creating significant value for our stockholders. We serve our buyers by giving them access toa broad and affordable variety of products and services, a selection we believe to be larger than otherwise available to them via other online andoffline sources serving our Latin American markets. We believe we serve our sellers by giving them access to a larger and more geographicallydiverse user base at a lower overall cost and investment than offline venues serving our Latin American markets. We also provide paymentsettlement services to facilitate such transactions, and advertising solutions to promote them. More broadly, we strive to make inefficient marketsmore efficient and in that process generate value for our stockholders. To achieve these objectives, we intend to pursue the following strategies:·Continue to grow our business and maintain market leadership. We have focused and intend to continue to focus on growing our businessby strengthening our position as the preferred online marketplace in each of the countries in which we operate. We also intend to grow ourbusiness and maintain our leadership by taking advantage of the expanding potential user base that has resulted from the growth of Internetpenetration rates in Latin America. We intend to achieve these goals through organic growth, by introducing our business in new countriesand entering new category segments, by launching new transactional business endeavors, and through potential strategic acquisitions ofkey businesses and assets. In order to grow our core marketplace business, we must continue to attract larger sellers to our platform,including brands, manufacturers, and large retailers. Such sellers are recognizing the value of MercadoLibre as a sales channel, and havingthem on our site increases our selection of quality products and enhances the MercadoLibre brand. Through our Official Stores initiative,we offer users a tailored experience with products sold directly from such sellers. Our sales team remains dedicated to attracting andsupporting these new vendor segments.·Increase monetization of our transactions. We have focused and will continue to focus on improving the revenue generation capacity ofour business by implementing initiatives designed to maximize the revenues we receive from transactions on our platform. Some of theseinitiatives include increasing our fee structure, selling advertising on our platform, offering other e-commerce services and expanding ourfee-based features.·Take advantage of the natural synergies that exist between our services. We strive to leverage our different businesses to promote greatercross-usage, thereby creating a fully integrated ecosystem of e-commerce offerings. We promote the adoption of our MercadoPagopayments solution on our marketplace as well as on our MercadoShops solution, offer our advertising solutions to users of our marketplace,payments and shops solutions, and encourage users of any of our services to experiment with the other solutions we offer.·Expand into additional transactional service offerings. Our strategic focus is to enable online transactions of multiple types of goods andservices throughout Latin America. Consequently, we strive, and will continue to strive, to launch online transactional offerings in newproduct and service categories where we believe business opportunities exist. These new transactional offerings include, but are not limitedto, efforts involving: (a) offering additional product categories in our marketplace, (b) expanding our presence in vehicle, real estate andservices classifieds, (c) maximizing utilization of MercadoPago on our platform and expanding our off-platform, (d) maximizing utilizationof MercadoEnvios, (e) expanding our MercadoCredito service, and (f) offering enterprise software solutions to our online commercebusiness clients. We believe that a significant portion of our growth will be derived from these new or expanded product and servicelaunches in the future. We are especially focused on driving adoption of MercadoPago and MercadoEnvios across the MercadoLibreplatform. These services create a better, more streamlined experience for both buyers and sellers on our platform, minimizing transactionalinefficiency and improving monetization. We must continue to drive adoption of these services where they are currently available, andcontinue to expand these services to new markets. MercadoPago usage outside of our platform also represents an enormous growth avenue,especially in processing and financing payments. As credit card adoption and bank account utilization continue to increase across LatinAmerica, the market for online and mobile payments will grow significantly. We believe it is imperative that MercadoPago captures thatdemand, especially as eCommerce continues to grow.·Enhance brand awareness. We believe that enhancing awareness of the MercadoLibre brand is important to achieve our businessobjectives. We intend to continue to promote and increase recognition of our brand through a variety of marketing and promotionalcampaigns. These may include marketing agreements with companies that have a significant online presence and advertising throughtraditional media, such as cable television. We may also use leading websites and other media such as affiliate programs, banner 7 Table of Contents advertisements and keyword searches. In addition, we believe that by enhancing our e-commerce community experience, we promotegreater brand awareness through word of mouth.·Focus on user loyalty and website enhancement. We will continue to focus on increasing purchase frequency and transaction volumesfrom our existing users. We intend to do so by maintaining an appealing and convenient platform for e-commerce, improving thefunctionality of our website to deliver a more efficient user experience and providing our users with the help of a dedicated customersupport department. We employ a number of programs aimed to foster customer loyalty and repeated purchases, such as our MercadoLiderloyalty program for high-volume sellers, our targeted and segmented direct marketing program, and MercadoPago special promotions andour MercadoEnvios shipping service.·Increase operational efficiency. We believe our business model provides us with an opportunity to generate healthy profit margins. Weplan to maximize this potential by achieving economics of scale, maintaining controls on overhead costs and reducing variable costswhenever possible.·Continue to develop innovative and creative solutions. We intend to continually enhance our e-commerce platform in order to better serveboth individuals and businesses that want to buy or sell goods and services online. We intend to continue investing to develop new toolsand technologies that facilitate e-commerce on our platform and improve our users’ online experience on MercadoLibre, while addressingthe distinctive cultural, geographical and other challenges of online commerce in Latin America. Within our constant focus on innovation,a key component of user experience is the vertical solutions we offer across key categories. These tailored vertical solutions improve theuser experience, enabling customers to browse categories by applying filters, rather than merely search for items. We have developed andcontinue to innovate on such vertical solutions for our classifieds sites for motor vehicles, vessels, aircraft, real estate and services..Furthermore, we provide such an experience for fashion and apparel on our marketplace, driving growth in that category. In order toimprove the user experience, we must continue to innovate by improving our existing verticalized categories and creating verticalsolutions for new categories. Another key component of innovation is our open platform initiative, which has enabled third-partydevelopers to access MercadoLibre’s APIs in order to build solutions that help both sellers and buyers on our platform. We have set up asmall venture fund to invest in such startups that integrate with our platform, making several investments to date in Argentina, Brazil, Chileand México. Our open platform also enables large sellers to directly integrate their systems with our site, allowing us to attract and integratebrands, manufacturers and large retailers. We will continue to open our platform across all services in order to promote further developmentof third-party solutions and easier integration for large retailers.·Serve our dynamic and active user community. We seek to operate MercadoLibre as an open and trusted web-based marketplace whereusers can access a broad market of products. We believe in treating our users with respect by applying a consistent set of policies thatreinforce good online and offline behavior within our user community. We also seek to offer superior customer care in order to maintain theloyalty and satisfaction of our active user base. We continue to invest in the customer experience to make it a competitive advantage. Withroughly 1,788 customer service representatives across several countries, we strive to provide a superior experience to our buyers and sellers,continuing to drive improvements in our Net Promoter Score. The Net Promoter Score is an index ranging from -100 to 100 that measuresthe willingness of customers to recommend a company’s products or services to others. It is used as a proxy for gauging the customer’soverall satisfaction with a company’s product or service and the customer’s loyalty to the brand.MercadoLibre MarketplaceThe MercadoLibre Marketplace is an online commerce platform where buyers and sellers can engage in transactions for a wide range of goodsand services. We believe that the MercadoLibre Marketplace allows sellers to reach a large consumer audience more cost-effectively than throughtraditional offline commerce channels or other online venues serving our Latin American markets. Our platform is a fully-automated, topically-arranged and user-friendly online commerce service which permits both businesses and individuals to list items and conduct their sales andpurchases online. Any Internet user can browse through the various products and services that are listed on our website and register for free withMercadoLibre to list or purchase items and services. Additionally, sellers and advertisers can purchase, display and link advertising on our websitesto promote their brands, businesses and products. The MercadoLibre Marketplace offers buyers a large selection of new and used items that webelieve are often more expensive or otherwise hard to find through traditional offline sellers, such as brick-and-mortar retail establishments, offlineclassified advertisements, community bulletin boards, auction houses and flea markets.Our MercadoLibre Marketplace is on the same technological platform in each of our operating countries. However, each country has it ownstandalone website on the MercadoLibre platform. For example, searches carried out on our Brazilian site show only results of listings uploaded onour Brazilian site and do not show listings from other MercadoLibre webpages.During 2016, visitors to our website were able to browse an average of over 65.1 million Marketplace listings daily, organized by country, inover 1359 different product categories. We believe that we have achieved a critical mass of active buyers, sellers and product listings in most of thecountries where we operate and that our business can be readily scaled to handle increases in our user base and transaction volume. At December 31,2016, we had over 174.2 million confirmed registered MercadoLibre Marketplace users, up from 144.6 million and 120.9 million at December 31,2015 and 2014, respectively. During 2016, in our Marketplace, we had 7.6 million unique sellers, 27.7 million unique buyers and 181.2 millionSuccessful Items sold as compared to i) 6.2 million unique sellers, 23.6 million unique buyers and 128.4 million successful items sold during 2015and ii) 5.5 million unique sellers, 22.0 million unique buyers and 101.3 million successful items sold during 2014. Finally, our Marketplace grossmerchandise volume (“GMV”) was $8.0 billion in 2016, as compared to $7.2 billion in 2015 and $7.1 billion in 2014. See Item 6 of Part II,“Selected Financial Data-Other data” for details on the measures described in this paragraph. 8 Table of Contents MercadoLibre Classifieds ServiceThe MercadoLibre Classifieds Service enables users to list their offerings related to motor vehicles, vessels, aircraft, real estate and servicesoutside the Marketplace platform. Classifieds listings differ from Marketplace listings, as they only charge optional placement fees, and never finalvalue fees. Our classifieds pages are also a major source of traffic to our website, benefitting both Marketplace and non-Marketplace businesses.In 2016, MercadoLibre visitors were able to browse an average of 2.1 million classifieds listings daily, including approximately 1.4 million inReal Estate, 0.6 million in motors, and 0.1 million in services per day. During 2016, we had a total of 2.9 million unique sellers and 27.2 millionpaid listings through the MercadoLibre Classifieds Service, as compared to i) 2.4 million unique sellers and 15.2 million paid listings during 2015and ii) 2.3 million unique sellers and 11.6 million paid listings during 2014.MercadoPago Online Payments ServiceTo complement the MercadoLibre Marketplace, we developed MercadoPago, an integrated online payments solution. MercadoPago isdesigned to facilitate transactions both on and off the MercadoLibre Marketplace by providing a mechanism that allows our users to securely, easilyand promptly send and receive payments online. MercadoPago enables any MercadoLibre registered user to securely and easily send and receivepayments online to pay for purchases made in the MercadoLibre Marketplace. MercadoPago is currently available to MercadoLibre users in each ofBrazil, Argentina, Mexico, Venezuela, Chile, Colombia, Perú and Uruguay.MercadoPago is also available in these countries for purchases of goods and services outside the MercadoLibre Marketplace, as an openonline payment service. The off platform service is designed to meet the growing demand for Internet-based payments systems in Latin America.Users are able to transfer money to other users and to incorporate MercadoPago as a means of payment on their independent websites. MercadoPagoallows merchants to facilitate checkout and payment processes on their websites and also enables users to simply transfer money to each other eitherthrough the website or using the MercadoPago App, available on IAS, Android and other mobile operating systems. MercadoPago allows merchantswho are not registered with the MercadoLibre Marketplace to receive payments as long as they registered with MercadoPago. It also allowsconsumers to pay MercadoPago-registered merchants either by registering with MercadoPago or by providing their credit card information as a“guest user”.Furthermore, MercadoPago offers registered online sellers the ability to integrate MercadoPago with their checkout flow, thereby streamliningthe shopping and payment processes. We believe that the ease of use, safety and efficiency of MercadoPago will allow us to generate additionaltransactions in the future from web merchants that sell items outside the MercadoLibre Marketplace. We believe that there is a significant businessopportunity to increase adoption of MercadoPago as a payment mechanism both on and off the MercadoLibre Marketplace for years to come.In July 2015, MercadoPago launched a mobile point of sale service in Brazil which allows merchants or individuals to process physical creditand debit cards, either by reading the chip and entering the personal identification number, or PIN, of the card or by swiping it, depending on thetype of card. This service was also launched in México and Argentina in July and November 2016, respectively.During the year ended December 31, 2016, our on-platform users paid approximately $5,627 million using MercadoPago, which represented69.9% of our gross merchandise volume for that year. During the year ended December 31, 2015, our on-platform users paid approximately $3,765million using MercadoPago, which represented 52.6% of our gross merchandise volume for the year. During the year ended December 31, 2014, ouron platform users paid approximately $2,582 million using MercadoPago, which represented 36.5% of our gross merchandise volume for that year. We seek to increase the adoption and penetration of MercadoPago among MercadoLibre Marketplace users. In the countries whereMercadoPago was available, as of December 31, 2016, approximately 99% of the MercadoLibre Marketplace’s listings accepted MercadoPago forpayments and 79.1% of our total GMV in these countries was completed through MercadoPago. Starting in Brazil in January 2010, in Argentina inMarch 2010, in Mexico in April 2011, in Venezuela in July 2012, in Colombia in November 2013, in Perú in June in 2016 and in Uruguay inNovember 2016, all paid listings on the MercadoLibre Marketplace (excluding free listings and classifieds) were required to offer MercadoPago.Finally, during the fourth quarter of 2016, we launched MercadoCredito in Argentina, which is designed to extend loans to specific merchants.Our MercadoCredito solution allows us to deepen our engagement with our merchants by offering them additional services. As of December 31,2016, we extended approximately $10.3 million in credit to merchants, of which $6.3 million were outstanding. 9 Table of Contents MercadoEnvios Shipping ServiceMercadoEnvios is a shipping service for marketplace users, available in Brazil, Argentina, Mexico, Colombia and Chile. ThroughMercadoEnvios, we offer a cost-efficient integration with existing logistic and shipping carriers to sellers on our platform. Sellers opting into theprogram are able to offer a uniform and seamlessly integrated shipping experience to their buyers at competitive prices. MercadoLibre Advertising ServiceThe MercadoLibre Advertising platform enables large retailers and various other consumer brands to promote their products and services onthe Internet by providing branding and performance marketing services. Advertisers place text, display or banner advertisements in order to promotetheir brands and offerings on our webpages and our associated sites in the region. Advertisers can purchase improved search standing and/or specificcategories, on a cost per click basis or per impression basis, where their advertisements could appear as a result of a bidding process with otherrelevant advertisements. MercadoShops Webstores ServiceMercadoShops is a software-as-a-service, fully hosted online store solution. Through MercadoShops users can set-up, manage andpromote their own webstores. These webstores are hosted by MercadoLibre and offer integration with the other marketplace, payment andadvertising services we offer. Users can choose from a basic, free webstore or pay monthly subscriptions for enhanced functionality and addedservices on their webstores.MarketingOur marketing strategy is designed to grow our platform by promoting the MercadoLibre brand, attracting new users and generating morefrequent trading by our existing users. To this end, we employ various means of advertising, including placement in leading online channels acrossLatin America, paid and organic positioning in leading search engines, email marketing, onsite marketing and presence in offline events. Ourexpenditures in marketing activities were $72.0 million during 2016, $58.5 million during 2015 and $50.6 million during 2014.Specifically, we rely mostly on online advertising to promote our brand and attract potential buyers and sellers to our websites. To summarize,we focus on the following key marketing initiatives:·Search: MercadoLibre advertises on the top search engines in each of our key markets. Our investment is focused on obtaining a positionthat allows our ads to maximize the number of impressions and clicks generated by such investments.·Display: MercadoLibre is an active participant in the main display-ad networks across the region. These networks include, but arenot limited to Google Display Network and Facebook. Our company uses the display networks to run branding, prospecting and retargetingstrategies.·Email and Push Notifications: We use our user base to target ad-hoc advertisements designed as a retargeting tool as well as to push keyselling events throughout the year.·On-site: We use our own platform's real estate to promote key selling events as well as always-on actions designed to showcase certaincategories and or selected items.·Offline: In certain occasions, we do promote key selling events on radio and TV. In addition, we organize PR events to promote our brandand reputation where we see opportunities.During 2016, we continued to showcase our regional brand campaign “Never Stop Searching”. As part of these efforts, we produced 20 videospots that were designed for and released in digital media. This strategy allowed us to reach more than 50 million internet users in the region. Weconsider digital media as an important channel to reach millenials, our target market, and find it more cost-effective than TV. As a result of thisbranding strategy we have seen significant growth in direct traffic.Product developmentAt December 31, 2016, we had 1,226 employees on our information technology and product development staff, an increase from 848employees at December 31, 2015, due to new hires and as a consequence of the acquisitions of Monits S.A. and Axado Informação e Tecnologia S.A.(or “Axado”) in February and June, respectively, which increased our information technology and product development staff. We incurred productdevelopment expenses (including salaries) in the amount of $98.5 million in 2016, $76.4 million in 2015 and $53.6 million in 2014. We alsoincurred information technology capital expenditures, including software licenses, amounting to $33.1 million in 2016, $25.8 million in 2015 and$22.7 million in 2014.We continually work to improve both our MercadoLibre Marketplace and MercadoPago websites so that they better serve our users’ needs andfunction more efficiently. A significant portion of our information technology resources are allocated to these purposes. We strive to maintain theright balance between offering new features and enhancing the existing functionality and architecture of our software and hardware. 10 Table of Contents The adequate management of the MercadoLibre Marketplace and MercadoPago software architecture and hardware requirements is asimportant as introducing additional and better features for our users. Because our business has grown relatively fast, we must ensure that our systemsare capable of absorbing this incremental volume. Therefore, our engineers work to optimize our processes and equipment by designing moreeffective ways to run our platform.We develop most of our software technology in-house. Since our inception in 1999, we have had a development center in Buenos Aires wherewe concentrate the majority of our development efforts. In June 2007, we launched a second development center in the province of San Luis inArgentina. The center is a collaborative effort with the Technological University of La Punta. In this effort, the University offers us access todedicated development facilities and a recruiting base for potential employees. In 2012, we opened our newest development center in Aguada Park,Montevideo, Uruguay, which is dedicated to software development activities. Since 2013, we also have a development center in the Province ofCórdoba, Argentina. We also have other research and/or development centers in Brazil, Mexico and Venezuela.In December 2014 and February 2016, we acquired 100% of the equity interests in software development companies based in the city ofBuenos Aires. Additionally, in June 2016, we acquired 100% of the equity interest in a software development company based in Brazil. Theobjective of these acquisitions was to enhance our software development capabilities.While we have developed most of our software technology in-house, we have made acquisitions in the past to enhance our softwaredevelopment capabilities, and we outsource certain projects to outside developers. We believe that outsourcing the development of certain projectsallows us to have a greater operating capacity and strengthens our internal know-how by incorporating new expertise to our business. In addition,our developers frequently interact with technology suppliers and attend technology-related events to familiarize themselves with the latestinventions and developments in the field.Since 2010, we have been continuously working on a deep technology overhaul to switch from a closed and monolithic system to an open anddecoupled one. We are splitting MercadoLibre into many small “cells”. A cell is a functional unit with its own team, hardware, data and source code.Cells interact with each other using Application Programming Interfaces, or API´s. All the Front-Ends are also being rewritten on top of these APIs.This effort has consumed a large amount of capital, people and management’s focus, and we intend to keep investing in this area. In October 2012,we opened our platform to the developer community during a launch event in Sao Paulo, Brazil. We seek to further open our platform to developersin the other locations in which we operate, with the objective of continuing to enhance our ecosystem.We anticipate that we will continue to devote significant resources to product development in the future as we add new features andfunctionality to our services. The market in which we compete is characterized by rapidly changing and disruptive technologies, evolving industryand regulatory standards, frequent new service and product announcements, introductions and enhancements and changing customer demands.Accordingly, we believe the cornerstone of our future success will depend on our ability to adapt to rapidly changing technologies, to adapt ourservices to evolving industry and regulatory standards and to continually improve the performance, features, user experience and reliability of ourservices in response to competitive product and service offerings and evolving demands of the marketplace.SeasonalityLike most retail businesses, we experience the effects of seasonality in all our operating territories throughout the calendar year. Althoughmuch of our seasonality is due to the Christmas holiday season, the geographic diversity of our operations helps mitigate the seasonality attributedto summer vacation time (i.e. southern and northern hemispheres) and national holidays.Typically, the fourth quarter of the year is the strongest in every country where we operate due to the significant increase in transactions beforethe Christmas season (see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Seasonality” for more detail).The first quarter of the year is generally our slowest period. The months of January, February and March correspond to summer vacation time inArgentina, Brazil, Chile, Peru and Uruguay. Additionally, the Easter holiday falls in March or April, and Brazil celebrates Carnival for one week inFebruary or March. This first quarter seasonality is partially mitigated by our operations in the countries located in the northern hemisphere, such asColombia, Mexico and Venezuela, the slowest months for which are the summer months of July, August and September.CompetitionThe online commerce market is rapidly evolving and highly competitive, and we expect competition to intensify even further in the future.Barriers-to-entry for large, established Internet companies are relatively low, and current and new competitors can launch new sites at relatively lowcost using commercially available software. While we are currently a market leader in a number of the markets in which we operate, we currently orpotentially compete with a limited number of marketplace operators, such as Rakuten in Brazil and Amazon in Brazil and México. We also competewith businesses that offer business-to-consumer online e-commerce services such as pure play Internet retailer Submarino (a website of B2W Inc.),Cnova, Aliexpress or others with a focus on specific vertical categories, such as Netshoes, which focuses on sports & apparel and Dafiti, whichfocuses on fashion.There are also a growing number of brick and mortar retailers who have launched on line offerings such as Americanas (a website of B2W Inc),Casas Bahia, Walmart, Fravega, Garbarino and Falabella, and shopping comparison sites located throughout Latin America such as Buscape andBondfaro. In the classified advertising market we compete with regional players such as OLX and Viva Street, and with local players such asWebmotors, and Zap, which have strong positions in certain markets in which we operate. 11 Table of Contents In addition, we face competition from a number of large online communities and services that have expertise in either, developing e-commerce, facilitating online interaction, or both. Some of these competitors, such as Facebook, Google, Yahoo and Microsoft currently offer avariety of online services, and have the potential to introduce e-commerce to their large user populations. Other large companies with strong brandrecognition and experience in e-commerce, such as large newspaper or media companies, also compete in the online listing market in Latin America.In September 2001, we entered into a strategic alliance with eBay, which became one of our stockholders and started working with us to betterserve the Latin American e-commerce community. As part of this strategic alliance, we acquired eBay’s Brazilian subsidiary at the time, iBazar, andeBay agreed not to compete with us in the region during the term of the agreement which ended on September 24, 2006. During this term, thisagreement also provided us with access to certain know-how and experience, which accelerated aspects of our development. Since the termination ofthis agreement, there are no contractual restrictions preventing eBay from becoming one of our competitors. In October 2016, eBay sold its entireshareholder interest over us.MercadoPago competes with existing online and offline means of payment businesses, including, among others, banks and other providers oftraditional means of payment, particularly credit cards, checks, money orders, and electronic bank deposits, international online payments servicessuch as Paypal and Google Checkout, local online payment services such as DineroMail in Argentina, Chile, Colombia and Mexico, and Bcash andPagSeguro in Brazil, money remitters such as Western Union, the use of cash, which is often preferred in Latin America, and offline fundingalternatives such as cash deposit and money transfer services. Some of these services may operate at lower commission rates than MercadoPago’scurrent rates.Intellectual propertyWe regard the protection of our copyrights, service marks, trademarks, domain names, trade dress and trade secrets as critical to our futuresuccess and rely on a combination of copyright, trademark, service mark and trade secret laws and contractual restrictions to establish and protectour proprietary rights in our products and services. We have entered into confidentiality and invention assignment agreements with our employeesand certain contractors. We have also established non-disclosure agreements with our employees, strategic partners and some suppliers in order tolimit access to and disclosure of our proprietary information.We pursue the registration of our trademarks and service marks in each country where we operate, in the United States and in certain otherLatin American countries. Generally, we register the name “MercadoLibre,” “MercadoLivre,” “MercadoPago” and “MercadoEnvios” as well as ourhandshake logo, and other names and logos in each country where we operate. As part of our acquisition of DeRemate.com Inc. (or “DeRemate”) andClassified Media Group, Inc. (or “CMG”), we acquired the trademarks of DeRemate and CMG, respectively, throughout the countries where theyoperated as well as certain other jurisdictions.We also own trademarks of Autoplaza.com.mx and Homershop.com.mx in Mexico. Additionally, we operate online classified advertisementsplatforms dedicated to the sale of real estate in Chile through the Portal Inmobiliario brand and in Mexico through the Guia de Inmueblesbrand. Additionally, during 2015, we acquired Metros Cúbicos (merged into Inmuebles Online S.A. since December 2015), company dedicated tothe sale of real estate in Mexico, and KPL Soluções Ltda. (merged into Ebazar since August 2015), a company that develops ERP software for the e-commerce industry in Brazil, owners of Metros Cubicos and KPL trademarks, respectively. Finally, during 2016, we acquired Axado, a company thatdevelops logistic software for the e-commerce industry in Brazil, owner of Axado trademark.We have licensed in the past, and expect that we may license in the future, certain of our proprietary rights, such as trademarks or copyrightedmaterial, to third parties. While we attempt to ensure that our licensees maintain the quality of the MercadoLibre brand, our licensees may takeactions that could materially adversely affect the value of our proprietary rights or reputation.Third party technologiesWe also rely on certain technologies that we license from third parties, such as Oracle Corp., SAP AG, Salesforce.com Inc., Microstrategy,Teradata, Radware, Juniper Networks, Amazon Web Services, Cisco Systems Inc., Arista Networks, Imperva, F5 Networks, and Net App, the suppliersof key database technology, the operating system and specific hardware components for our services.Third parties have from time to time claimed, and others may claim in the future, that we have infringed their intellectual property rights byallowing sellers to list certain items on MercadoLibre. See “Item 3. Legal Proceedings” and “Item 1A. Risk factors—Risks related to our business—We could face legal and financial liability for the sale of items that infringe on the intellectual property and distribution rights of others and forinformation disseminated on the MercadoLibre Marketplace” below. 12 Table of Contents EmployeesThe following table shows the number of our employees by country at December 31, 2016: Country Number ofEmployeesArgentina1,684 Brazil1,186 Chile117 Colombia278 Mexico130 Uruguay639 Venezuela111 Perú1 Total4,146 We manage operations in the remaining countries in which we have operations remotely from our headquarters in Argentina.Our employees in Brazil are represented by an Information Technology Companies Labor Union in the State of São Paulo (“Sindicato dosTrabalhadores nas Empresas e Cursos de Informática do Estado de São Paulo”) and some of our employees in Argentina are represented by theCommercial Labor Union (“Sindicato de Empleados de Comercio”). Unions or local regulations in other countries could also require thatemployees be represented. We consider our relations with our employees to be good and we implement a variety of human resources practices,programs and policies that are designed to hire, develop, compensate and retain our employees.We are very proud of our employees and believe that our team is one of the most important assets of our Company. We believe that ouremployees are among the most knowledgeable in the Latin American Internet industry, and they have developed a deep understanding of ourbusiness and e-commerce in general. We believe we have been successful in attracting and retaining outstanding individuals over the years. Asignificant portion of our personnel has been with us for several years, and we strive to obtain more talent by hiring individuals with an Internet-related background and experience. Similarly, our future success will depend on our ability to continue to attract, develop and retain capableprofessionals. See “Item 1A. Risk Factors—Risks related to our business— We depend on key personnel, the loss of which could have a materialadverse effect on us.”Government regulationWe are subject to a variety of laws, decrees and regulations that affect companies conducting business on the Internet in some of the countrieswhere we operate related to e-commerce, electronic or mobile payments, data collection, data protection, privacy, information requirements forInternet providers, taxation (including value added taxes, (“VAT”) or sales tax collection obligations) obligations to provide information to certainauthorities about transactions occurring on our platform or about our users, and other legislation which also applies to other companies conductingbusiness in general. It is not clear how existing laws governing issues such as general commercial activities, property ownership, copyrights andother intellectual property issues, taxation (including the imposition to provide certain information about transactions that occurred on our platform,or about our users), libel and defamation, obscenity, consumer protection, digital signatures and personal privacy apply to online businesses. Someof these laws were adopted before the Internet was available and, as a result, do not contemplate or address the unique issues of the Internet. Due tothese areas of legal uncertainty, and the increasing popularity and use of the Internet and other online services, it is possible that new laws andregulations will be adopted with respect to the Internet or other online services. These regulations could cover a wide variety of issues, including,without limitation, online commerce, Internet service providers’ responsibility for third party content hosted in their servers, user privacy, electronicor mobile payments, freedom of expression, pricing, content and quality of products and services, taxation (including VAT or sales tax collectionobligations, obligation to provide certain information about transactions that occurred through our platform, or about our users), advertising,intellectual property rights, consumer protection and information security.We are also subject to regulations in Argentina that impose sales taxes and VAT collection obligations on the Company based on users’ salesthrough the platform. Other jurisdictions may issue new legislation in that regard. If users were to reduce or stop using our website or services as aresult of these regulations, our business would be harmed.Since 2013, we are subject to new obligations in Brazil imposed on certain payment processing functions carried out by non-financialinstitutions. During December 2014, we submitted our application to become an authorized payment institution in Brazil. As of the date of thisreport, we have not received such authorization.During 2014 and 2015, Colombia enacted regulations which established specific requirements to open accounts and provide certain paymentservices, as well as policies for cash and risk management. 13 Table of Contents Uruguay and Peru recently enacted regulations that cover a wide variety of issues related to electronic payments or e-money, including, amongother things, rules related to the requirement to obtain authorization from the relevant authority to operate, offer or provide certain paymentservices. In September 2016, we obtained the registration of our Uruguaian subsidiary before the Central Bank of Uruguay as an entity entitled toprovide services of payments and collections. Thus, on November 1, 2016 MercadoPago was launched in Uruguay.In the rest of the countries in which we operate we believe that the agency-based structure that we currently use for MercadoPago allows us tooperate this service without obtaining any governmental authorizations or licenses or being regulated as a financial institution in the countrieswhere we offer MercadoPago. However, as we continue to develop MercadoPago and, particularly, our peer-to-peer lending business we may need tosecure governmental authorizations or licenses or comply with regulations applicable to financial institutions, electronic or mobile payments and/oranti-money laundering in the countries where we offer this service. In this regard, since November 2016 the Argentine subsidiary of the Company isregistered before the Argentine anti-money laundering authority (“Unidad de Información Financiera”) as an entity subject to certain reportingobligations pursuant to anti-money laundering local regulations.There are laws and regulations that address foreign currency and exchange rates in every country in which we operate. In certain countrieswhere we operate, we need governmental authorization to pay invoices to a foreign supplier or send money abroad due to foreignexchange restrictions. See “Item 1A. Risk factors—Risks related to doing business in Latin America—Local currencies used in the conduct of ourbusiness are subject to depreciation, volatility and exchange controls” for more information.The Argentine Ministry of Economy had approved certain of our Argentina subsidiaries as beneficiaries of the Argentine Regime to promotethe software industry. Benefits of receiving this status includes a relief of 60% of total income tax related to software development activities anda 70% relief in payroll taxes related to software development activities. See Item 8 of Part II, “Financial Statements and Supplementary Data-Note 2-Summary of significant accounting policies-Income and asset taxes.”The Venezuelan Government issued a law in 2015 which established a maximum profit margin of 30% of the cost structure of goods or servicessold by each participant in the commercialization chain.In August 2016, we acquired 6,057 square meters and 50 parking spaces in an office building in process of construction located in BuenosAires, for a total amount of $31.4 million. In connection with this acquisition, in February 2017, we obtained a preliminary approval that allows usto defer during a 2-year period payments of sales tax up to the amounts disbursed for the building. These deferred payments will be extinguished (i.e.as tax reliefs) upon receiving definitive approval from the City of Buenos Aires government within that 2-year period.Segment and Geographic InformationFor an analysis of financial information about our segments, see “Item 7. Management’s Discussion and Analysis of Financial Condition andResults of Operations—Reporting Segments and Geographic Information”, “Item 7. Management’s Discussion and Analysis of Financial Conditionand Results of Operations—Description of Line Items—Net revenues” and Note 7, Segments to our consolidated financial statements includedelsewhere in this report and incorporated by reference in this Item 1.OfficesWe are a Delaware corporation incorporated on October 15, 1999. Our registered office is located at 15 East North Street, Dover, Delaware. Ourprincipal executive offices are located at Arias 3751, 7th Floor, Buenos Aires, Argentina, C1430CRG.Available InformationWe maintain a website which contains additional information concerning our Company. We make available free of charge through our websiteour annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnishedpursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish itto the SEC. Our Corporate Governance Guidelines, Code of Business Conduct and Ethics, and the charters of the Audit Committee, theCompensation and the Nominating and Corporate Governance Committee are also available on our website and are available in print to anystockholder upon request in writing to MercadoLibre, Inc., Attention: Investor Relations, Arias 3751, 7th floor, Buenos Aires, Argentina,C1430CRG. Information on or connected to our website is neither part of nor incorporated into this report on Form 10-K or any other SEC filings wemake from time to time. 14 Table of Contents ITEM 1A.RISK FACTORSFor purposes of this section, the term “stockholders” means the holders of shares of our common stock. Set forth below are the risks that webelieve are material to our stockholders and prospective stockholders. You should carefully consider the following factors in evaluating ourcompany, our properties and our business. The occurrence of any of the following risks might cause our stockholders to lose all or a part of theirinvestment in our Company. The risks and uncertainties described below are not the only ones facing us. Other risks that we do not currentlyanticipate or that we currently deem immaterial also may affect our results of operations and financial condition. Some statements in this reportincluding statements in the following risk factors section constitute forward-looking statements. Please refer to the section entitled “Special NoteRegarding Forward-Looking Statements” at the beginning of this report.Risks related to our businessOur business depends on the continued growth of online commerce and the availability and reliability of the Internet in Latin America.The market for online commerce is a developing market in Latin America. Our future revenues depend substantially on Latin Americanconsumers’ widespread acceptance and use of the Internet as a way to conduct commerce. The use of and interest in the Internet (particularly as away to conduct commerce) has grown rapidly since our inception and we cannot assure you that this acceptance, interest and use will continue. Forus to grow our user base successfully, more consumers must accept and use new ways of conducting business and exchanging information. The priceof personal computers and/or mobile devices and Internet access may also limit our potential growth in countries with low levels of Internetpenetration and/or high levels of poverty.In addition, the Internet may not be commercially viable in Latin America in the long term for a number ofreasons, including potentially inadequate development of the necessary network infrastructure or delayed development of enabling technologies,performance improvements and security measures. The infrastructure for the Internet may not be able to support continued growth in the number ofInternet users, their frequency of use or their bandwidth requirements.In addition, the Internet could lose its viability due to delays in telecommunications technological developments, or due to increasedgovernment regulation. If telecommunications services change or are not sufficiently available to support the Internet, response times would beslower, which would adversely affect use of the Internet and our service in particular.Our future success depends on our ability to expand and adapt our operations to meet rapidly changing industry and technology standards in acost-effective and timely mannerWe plan to continue to expand our operations by developing and promoting new and complementary services. We may not succeed atexpanding our operations in a cost-effective or timely manner, and our expansion efforts may not have the same or greater overall market acceptanceas our current services. Furthermore, any new business or service that we launch that is not favorably received by consumers could damage ourreputation and diminish the value of our brands. To expand our operations we will also need to spend significant amounts on development,operations and other resources, and this may place a strain on our management, financial and operational resources. Similarly, a lack of marketacceptance of these services or our inability to generate satisfactory revenues from any expanded services to offset their cost could have a materialadverse effect on our business, results of operations and financial condition.Any delay or problem with upgrading our existing information technology infrastructure could cause a disruption in our business and adverselyimpact our financial results.Our ability to operate our business on a day-to-day basis largely depends on the efficient operation of our information technologyinfrastructure. We are particularly susceptible to errors in connection with any systems upgrade or migration to a different hardware or softwaresystem and any such errors or interruptions could impede or delay our ability to process transactions on our site, which could reduce our revenuefrom activity on our site and adversely affect our reputation with, or result in the loss of users. Moreover, any errors, interruptions, delays or cessationof service could result in significant disruptions to our business that could ultimately be more expensive, time consuming, and resource intensivethan anticipated. Defects or disruptions in our technology infrastructure could adversely impact our ability to process transactions, our financialresults and our reputation.Our systems may fail or suffer interruptions due to human acts, technical problems or natural disasters.Our success, and in particular our ability to facilitate trades or payments successfully and provide high quality customer service, depends onthe efficient and uninterrupted operation of our computer and communications hardware systems. Substantially all of our computer hardware foroperating the MercadoLibre Marketplace and MercadoPago services is currently located at the facilities of the Savvis Datacenter in Sterling,Virginia, with a redundant database backup in Atlanta, Georgia. These systems and operations are vulnerable to damage or interruption fromearthquakes, tornadoes, floods, fires and other natural disasters, power loss, computer viruses, telecommunication failures, physical or electronicbreak-ins, sabotage, intentional acts of vandalism, terrorism, and similar events. If our system suffers a major failure, it would take as much as severaldays to get the service running again because our Atlanta database is only a backup with very limited hardware. 15 Table of Contents We also have no formal disaster recovery plan or alternative providers of hosting services. In addition, we may have inadequate insurancecoverage to compensate for any related losses. Despite any precautions we have taken or plan to take, if there is a natural disaster or major failure, adecision by our providers to close one of the facilities we use without adequate notice, or other unanticipated problem at the Virginia or Atlantafacilities, the services we provide could suffer interruptions. Additionally, in the occurrence of such pronounced, frequent or persistent systemfailures, our reputation and name brand could be materially adversely affected.Internet regulation in the countries where we operate is scarce, and several legal issues related to the Internet are uncertain. We are subject to anumber of other laws and regulations, and governments may enact laws or regulations that could adversely affect our business.Most of the countries where we operate do not have specific laws governing the liability of Internet service providers, such as ourselves, forfraud, intellectual property infringement, other illegal activities committed by individual users or third-party infringing content hosted on aprovider’s servers. This legal uncertainty allows for different judges or courts to decide very similar claims in different ways and establishcontradictory jurisprudence.Courts may decide that an Internet service provider is liable to an intellectual property owner for a user’s sale of counterfeit items using itsplatform, while others may decide that the responsibility lies solely with the offending user. This legal uncertainty allows for rulings against us,which individually or in the aggregate could have a material adverse effect on our business, results of operations and financial condition. Inaddition, legal uncertainty may negatively affect our clients’ perception and use of our services.We are subject to a variety of laws, decrees and regulations in some of the countries where we operate related to e-commerce, electronic ormobile payments, information requirements for Internet providers, data collection, data protection, privacy, anti-money laundering, taxation(including VAT or sales tax collection obligations), obligations to provide certain information to certain authorities about transactions which areprocessed through our platforms or about our users and those regulations applicable to consumer protection and businesses in general. It is not clearhow existing laws governing issues such as general commercial activities, property ownership, copyrights and other intellectual property issues,taxation (including tax laws that require us to provide certain information about transactions consummated through our platforms or about ourusers), libel and defamation, obscenity, and personal privacy apply to online businesses. Many of these laws were adopted before the Internet wasavailable and, as a result, do not contemplate or address the unique issues of the Internet. Due to these areas of legal uncertainty, and the increasingpopularity and use of the Internet and other online services, it is possible that new laws and regulations will be adopted with respect to the Internetor other online services. If laws relating to these issues are enacted, they may have a material adverse effect on our business, results of operation andfinancial condition.As our activities and the types of goods listed on our website expand, regulatory agencies or courts may argue or rule that we or our users musteither obtain licenses or not be allowed to conduct business in their jurisdiction, either with respect to our services in general or only relating tocertain items, such as auctions, real estate and motor vehicles. Attempted enforcement of these laws against us or our users and other regulatory andlicensing claims could result in expensive litigation or could require us to change the way we or our users do business. Any changes in our or ourusers’ business methods could increase costs or reduce revenues or force us to prohibit listings of certain items for some locations. We could also besubject to fines or penalties, and any of these outcomes could harm our business.In addition, our operations in most of the countries where we operate are subject to risks related to compliance with the U.S. Foreign CorruptPractices Act and other applicable U.S. and other local laws prohibiting corrupt payments to government officials and other third parties.Foreign JurisdictionsBecause our services are accessible worldwide and we facilitate sales of goods to users worldwide, other foreign jurisdictions may claim that weare required to comply with their laws. As we expand and localize our international activities, we have to comply with the laws of the countries inwhich we operate. Laws regulating Internet companies outside of the Latin American jurisdictions where we operate may be more restrictive to usthan those in Latin America. In order to comply with these laws, we may have to change our business practices or restrict our services. We could besubject to penalties ranging from criminal prosecution, significant fines or outright bans on our services for failure to comply with foreign laws.Privacy RegulationsWe are subject to laws relating to the collection, use, storage and transfer of personally identifiable information about our users, especiallyfinancial information. Several jurisdictions have regulations in this area, and other jurisdictions are considering imposing additional restrictions orregulations. If we violate these laws, which in many cases apply not only to third-party transactions but also to transfers of information amongourselves, our subsidiaries, and other parties with which we have commercial relations, we could be subject to significant penalties and negativepublicity, which would adversely affect us.We are subject to regulatory activity and antitrust litigation under competition laws.We receive scrutiny from various governmental agencies under competition laws in the countries where we operate. Some jurisdictions alsoprovide private rights of action for competitors or consumers to assert claims of anti-competitive conduct. Other companies or governmental 16 Table of Contents agencies may allege that our actions violate antitrust or competition laws, or otherwise constitute unfair competition. Contractual agreements withbuyers, sellers, or other companies could give rise to regulatory action or antitrust investigations or litigation. Also, our business practices couldgive rise to regulatory action or antitrust investigations or litigation. Some regulators may perceive our business to have such significant marketpower that otherwise uncontroversial business practices could be deemed anticompetitive. Such claims and investigations, even if withoutfoundation, typically are very expensive to defend, involve negative publicity and substantial diversion of management time and effort, and couldresult in significant judgments against us. Our business is an Internet platform for commercial transactions in which all commercial activity depends on our users and is therefore largelyoutside of our control.Our business is dependent on users listing and purchasing their items and services on our platform. We depend on the commercial activity thatour users generate. We do not choose which items will be listed, nor do we make pricing or other decisions relating to the products and servicesbought and sold on our platform. Therefore, the principal drivers of our business are largely outside of our control, and we depend on the continuedpreference for our platform by millions of individual users. We could face liability for the sale of regulated and prohibited items, unpaid items or undelivered purchases, and the sale of defective items.Laws specifying the scope of liability of providers of online services for the activities of their users through their online service are currentlyunsettled in most of the Latin American countries where we operate. We have implemented what we believe to be clear policies that are incorporatedin our terms of use that prohibit the sale of certain items on our platform and have implemented programs to monitor and exclude unlawful goodsand services. Despite these efforts, we may be unable to prevent our users from exchanging unlawful goods or services or exchanging goods in anunlawful manner, and we may be subject to allegations of civil or criminal liability for the unlawful activities of these users.More specifically, we are aware that certain goods, such as alcohol, tobacco, firearms, animals, adult material and other goods that may besubject to regulation by local or national authorities of various jurisdictions have been traded on the MercadoLibre Marketplace. As a consequenceof these transactions, appropriate authorities may impose fines against us. We have at times been subject to fines in Brazil for certain users’ sales ofproducts that have not been approved by the government. We cannot provide any assurances that we will successfully avoid civil or criminalliability for unlawful activities that our users carry out through our platforms in the future. If we suffer potential liability for any unlawful activitiesof our users, we may need to implement additional measures to reduce our exposure to this liability, which may require, among other things, that wespend substantial resources and/or discontinue certain service offerings. Any costs that we incur as a result of this liability or asserted liability couldhave a material adverse effect on our business, results of operations and financial condition.Government and consumer protection agencies have received a substantial number of complaints about both the MercadoLibre Marketplaceand MercadoPago. These complaints are small as a percentage of our total transactions, but they could become large in aggregate numbers over time.From time to time, we are involved in disputes or regulatory inquiries that arise in the ordinary course of business. The number and significance ofthese disputes and inquiries have increased as our business has expanded and our Company has grown larger. We are likely to receive new inquiriesfrom regulatory agencies in the future, which may lead to actions against us. We have responded to inquiries from regulatory agencies and describedour services and operating procedures and have provided requested information. If one or more of these agencies is not satisfied with our response tocurrent or future inquiries, we could be subject to enforcement actions, injunctions, fines or penalties, or forced to change our operating practices inways that could harm our business, or if during these inquiries any of our processes are found to violate laws on consumer protection, or to constituteunfair business practices, we could be subject to civil damages, enforcement actions, fines or penalties. Such actions or fines could require us torestructure our business processes in ways that would harm our business and cause us to incur substantial costs.In addition, our success depends largely upon sellers accurately representing and reliably delivering the listed goods and buyers paying theagreed purchase price. We have received in the past, and anticipate that we will receive in the future, complaints from users who did not receive thepurchase price or the goods agreed to be exchanged. While we can suspend the accounts of users who fail to fulfill their delivery obligations to otherusers, we do not have the ability to require users to make payments or deliver goods sold. We also receive complaints from buyers regarding thequality of the goods purchased or the partial or non-delivery of purchased items. We have tried to reduce our liability to buyers for unfulfilledtransactions or other claims related to the quality of the purchased goods by offering a free Buyer Protection Program to buyers who meet certainconditions. We may in the future receive additional requests from users requesting reimbursement or threatening legal action against us if we do notreimburse them, the result of which could materially adversely affect our business and financial condition. In addition, as discussed above, we maybe liable in Brazil for fraud committed by sellers and losses incurred by buyers when purchasing items through our platform in Brazil. We haveexpanded the coverage of our Buyer’s Protection Program and this coverage expansion may impact the number and amount of reimbursements weare required to make.Our users have been and will continue to be targeted by parties using fraudulent “spoof” and “phishing” emails that appear to be legitimateemails sent by MercadoLibre or MercadoPago or by a user of one of our businesses, but direct recipients to fake websites operated by the sender ofthe email or misstates that certain payment was credited in MercadoPago and request that the recipient send the product sold or send a password orother confidential information. Despite our efforts to mitigate “spoof” and “phishing” emails, those activities could damage our reputation anddiminish the value of our brands or discourage use of our websites and increase our costs. We have received in the past, and anticipate that we will receive in the future, claims from users who received spoof emails and sent theproduct and did not receive the purchase price. 17 Table of Contents Any litigation related to unpaid or undelivered purchases or defective items could be expensive for us, divert management’s attention andcould result in increased costs of doing business. In addition, any negative publicity generated as a result of the fraudulent or deceptive conduct ofany of our users could damage our reputation, diminish the value of our brands and negatively impact our results of operations.We could face legal and financial liability for the sale of items that infringe on the intellectual property and distribution rights of others and forinformation disseminated on the MercadoLibre Marketplace.Even though we monitor listings on our websites, we are not able to detect every item that may infringe on the intellectual property rights ofthird parties. As a result, we have received in the past, and anticipate that we will receive in the future, complaints alleging that certain items listedand/or sold through the MercadoLibre Marketplace or MercadoShops and/or using MercadoPago infringe third-party copyrights, trademarks orother intellectual property rights. Content owners and other intellectual property rights owners have been active in defending their rights againstonline companies, including us. We have taken steps to work in coordination and cooperation with the intellectual property rights owners to seek toeliminate allegedly infringing items listed in the MercadoLibre Marketplace. Our user policy prohibits the sale of goods which may infringe third-party intellectual property rights, and we may suspend the account of any user who infringes third-party intellectual property rights. Despite all thesemeasures some rights owners have expressed that our efforts are insufficient. Content owners and other intellectual property rights owners have beenactive in asserting their purported rights against online companies. Allegations of infringement of intellectual property rights could result in threatsof litigation and actual litigation against us by rights owners.While we have been largely successful to date in settling existing claims by agreeing to monitor the brands, the current lack of laws related tothe Internet results in great uncertainty as to the outcome of any future claims. Other companies providing similar services have also been subject tothese types of claims in the United States and other countries. We cannot assure you that MercadoLibre and MercadoPago will not be subject tosimilar suits, which could result in substantial monetary awards or penalties and costly injunctions against us.We continue to have outstanding litigation and, although we generally intend to defend each of these claims, we cannot assure you that wewill be successful. This type of litigation is expensive for us, could result in damage awards or increased costs of doing business through adversejudgments or settlements, could require us to change our business practices in expensive ways, or could otherwise harm our business. Litigationagainst other online companies could result in interpretations of the law that could also require us to change our business practices or otherwiseincrease our costs.We are subject to risks with respect to information and material disseminated through our platforms.It is possible that third parties could bring claims against us for defamation, libel, invasion of privacy, negligence, or other theories based onthe nature and content of the materials disseminated through our platforms, particularly materials disseminated by our users. Other online servicescompanies are facing several lawsuits for this type of liability. If we or other online services providers are held liable or potentially liable forinformation carried on or disseminated through our platforms, we may have to implement measures to reduce our exposure to this liability. Anymeasures we may need to implement may involve spending substantial resources and/or discontinuing certain services. Any costs that we incur as aresult of liability or asserted liability could have a material adverse effect on our business, results of operations and financial condition. In addition,public attention to liability issues, lawsuits and legislative proposals could impact the growth of Internet usage, and subsequently have a negativeimpact on our business results.The market in which we operate is rapidly evolving and we may not be able to maintain our profitability.As a result of the emerging nature and related volatility of the markets and economies in the countries in which we compete, the increasedvariety of services offered on our website and the rapidly evolving nature of our business, it is particularly difficult for us to forecast our revenues orearnings accurately. In addition, we have no backlog and substantially all of our net revenues for each quarter are derived from listing fees, optionalfeature fees, up-front fees, final value fees, commissions on MercadoPago payments, finance and interest fees, shipping fees and advertising that areearned during that quarter. Our current and future expense levels are based largely on our investment plans and estimates of future revenues and are,to a large extent, fixed. We may not be able to adjust spending in a timely manner to compensate for any unexpected revenue shortfall. Accordingly,any significant shortfall in revenues relative to our planned expenditures would have an immediate adverse effect on our business, results ofoperations and financial condition.If we continue to grow, we may not be able to appropriately manage the increased size of our business.We have experienced significant expansion in recent years and anticipate that further expansion will be required to address potential growthin our customer base and market opportunities. This expansion has placed, and is expected to continue to place, a significant strain on managementand our operational and financial resources.We must constantly add new hardware, update software, enhance and improve our billing and transaction systems, and add and train newengineering and other personnel to accommodate the increased use of our website and the new products and features we regularly introduce. Thisupgrade process is expensive, and the increasing complexity and enhancement of our website results in higher costs. Failure to upgrade ourtechnology, features, transaction processing systems, security infrastructure, or network infrastructure to accommodate increased traffic ortransaction volume or the increased complexity of our website could materially harm our business. Adverse consequences could includeunanticipated system disruptions, slower response times, degradation in levels of customer support, impaired quality of users’ experiences with ourservices and delays in reporting accurate financial information. 18 Table of Contents Our revenues depend on prompt and accurate billing processes. Our failure to grow our transaction-processing capabilities to accommodate theincreasing number of transactions that must be billed on our website would materially harm our business and our ability to collect revenue.Furthermore, we may need to enter into relationships with various strategic partners, websites and other online service providers and otherthird parties necessary to our business. The increased complexity of managing multiple commercial relationships could lead to execution problemsthat can affect current and future revenues and operating margins.Our current and planned systems, procedures and controls, personnel and third party relationships may not be adequate to support our futureoperations. Our failure to manage growth effectively could have a material adverse effect on our business, results of operations and financialcondition.We are subject to security breaches or other confidential data theft from our systems, which can adversely affect our reputation and business.A significant risk associated with e-commerce and communications is the secure transmission of confidential information over publicnetworks. Currently, a number of MercadoLibre users authorize us to bill their credit card accounts or debit their bank accounts directly, or useMercadoPago to pay for their transactions. We rely on encryption and authentication necessary to provide the security and authenticationtechnology to transmit confidential information securely, including customer credit card numbers and other account information. Advances incomputer capabilities, new discoveries in the field of cryptography, or other events or developments may result in a compromise or breach of thetechnology that we use to protect customer transaction data. If our security were compromised, it could have a material adverse effect on ourreputation. We cannot assure you that our security measures will prevent security breaches or that failure to prevent them will not have a materialadverse effect on our business, results of operations and financial condition.We depend on key personnel, the loss of which could have a material adverse effect on us.Our performance depends substantially on the continued services and on the performance of our senior management and other key personnel.Our ability to retain and motivate these and other officers and employees is fundamental to our performance.Many of most senior executive officers have been with us since 2000 or before, providing us with a stable and experienced management team.The loss of the services of any of these executive officers or other key employees could have a material adverse effect on our business, results ofoperations and financial condition. We do not have employment agreements with any of our key technical personnel other than our seniorexecutives (whose agreements are for an undetermined period and establish general employment terms and conditions) and maintain no “keyperson” life insurance policies. The option grants to most of our senior management and key employees are fully vested. Therefore, these employeesmay not have sufficient financial incentive to stay with us. Consequently we may have to incur costs to replace key employees who leave ourCompany and our ability to execute our business model could be impaired if we cannot replace them in a timely manner.Our future success also depends on our ability to identify, attract, hire, train, retain and motivate other highly skilled technical, managerial,marketing and customer service personnel. Competition for these personnel is intense, and we cannot assure you that we will be able to successfullyattract, integrate, train, retain, motivate and manage sufficiently qualified personnel.Currently our revenues depend substantially on final value fees, up-front fees and fees related to our payment solution and shipping fees wecharge to sellers and such revenues may decrease if market conditions force us to lower such fees or if we fail to diversify our sources of revenue.Our revenues currently depend primarily on, final value fees related to our payment solution and placement fees that we charge to our sellersfor listing and upon selling their items and services. Our platform depends upon providing access to a large market at a lower cost than othercomparable alternatives. If market conditions force us to substantially lower our listing or final value fees or fees related to our payment solution orif we fail to continue to attract new buyers and sellers, and if we are unable to effectively diversify and expand our sources of revenue, ourprofitability, results of operations and financial condition could be materially and adversely affected.We are subject to consumer trends and could lose revenue if certain items become less popular.We derive substantially all of our revenues from fees charged to sellers for listing products for sale on our service, fees from successfullycompleted transactions and fees for making payments through MercadoPago and fees for delivering products through MercadoEnvios. Our futurerevenues depend on continued demand for the types of goods that users list on the MercadoLibre Marketplace or pay with MercadoPago on or offthe MercadoLibre Marketplace. The popularity of certain categories of items, such as computer and electronic products, cellular telephones, toys,apparel and sporting goods, among consumers may vary over time due to perceived availability, subjective value, and trends of consumers andsociety in general. A decline in the demand for or popularity of certain items sold through the MercadoLibre Marketplace without an increase indemand for different items could reduce the overall volume of transactions on our platforms, resulting in reduced revenues.In addition, certain consumer “fads” may temporarily inflate the volume of certain types of items listed on the MercadoLibre Marketplace,placing a significant strain on our infrastructure and transaction capacity. These trends may also cause significant fluctuations in our operatingresults from one quarter to the next. 19 Table of Contents Retailers may encourage manufacturers to limit distribution of their products to dealers who sell through us, or may encourage the government tolimit e-commerce.Manufacturers may attempt to enforce minimum resale price maintenance arrangements to prevent distributors from selling on our websites oron the Internet generally, or at prices that would make our site attractive relative to other alternatives. The adoption by manufacturers of policies, orthe adoption of new laws or regulations or interpretations of existing laws or regulations by government authorities, in each case discouraging thesales of goods or services over the Internet, could force our users to stop selling certain products on our websites. Increased competition or anti-Internet distribution policies or regulations may result in reduced operating margins, loss of market share and diminished value of our brand. In orderto respond to changes in the competitive environment, we may, from time to time, make pricing, service or marketing decisions or acquisitions thatmay be controversial with and lead to dissatisfaction among some of our sellers, which could reduce activity on our websites and harm ourprofitability.The success of other e-commerce companies such as eBay or Amazon is not an indication of our future financial performance.Several companies that operate e-commerce websites, such as eBay or Amazon, have been successful and profitable in the past. However, weoperate in a business environment in Latin America that is different than the environment in which eBay, Amazon and other e-commerce companiesthat operate, which are primarily comprised of markets outside of Latin America. These differences include the smaller size of the national markets,lower Internet adoption rates, lower confidence in remote payment mechanisms, less reliable postal and parcel services, and less predictablepolitical, economic regulatory and legal environments in Latin America. Therefore, you should not interpret the success of any of these companiesas indicative of our financial prospects.We could be subject to liability and forced to change our MercadoPago business practices if we were found to be subject to or in violation of anylaws or regulations governing banking, money transmission, tax regulation, anti-money laundering regulations or electronic funds transfers inany country where we operate; or if new legislation regarding these issues were enacted in the countries where MercadoPago operates.A number of jurisdictions where we operate have enacted legislation regulating money transmitters and/or electronic payments or fundstransfers. We believe we do not require a license under the existing statutes of Argentina, Mexico, Chile, Perú, Colombia and Venezuela to operateMercadoPago in those countries with MercadoPago’s current agency-based structure. If our operation of MercadoPago were found to be in violationof money services laws or regulations or any tax or anti-money laundering regulations, or engaged in an unauthorized banking or financial business,we could be subject to liability, forced to cease doing business with residents of certain countries, or forced to change our business practices or tobecome a financial entity. Any change to our MercadoPago business practices that makes the service less attractive to customers or prohibits its useby residents of a particular jurisdiction could decrease the speed of trade on the MercadoLibre Marketplace, which would further harm our business.Even if we are not forced to change our MercadoPago business practices, we could be required to obtain licenses or regulatory approvals that couldbe very expensive and time consuming, and we cannot assure you that we would be able to obtain these licenses in a timely manner or at all.We are subject to obligations imposed on certain payment processing functions carried out by non-financial institutions in Brazil. Theseregulations cover a wide variety of issues, including a requirement to obtain authorization to operate and requirements related to offering suchpayment processing services.Our MercadoPago business also may be subject to recently enacted regulations in Colombia. The regulation requires certain institutions torequest authorization to operate. If it is determined that the Colombian operation of MercadoPago is subject to these regulations, we will have torequest authorization for, and implement certain changes to, our operations and systems which will require us to incur greater expenses. If we areunable to obtain the requisite authorization, it could cause us to (i) shut down our MercadoPago business in Colombia for an indefinite period oftime, which would be costly and time consuming, (ii) pay penalties for non-compliance or face other penalties such as the dismantling ofMercadoPago or (iii) limit the services we offer through MercadoPago in Colombia or change our business practices, any of which could materiallyadversely affect our business and results of operations.MercadoPago is susceptible to illegal uses, and we could potentially face liability for any illegal use of MercadoPago.MercadoPago, like the MercadoLibre platform, is also susceptible to potentially illegal or improper uses, including, fraudulent and illicitsales, money laundering, bank fraud, different fraud schemes and online securities fraud. In addition, MercadoPago’s service could be subject tounauthorized credit card use, identity theft, break-ins to withdraw account balances, employee fraud or other internal security breaches, and we maybe required to reimburse customers for any funds stolen as a result of such breaches. Merchants could also request reimbursement, or stop usingMercadoPago, if they are affected by buyer fraud.In addition, MercadoPago is or may be subject to anti-money laundering laws and regulations that prohibit, among other things, itsinvolvement in transferring the proceeds of criminal activities or impose taxes collection obligations or obligations to provide certain informationabout transactions that have occurred in our platforms, or about our users. Because laws and regulations differ in each of the jurisdictions where weoperate, as we roll-out and adapt MercadoPago in other countries, additional verification and reporting requirements could apply. These regulationscould impose significant costs on us and make it more difficult for new customers to join the MercadoPago network. Future regulation, may requireus to learn more about the identity of our MercadoPago customers before opening an account, to obtain additional verification of customers and tomonitor our customers’ activities more closely. These requirements, as well as any additional restrictions imposed by credit 20 Table of Contents card associations, could raise our MercadoPago costs significantly and reduce the attractiveness of MercadoPago. Failure to comply with moneylaundering laws could result in significant criminal and civil lawsuits, penalties, and forfeiture of significant assets.We incur losses from claims that customers did not authorize a purchase, from buyer fraud and from erroneous transmissions. In addition to thedirect costs of such losses, if they are related to credit card transactions and become excessive, they could result in MercadoPago losing the right toaccept credit cards for payment. If MercadoPago is unable to accept credit cards, our business will be adversely affected given that credit cards arethe most widely used method for funding MercadoPago accounts. We have taken measures to detect and reduce the risk of fraud on MercadoPago,such as running card security code (“CSC”) checks in some countries, having users call us to have them answer personal questions to confirm theiridentity or asking users to confirm the amount of a small debit for higher risk transactions, implementing caps on overall spending per users and datamining to detect potentially fraudulent transactions. However, these measures may not be effective against current and new forms of fraud. If thesemeasures do not succeed, excessive charge-backs may arise in the future and our business will be adversely affected.Our failure to manage MercadoPago customer funds properly would harm our business.Our ability to manage and account accurately for MercadoPago customer funds requires a high level of internal controls. We have neither anestablished operating history nor proven management experience in maintaining, over a long term, these internal controls. As MercadoPagocontinues to grow, we must strengthen our internal controls accordingly. MercadoPago’s success requires significant public confidence in ourability to handle large and growing transaction volumes and amounts of customer funds. Any failure to maintain necessary controls or to properlymanage customer funds could severely reduce customer use of MercadoPago.MercadoPago is a relatively new service that faces competition from other payment methods, and competitors may adversely affectMercadoPago’s success.MercadoPago competes with existing online and offline payment methods, including, among others, banks and other providers of traditionalpayment methods, particularly credit cards, checks, money orders, and electronic bank deposits; international online payments services such asPayPal and Google Checkout, and local online payment services such as PayU in Argentina, Chile, Colombia and Mexico, and Bcash, PagSeguroand MOIP in Brazil; money remitters such as Western Union; the use of cash, which is often preferred in Latin America; and offline fundingalternatives such as cash deposit and money transmission services. Some of these services may operate at lower commission rates thanMercadoPago’s current rates and, accordingly, we are subject to market pressures with respect to the commissions we charge for MercadoPagoservices.MercadoPago’s competitors may respond to new or emerging technologies and changes in customer requirements faster and more effectively.They may devote greater resources to the development, promotion, and sale of products and services. Competing services tied to established banksand other financial institutions may offer greater liquidity and create greater consumer confidence in the safety and efficacy of their services.Established banks and other financial institutions currently offer online payments and those which do not yet provide such a service could quicklyand easily develop it, including mobile phone carriers.We are currently in the process of rolling out our Payments product in some countries in order to provide a better experience to our users. Forthe same reason we are also charging a single final value fee for the right to use MercadoLibre and MercadoPago in those transactions. This changemay result in our experiencing a lower combined take rate. We consider MercadoPago’s direct payment product to be in early release and haveidentified several opportunities to improve upon the product. In addition, the transition to the new system may not be a smooth one. The occurrenceof any of these events could adversely affect our business.We continue to expand MercadoPago’s services internationally. We have no experience with MercadoPago in Costa Rica, the DominicanRepublic, Ecuador, Guatemala, Panama, Paraguay, or Portugal. The introduction of MercadoPago in certain new markets may require a closecommercial relationship with one or more local banks. These or other factors may prevent, delay or limit our introduction of MercadoPago in othercountries, or reduce its profitability.We rely on banks or payment processors to fund transactions, and changes to credit card association fees, rules or practices may adversely affectour business.Because MercadoPago is not a bank, we cannot belong to or directly access credit card associations, such as Visa and MasterCard. As a result,we must rely on banks or payment processors to process the funding of MercadoPago transactions and MercadoLibre Marketplace collections, andmust pay a fee for this service. From time to time, credit card associations may increase the interchange fees that they charge for each transactionusing one of their cards. The credit card processors of MercadoPago and the MercadoLibre Marketplace have the right to pass any increases ininterchange fees on to us as well as increase their own fees for processing. These increased fees increase the operating costs of MercadoPago, reduceour profit margins from MercadoPago operations and, to a lesser degree, affect the operating margins of the MercadoLibre Marketplace.We are also required by processors to comply with credit card association operating rules. The credit card associations and their member banksset and interpret the credit card rules. Some of those member banks compete with MercadoPago. Visa, MasterCard, American Express or 21 Table of Contents other credit card companies could adopt new operating rules or re-interpret existing rules that we or MercadoPago’s processors might find difficult oreven impossible to follow. As a result, we could lose our ability to provide MercadoPago customers the option of using credit cards to fund theirpayments and MercadoLibre users the option to pay their fees using a credit card. If MercadoPago were unable to accept credit cards, ourMercadoPago business would be materially adversely affected.We could lose the right to accept credit cards or pay fines if MasterCard and/or Visa determine that users are using MercadoPago to engage inillegal or “high risk” activities or if users generate a large amount of chargebacks. Accordingly, we are working to prevent “high risk” merchantsfrom using MercadoPago. Additionally, we may be unable to access financing in the credit and capital markets at reasonable rates to fund ourMercadoPago operations and for that reason our profitability and total payments volume could materially decline.Our operating results may be impacted by an economic crisis.General adverse economic conditions, including the possibility of recessionary conditions in the countries in which we operate or LatinAmerica generally or a worldwide economic slowdown, would adversely impact our operating results and business. The price of oil on global oilmarkets has been declining dramatically and this decline, if prolonged, may have a materially adverse impact on economic conditions within certaincountries in Latin America that rely heavily on the export of oil and gas, such as Brazil, Venezuela and Mexico, as well as their trading partners inthe region. If the current weakness in the global economy persists or worsens, or the present global economic uncertainties continue to persist, manyof our users, may delay or reduce their purchases of goods on the MercadoLibre Marketplace, which would reduce our revenues and have a materialadverse impact on our business. Furthermore, future changes in trends could result in a material impact to our future consolidated statements ofincome and cash flows.The failure of the financial institutions with which we conduct business may have a material adverse effect on our business, operating results, andfinancial condition.The financial services industry experienced a period of unprecedented turmoil in 2008 and 2009, characterized by the bankruptcy, failure orsale of various financial institutions and an unprecedented level of intervention from the United States and other governments. If the condition ofthe financial services industry again deteriorates or becomes weakened for an extended period of time, the following factors could have a materialadverse effect on our business, operating results, and financial condition:·Disruptions to the capital markets or the banking system may materially adversely affect the value of investments or bank deposits wecurrently consider safe or liquid. We may be unable to find suitable alternative investments that are safe, liquid, and provide a reasonablereturn. This could result in lower interest income or longer investment horizons;·We may be required to increase the installment and financing fees we charge to customers for purchases made in installments or ceaseoffering installment purchases altogether, each of which may result in a lower volume of transactions completed;·We may be unable to access financing in the credit and capital markets at reasonable rates in the event we find it desirable to do so. Due tothe nature of our MercadoPago business, we generate high account receivable balances that we typically sell to financial institutions, andaccordingly, lack of access to credit, or bank liquidations could cause us to experience severe difficulties in paying our sellers; and·The failure of financial institution counterparties to honor their obligations to us under credit instruments could jeopardize our ability torely on and benefit from those instruments. Our ability to replace those instruments on the same or similar terms may be limited underdifficult market conditions.A rise in interest rates may negatively affect our MercadoPago payment volume.In each of Brazil, Argentina and Mexico, we offer users the ability to pay for goods purchased in installments using MercadoPago. In 2016,2015 and 2014, installment payments represented 55.7%, 58.5% and 53.9%, respectively, of MercadoPago’s total payment volume. To facilitate theoffer of the installment payment feature, we pay interest to credit card processors and issuer banks in Mexico and Argentina and we pay interest todiscount credit card coupons in Brazil. In all of these cases, if interest rates increase, we may have to raise the installment fees we charge to userswhich would likely have a negative effect on MercadoPago’s total payment volume.Changes in MercadoPago’s funding mix could adversely affect MercadoPago’s results.MercadoPago pays significant transaction fees when senders fund payment transactions using certain credit cards, PagoMisCuentas and PagoFácil, nominal fees when customers fund payment transactions from their bank accounts in Brazil, Argentina and Mexico, and no fees whencustomers fund payment transactions from an existing MercadoPago account balance. Senders funded approximately 77.2%, 79.3% and 79.0% ofMercadoPago’s payment volume using credit cards during 2016, 2015 and 2014, respectively (either in a single payment or in installments), andMercadoPago’s financial success will remain highly sensitive to changes in the rate at which its senders fund payments using credit cards. Sendersmay prefer credit card funding rather than bank account transfers for a number of reasons, including the ability to pay in installments in Brazil,Mexico and Argentina, the ability to dispute and reverse charges if merchandise is not delivered or is not as described, the ability to earn frequentflyer miles or other incentives offered by credit cards, the ability to defer payment, or a reluctance to provide bank account information to us. Also,in Brazil, Mexico and Argentina, senders may prefer to pay by credit card without using installments to avoid the associated financial costs resultingin lower revenues to us. 22 Table of Contents Changes in MercadoPago’s ticket mix could adversely affect MercadoPago’s results.The transaction fees MercadoPago pays in connection with certain means of payment such as OXXO are fixed regardless of the ticket price, andcertain costs incurred in connection with the processing of credit card transactions are also fixed. Currently, MercadoPago charges a fee calculated asa percentage of each transaction. If MercadoPago receives a larger percentage of low ticket transactions, our profit margin may erode, or we mayneed to raise prices , which, in turn, may affect the volume of transactions. Recently approved legislation in Brazil relating to certain payment processing functions carried out by non-financial institutions, requires amongother things, our MercadoPago operations to secure authorization from the Brazilian Central Bank to continue its operations and may limit ourservices, any of which could have a material adverse effect on our business and results of operations.Our MercadoPago business in Brazil is subject to regulations adopted by the Brazilian Central Bank that apply to certain payment processingfunctions carried out by non-financial institutions. In order to comply with these regulations, we have implemented certain changes to ouroperations and systems, incurring greater expenses and allocating resources, and in December 2015, we submitted our application to become anauthorized payment institution in Brazil. As of the date of this report, we have not received such authorization.There can be no assurance that we will obtain the requisite authorization. If we are unable to obtain the requisite authorization, it could causeus to (i) shut down our MercadoPago business in Brazil for an indefinite period of time, which would be costly, (ii) pay penalties for non-compliance, or (iii) limit the services we offer through MercadoPago in Brazil or change our business practices, any of which could materiallyadversely affect our business and results of operations.Our MercadoCredito solution expose us to additional risks.Our MercadoCredito solution is offered to certain merchants, and the financial success of this product depends on the effective management ofthe related risk. To assess a merchant seeking a loan under the MercadoCredito solution, we use, among other indicators, a risk model internallydeveloped, as a credit quality indicator to help predict the merchant's ability to repay the principal balance and interest related to the credit. Thisrisk model may not accurately predict the creditworthiness of a merchant due to inaccurate assumptions about the particular merchant or theeconomic environment or limited product history, among other factors. The accuracy of the risk model and our ability to manage credit risk relatedto our MercadoCredito solution may also be affected by legal or regulatory changes (e.g., bankruptcy laws and minimum payment regulations),competitors’ actions, changes in consumer behavior, changes in the economic environment and other factors.Like other businesses with significant exposure to credit losses, we face the risk that MercadoCredito merchants will default on their paymentobligations, making the receivables uncollectible and creating the risk of potential charge-offs.A rise in our shipping costs may negatively affect our MercadoEnvios shipping transaction volume.In Brazil, Argentina, Mexico, Colombia and Chile, we offer users our MercadoEnvios shipping service through integration with local carriers.To achieve economies of scale, drive down shipping costs and eliminate friction for buyers and sellers, we generally pay to the local carriers theshipping costs, then transfer those costs to our customers. If shipping costs increase, we may have to raise the shipping fees we charge to users andthis would likely have a negative effect on MercadoEnvios’s shipping volume.We rely on local carriers to develop our shipping service and changes to our shipping fees, rules or practices may adversely affect our business.Because MercadoEnvios is not a carrier, we must rely on local carriers in Brazil, Argentina, Mexico, Colombia and Chile to deliver items. Wegenerally pay a fee to the carriers for this service and collects from our customers the services provided. From time to time, local carriers may increasetheir fees that they charge for each transaction. If we cannot transfer these increased fees to our customers, the resulting increase in operating costs ofMercadoEnvios could generate net losses in our MercadoEnvios operations.In addition, the failure on the services rendered by shipping providers with which we conduct business and/or if these services are notavailable to us because of contractual or commercial terms it may have a material adverse effect on our shipping service, operating results, andfinancial condition. As a result, we could lose our ability to provide shipping services to our customers. 23 Table of Contents We could be subject to liability and forced to change our MercadoEnvios business practices if we were found to be subject to or in violation ofany laws or regulations governing shipping in the countries where we operate; or if new legislation regarding this service were enacted in thecountries where MercadoEnvios operates.A number of jurisdictions where we operate have enacted legislation regulating shipping services. We believe we are not required to have alicense under the existing statutes of Argentina, Brazil, Mexico and Colombia to operate MercadoEnvios with its current structure. IfMercadoEnvios were found to be in violation of shipping services laws or regulations, or engaged in an unauthorized shipping business, we couldbe subject to liability, forced to cease doing business with residents of certain countries, or forced to change our business practices or to become apostal entity. Any change to our MercadoEnvios business practices that makes the service less attractive to customers or prohibits its use byresidents of a particular jurisdiction could decrease the speed of trade on the MercadoLibre Marketplace, which would further harm our business.Even if we are not forced to change our MercadoEnvios business practices, we could be required to obtain licenses or regulatory approvals thatcould be very expensive and time consuming, and we cannot assure that we would be able to obtain these licenses in a timely manner or at all.We may have inadequate business insurance coverage, which would require us to spend significant resources in the event of a disruption of ourservices or other contingency.Insurance companies in Latin America offer limited business insurance products. In addition, we may have inadequate insurance coverage tocompensate for any related losses. Any business disruption, litigation, system failure or natural disaster may cause us to incur substantial costs anddivert resources, which could have a material adverse effect on our business, results of operation and financial condition.We may not be able to adequately protect and enforce our intellectual property rights. We could potentially face claims alleging that ourtechnologies infringe the property rights of others.We regard the protection of our copyrights, service marks, trademarks, domain names, trade dress and trade secrets as critical to our futuresuccess and rely on a combination of copyright, trademark, service mark and trade secret laws and contractual restrictions to establish and protectour proprietary rights in our products and services. We have entered into confidentiality and invention assignment agreements with our employeesand certain contractors, and non-disclosure agreements with our employees and certain suppliers and strategic partners in order to limit access to anddisclosure of our proprietary information. We cannot assure you that these contractual arrangements or the other steps that we have taken or will takein the future to protect our intellectual property will prove sufficient to prevent misappropriation of our technology or to deter independent third-parties from developing similar or competing technologies.We pursue the registration of our domain names, trademarks, logos and service marks in each country where we operate, in the United Statesand in certain other Latin American countries. Effective trademark, service mark, copyright, domain name and trade secret protection may not beavailable or granted to us by the appropriate regulatory authority in every country in which our services are made available online. For example,since 1999, we have filed several applications to register the name “MercadoLivre” and our logo in Brazil. We have been granted the trademarks“Mercadolivre” (name and design, without the exclusivity to the use of the words “Mercado” and “Livre”) and “MercadoPago” (name and design).Nonetheless, many applications are still pending and certain applications were denied . We cannot assure you that we will succeed in obtainingthese trademarks. If we are not successful, MercadoLibre’s ability to protect its brand in Brazil against third-party infringers would be compromisedand we could face claims by any future trademark owners. Any past or future claims relating to these issues, whether meritorious or not, could causeus to enter into costly royalty and/or licensing agreements. If any of these claims against us are successful we may also have to modify our brandname in certain countries. Any of these circumstances could adversely affect our business, results of operations and financial condition.We have licensed in the past, and expect that we may license in the future, certain of our proprietary rights, such as trademarks or copyrightedmaterial, to third parties. While we attempt to ensure that our licensees maintain the quality of the MercadoLibre brand, our licensees may takeactions that could affect the value of our proprietary rights or reputation, which could have a material adverse effect on our business, results ofoperations and financial condition.To date, we have not been notified that our technology infringes on the proprietary rights of third parties, but third parties may claiminfringement on our part with respect to past, current or future technologies or features of our services. We expect that participants in our marketswill be increasingly subject to infringement claims as the number of services and competitors in the e-commerce segment grows. Any of these claimscould be expensive and time consuming to litigate or settle and could have a material adverse effect upon our business, results of operations andfinancial condition.From time to time, we are involved in other disputes or regulatory inquiries that arise in the ordinary course of business. The number andsignificance of these disputes and inquiries are increasing as our business expands and we grow larger. Any claims or regulatory actions against us,whether meritorious or not, could be time consuming, result in expensive litigation, require significant amounts of management time, and result inthe diversion of significant operational resources. 24 Table of Contents We may not be able to secure licenses for third-party technologies upon which we rely.We rely on certain technologies that we license from third parties, such as Oracle Corp., SAP AG, Salesforce.com Inc., Microstrategy, Radware,Juniper Networks, Cisco Systems Inc., F5 Networks, and NetApp, the suppliers of key database technology, operating system and specific hardwarecomponents for our services. We cannot assure you that these third-party technology licenses will continue to be available to us on commerciallyreasonable terms. If we were not able to make use of this technology, we would need to obtain substitute technology that may be of lower quality orperformance standards or at greater cost, which could materially adversely affect our business, results of operations and financial condition.Although we generally have been able to renew or extend the terms of contractual arrangements with these third party service providers onacceptable terms, we cannot assure you that we will continue to be able to do so in the future.Problems that affect our third-party service providers could potentially adversely affect us as well.A number of third parties provide beneficial services to us or to our users. These services include the hosting of our servers, our shippingproviders and the postal and payments infrastructures that allow users to deliver and pay for the goods and services traded amongst themselves, inaddition to paying their MercadoLibre Marketplace bills. Financial, regulatory, or other problems that might prevent these companies fromproviding services to us or our users could reduce the number of listings on our websites or make completing transactions on our websites moredifficult, which would harm our business. Any security breach at one of these companies could also affect our customers and harm our business.Complaints from customers or negative publicity about our services can diminish consumer confidence and adversely affect our business.Because volume and growth in the number of new users of our services are key factors for our profitability, customer complaints or negativepublicity about our customer service could severely diminish consumer confidence in and use of our services. Measures we sometimes take tocombat risks of fraud and breaches of privacy and security can damage relations with our customers. To maintain good customer relations, we needprompt and accurate customer service to resolve irregularities and disputes. Effective customer service requires significant personnel expense andinvestment in developing programs and technology infrastructure to help customer service representatives carry out their functions. These expenses,if not managed properly, could significantly impact our profitability. Failure to manage or train our customer service representatives properly couldcompromise our ability to handle customer complaints effectively. If we do not handle customer complaints effectively, our reputation may sufferand we may lose our customers’ confidence.As part of our program to reduce fraud losses in relation to MercadoPago, we make use of MercadoPago anti-fraud models and we maytemporarily restrict the ability of customers to withdraw their funds if we identify those funds or the customer’s account activity as suspicious. Todate, MercadoPago has not been subject to any significant negative publicity about such restrictions. However, certain users who were banned fromwithdrawing funds or received fake mail appearing to be sent by MercadoPago have initiated legal actions against us in the past. As a result of ourefforts to police the use of our services, MercadoPago may receive negative publicity, our ability to attract new MercadoPago customers may bedamaged, and we could become subject to litigation. If any of these events happen, current and future revenues could suffer, and our databasetechnology operating margins may decrease. In addition, negative publicity about or experiences with MercadoPago customer support could causeour reputation to suffer or affect consumer confidence in the MercadoLibre brand.We may not realize benefits from recent or future strategic acquisitions of businesses, technologies, services or products despite their costs in cashand dilution to our stockholders.We intend to continue to acquire businesses, technologies, services or products, as we have done in the past with our acquisitions of iBazar,Lokau, DeRemate, CMG, AutoPlaza, Neosur, Business Vision S.A, KPL Soluções Ltda., Metros Cúbicos S.A. de C.V., Monits S.A., Mango andAxado Informação e Tecnologia S.A., as appropriate opportunities arise. We may not, however, be able to identify, negotiate or finance such futureacquisitions successfully or at favorable valuations, or to effectively integrate these acquisitions with our current business. The process ofintegrating an acquired business, technology, service or product into our business may result in unforeseen operating difficulties and expenditures.Moreover, future acquisitions may also generate unforeseen pressures and/or strains on our organizational culture.Additionally, acquisitions could result in potentially dilutive issuances of equity securities, the incurrence of debt, contingent liabilitiesand/or amortization expenses related to goodwill and other intangible assets, which could materially adversely affect our business, results ofoperations and financial condition. Any future acquisitions of other businesses, technologies, services or products might require us to obtainadditional equity or debt financing, which might not be available on favorable terms, or at all. If debt financing for potential future acquisitions isunavailable, we may determine to issue shares of our common stock or preferred stock in connection with such an acquisition and any such issuancecould result in the dilution of our common stock.We are subject to seasonal fluctuations in our results of operations.Our results of operations are seasonal in nature (as is the case with traditional retailers), with relatively fewer listings and transactions in thefirst quarter of the year, and increased activity as the year-end shopping season initiates. This seasonality is the result of fewer listings after theChristmas and other holidays and summer vacation periods in our southern hemisphere markets. To some degree, our historical rapid growth mayhave overshadowed seasonal or cyclical factors that might have influenced our business to date. Seasonal or cyclical variations in our operationscould become more pronounced over time, which could materially adversely affect our quarter to quarter results of operations in the future. 25 Table of Contents We operate in a highly competitive and evolving market, and therefore face potential reductions in the use of our service.The market for online commerce is relatively new in Latin America, rapidly evolving and intensely competitive, and we expect competition tobecome more intense in the future. Barriers to entry are relatively low and current offline and new competitors, including small businesses who wantto create and promote their own stores or platforms, can easily launch new sites at relatively low cost using software that is commercially available.We currently or potentially compete with a number of other companies.Our direct competitors include, among others, various online sales and auction services, including Alamaula.com, OLX.com and a number ofother small services, including those that serve specialty markets. We also compete with business-to-consumer online commerce services, such aspure play Internet retailer Submarino (a website of B2W Inc), and a growing number of brick and mortar retailers who have launched on lineofferings such as Americanas (a website of B2W Inc), Casas Bahia and Falabella, OLX, QueBarato and with shopping comparison sites locatedthroughout Latin America such as Buscape and Bondfaro, located throughout Latin America. In addition, we compete with online communities thatspecialize in classified advertisements. Although no regional competitor exists in the classified market, local players such as Webmotors, VivaStreetand Zap maintain important positions in certain markets.We face competition from a number of large online communities and services that have expertise in developing e-commerce and facilitatingonline interaction. Certain of these competitors, including Facebook, Google, Amazon, Microsoft and Yahoo! currently offer a variety of business-to-consumer commerce services, searching services and classified advertising services, and certain of these companies may introduce broader e-commerce to their large user populations. Other large companies with strong brand recognition and experience in e-commerce, such as largenewspaper or media companies also compete in the online listing market. Companies with experience in e-commerce may also seek to compete inthe online listing market in Latin America. We also compete with traditional brick-and-mortar retailers to the extent buyers choose to purchaseproducts in a physical establishment as opposed to on our platform. In connection with our payment solution, our direct competitors includeinternational online payments services such as PayPal and Google Checkout, and local online payment services such as DineroMail in Argentina,Chile, Colombia and Mexico, and Bcash, PagSeguro and MOIP in Brazil; money remitters such as Western Union. Any or all of these companiescould create competitive pressures, which could have a material adverse effect on our business, results of operations and financial condition.In addition, if certain websites stop linking to or containing links in their properties that send us traffic across the internet in the future, ourgross merchandise volume (“GMV”) could substantially decrease and we could suffer a material adverse effect on our business, financial conditionand results of operations.We no longer have a non-competition arrangement with eBay. If eBay were to compete directly with us by launching a competing platform inLatin America, it would have a material adverse effect on our results of operations and prospects. Similarly, eBay or other larger, well-establishedand well-financed companies may acquire, invest in or enter into other commercial relationships with competing e-commerce services. Therefore,some of our competitors and potential competitors may be able to devote greater resources to marketing and promotional campaigns, adopt moreaggressive pricing policies and devote substantially more resources to website and systems development than us, which could adversely affect us.Paypal and Amazon are already active locally in certain countries of Latin America.In many cases, companies that directly or indirectly compete with us provide Internet access. These competitors include incumbent telephonecompanies, cable companies, mobile communications companies and large Internet service providers. Some of these providers may take measuresthat could degrade, disrupt, or increase the cost of customers’ use of our services. For example, they could restrict or prohibit the use of their lines forour services, filter, block or delay the packets containing the data associated with our products, charge increased fees to us or our users for use oftheir lines to provide our services, or seek to charge us for our customers’ use of our services or receipt of our e-mails. These activities are technicallyfeasible. Although we have not identified any providers who intend to take these actions, any interference with our services or higher charges foraccess to the Internet, could cause us to lose existing users, impair our ability to attract new users, limit our potential expansion and harm ourrevenue and growth.Fraudulent activity by our users could negatively impact our operating results, brand and reputation and cause the use of services todecrease.We are subject to the risk of fraudulent activity on our platforms by our users. Laws specifying the scope of liability of providers of onlineservices for the activities of their users through their online service are currently unsettled in most of the Latin American countries we operate. Inaddition, Latin American governments could require changes in the way our on line services are conducted. Currently, if different requisites are metwe may reimburse buyers for payments when (i) they do not receive the products they ordered, (ii) the products received are broken or are materiallydifferent from the sellers’ descriptions, or (iii) they receive their products after the estimated shipping date. Although we have implemented measuresto detect and reduce the occurrence of fraudulent activities, combat bad buyer experiences and increase buyer satisfaction, there can be no assurancethat these measures will be sufficient to accurately detect, prevent or deter fraud. As our marketplace sales grow, the cost of these reimbursementsmay materially increase and could negatively affect our operating results. Despite different measures we take to manage threats to our business, wemay be unable to prevent sellers from collecting payments, fraudulently or otherwise when buyers never receive the products they ordered or whenthe products received are materially different from the sellers’ descriptions or when it’s broken. We also may be unable to prevent buyers to receivetheir products with delay or sellers from selling unlawful goods on our site, selling goods in an unlawful manner, violating the proprietary rights ofothers or other fraudulent or illegal use of our services, and we could face civil or criminal 26 Table of Contents liability for these activities. In addition, users may perform frauds o potential illegal activities when using MercadoPago, MercadoEnvios,MercadoShops or any other platform we operate which may affect our financial performance. Although we have not experienced any materialbusiness or reputational harm as a result of fraudulent or potential illegal activities of our users in the past, we cannot rule out the possibility thatany of the foregoing may occur causing harm to our business or reputation in the future. If any of the foregoing were to occur, our results ofoperations and financial conditions could be materially and adversely affected.Risks related to doing business in Latin AmericaPolitical and economic conditions in Venezuela may have an adverse impact on our operations.We conduct significant operations in Venezuela, offering both our MercadoLibre Marketplace and MercadoPago online payments solution,through our Venezuelan subsidiaries. As of December 31, 2016 we had 111 employees working in that country. As of and for year ended December31, 2016, 4.4% of our consolidated net revenues and 10.1% of our consolidated net assets are derived from our Venezuelan subsidiaries, while 2.1%of our consolidated cash and investments are held in local Venezuelan currency by our Venezuelan subsidiaries.The political and economic conditions in Venezuela are highly unstable, with the Venezuelan economy considered hyperinflationary underU.S. GAAP since 2010. We cannot predict the impact of any future political and economic events on our business, nor can we predict the economicand regulatory impact of the Venezuelan government’s current or future initiatives, including whether it will extend nationalization to e-commerceor other businesses, implement further price or profit controls or further restrict our ability to obtain or distribute U.S. dollars, all of which couldimpact our business and our results of operations. Nationalization of telecommunications, electrical or other companies could reduce our or ourcustomers’ access to our website or our services or increase the costs of providing or accessing our services. Certain political events have alsoresulted in significant civil unrest in the country. Continuation or worsening of the political, social and economic conditions in Venezuela couldmaterially and adversely impact our future business, financial condition and results of operations.In recent years, Venezuela has suffered severe electricity shortages that prompted the Venezuelan government to declare an energy emergency.This situation could impact the operation of our automobile classifieds points of sale in Venezuela as well as our Venezuelan users’ ability to accessthe Internet, either of which could have a material adverse impact on our business.In addition, the Venezuelan government has imposed foreign exchange and price controls on the local currency in recent years. These foreignexchange controls have significantly increased our costs and limited our ability to convert local currency into U.S. dollars and transfer funds out ofVenezuela. In fact, since the Venezuelan government´s devaluation in February 2013, we have been unable to obtain U.S. dollars through theauction process established by government and we do not know when or if we will be able to obtain U.S. dollars through such a process in the future.As a result, the foreign exchange and price controls enacted in recent years by the Venezuelan government, and any future actions in this regard,could have a material adverse effect on our Venezuelan customers and our business, financial condition and results of operations. Moreover, wecannot predict the long-term effects of exchange controls on our ability to process payments from Venezuelan customers or on the Venezuelaneconomy in general.Since 2010, the Venezuelan government has been imposing foreign exchange and price controls on the local currency and created differentforeign exchange systems to buy US dollars. On February 10, 2015, the Venezuelan government issued a decree that unifies the two previous foreignexchange systems “SICAD 1 and SICAD 2” into a new single system denominated SICAD, with an initial public foreign exchange price of 12Bolivares Fuertes (“BsF”) per U.S. dollar. The SICAD auction process remains available only to obtain foreign currency to pay for a limited list ofgoods considered to be of high priority by the Venezuelan government, which does not include those relating to our business. In the same decree theVenezuelan government created the “Sistema Marginal de Divisas” (“SIMADI”), a new foreign exchange system that is separate from SICAD, whichpublishes a foreign exchange rate from the BCV on a daily basis.In light of the disappearance of SICAD 2, and our inability to gain access to U.S. dollars through the new single system under SICAD, westarted requesting and have been granted U.S. dollars through SIMADI. As a result, we now expect to settle our transactions through SIMADI andhave concluded that the SIMADI exchange rate should be used to re-measure our bolivar-denominated monetary assets and liabilities and to re-measure the revenues and expenses of our Venezuelan subsidiaries effective as of March 31, 2015. In connection with this re-measurement, werecorded a foreign exchange loss of $20.4 million and a deferred income tax gain of $3.8 million during the first quarter of 2015. As of December 31,2015, the SIMADI exchange rate was 198.70 Bs.F. per U.S. dollar. The average exchange rate for the first quarter of 2015 was 52.46 Bs.F. per U.S.dollar.Considering this change in facts and circumstances and the lower U.S. dollar-equivalent cash flows now expected from our Venezuelanbusiness, we have reviewed our long-lived assets, goodwill and intangible assets with indefinite useful life for impairment, and concluded that thecarrying value of certain real estate investments in Venezuela as of March 31, 2015 will not be fully recoverable. As a result, we have recorded animpairment of long-lived assets of $16.2 million on March 31, 2015. The carrying amount has been adjusted to its estimated fair value as of March31, 2015 by using the market approach and considering prices for similar assets.On March 9, 2016 the Central Bank of Venezuela (“BCV”) issued the Exchange Agreement No.35, which is effective since March 10, 2016.The agreement established a “protected” exchange rate (“DIPRO”) for certain transactions, such as but not limited to: imports of goods of the foodand health sectors, as well as supplies associated with the production of said sectors; expenses relating to health treatments, sports, culture, scientificresearch, and other urgent matters defined by the exchange regulations. All foreign currency transactions not expressly provided in ExchangeAgreement No.35 will be processed on the alternate foreign currency markets governed by the exchange regulations, at the floating supplementarymarket exchange rate (“DICOM”). 27 Table of Contents Additionally, the agreement established that the alternate foreign currency markets referred to in Exchange Agreement No.33 of February 10,2015 (SIMADI) will continue to operate until replaced by others. As of the date of this report, the SIMADI has not been replaced and for that reason,we continued using SIMADI. From March 31, 2016 through June 30, 2016, the SIMADI exchange rate increased from 273 BsF per U.S. dollar to 628BsF per U.S. dollar, a 130% increase in the exchange rate. As a consequence of the local currency devaluation, we have recorded a foreign exchangeloss of $4.9 million during the second quarter of 2016.Considering the significant devaluation and the lower U.S. dollar-equivalent cash flows then expected from the Venezuelan business, wereviewed our long-lived assets (including non-current other assets), goodwill and intangible assets with indefinite useful life for impairment andconcluded that the carrying value of certain real estate investments in Venezuela would not be fully recoverable. As a result, on June 30, 2016, werecorded an impairment of offices and commercial property under construction included within non-current other assets of $13.7 million. Thecarrying amount of offices and commercial property under construction was adjusted to its estimated fair value of $12.5 million as of June 30, 2016,by using the market approach and considering prices for similar assets.As of December 31, 2016, monetary assets and liabilities in Bolivares Fuertes (“BsF”) were re-measured to the U.S. dollar using the SIMADIclosing exchange rate of 674 BsF per U.S. dollar.Until 2010 we were able to obtain U.S. dollars for any purpose, including dividends distribution, using alternative mechanisms other thanthrough the Commission of Administration of Foreign Currency of Venezuela (“CADIVI”). Those U.S. dollars, obtained at a higher exchange ratethan the one offered by CADIVI and held in balance at U.S. bank accounts of our Venezuelan subsidiaries, were used for dividend distributions fromour Venezuelan subsidiaries. Our Venezuelan subsidiaries have not requested authorization since 2012 to acquire U.S. dollars to make dividenddistributions and we have not distributed dividends from our Venezuelan subsidiaries since 2011.Our ability to obtain U.S. dollars in Venezuela is negatively affected by the exchange restrictions in Venezuela that are described above. If ouraccess to U.S. dollars becomes widely available at a more unfavorable rate than the current SIMADI exchange rate (or if the SIMADI exchange rateexperience one or more significant devaluation events in the future), and we decided to use that alternative mechanism considering that exchangerate as the one applicable for re-measurement, our results of operations, earnings and value of our net assets in Venezuela would be negativelyimpacted, and we cannot assure that the impact would not be material . In addition, our business and ability to obtain U.S. dollars in Venezuelawould be negatively affected by any additional material devaluations or the imposition of significant additional and more stringent controls onforeign currency exchange by the Venezuelan government in the future.We cannot predict the impact of any future political and economic events on our business, nor can we predict the economic and regulatoryimpact of the Venezuelan government’s current or future initiatives, including whether it will extend nationalization to e-commerce or otherbusinesses, implement further price or profit controls or further restrict our ability to obtain or distribute U.S. dollars, all of which could impact ourbusiness and our results of operations. Nationalization of telecommunications, electrical or other companies could reduce our or our customers’access to our website or our services or increase the costs of providing or accessing our services. Certain political events have also resulted insignificant civil unrest in the country. Continuation or worsening of the political, social and economic conditions in Venezuela could materiallyand adversely impact our future business, financial condition and results of operations. We face the risk of political and economic crises, instability, terrorism, civil strife, expropriation and other risks of doing business in emergingmarkets.We conduct our operations in emerging market countries in Latin America. Economic and political developments in these countries, includingfuture economic changes or crises (such as inflation, currency devaluation or recession), government deadlock, political instability, terrorism, civilstrife, changes in laws and regulations, expropriation or nationalization of property, and exchange controls could impact our operations or themarket value of our common stock and have a material adverse effect on our business, financial condition and results of operations.Although economic conditions in one country may differ significantly from another country, we cannot assure that events in one countryalone will not adversely affect our business or the market value of, or market for, our common stock.Pending legislation in Venezuela that would limit the maximum sale price that a seller could receive in connection with the sale of an automobileon our MercadoLibre Marketplace in Venezuela, could have a material adverse impact on our Venezuelan business and results of operations.During August 2013, the Congress of Venezuela approved new legislation that imposes certain limits on the maximum sale prices that wouldbe permitted for the sale of used and new vehicles in the country. Among other provisions, the legislation imposes certain obligations on ourMercadoLibre Marketplace and Tucarro website in Venezuela to ensure that classified ads listed on these websites comply with the maximum salesprice restrictions. Automobile sales represent a meaningful part of our business in Venezuela. As of the day of this report, this legislation has notbeen published in the Official Gazette nor enacted by the executive branch of government. If this legislation is finally enacted into law, it couldcause us to, among other things, remove listings by sellers that fail to comply with the maximum sales price restrictions, to pay penalties for non-compliance, to limit our services or to change our business practices, any of which could have a material adverse impact on our Venezuelan businessand results of operations.On December 2013, the Decree N° 625 was published on the Official Gazette N° 6,117, which established a new set of rules regarding amongothers, the production and prices of motor vehicles assembled and sold in Venezuela. According to this Decree, the sale price of used cars 28 Table of Contents should not exceed the sale price of new cars established by the government and the vehicles assembly companies. The Government and the vehiclesassembly companies had to establish the prices of the new vehicles within twenty days after the publication of the Decree, however as of the date ofthis report, they have not been published yet.Legislation in Venezuela that limits the maximum profit percentage regarding the sale of goods and services could have an adverse impact on ourVenezuelan business and results of operations.The Venezuelan Government issued a decree in 2015 which establishes a maximum profit margin of 30% of the cost structure of goods orservices sold by each participant in the commercialization chain. The decree establishes that directors, partners, representatives, managers,supervisors and administrators will be jointly and severally liable (civil, criminal or administrative) if their company is found to be in violation ofthe decree.As a consequence, we may experience a significant decrease in our Venezuelan subsidiary´s revenues, results of operations and earnings andwhich could have a material adverse impact.Latin American governments have exercised and continue to exercise significant influence over the economies of the countries where we operate.This involvement, as well as political and economic conditions, could adversely affect our business.Governments in Latin America frequently intervene in the economies of their respective countries and occasionally make significant changesin policy and regulations. Governmental actions to control inflation and other policies and regulations have often involved, among other measures,price controls, currency devaluations, capital controls and limits on imports. Our business, financial condition, results of operations and prospectsmay be adversely affected by changes in government policies or regulations, including such factors as: exchange rates and exchange controlpolicies; inflation rates; interest rates; tariff and inflation control policies; price control policies; import duties and restrictions; liquidity of domesticcapital and lending markets; electricity rationing; tax policies, including royalty, tax increases and retroactive tax claims; and other political,diplomatic, social and economic developments in or affecting the countries where we operate. An eventual reduction of foreign investment in any ofthe countries where we operate may have a negative impact on such country’s economy, affecting interest rates and the ability of companies such asours to access financial markets. In addition, our employees in Brazil and some of our employees in Argentina are currently represented by a laborunion and employees in other Latin American countries may eventually become unionized. We may incur increased payroll costs and reducedflexibility under labor regulations if unionization in other countries were to occur, any of which may negatively impact our business.Latin America has experienced adverse economic conditions.Latin American countries have historically experienced uneven periods of economic growth, as well as recession, periods of high inflation andeconomic instability. Currently, as a consequence of adverse economic conditions in global markets and significantly lower commodity prices anddemand for commodities, many of the economies of Latin American countries have slowed their rates of growth, and some have entered recessions.The duration and severity of this slowdown is hard to predict and could adversely affect our business, financial condition, and results of operations.Additionally, certain countries have experienced or are currently experiencing severe economic crises, which may still have future effects.Local currencies used in the conduct of our business are subject to depreciation, volatility and exchange controls.The currencies of many countries in Latin America, including Brazil, Argentina, Mexico and Venezuela, which together accounted for 94.8%,94.6% and 93.4% of our net revenues for 2016, 2015 and 2014, respectively, have experienced volatility in the past, particularly against the U.S.dollar. Currency movements, as well as higher interest rates, have materially and adversely affected the economies of many Latin Americancountries, including countries which account, or are expected to account, for a significant portion of our revenues. The depreciation of localcurrencies creates inflationary pressures that may have an adverse effect on us and generally restricts access to the international capital markets. Forexample, the devaluation of the Argentine Peso has had a negative impact on the ability of Argentine businesses to honor their foreign currencydenominated debt, led to high inflation, significantly reduced real wages, had a negative impact on businesses whose success is dependent ondomestic market demand, and adversely affected the government’s ability to honor its foreign debt obligations. On the other hand, the appreciationof local currencies against the U.S. dollar may lead to the deterioration of public accounts and the balance of payments of the countries where weoperate, and may reduce export growth in those countries.We may be subject to exchange control regulations which might restrict our ability to convert local currencies into U.S. dollars. Since 2011,the Argentine government has implemented certain measures that control and restrict the ability of companies and individuals to exchangeArgentine Pesos for foreign currencies. In December 2015, the new Argentine government introduced significant changes into the foreign exchangeregulatory framework. These new measures include the removal of Argentina’s strict currency controls that restricted the ability of companies andindividuals to exchange Argentine pesos for foreign currencies. With this new policy, prior approval of foreign exchange transactions by theArgentine Administration of Public Revenues or Central Bank is no longer required for the purchase of foreign currency. In addition, Brazilian lawprovides that whenever there is a serious imbalance in Brazil’s balance of payments or reason to foresee a serious imbalance, the Braziliangovernment may impose temporary restrictions on the remittance to foreign investors of the proceeds of their investments in Brazil. During 2016,Venezuela has modified its exchange control regulations. These modified regulations have further impaired our ability 29 Table of Contents to convert local currency into U.S. dollars, see “Risk related to doing business in Latin America—Political and economic conditions in Venezuelamay have an adverse impact on our operations” above.Our reporting currency is the U.S. dollar but our revenues are generated in the currencies of each country where we operate. Therefore, if the U.S.dollar strengthens relative to these foreign currencies, the economic value of our revenues in U.S. dollar terms will decline.Because we conduct our business outside the United States and receive almost all of our revenues in currencies other than the U.S. dollar, butreport our results in U.S. dollars, we face exposure to adverse movements in currency exchange rates. The currencies of certain countries where weoperate, including most notably Brazil, Argentina, Mexico and Venezuela, have historically experienced significant devaluations. The results ofoperations in the countries where we operate are exposed to foreign exchange rate fluctuations as the financial results of the applicable subsidiariesare translated from the local currency into U.S. dollars upon consolidation. If the U.S. dollar weakens against foreign currencies, as has occurred inprevious years, the translation of these foreign-currency-denominated transactions will result in increased net revenues, operating expenses, and netincome. Similarly, our net revenues, operating expenses, and net income will decrease if the U.S. dollar strengthens against the foreign currencies ofcountries in which we operate. For the year ended December 31, 2016, 53.9% of our net revenues were denominated in Brazilian Reais, 31.1% inArgentine Pesos, 4.4% in Venezuelan Bolivares Fuertes, and 5.5% in Mexican Pesos. The foreign currency exchange rates for the full year 2016relative to 2015 resulted in lower net revenues of approximately $265.6 million and a decrease in aggregate cost of net revenues and operatingexpenses of approximately $202.4 million. The foreign currency exchange rates for the full year 2015 relative to 2014 resulted in lower net revenuesof approximately $348.2 million and a decrease in aggregate cost of net revenues and operating expenses of approximately $167.3 million. Theabovementioned foreign currency exchange rate effect includes the Venezuelan translation effect discussed in “Item 7 Management’s Discussionand Analysis of Financial Condition and Results of Operations—Critical accounting policies and estimates—Foreign Currency Translation”. Whilewe have in the past entered into transactions to hedge portions of our foreign currency translation exposure, these transactions are expensive, and itis very difficult to perfectly predict or completely eliminate the effects of this exposure. If the U.S. dollar strengthens relative to the foreigncurrencies in which we operate, our net revenues, operating expenses, and net income will decrease and such decrease may be significant.Inflation and certain government measures to curb inflation may have adverse effects on the economies of the countries where we operate, ourbusiness and our operations.Most Latin American countries have historically experienced high rates of inflation. Inflation and some measures implemented to curbinflation have had significant negative effects on the economies of Latin American countries. Governmental actions taken in an effort to curbinflation, coupled with speculation about possible future actions, have contributed to economic uncertainty over the years in most Latin Americancountries. The Latin American countries where we operate may experience high levels of inflation in the future that could lead to further governmentintervention in the economy, including the introduction of government policies that could adversely affect our results of operations. In addition, ifany of these countries experience high rates of inflation, particularly in Venezuela, which was determined to be highly inflationary, and inArgentina, we may not be able to adjust the price of our services sufficiently to offset the effects of inflation on our cost structures. A return to a highinflation environment would also have negative effects on the level of economic activity and employment and adversely affect our business andresults of operations.Developments in other markets may affect the Latin American countries where we operate, our financial condition and results of operations.The market value of companies in our sector may be, to varying degrees, affected by economic and market conditions in other global markets.Although economic conditions vary from country to country, investors’ perceptions of the events occurring in one country may substantially affectcapital flows into and securities from issuers in other countries, including Latin American countries. Various Latin American economies have beenadversely impacted by the political and economic events that occurred in several emerging economies in recent times. Furthermore, Latin Americaneconomies may be affected by events in developed economies which are trading partners or that impact the global economy.Developments of a similar magnitude to the international markets in the future can be expected to adversely affect the economies of LatinAmerican countries and therefore us.E-commerce transactions in Latin America may be impeded by the lack of secure payment methods.Unlike in the United States, consumers and merchants in Latin America can be held fully liable for credit card and other losses due to third-party fraud. As secure methods of payment for e-commerce transactions have not been widely adopted in Latin America, both consumers andmerchants generally have a relatively low confidence level in the integrity of e-commerce transactions. In addition, many banks and other financialinstitutions have generally been reluctant to give merchants the right to process online transactions due to these concerns about credit card fraud.Unless consumer fraud laws in Latin American countries are modified to protect e-commerce merchants and consumers, and until secure, integratedonline payment processing methods are fully implemented across the region, our ability to generate revenues from e-commerce may be limited,which could have a material adverse effect on our Company. 30 Table of Contents Risks related to our sharesThe price of our shares of common stock may fluctuate substantially, and our stockholders’ investment may decline in value.The trading price of our common stock may be highly volatile and could be subject to wide fluctuations in response to factors, many of whichare beyond our control, including those described above under “—Risks related to our business.”Further, the stock markets in general, and the Nasdaq Global Market and the market for Internet-related and technology companies inparticular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performanceof these companies. We cannot assure you that trading prices and valuations will be sustained. These broad market and industry factors maymaterially and adversely affect the market price of our common stock, regardless of our operating performance. Market fluctuations, as well asgeneral political and economic conditions in the countries where we operate, such as recession or currency exchange rate fluctuations, may alsoadversely affect the market price of our common stock. In the past, following periods of volatility in the market price of a company’s securities, thatcompany is often subject to securities class-action litigation. This kind of litigation could result in substantial costs and a diversion ofmanagement’s attention and resources, which would have a material adverse effect on our business, results of operations and financial condition. Inaddition, the market price of our common stock may fluctuate in connection with the declaration and payment of quarterly or special dividends onour common stock.We continue to be significantly influenced by a group of stockholders that control a significant percentage of our common stock and the value ofour common stock could be negatively affected by any significant disposition of our shares by any of these stockholders.Certain stockholders own a significant percentage of our common stock. Certain members of our management team and certain entitiesestablished by them for estate planning purposes also hold a significant percentage of our common stock. These stockholders retain the power toinfluence the outcome of important corporate decisions or matters submitted to a vote of our stockholders. The interests of these stockholders mayconflict with, or differ from, the interests of other holders of our common stock. For example, these stockholders could cause us to make acquisitionsthat increase the amount of our indebtedness or outstanding shares of common stock, sell revenue-generating assets or inhibit change of controltransactions that benefit other stockholders. They may also pursue acquisition opportunities that may be complementary to our business, and as aresult, those acquisition opportunities may not be available to us. So long as these stockholders continue to own a substantial number of shares ofour common stock, they will significantly influence all our corporate decisions and together with other stockholders may be able to effect or inhibitchanges in control of our Company.Additionally, the actual sale, communication of an intention to sell or perceptions that any of the above mentioned stockholders may sell anysignificant amount of our common stock could negatively impact the market value of our common stock.Provisions of our certificate of incorporation and Delaware law could inhibit others from acquiring us, prevent a change of control, and mayprevent efforts by our stockholders to change our management.Certain provisions of our certificate of incorporation and by-laws may inhibit a change of control that our board of directors does not approveor changes in the composition of our board of directors, which could result in the entrenchment of current management.These provisions include:·advance notice requirements for stockholder proposals and director nominations;·a staggered board of directors;·limitations on the ability of stockholders to remove directors other than for cause;·limitations on the ability of stockholders to own and/or exercise voting power over 20% of our common stock;·limitations on the ability of stockholders to amend, alter or repeal our by-laws;·the inability of stockholders to act by written consent;·the authority of the board of directors to adopt a stockholder rights plan;·the authority of the board of directors to issue, without stockholder approval, preferred stock with any terms that the board of directorsdetermines and additional shares of our common stock; and·limitations on the ability of certain stockholders to enter into certain business combinations with us, as provided under Section 203 of theDelaware General Corporation Law.These provisions of our certificate of incorporation and by-laws may delay, defer or prevent a transaction or a change in control that mightotherwise be in the best interests of our stockholders. 31 Table of Contents We may require additional capital in the future, and this additional capital may not be available on acceptable terms or at all.We may need to raise additional funds in order to fund more rapid expansion (organically or through strategic acquisitions), to develop new orenhanced services or products, to respond to competitive pressures or to acquire complementary products, businesses or technologies. If we raiseadditional funds through the issuance of equity or convertible debt securities, the percentage ownership of our stockholders will be reduced,stockholders may experience additional dilution and the securities that we issue may have rights, preferences and privileges senior to those of ourcommon stock. Additional financing may not be available on terms favorable to us or at all. If adequate funds are not available or are not availableon acceptable terms, we may not be able to fund our expansion, take advantage of unanticipated acquisition opportunities, develop or enhanceservices or products or respond to competitive pressures. These inabilities could have a material adverse effect on our business, results of operationsand financial condition.Shares eligible for future sale may cause the market price of our common stock to drop significantly, even if our business is doing well.The market price of our common stock could decline as a result of sales of a large number of shares of our common stock in the market in thefuture or the perception that these sales could occur. These sales, or the possibility that these sales may occur, also might make it more difficult for usto sell equity securities in the future at a time and at a price that we deem appropriate.Certain stockholders or entities controlled by them or their permitted transferees beneficially own shares of our common stock that have notbeen registered for resale with the SEC. The holders of these restricted shares may sell their shares in the public market from time to time withoutregistering them, subject in the case of our affiliates, to certain limitations on the timing, amount and method of those sales imposed by regulationspromulgated by the SEC. Holders of restricted stock will also have the right to cause us to register the resale of shares of common stock beneficiallyowned by them.In the future, we may issue securities in connection with investments and acquisitions. The amount of our common stock issued in connectionwith an investment or acquisition could constitute a material portion of our then outstanding common stock.Our stockholders may not receive dividends or dividends may not grow over time.During 2016, the Company paid quarterly dividends on shares of our common stock throughout the year. Although the Company announcedits intention to pay regular quarterly dividends on shares of our common stock in the future, we have not established a minimum dividend paymentlevel and our ability to pay dividends in the future may be adversely affected by a number of factors, including the risk factors described herein. Alldividends will be declared at the discretion of our Board of Directors and will depend on our earnings, our financial condition and other factors asour Board of Directors may deem relevant from time to time. Our Board of Directors is under no obligation or requirement to declare a dividend. Wecannot assure you that we will achieve results that will allow us to pay a specified level of dividends, if any, or to grow our dividends over time.Requirements associated with being a public company require significant Company resources and management attention.As a consequence of being a public Company, we are subject to the periodic reporting requirements of the Securities Exchange Act of 1934, asamended, or the Exchange Act, and the other rules and regulations of the SEC and the Nasdaq Global Market. We are also subject to various otherregulatory requirements, including the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act. Section 404 of the Sarbanes-Oxley Act requires thatwe evaluate and determine the effectiveness of our internal control over financial reporting. If we have a material weakness or significant deficiencyin our internal control over financial reporting, we may not detect errors on a timely basis and our financial statements may be materially misstated.As a result, our stockholders could lose confidence in our financial reporting, which could harm the trading price of our stock.It may be difficult to enforce judgments against us in U.S. courts.Although we are a Delaware corporation, our subsidiaries and most of our assets are located outside of the U.S. Furthermore, most of ourdirectors and officers and some experts named in this report reside outside the U.S. As a result, you may not be able to enforce judgments against usor our directors or officers in U.S. courts based on the civil liability provisions of U.S. federal securities laws. It is unclear if original actions of civilliabilities based solely upon U.S. federal securities laws are enforceable in courts outside the U.S. It is equally unclear if judgments entered by U.S.courts based on the civil liability provisions of U.S. federal securities laws are enforceable in courts outside the U.S. Any enforcement action in acourt outside the U.S. will be subject to compliance with procedural requirements under applicable local law, including the condition that thejudgment does not violate the public policy of the applicable jurisdiction. 32 Table of Contents Risks related to our convertible senior notesThere is no assurance that we will be able to repay our convertible senior notes.On June 30, 2014, we issued convertible notes due 2019, or the Convertible Notes, in an aggregate principal amount of $330 million. Atmaturity, we will have to pay the holders of the Convertible Notes the full aggregate principal amount of the Convertible Notes then outstanding.There can be no assurance that we will be able to repay this indebtedness when due, or that we will be able to refinance this indebtedness onacceptable terms or at all. In addition, this indebtedness could, among other things:·make it difficult for us to pay other obligations;·make it difficult to obtain favorable terms for any necessary future financing for working capital, capital expenditures, debt servicerequirements or other purposes;·require us to dedicate a substantial portion of our cash flow from operations to service the indebtedness, reducing the amount of cash flowavailable for other purposes; and·limit our flexibility in planning for and reacting to changes in our business.We may not have the ability to raise the funds necessary to settle conversions of the Notes or to repurchase the Notes upon a fundamental change,and our future debt may contain limitations on our ability to pay cash upon conversion or repurchase of the Notes.Holders of the Notes will have the right to require us to repurchase their Notes upon the occurrence of a fundamental change at a fundamentalchange repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest, if any. In addition,upon conversion of the Notes, and even though our current intention is to deliver shares of our common stock to settle such conversion (other thanpaying cash in lieu of delivering any fractional share), we may be required to make cash payments in respect of the notes being converted. However,we may not have enough available cash or be able to obtain financing at the time we are required to make repurchases of Notes surrendered thereforor Notes being converted. In addition, our ability to repurchase the Notes or to pay cash upon conversions of the Notes may be limited by law, byregulatory authority or by agreements governing our future indebtedness. Our failure to repurchase Notes at a time when the repurchase is requiredby the indenture or to pay any cash payable on future conversions of the Notes as required by the indenture would constitute a default under theindenture. A default under the indenture or the fundamental change itself could also lead to a default under agreements governing our futureindebtedness. If the repayment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not havesufficient funds to repay the indebtedness and repurchase the Notes or make cash payments upon conversions thereof.The conditional conversion feature of the Notes, if triggered, may adversely affect our financial condition and operating results.In the event the conditional conversion feature of the Notes is triggered, holders of Notes will be entitled to convert the Notes at any timeduring specified periods at their option. If one or more holders elect to convert their Notes, and even though our current intention is to satisfy ourconversion obligation by delivering shares of our common stock (other than paying cash in lieu of delivering any fractional share), we may berequired to settle a portion or all of our conversion obligation through the payment of cash, which could adversely affect our liquidity. In addition,even if holders do not elect to convert their Notes, we could be required under applicable accounting rules to reclassify all or a portion of theoutstanding principal of the Notes as a current rather than long-term liability, which would result in a material reduction of our net working capital.We have broad discretion in the use of the net proceeds from the issuance of our Notes and may not use them effectively.We have broad discretion in the application of the net proceeds that we received from the issuance of our Notes, including working capital,possible acquisitions, and other general corporate purposes, and we may spend or invest these proceeds in a way with which our investors disagree.The failure by our management to apply these funds effectively could adversely affect our business and financial condition. Pending their use, wemay invest the net proceeds from our Notes in a manner that does not produce income or that loses value. These investments may not yield afavorable return to our investors, and may negatively impact the price of our securities.ITEM 1B.UNRESOLVED STAFF COMMENTSNot applicable. 33 Table of Contents ITEM 2.PROPERTIESOur principal administrative, marketing and product development facilities are located in our offices in Bogotá, Colombia; City of BuenosAires and the provinces of Buenos Aires, Córdoba and San Luis, Argentina; Osasco, Brazil; Caracas and Valencia, Venezuela; Mexico City, Mexico;Aguada Park, Uruguay and Santiago de Chile, Chile. Currently, all of our offices are occupied under lease agreements, except for our Argentine andVenezuelan offices. The leases for our facilities provide for renewal options. After expiration of these leases, we can renegotiate the leases with ourcurrent landlords, or move to another location. From time to time we consider various alternatives related to our long-term facility needs. While webelieve our existing facilities are adequate to meet our immediate needs, it may become necessary to lease or acquire additional or alternative spaceto accommodate any future growth.Our headquarters are located in Buenos Aires, Argentina. Our data centers are located in Virginia and Georgia, United States, and occupyapproximately 295 square meters. As of December 31, 2016, our owned and leased facilities (excluding data centers) provided us with square metersas follows: ArgentinaBrazilMéxicoVenezuelaOthersTotal(sq mt)(sq mt)(sq mt)(sq mt)(sq mt)(sq mt)Owned facilities9,785 - - 4,919 - 14,704 Leased facilities8,152 33,308 4,228 - 8,842 54,530 Total facilities17,937 33,308 4,228 4,919 8,842 69,234 ITEM 3.LEGAL PROCEEDINGSFrom time to time, we are involved in disputes that arise in the ordinary course of our business. The number and significance of these disputesis increasing as our business expands and our company grows. Any claims against us, whether meritorious or not, may be time consuming, result incostly litigation, require significant amounts of management time, result in the diversion of significant operational resources and require expensiveimplementations of changes to our business methods to respond to these claims. See “Item 1A—Risk Factors” for additional discussion of thelitigation and regulatory risks facing our company.As of December 31, 2016, our total reserves for proceeding-related contingencies were $5.6 million to cover legal actions against the Companywhere we have determined that a loss is probable. We do not reserve for losses we determine to be possible or remote. Expected legal costs related tolitigations are accrued when the legal service is actually provided.As of December 31, 2016, there were 55 lawsuits pending against the Argentine subsidiary in the Argentine ordinary courts and 1,573 pendingclaims in the Argentine Consumer Protection Agencies, where a lawyer is not required to file or pursue a claim.As of December 31, 2016, there were 9 claims pending against the Mexican subsidiaries in the Mexican ordinary courts and 130 claimspending against our Mexican subsidiary in the Mexican Consumer Protection Agencies, where a lawyer is not required to file or pursue a claim.As of December 31, 2016, there were 717 lawsuits pending against our Brazilian subsidiaries in the Brazilian ordinary courts. In addition, as ofDecember 31, 2016, there were 2,923 lawsuits pending against our Brazilian subsidiaries in the Brazilian consumer courts, where a lawyer is notrequired to file or pursue a claim.In most of these cases, the plaintiffs asserted that we were responsible for fraud committed against them, or responsible for damages sufferedwhen purchasing an item on our website, when using MercadoPago, or when we invoiced them. We believe we have meritorious defenses to theseclaims and intend to continue defending them. 34 Table of Contents Set forth below is a description of the legal proceedings that we have determined to be material to our business. We have excluded ordinaryroutine legal proceedings incidental to our business. In each of these proceedings we also believe we have meritorious defenses, and intend tocontinue defending these actions. We have established a reserve for those proceedings which we have considered that a loss is probable.LitigationOn August 25, 2010, Citizen Watch do Brasil S/A, or Citizen, sued Brazilian subsidiaries in the 31st Central Civil Court State of São Paulo,Brazil. Citizen alleged that the Brazilian subsidiaries were infringing Citizen’s trademarks as a result of users selling allegedly counterfeit Citizenwatches through the Brazilian page of the Brazilian subsidiaries’ website. Citizen sought an order enjoining the sale of Citizen-branded watches onthe Brazilian subsidiaries’ Marketplace with a $6,000 daily non-compliance penalty. On September 23, 2010, the Brazilian subsidiaries weresummoned of an injunction granted to prohibit the offer of Citizen products on its platform, but the penalty was established at $6,000 per day. On September 26, 2010, the Brazilian subsidiaries presented their defense and appealed the decision of the injunction relief to the State Courtof Appeals of São Paulo on September 27, 2010. On October 22, 2010 the injunction granted to Citizen was suspended. On March 23, 2011, theCompany’s appeal regarding the injunction granted to Citizen was ruled in favor of the Brazilian subsidiaries. On May 4, 2011, Citizen presented amotion to clarify the decision but it was dismissed on March 14, 2012. On May 28, 2012, the Plaintiff filed a special recourse related to theinjunction relief to the State Court of Appeals, and the Brazilian subsidiaries presented their defense on August 16, 2012 which was not admitted. InSeptember 2012, the Plaintiff filed a legal action against the Brazilian subsidiaries with same arguments alleged in the injunction request andseeking for compensatory and statutory damages and defenses were presented on March 20, 2013. On January 9, 2013, Citizen presented a motion torequest the appeal to be ruled by the Brazilian Superior Court of Justice (Superior Tribunal de Justiça). On March 1, 2013, the Brazilian subsidiariespresented their response to that appeal. On August 27, 2013, the Brazilian Superior Court of Justice ruled against Citizen’s appeal. The SuperiorCourt of Justice ruled that the Brazilian subsidiaries were not responsible for alleged infringement of intellectual property rights by its users and thatthey should comply with the “notice and take down” procedure it already have in place.On October 4, 2013, Citizen presented a motion to clarify mentioned decision issued by the Brazilian Superior Court of Justice and suchmotion was denied on November 11, 2013. Citizen then filed, on November 25, 2013, an Extraordinary Appeal aiming the decision rendered byBrazilian Superior Court of Justice to be reviewed by Brazilian Federal Supreme Court. On February 21, 2014, Brazilian subsidiaries presented itsresponse to Citizen’s Extraordinary Appeal. On March 10, 2014, Citizen’s extraordinary appeal was not accepted by the Brazilian Superior Court ofJustice and, on March 26, 2014, Citizen filed an appeal against such decision, aiming at its Extraordinary Appeal to be accepted and ruled byBrazilian Federal Supreme Court. On May 5, 2014 the Company presented its response to Citizen’s appeal to The Brazilian Federal Supreme Court.On December, 19, 2014 Brazilian Federal Supreme Court overruled Citizen’s Extraordinary Appeal, ending the discussion regarding the injunctionsought by Citizen which was definitely not granted. On February 19, 2015 the judge preceding the 31st Central Civil Court of the City of São Paulo,State of São Paulo, Brazil ruled the case in its merits totally in favor of the Brazilian subsidiary, stating that MercadoLivre shall not be heldresponsible for any of Citizen’s pleas and allegations and Citizen did not appeal the mentioned decision and, as a consequence, the case is closed.February 19, 2016 a final decision on the injunction was issued in favor of the Brazilian Subsidiary and therefore the case was closed.In 2007 São Paulo tax authorities have asserted taxes and fines against our Brazilian subsidiary relating to the period from 2005 to 2007 in anapproximate amount of $5.9 million according to the exchange rate in effect at that time. In 2007, the Company presented administrative defensesagainst the authorities’ claim and the tax authorities ruled against the Brazilian subsidiary. In 2009, the Company presented an appeal to theConselho Municipal de Tributos or São Paulo Municipal Council of Taxes which reduced the fine. On February 11, 2011, the Company appealedthis decision to the Câmaras Reunidas do Egrégio Conselho Municipal de Tributos or Superior Chamber of the São Paulo Municipal Council ofTaxes which affirmed the reduction of the fine. As of the date of this report, the total amount of the claim is $ 4.2 million including surcharges andinterest. With this decision the administrative stage is finished. On August 15, 2011, the Company made a deposit in court of R$ 9.5 million, whichincluding accrued interests amounted to R$ 13.8 million or $ 4.2 million, according to the exchange rate at December 31, 2016, and filed a lawsuitin 8th Public Treasury Court of the County of São Paulo, State of São Paulo, Brazil, to contest the taxes and fines asserted by the Tax Authorities. OnMay 31, 2016, a lower court judge ruled in favor of the Company and the São Paulo Municipal Council presented a motion to clarify mentioneddecision, which was rejected. On November 29, 2016, the São Paulo Municipal Council appealed, and the Company presented its counterarguments. As of the date of this report, the Company is still waiting for a decision.In September 2012 São Paulo tax authorities have asserted taxes and fines against our Brazilian subsidiary related to our Brazilian subsidiary’sactivities in São Paulo for the period from 2007 through 2010. On July 27, 2012, the Company presented administrative defenses against theauthorities’ claim. On February 2, 2013, São Paulo tax authorities ruled against the Brazilian subsidiary maintaining claimed taxes and fines. OnMarch 4, 2013, the Company presented an appeal to the Conselho Municipal de Tributos or São Paulo Municipal Council of Taxes. On August 23,2013, the Câmaras Reunidas do Egrégio Conselho Municipal de Tributos or Superior Chamber of the São Paulo Municipal Council of Taxes ruledagainst the Company’s appeal. On September 5, 2013, the Company presented a special appeal to the Superior Chamber of the São Paulo MunicipalCouncil of Taxes. On October 18, 2013, the mentioned appeal was denied to our Brazilian subsidiary and confirmed the fines. With this decision theadministrative stage is finished. On November 13, 2013, the Company filed a lawsuit before the 9th Treasury Court of the City of São Paulo, State ofSão Paulo, Brazil, to contest the taxes and fines asserted by the Tax Authorities. On November 14, 2013, the Company made a deposit in courtrelated to the lawsuit filed, of R$ 51.6 million or $ 15.8 million, according to the exchange rate at December 31, 2016. On January 28, 2014 SãoPaulo Municipal Council was summoned and on April 8, 2014 the São Paulo Municipal Council presented its 35 Table of Contents defense. On April 24, 2014 we presented our response to the mentioned defense. As of December 31, 2016, the lower court’s ruling was still pending.In January 2005 the Brazilian subsidiary moved its operations to Santana de Parnaíba City, Brazil and began paying taxes to that jurisdictionand therefore the Company believes that has strong defenses to the claims of the São Paulo authorities with respect to these periods for both taxclaims. The Company’s management based on the external legal counsel opinion, believe that the risk of loss is remote for the both claims, and as aresult, has not reserved any provisions for these claims. The collection date of the legal deposits cannot be determined since it will depend on theactual duration of the related legal proceedings.On September 2, 2011, the Brazilian Federal tax authority has asserted taxes and fines against our Brazilian subsidiary relating to the incometax for the 2006 period in an approximate amount of R$5.1 million or $ 1.6 million, according to the exchange rate at December 31,2016. OnSeptember 30, 2011, the Company presented administrative defenses against the authorities’ claim. On August 24, 2012, the Company presented itsappeal to the Board of Tax Appeals (CARF—Conselho Administrativo de Recursos Fiscais) against the tax authorities’ claims. On December 5,2013, the Board of Tax Appeals ruled against MercadoLivre’s appeal. The same Board of Tax Appeals recognized as due part of the taxcompensation made by the Company, decreasing the outstanding debit to R$ 2.1 million or $ 639 thousands according to the exchange rate atDecember 31, 2016. On November 21, 2014, the Company appealed to the Superior Administrative Court of Tax Appeals. On September 8, 2016 ourappeal was not accepted. Mercado Livre filed an appeal against such decision, aiming the appeal to be accepted and ruled by the SuperiorAdministrative Court of Tax Appeals. As of the date of this report, the Superior Administrative Court of Tax Appeals ruling was still pending. TheCompany´s management, based on the external legal counsel opinion, believes that the tax position adopted is more likely than not, based on thetechnical merits of the tax position. For that reason, the Company has not recorded any expense or liability for the controversial amounts.On November 6, 2014 our Brazilian subsidiaries requested a preliminary injunction against Receita Federal Do Brasil in order to avoid theincome tax withholding over payments remitted by our Brazilian subsidiaries to the our Argentine subsidiary for the provision of IT support andassistance services; and requested the reimbursement of the amounts improperly withheld in the last five years. The injunction was grantedconsidering that such withholding violates the provisions of the convention signed between the Federative Republic of Brazil and the ArgentineRepublic to prevent double taxation. In August 2015, such injunction was revoked by the first instance judge decision of merit, which was favorableto Receita Federal Do Brasil. We presented an appeal in September, 2015 and as of December 31, 2016, we are waiting for the second instancedecision. As a result, we started making deposits in court for the controversial amounts. As of December 31, 2016, we recorded in the balance sheetdeposits in court for R$25.8 million or $7.9 million, according to the exchange rate at December 31, 2016 under the caption non-current otherassets. Our management, based on the external legal counsel opinion, believe that the tax position adopted is more likely than not, based on thetechnical merits of the tax position and the existence of favorable decisions of the Federal Regional Courts. For that reason, we have not recordedany expense or liability for the controversial amounts.On November 9, 2016, São Paulo tax authorities have asserted taxes and fines against our Brazilian subsidiary Ebazar, relating to theentitlement of PIS and COFINS credits from 2012 in an approximate amount of R$3.1 million or $945 thousands, according to the exchange rate asof December 31, 2016. We presented administrative defenses against the authorities’ claim. As of the date of this report, we are still waiting for adecision. The opinion of our management, based on the external legal counsel opinion, is that the risk of losing the case is reasonably possible, butnot probable.On December 27, 2016, São Paulo tax authorities have asserted taxes and fines against our Brazilian subsidiary MercadoPago.comRepresentações Ltda., relating to the entitlement of PIS and COFINS credits from 2012 in an approximate amount of R$12 million or $3.7 millionaccording to the exchange rate as of December 31, 2016. We will present administrative defenses against the authorities’ claim. The opinion of ourmanagement, based on the external legal counsel opinion, is that the risk of losing the case is reasonably possible, but not probable.Intellectual Property ClaimsIn the past third parties have from time to time claimed, and others may claim in the future, that we have infringed their intellectual propertyrights. We have been notified of several potential third-party claims for intellectual property infringement through our website. These claims,whether meritorious or not, are time consuming, can be costly to resolve, could cause service upgrade delays, and could require expensiveimplementations of changes to our business methods to respond to these claims. See “Item 1A. Risk factors—Risks related to our business—Wecould face legal and financial liability for the sale of items that infringe on the intellectual property and distribution rights of others and forinformation disseminated on the MercadoLibre Marketplace”. ITEM 4.MINE SAFETY DISCLOSURESNot applicable. 36 Table of Contents PART II ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUERPURCHASES OF EQUITY SECURITIESMarket Price of and Dividends on the Registrant’s Common EquityShares of our common stock, par value $0.001 per share, or our common stock, trade on the Nasdaq Global Market (“NASDAQ”) under thesymbol “MELI.” As of December 31, 2016, the closing price of our common stock was $156.14 per share. As of February 21, 2017, we hadapproximately 14 holders of record of our common stock. This figure does not reflect the beneficial ownership of shares held in nominee name. Thefollowing table sets forth, for the indicated periods, the high and low per share sale prices for our common stock on the Nasdaq Global Market: HighLow20151st quarter$137.99 $116.72 2nd quarter$153.42 $121.60 3rd quarter$143.12 $85.75 4th quarter$127.77 $88.19 20161st quarter$118.28 $85.82 2nd quarter$140.67 $117.13 3rd quarter$191.25 $139.68 4th quarter$189.83 $151.3 Recent Sales of Unregistered SecuritiesThere were no sales of unregistered securities by us during the three-month period ending December 31, 2016.Dividend PolicyIn each of February, April, July and October of 2014, our Board of Directors declared quarterly cash dividends of $7.3 million (or $0.166 pershare on our outstanding shares of common stock). The dividends were paid on April 15, July 15, October 15, 2014 and January 15, 2015 tostockholders of record as of the close of business on March 29, June 30, September 30, and December 31, 2014.In each of February, April, July and October of 2015, our Board of Directors declared quarterly cash dividends of $4.5 million (or $0.103 pershare on our outstanding shares of common stock). The dividends were paid on April 15, July 15, October 15, 2015 and January 15, 2016 tostockholders of record as of the close of business on March 31, June 30, September 30, and December 31, 2015.In each of February, May, August and November of 2016, our Board of Directors declared quarterly cash dividends of $6.6 million (or$0.150 per share on our outstanding shares of common stock). The dividends were paid on April 15, July 15, October 14, 2016 and January 16, 2017to stockholders of record as of the close of business on March 31, June 30, September 30, and December 31, 2016.We currently expect to continue paying comparable cash dividends on a quarterly basis. However, any future determination as to thedeclaration of dividends on our common stock will be made at the discretion of our board of directors and will depend on our earnings, operatingand financial condition, capital requirements and other factors deemed relevant by our board of directors, including the applicable requirements ofthe Delaware General Corporation Law.Equity Compensation Plan InformationInformation regarding securities authorized for issuance under the Company’s equity compensation plan as of December 31, 2016 is set forthin “Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters.” 37 Table of Contents Performance GraphThe graph below shows the total stockholder return of an investment of $100 on December 31, 2007 through December 31, 2016 for (i) ourcommon stock; (ii) The Nasdaq Composite Index; (iii) The S&P 500 Index; and (iv) the Dow Jones Ecommerce Index. The Dow Jones EcommerceIndex is a weighted index of stocks of companies in the e-commerce industry. Stock price performance shown in the graph below is not indicative offuture stock price performance: We cannot assure you that our share performance will continue into the future with the same or similar trends depicted in the graph above. Wewill not make or endorse any predictions as to our future stock performance.The foregoing graph and chart shall not be deemed incorporated by reference by any general statement incorporating by reference thisAnnual Report on Form 10-K into any filing under the Securities Act of 1933, as amended, or under the Securities Exchange Act of 1934, asamended, except to the extent we specifically incorporate this information by reference, and shall not otherwise be deemed filed under those acts. 38 Table of Contents ITEM 6.SELECTED FINANCIAL DATAThe following summary financial data is qualified by reference to and should be read in conjunction with “Management’s Discussion andAnalysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes thereto included elsewherein this report.Year Ended December, 31(in millions)2016 (*)2015 (*)2014 (*)2013 (*)2012 (*)Statement of income data:Net revenues$ 844.4 $ 651.8 $ 556.5 $ 472.6 $ 373.6 Cost of net revenues(307.5)(215.0)(159.0)(130.1)(98.1)Gross profit536.9 436.8 397.6 342.5 275.5 Operating expenses:Product and technology development(98.5)(76.4)(53.6)(40.9)(28.6)Sales and marketing(156.3)(128.6)(111.6)(90.5)(72.0)General and administrative(87.3)(76.3)(62.4)(57.6)(45.2)Impairment of Long-Lived Assets(13.7)(16.2)(49.5) — —Total operating expenses(355.8)(297.6)(277.1)(189.0)(145.9)Income from operations181.1 139.2 120.5 153.5 129.7 Other income (expenses):Interest income and other financial gains35.4 20.6 15.3 10.7 11.9 Interest expense and other financial charges(25.6)(20.4)(11.7)(2.4)(1.1)Foreign currency (losses) / gains(5.6)11.1 (2.4)1.3 0.0 Other expenses, net — — — —(0.2)Net income before income tax185.3 150.5 121.8 163.1 140.2 Income tax expense(49.0)(44.7)(49.1)(45.6)(38.9)Net income136.4 105.8 72.7 117.5 101.3 Less: Net Income attributable to Noncontrolling — —0.1 —0.1 Net income available to common shareholders$ 136.4 $ 105.8 $ 72.6 $ 117.5 $ 101.2 (*) The table above may not total due to rounding.At December 31,(in millions, except for per share data)201620152014 2013 2012 Balance sheet data: Total assets$1,367.4 $1,003.6 $966.8 $592.4 $478.7 Long term debt301.9 294.3 282.2 2.5 0.1 Total liabilities938.6 664.1 611.1 244.9 184.9 Net assets428.9 339.5 355.8 347.5 293.8 Redeemable Noncontrolling Interest — — — 4.0 4.0 Common stock0.04 0.04 0.04 0.04 0.04 Equity428.9 339.5 355.8 343.5 289.8 Cash dividend declared per common share$0.600 $0.412 $0.664 $0.572 $0.436 39 Table of Contents Year Ended December 31, 2016 2015 2014 2013 2012Earnings per share data: Basic net income available to common stockholders per common share $3.09 $2.40 $1.63 $2.66 $2.30 Diluted net income per common share $3.09 $2.40 $1.63 $2.66 $2.30 Weighted average shares(1): Basic 44,157,251 44,155,680 44,153,884 44,152,600 44,147,861 Diluted 44,157,251 44,155,680 44,153,884 44,152,600 44,149,838 (1) Shares outstanding at December 31, 2016 were 44,157,364. Year ended December 31,(in millions) 2016 2015201420132012Other data: Number of confirmed registered users at end of period (1) 174.2 144.6 120.9 99.5 81.5 Number of confirmed new registered users during period (2) 29.5 23.7 21.5 18.0 15.6 Gross merchandise volume (3) $8,048.1 $7,150.8 $7,081.9 $7,305.3 $5,703.9 Number of successful items sold (4) 181.2 128.4 101.3 83.0 67.4 Number of successful items shipped (5) 86.5 45.2 17.8 1.8 0.0 Total payment volume (6)$7,753.7 $5,184.1 $3,523.2 $2,497.7 $1,786.7 Total volume of payments on marketplace (7)$5,627.4 $3,764.7 $2,581.8 $1,701.2 $1,231.7 Total payment transactions (8)138.7 80.4 46.3 31.5 23.5 Unique buyers (9)27.7 23.6 22.0 20.2 16.9 Unique sellers (10)9.4 7.8 7.1 7.0 6.0 Capital expenditures $84.7 $109.3 $76.1 $117.6 $18.1 Depreciation and amortization $29.0 $23.2 $16.9 $11.9 $8.9 (1)Measure of the cumulative number of users who have registered on the MercadoLibre Marketplace and confirmed their registration.(2)Measure of the number of new users who have registered on the MercadoLibre Marketplace and confirmed their registration.(3)Measure of the total U.S. dollar sum of all transactions completed through the MercadoLibre Marketplace, excluding motor vehicles, vessels,aircraft and real estate.(4)Measure of the number of items that were sold/purchased through the MercadoLibre Marketplace.(5)Measure of the number of items that were shipped through our shipping service.(6)Measure of the total U.S. dollar sum of all transactions paid for using MercadoPago, including marketplace and non-marketplace transactions.(7)Measure of the total U.S. dollar sum of all marketplace transactions paid for using MercadoPago, excluding shipping and financing fees.(8)Measure of the number of all transactions paid for using MercadoPago.(9)New or existing users with at least one purchase made in the period.(10)New or existing users with at least one sale made in the period. 40 Table of Contents Non-GAAP Measures of Financial PerformanceTo supplement our consolidated financial statements presented in accordance with U.S. GAAP, we use free cash flows and foreignexchange (“FX”) neutral measures as non-GAAP measures.These non-GAAP measures should not be considered in isolation or as a substitute for measures of performance prepared in accordance with U.S. GAAP and may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on anycomprehensive set of accounting rules or principles. Non-GAAP measures have limitations in that they do not reflect all of the amounts associatedwith our results of operations as determined in accordance with U.S. GAAP. These non-GAAP financial measures should only be used to evaluate ourresults of operations in conjunction with the most comparable U.S. GAAP financial measures.Reconciliation of these non-GAAP financial measures to the most comparable U.S. GAAP financial measures can be found in the tablesincluded in this annual report.Non-GAAP financial measures are provided to enhance investors’ overall understanding of our current financial performance. Specifically, webelieve that free cash flow provides useful information to both management and investors by excluding payments for the acquisition of property andequipment, of intangible assets and of businesses net of cash acquired, that may not be indicative of our core operating results. In addition, we reportfree cash flows to investors because we believe that the inclusion of this measure provides consistency in our financial reporting.Free cash flow represents cash from operating activities less payment and advances for the acquisition of property and equipment net offinancial liabilities, intangible assets and acquired businesses net of cash acquired. We consider free cash flow to be a liquidity measure thatprovides useful information to management and investors about the amount of cash generated by our operations after the purchases of property andequipment, of intangible assets and of acquired businesses net of cash acquired. A limitation of the utility of free cash flow as a measure of financialperformance is that it does not represent the total increase or decrease in our cash balance for the period.The following table shows a reconciliation of Operating Cash Flows to Free Cash Flows:Years endedDecember 31,(In millions)201620152014Net Cash provided by Operating Activities$ 190.3$ 221.4$ 196.8Payment for acquired business, net of cash acquired(7.3)(45.0)(40.8)Advance for property and equipment(8.4)(23.4) -Financial liabilities for acquisition of property and equipment -5.0 -Purchase of intangible assets(0.4)(1.7)(0.9)Purchase of property and equipment(68.5)(39.2)(34.4)Free cash flow105.6 117.1 120.7 (*) The table above may not total due to rounding.We believe that reconciliation of FX neutral measures to the most directly comparable GAAP measure provides investors an overallunderstanding of our current financial performance and its prospects for the future. Specifically, we believe these non-GAAP measures provide usefulinformation to both management and investors by excluding the foreign currency exchange rate impact that may not be indicative of our coreoperating results and business outlook.The FX neutral measures were calculated by using the average monthly exchange rates for each month during 2015 and applying them to thecorresponding months in 2016, so as to calculate what our results would have been had exchange rates remained stable from one year to the next.The table below excludes intercompany allocation FX effects. Finally, these measures do not include any other macroeconomic effect such as localcurrency inflation effects, the impact on impairment calculations or any price adjustment to compensate local currency inflation or devaluations. 41 Table of Contents The following table sets forth the FX neutral measures related to our reported results of the operations for years ended December 31, 2016, 2015and 2014:Year Ended December 31, (*)As reportedFX Neutral Measures(In millions, except percentages)20162015PercentageChange20162015PercentageChangeNet revenues$ 844.4$ 651.829.6% $ 1,110.0$ 651.870.3% Cost of net revenues(307.5)(215.0)43.0% (393.2)(215.0)82.9% Gross profit536.9 436.8 22.9% 716.8 436.8 64.1% Operating expenses:(342.1)(281.4)21.6% (458.9)(281.4)63.1% Impairment of Long-Lived Assets(13.7)(16.2)-15.5%(13.7)(16.2)-15.5%Total operating expenses(355.8)(297.6)19.6% (472.6)(297.6)58.8% Income from operations181.1 139.2 30.1% 244.2 139.2 75.5% (*) The table above may not total due to rounding.Year Ended December 31, (*)As reportedFX Neutral Measures(In millions, except percentages)20152014PercentageChange20152014PercentageChangeNet revenues$ 651.8$ 556.517.1% $ 1,000.0$ 556.579.7% Cost of net revenues(215.0)(159.0)35.2% (287.1)(159.0)80.6% Gross profit436.8 397.6 9.9% 712.9 397.6 79.3% Operating expenses:(281.4)(227.6)23.6% (376.6)(227.6)65.5% Impairment of Long-Lived Assets(16.2)(49.5)-67.2%(16.2)(49.5)-67.2%Total operating expenses(297.6)(277.1)7.4% (392.8)(277.1)41.8% Income from operations139.2 120.5 15.5% 320.1 120.5 165.7% (*) The table above may not total due to rounding. ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSYou should read the following discussion and analysis of our financial condition and results of our operations in conjunction with our“Selected Financial Data” and our audited consolidated financial statements and the notes to those statements included elsewhere in this report.This discussion contains forward-looking statements reflecting our current expectations that involve risks and uncertainties. Actual results and thetiming of events may differ materially from those contained in these forward-looking statements due to a number of factors, including thosediscussed in the section entitled “Risk Factors” and elsewhere in this report.The discussion and analysis of our financial condition and results of operations has been organized to present the following:·a brief overview of our company;·a discussion of our principal trends and results of operations for the years ended December 31, 2014, 2015, and 2016; 42 Table of Contents ·a review of our financial presentation and accounting policies, including our critical accounting policies;·a discussion of the principal factors that influence our results of operations, financial condition and liquidity;·a discussion of our liquidity and capital resources, a discussion of our capital expenditures and a description of our contractual obligations;and·a discussion of the market risks that we face. Business OverviewMercadoLibre, Inc. (together with its subsidiaries “us”, “we”, “our” or the “Company”) is one of the largest online commerce ecosystems inLatin America. Our platform is designed to provide users with a complete portfolio of services to facilitate commercial transactions. We are a marketleader in e-commerce in each of Argentina, Brazil, Chile, Colombia, Costa Rica, Ecuador, Mexico, Peru, Uruguay and Venezuela, based on numberof unique visitors and page views. We also operate online commerce platforms in the Dominican Republic, Honduras, Nicaragua, Salvador, Panama,Bolivia, Guatemala, Paraguay and Portugal.Through our platform, we provide buyers and sellers with a robust environment that fosters the development of a large e-commerce communityin Latin America, a region with a population of over 610 million people and one of the fastest-growing Internet penetration rates in the world. Webelieve that we offer technological and commercial solutions that address the distinctive cultural and geographic challenges of operating an onlinecommerce platform in Latin America.We offer our users an ecosystem of six integrated e-commerce services: the MercadoLibre Marketplace, the MercadoLibre Classifieds Service,the MercadoPago payments solution, the MercadoEnvios shipping service, the MercadoLibre advertising program and the MercadoShops onlinewebstores solution. The MercadoLibre Marketplace, which we sometimes refer to as our marketplace, is a fully-automated, topically-arranged and user-friendlyonline commerce service. This service permits both businesses and individuals to list merchandise and conduct sales and purchases online in either afixed-price or auction-based format.To complement the MercadoLibre Marketplace, we developed MercadoPago, an integrated online payments solution. MercadoPago isdesigned to facilitate transactions both on and off our marketplace by providing a mechanism that allows our users to securely, easily and promptlysend and receive payments online. Mercado Pago is currently available in: Argentina, Brazil, Mexico, Colombia, Venezuela, Uruguay, Perú andChile. MercadoPago allows merchants to facilitate checkout and payment processes on their websites and also enables users to simply transfermoney to each other either through the website or using the MercadoPago App, available on iOS and Android. Additionally, during the fourthquarter of 2016, we launched MercadoCredito in Argentina, which is designed to extend loans to specific merchants. Our MercadoCredito solutionallows us to deepen our engagement with our merchants by offering them additional services.To further enhance our suite of e-commerce services, during 2013 and 2014, we launched the MercadoEnvios shipping program in Brazil,Argentina and Mexico. During the second quarter of 2015 and 2016 we launched MercadoEnvios in Colombia and Chile, respectively. ThroughMercadoEnvios, we offer our sellers a cost-efficient way to utilize our existing distribution chain to fulfill their sales. Sellers opting into the programare able to offer a uniform and seamlessly integrated shipping experience to their buyers at competitive prices.Through MercadoLibre Classifieds Service, our online classified listing service, our users can also list and purchase motor vehicles, vessels,aircraft, real estate and services in all countries where we operate. Classifieds listings differ from Marketplace listings as they only charge optionalplacement fees and never final value fees. Our classifieds pages are also a major source of traffic to our website, benefitting both the Marketplace andnon-marketplace businesses.To enhance the MercadoLibre Marketplace, we developed our MercadoLibre advertising program, to enable businesses to promote theirproducts and services on the Internet. Through our advertising program, MercadoLibre’s sellers and large advertisers are able to display ads on ourwebpages and our associated vertical sites in the region.Additionally, through MercadoShops, our online store solution, users can set-up, manage and promote their own online store. These stores arehosted by MercadoLibre and offer integration with the other marketplace, payment and advertising services we offer. Users can choose from a basic,free store or pay monthly subscriptions for enhanced functionality and value added services on their store.MercadoLibre also began developing and selling enterprise software solutions to e-commerce business clients in Brazil during the secondquarter of 2015.We were incorporated in Delaware in October 1999 and introduced websites in Argentina, Brazil, Mexico, Colombia, Chile, Uruguay andVenezuela by April 2000. 43 Table of Contents We completed our initial public offering in August 2007, resulting in net proceeds to us of approximately $49.6 million.In April 2014, we acquired VMK S.A., Inmobiliaria Web Chile S. de R.L. de C.V. and Inmuebles Online S.A., companies that operate onlineclassified advertisements platforms dedicated to the sale of real estate in Chile through the Portal Inmobiliario brand and in Mexico through theGuia de Inmuebles brand. The aggregate purchase price was $ 38.0 million.In December 2014, we acquired Business Vision S.A., an Argentine software development company located in the city of Buenos Aires, for anaggregate purchase price of $4.8 million. The objective of this acquisition was to enhance our software development capabilities.In April 2015, we acquired KPL Soluções Ltda., a company that develops enterprise resource planning (“ERP”) software for the e-commerceindustry in Brazil, for and aggregate purchase price of $22.7 million. The objective of this acquisition was to offer an even more seamless way forour customers to sell on our marketplace.Also in April 2015, we acquired Metros Cúbicos, S.A. de C.V., a company that operates an online classified advertisement platform dedicatedto the sale of real estate in Mexico. The aggregate purchase price was $29.9 million. The objective of this acquisition was to increase ourparticipation in the e-commerce business in that country.In February 2016, we acquired Monits S.A., a software development company located and organized under the laws of Buenos Aires,Argentina, for the purchase price of $3.1 million. The objective of this acquisition was to enhance our software development capabilities.In June 2016, we acquired Axado, a company that develops logistic software for the e-commerce industry in Brazil, for the purchase price of$5.5 million. The objective of this acquisition was to enhance our software development capabilities on Transportation Management System andcontribute to our shipping business performance. Reporting Segments and Geographic InformationOur segment reporting is based on geography, which is the criterion our management uses to organize segments for making operating decisionsand assessing performance. Our geographic segments are Brazil, Argentina, Mexico Venezuela and Other Countries (which includes Chile,Colombia, Costa Rica, Dominican Republic, Ecuador, Panama, Peru, Portugal, Guatemala, Bolivia, Paraguay, Uruguay and the United States ofAmerica). Although we discuss long-term trends in our business, it is our policy not to provide earnings guidance in the traditional sense. Webelieve that uncertain conditions make the forecasting of near-term results difficult. Further, we seek to make decisions focused primarily on thelong-term welfare of our Company and believe focusing on short term earnings does not best serve the interests of our stockholders. We believe thatexecution of key strategic initiatives as well as our expectations for long-term growth in our markets will best create stockholder value. We,therefore, encourage potential investors to consider this strategy before making an investment in our common stock. A long-term focus may make itmore difficult for industry analysts and the market to evaluate the value of our Company, which could reduce the value of our common stock orpermit competitors with short term tactics to grow stronger than us.The following table sets forth the percentage of our consolidated net revenues by segment for the years ended December 31, 2016, 2015 and2014:Years ended December 31,(% of total consolidated net revenues) (*)2016 2015 2014 Brazil53.9 %44.6 %49.2 %Argentina31.1 37.6 27.1 Mexico5.5 6.2 6.8 Venezuela4.4 6.2 10.4 Other Countries5.2 5.4 6.6 The following tablesets forth thepercentage of ourconsolidated netrevenues bysegment for theyears endedDecember 31, 2016,2015 and 2014: (*)Percentages have been calculated using whole-dollar amounts rather than rounded amounts that appear in the table. The table above may not total due torounding. 44 Table of Contents The following table summarizes the changes in our net revenues by segment for the years ended December 31, 2016, 2015 and 2014:Year endedChange from 2015Year endedChange from 2014December 31,to 2016 (*)December 31,to 2015 (*)20162015in Dollarsin %20152014in Dollarsin %(in millions, except percentages)(in millions, except percentages)Net Revenues:Brazil$ 455.0$ 290.6$ 164.456.6 %$ 290.6$ 273.6$ 17.06.2 %Argentina262.3 245.0 17.2 7.0 245.0 150.7 94.3 62.6 Mexico46.3 40.3 6.0 14.9 40.3 37.7 2.7 7.1 Venezuela37.2 40.5 (3.3)(8.1)40.5 58.0 (17.6)(30.2)Other Countries43.6 35.4 8.2 23.3 35.4 36.5 (1.2)(3.2)Total Net Revenues$ 844.4$ 651.8$ 192.629.6 %$ 651.8$ 556.5$ 95.317.1 %(*)Percentages have been calculated using whole-dollar amounts rather than rounded amounts that appear in the table. The table above may not total due torounding.Description of line itemsNet revenuesWe recognize revenues in each of our five reporting segments. Our reporting segments include our operations in Brazil, Argentina, Mexico,Venezuela and other countries (Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, Panama, Peru, Portugal, Guatemala, Bolivia, Paraguay,Uruguay and the United States of America).Within each of our segments, the services we provide generally fall into two distinct revenue streams, “Marketplace” which includes our corebusiness and “Non-Marketplace” which includes financing fees, off-platform payment fees, ad sales, real estate listings, motors listings, shippingfees and other ancillary businesses.The following table summarizes our consolidated net revenues by revenue stream for the years ended December 31, 2016, 2015 and 2014: Years endedDecember 31, (*)Consolidated net revenues by revenue stream201620152014(in millions)Marketplace$491.6 $393.0 $376.2 Non-Marketplace (**)352.8 258.8 180.4 Total$844.4 $651.8 $556.5 (*)The table above may not total due to rounding.(**)Includes, among other things, Financing Fees, Off-platform Payment Fees, Ad Sales, Real Estate, Motors, Shipping and other ancillary services.Revenues from Marketplace transactions are generated from:·final value fees; and·up-front fees.For Marketplace services, final value fees representing a percentage of the sale value are charged to the seller once the item is successfully sold.Up-front fees are charged to the seller in exchange for improved exposure of the listings throughout our platform and are not subject to thesuccessful sale of the items listed.Revenues for the Non-Marketplace services are generated from:·financing fees;·off-platform payment fees;·motors up-front fees;·ad sales up-front fees; 45 Table of Contents ·real estate listings up-front fees;·shipping fees; and·fees from other ancillary businesses.With respect to our MercadoPago service, we generate payment related revenues, reported within each of our reporting segments, attributableto:·commissions representing a percentage of the payment volume processed that are charged to sellers in connection with off-Marketplace-platform transactions;·revenues from financing that occur when a buyer elects to pay in installments through our MercadoPago platform, for transactions thatoccur either on or off our marketplace platform;·interest and fees from merchant credits granted under our MercadoCredtis solution; and·revenues from the sale of mobile point of sale products.Although we also process payments on our marketplace, we do not charge sellers an added commission for this service, as it is already includedin our marketplace final value fee we charge.Through our classifieds offerings in motors, real estate and services, we generate revenues from up-front fees. These fees are charged to sellerswho opt to give their listings greater exposure throughout our websites.Our Advertising revenues are generated by selling either display or text link ads throughout our web-site to interested advertisers.Finally, our shipping revenues are generated when a buyer elects to receive the item through our shipping service.When more than one service is included in one single arrangement with the customer, we recognize revenue according to multiple elementarrangements accounting, distinguishing between each of the services provided and allocating revenues based on their respective selling prices.We have a highly fragmented customer revenue base given the large numbers of sellers and buyers who use our platforms. For the three yearsended December 31, 2016, 2015 and 2014, no single customer accounted for more than 5.0% of our net revenues. Our MercadoLibre Marketplace isavailable in 19 countries (Argentina, Brazil, Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, Mexico, Panama, Peru, Portugal, Uruguay,Venezuela, Bolivia, Honduras, Nicaragua, Salvador, Guatemala and Paraguay), and MercadoPago is available in seven countries (Argentina, Brazil,Chile, Peru, Colombia, Mexico and Venezuela). Additionally, MercadoEnvios is available in 5 countries: Argentina, Brazil, Mexico, Colombia andChile. The functional currency for each country’s operations is the country’s local currency, except for Venezuela where the functional currency isthe U.S. dollar due to Venezuela’s status as a highly inflationary economy. See—“Critical accounting policies and estimates—Foreign CurrencyTranslation” included below. Therefore, our net revenues are generated in multiple foreign currencies and then translated into U.S. dollars at theaverage monthly exchange rate.Our subsidiaries in Brazil, Argentina, Venezuela and Colombia are subject to certain taxes on revenues which are classified as a cost of netrevenues. These taxes represented 9.0%, 8.1% and 7.1% of net revenues for the years ended December 31, 2016, 2015 and 2014, respectively.Cost of net revenuesCost of net revenues primarily represents bank and credit card processing charges for transactions and fees paid with credit cards and otherpayment methods, fraud prevention fees, certain taxes on revenues, certain taxes on bank transactions, compensation for customer support personnel,ISP connectivity charges, depreciation and amortization, hosting and site operation fees and cost of mobile point of sale products sold.Product and technology development expensesOur product and technology development related expenses consist primarily of compensation for our engineering and web-development staff,depreciation and amortization costs related to product and technology development, telecommunications costs and payments to third-partysuppliers who provide technology maintenance services to us.Sales and marketing expensesOur sales and marketing expenses consist primarily of costs of marketing our platforms through online and offline advertising and agreementswith portals and search engines, charges related to our buyer protection programs, the salaries of employees involved in these activities, bad debtcharges, chargebacks related to our MercadoPago operations, public relations costs, marketing activities for our users and depreciation andamortization costs. 46 Table of Contents We carry out the majority of our marketing efforts on the Internet. We enter into agreements with portals, search engines, social networks, adnetworks and other sites in order to attract Internet users to the MercadoLibre Marketplace and convert them into registered users and active traderson our platform.We also work intensively on attracting, developing and growing our seller community through our customer support efforts. We havededicated professionals in most of our operations that work with sellers through trade show participation, seminars and meetings to provide themwith important tools and skills to become effective sellers on our platform.General and administrative expensesOur general and administrative expenses consist primarily of salaries for management and administrative staff, compensation for outsidedirectors, long term retention plan compensation, expenses for legal, audit and other professional services, insurance expenses, office space rentalexpenses, travel and business expenses, as well as depreciation and amortization costs. Our general and administrative expenses include the costs ofthe following areas: general management, finance, administration, accounting, legal and human resources.Impairment of long-lived assetsWe review long-lived assets for impairments whenever events or changes in circumstances indicate that the carrying value of an asset may notbe recoverable.As explained in section “Foreign Currency Translation – Venezuelan Currency Status”, the exchange markets in Venezuela have beenunfavorable to us since December 2013.As a result of the lower U.S. dollar-equivalent cash flows expected from the Venezuelan business, and long-lived assets expected use, weconcluded that certain real estate investments held in Caracas, Venezuela, should be impaired. As a consequence, we estimated the fair value of theimpaired long-lived assets, and recorded impairment losses of $13.7 million and $16.2 million on June 30, 2016 and March 31, 2015, respectively,by using the market approach and considering prices for similar assets.Other income (expenses), netOther income (expenses) consists primarily of interest income derived from our investments and cash equivalents, interest expense related tofinancial liabilities, foreign currency gains or losses, and other non-operating results.Income and asset taxWe are subject to taxes in the multiple jurisdictions where we operate. Our tax obligations consist of current and deferred income taxes andasset taxes incurred in these jurisdictions. We account for income taxes following the liability method of accounting. Therefore, our income taxexpense consists of taxes currently payable, if any (given that in certain jurisdictions we still have net operating loss carry-forwards), plus the changein our deferred tax assets and liabilities during each period.The following table summarizes the composition of our income/asset taxes for the years ended December 31, 2016, 2015 and 2014:Year ended December 31,(In millons)2016 (*)2015 (*)2014 (*)Current:U.S.0.0 0.1 0.0 Non U.S.55.1 45.9 66.8 55.2 45.9 66.8 Deferred:U.S.1.3 0.0 0.5 Non U.S.(7.5)(1.2)(18.1)(6.2)(1.2)(17.6)Income tax expense49.0 44.7 49.1 (*)The table above may not total due to rounding. No asset tax expense was recorded for the years ended December 31, 2016, 2015 and 2014. 47 Table of Contents SeasonalityThe following table presents certain unaudited quarterly financial information for each of the twelve quarters set forth below: Quarter Ended(in millions, except for share data)March 31,June 30,September 30,December 31,2016Net Revenues$ 157.6$ 199.6$ 230.8$ 256.3Gross profit102.2 126.3 145.6 162.7 Net Income30.2 15.9 38.9 51.3 Net Income per share-basic0.68 0.36 0.88 1.16 Net Income per share-diluted0.68 0.36 0.88 1.16 Weighted average sharesBasic44,156,961 44,157,341 44,157,341 44,157,355 Diluted44,156,961 44,157,341 44,157,341 44,157,355 2015Net Revenues$ 148.1$ 154.3$ 168.6$ 180.7Gross profit103.4 104.0 111.8 117.6 Net Income/ (loss)1.7 19.5 45.6 39.0 Net Income (loss) per share-basic0.04 0.44 1.03 0.88 Net Income (loss) per share-diluted0.04 0.44 1.03 0.88 Weighted average sharesBasic44,154,796 44,155,271 44,155,830 44,156,800 Diluted44,154,796 44,155,271 44,155,830 44,156,800 2014Net Revenues$ 115.4$ 131.8$ 147.9$ 161.4Gross profit83.8 95.5 104.5 113.7 Net Income30.3 (25.6)33.8 34.2 Net Income per share-basic0.69 (0.58)0.76 0.76 Net Income per share-diluted0.69 (0.58)0.76 0.76 Weighted average sharesBasic44,153,818 44,153,892 44,153,892 44,154,412 Diluted44,153,818 44,182,668 44,153,892 44,154,412 Seasonal fluctuations in Internet usage and retail seasonality have affected, and are likely to continue to affect, our business. Typically, thefourth quarter of the year is the strongest in terms of revenues in every country where we operate due to the significant increase in transactions beforethe Christmas season. Our slowest period is typically the first quarter of the year. The months of January, February and March normally correspond tosummer vacation time in Argentina, Brazil, Chile, Peru and Uruguay. Additionally, the Easter holiday falls in March or April, and Brazil celebratesCarnival for one week in February or March. This is partially mitigated by the countries located in the northern hemisphere, such as Colombia,Mexico and Venezuela for which the slowest months are their summer months of July, August and September.Critical accounting policies and estimatesThe preparation of our consolidated financial statements and related notes requires us to make judgments, estimates and assumptions that affectthe reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We have based ourestimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of whichform the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Ourmanagement has discussed the development, selection and disclosure of these estimates with our audit committee and our board of directors. Actualresults may differ from these estimates under different assumptions or conditions.An accounting policy is considered to be critical if it requires an accounting estimate to be made based on assumptions about matters that arehighly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accountingestimates that are reasonably likely to occur periodically, could materially impact the consolidated financial statements. We believe that thefollowing critical accounting policies reflect the more significant estimates and assumptions used in the preparation of our consolidated financial 48 Table of Contents statements. You should read the following descriptions of critical accounting policies, judgments and estimates in conjunction with our auditedconsolidated financial statements and the notes thereto and other disclosures included in this report.Foreign Currency TranslationHistorically, all of our foreign operations have used the local currency as their functional currency. Accordingly, these foreign subsidiariestranslate assets and liabilities from their local currencies to U.S. dollars using year-end exchange rates while income and expense accounts aretranslated at the monthly average exchange rates in effect during the year. The resulting translation adjustment is recorded as part of othercomprehensive income (losses), a component of equity. Gains and losses resulting from transactions denominated in non-functional currencies arerecognized in earnings. Net foreign currency exchange losses or gains are included in the consolidated statements of income under the caption“Foreign currency losses / gains”.All our foreign operations have determined the local currency to be their functional currency, except for Venezuela since January 1, 2010, asdescribed below.Venezuelan Currency StatusPursuant to U.S. GAAP, we transitioned our Venezuelan operations to highly inflationary status beginning on January 1, 2010. Highlyinflationary status requires transactions and balances to be re-measured as if the U.S. dollar were the functional currency for the operation.From January 24 to May 15, 2014, the exchange rate used to re-measure our net monetary asset position in Bolivares Fuertes (“BsF”) and BsFtransactions of our Venezuelan operations was the SICAD 1 exchange rate (which was the average exchange rate of transactions settled in SICAD 1auctions in Venezuela).In late February 2014, the Venezuelan government issued a decree to open a new exchange control mechanism (“SICAD 2”) that was intendedto allow the purchase of foreign exchange currencies, through authorized foreign exchange operators offered by individuals and other public entitiesauthorized by the Ministry of Finance. The Venezuelan government published operating rules for that exchange mechanism in Exchange AgreementN° 27, and SICAD 2 began operating on March 24, 2014. Since implementation of the SICAD 1 system, the Company was unsuccessful in gainingaccess to U.S. dollars through SICAD 1. As a result of this ongoing lack of access to the SICAD 1 auction system, on May 16, 2014, we decided tostart requesting U.S. dollars through the SICAD 2 mechanism. The SICAD 2 system was an open mechanism that was intended to permit anycompany to request dollars for any purpose. Consequently, we were eligible for and were granted, U.S. dollars through the SICAD 2 mechanism.As a consequence of the determination to obtain U.S. dollars through SICAD 2 and the lack of access to SICAD 1, since May 16, 2014 weconcluded that the SICAD 2 exchange rate should be used to re-measure our bolivar-denominated monetary assets and liabilities in BsF and to re-measure the results of our Venezuelan operations, effective as of May 16, 2014. As a consequence, we recorded a foreign exchange lossof $16.5 million during the second quarter of 2014.In light of those economic conditions in Venezuela, the determination to access SICAD 2 and re-measure the BsF denominated monetary assetsand liabilities of its Venezuelan subsidiaries, and the lower U.S. dollar-equivalent cash flows then expected from the Venezuelan business, wereviewed in May 2014, the long-lived assets, goodwill and intangible assets with indefinite useful life for impairment and concluded that thecarrying value of certain real estate properties would not be fully recoverable. As a result, we recorded an impairment of long-lived assetsof $49.5 million in the second quarter of 2014. The carrying amount was adjusted to its estimated fair value of that date, by using the marketapproach, and considering prices for similar assets.Later, on February 10, 2015, the Venezuelan government issued a decree that unified the two previous foreign exchange systems “SICAD 1 andSICAD 2” into a new single system denominated SICAD, with an initial public foreign exchange rate of 12 BsF per U.S. dollar. The SICAD auctionprocess remains available only to obtain foreign currency to pay for a limited list of goods considered to be of high priority by the Venezuelangovernment, which does not include those relating to the Company’s business. In the same decree the Venezuelan government created the “SistemaMarginal de Divisas” (“SIMADI”), a new foreign exchange system that is separate from SICAD, which publishes a foreign exchange rate from theCentral Bank of Venezuela (“BCV”) on a daily basis.In light of the disappearance of SICAD 2, and we inability to gain access to U.S. dollars through the new single system under SICAD, we startedrequesting and was granted U.S. dollars through SIMADI. As a result, we from that moment expected to settle our transactions through SIMADI andconcluded that the SIMADI exchange rate should be used to re-measure our bolivar-denominated monetary assets and liabilities and to re-measurethe revenues and expenses of the Venezuelan subsidiaries effective as of March 31, 2015. In connection with this re-measurement, we recorded aforeign exchange loss of $20.4 million during the first quarter of 2015, with no significant foreign exchange losses recorded during the second, thirdand fourth quarter of 2015.Considering this change in facts and circumstances and the lower U.S. dollar-equivalent cash flows then expected from the Venezuelanbusiness, we have reviewed its long-lived assets, goodwill and intangible assets with indefinite useful life for impairment and concluded that thecarrying value of certain real estate investments in Venezuela as of March 31, 2015 would not be fully recoverable. As a result, we have recorded animpairment of long-lived assets of $ 16.2 million on March 31, 2015. The carrying amount has been adjusted to its estimated fair value as of March31, 2015, by using the market approach, and considering prices for similar assets.On March 9, 2016 the BCV issued an Exchange Agreement, which established a “protected” exchange rate (“DIPRO”) for certain transactions,such as but not limited to: imports of goods of the food and health sectors, as well as supplies associated with the production of said 49 Table of Contents sectors; expenses relating to health treatments, sports, culture, scientific research, and other urgent matters defined by the exchange regulations. Allforeign currency transactions not expressly provided in that agreement will be processed on the alternate foreign currency markets governed by theexchange regulations, at the floating supplementary market exchange rate (“DICOM”).Additionally, the agreement established that SIMADI will continue to operate until replaced by others. As of the date of this report, the SIMADIhas not been replaced and for that reason, we continued using SIMADI. From March 31, 2016 through June 30, 2016, the SIMADI exchange rateincreased from 273 BsF per U.S. dollar to 628 BsF per U.S. dollar, a 130% increase in the exchange rate. As a consequence of the local currencydevaluation, we have recorded a foreign exchange loss of $4.9 million during the second quarter of 2016.Considering the significant devaluation and the lower U.S. dollar-equivalent cash flows then expected from the Venezuelan business, wereviewed our long-lived assets (including non-current other assets), goodwill and intangible assets with indefinite useful life for impairment andconcluded that the carrying value of certain real estate investments in Venezuela would not be fully recoverable. As a result, on June 30, 2016, werecorded an impairment of offices and commercial property under construction included within non-current other assets of $13.7 million. Thecarrying amount of offices and commercial property under construction was adjusted to its estimated fair value of $12.5 million as of June 30, 2016,by using the market approach and considering prices for similar assets. As of December 31, 2016, monetary assets and liabilities in Bolivares Fuertes (“BsF”) were re-measured to the U.S. dollar using the SIMADIclosing exchange rate of 673.8 BsF per U.S. dollar.Our ability to obtain U.S. dollars in Venezuela is negatively affected by the exchange regulations in Venezuela that are described above andelsewhere in these financial statements. In addition, its business and ability to obtain U.S. dollars in Venezuela would be negatively affected byadditional material devaluations Venezuelan default or the imposition of significant additional and more stringent controls on foreign currencyexchange by the Venezuelan government.Despite the current difficult macroeconomic environment in Venezuela, we continue to actively manage, through our Venezuelan subsidiaries,our investment in Venezuela. Regardless the current operating, political and economic conditions and certain other factors in Venezuela,management currently plans to continue supporting its business in Venezuela in the long run.Impairment of long-lived assets, goodwill and intangible assets with indefinite useful lifeWe review long-lived assets for impairments whenever events or changes in circumstances indicate that the carrying value of an asset may notbe recoverable. Recoverability of assets to be held and used is measured by comparing the carrying amount of a long-lived asset to its undiscountedfuture net cash flows expected to be generated by such asset. If such asset is considered to be impaired on this basis, the impairment loss to berecognized is measured by the amount by which the carrying amount of the asset exceeds its fair value.If the carrying amount of the reporting unit exceeds its fair value, goodwill or indefinite useful life intangible assets are considered impairedand a second step is performed to measure the amount of impairment loss, if any. No impairments were recognized during the reporting periods andmanagement’s assessment of each reporting unit’s fair value exceeds its carrying value.We recorded an impairment of long-lived assets of $49.5 million during May 2014, of $16.2 million on March 31, 2015 and of $13.7 millionon June 30, 2016 relating to certain real estate investments in Venezuela. The carrying amount was adjusted to its estimated fair value by using themarket approach and considering prices for similar assets. For a complete discussion on such impairment, see “Foreign Currency Translation—Venezuelan Currency Status” above.Goodwill and certain indefinite life trademarks are reviewed for impairment at each year-end or more frequently when events or changes incircumstances indicate that their carrying value may not be recoverable. Impairment of goodwill and certain trademarks are tested at the reportingunit level (considering each segment of the Company as a reporting unit) by comparing the reporting units’ carrying amount, including goodwilland certain trademarks, to the fair value of the reporting unit.For the year ended December 31, 2016, the fair values of the reporting units and the intangible assets with indefinite useful lives were estimatedusing the income approach. Cash flow projections used were based on financial budgets approved by management. The growth rates applied do notexceed the long-term average growth rate for the business in which the reporting unit operates. The Company uses discount rates to each reportingunit in the range of 14.5% to 29.9%. The average discount rate used for 2016 was 16.9%. That rate reflected the Company’s real weighted averagecost of capital. Key drivers in the analysis include Confirmed Registered Users (“CRUs”), Gross Merchandise Volume (“GMV”), Total PaymentVolume (“TPV”), Average Selling Price (“ASP”), Successful Items sold (“SI”) and Take Rate. See Item 6 of Part II, “Selected Financial Data-Otherdata” for details on the measures described in this paragraph. In addition, the benchmark in our analysis includes a business to e-commerce rate,which represents the growth of e-commerce as a percentage of GDP, Internet penetration rates as well as trends in the Company’s market share.For the year ended December 31, 2016, based on quantitative assessments, the Company has determined that the fair value of all the reportingunits and the intangible assets with indefinite useful lives are greater than their respective carrying amounts. 50 Table of Contents As discussed above, if the carrying amount of any given reporting unit or any intangible asset with indefinite useful life exceeds its fair value,goodwill or indefinite useful life, intangible assets are considered impaired and a second step is performed to measure the amount of impairmentloss, if any. No impairments were recognized during the reporting periods included in the financial statements set forth in Item 8 as management’sassessment of each reporting unit fair value exceeds its carrying value.We believe that the accounting estimate related to impairment of long lived assets and goodwill is critical since it is highly susceptible tochange from period to period because: (i) it requires management to make assumptions about gross merchandise volume growth, total paymentvolume, total payment transactions, future interest rates, sales and costs; and (ii) the impact that recognizing an impairment would have on the assetsreported on our balance sheet as well as our net income would be material. Management’s assumptions about future sales and future costs requiresignificant judgment.Allowances for doubtful accounts and for chargebacksWe are exposed to losses due to uncollectable accounts and credits to sellers. Allowances for these items represent our estimate of future lossesbased on our historical experience. The allowances for doubtful accounts and for chargebacks are recorded as charges to sales and marketingexpenses. Historically, our actual losses have been consistent with our charges. However, future adverse changes to our historical experience fordoubtful accounts and chargebacks could have a material impact on our future consolidated statements of income and cash flows.We believe that the accounting estimate related to allowances for doubtful accounts and for chargebacks is a critical accounting estimatebecause it requires management to make assumptions about future collections and credit analysis. Our management’s assumptions about futurecollections require significant judgment.Convertible Senior NotesOn June 30, 2014, we issued $330 million of 2.25% convertible senior notes due 2019 (the “Notes”). The Notes may be converted, underspecific conditions, based on an initial conversion rate of 7.9353 shares of common stock per $1,000 principal amount of Notes, subject toadjustment as described in the indenture governing the Notes. The convertible debt instrument within the scope of the cash conversion subsection,was separated into debt and equity components at issuance and a fair value was assigned. The value assigned to the debt component was theestimated fair value, as of the issuance date, of a similar debt without the conversion feature. As of June 30, 2014, we determined the fair value of theliability component of the Notes by reviewing market data that was available for senior, unsecured nonconvertible corporate bonds issued bycomparable companies. The difference between the cash proceeds and this estimated fair value, represents the value assigned to the equitycomponent and was recorded as a debt discount. The debt discount is amortized using the effective interest method from the origination datethrough its stated contractual maturity date.In connection with the issuance of the Notes, we paid $19.7 million to enter into capped call transactions with respect to shares of our commonstock (the “Capped Call Transactions”), with certain financial institutions. The Capped Call Transactions are expected generally to reduce thepotential dilution upon conversion of the Convertible Notes in the event that the market price of our common stock is greater than the strike price ofthe Capped Call Transactions. The $19.7 million cost of the capped call transactions, which net of deferred income tax effect amounts to $12.8million, is included as a net reduction to additional paid-in capital in the stockholders’ equity section of our consolidated balance sheets.For more detailed information in relation to the Notes and the Capped Call transactions, see “—Results of operations for the years endedDecember 31, 2016 and 2015 — Debt” and Note 17 to our consolidated financial statements.Legal contingenciesIn connection with certain pending litigation and other claims, we have estimated the range of probable loss and provided for such lossesthrough charges to our consolidated statement of income. These estimates are based on our assessment of the facts and circumstances and historicalinformation related to actions filed against the Company at each balance sheet date and are subject to change based upon new information andfuture events.From time to time, we are involved in disputes that arise in the ordinary course of business. We are currently involved in certain legalproceedings as discussed in “Item 3—Legal Proceedings,” and in Note 15 to our audited consolidated financial statements. We believe that we havemeritorious defenses to the claims against us, and we will defend ourselves accordingly. However, even if successful, our defense could be costly andcould divert management’s time. If the plaintiffs were to prevail on certain claims, we might be forced to pay material damages or modify ourbusiness practices. Any of these consequences could materially harm our business and could have a material adverse impact on our financialposition, results of operations or cash flows. 51 Table of Contents Income taxesWe are required to recognize a provision for income taxes based upon taxable income and temporary differences between the book and taxbases of our assets and liabilities for each of the tax jurisdictions in which we operate. This process requires a calculation of taxes payable undercurrently enacted tax laws in each jurisdiction and an analysis of temporary differences between the book and tax bases of our assets and liabilities,including various accruals, allowances, depreciation and amortization. The tax effect of these temporary differences and the estimated tax benefitfrom our tax net operating losses are reported as deferred tax assets and liabilities in our consolidated balance sheet. We also assess the likelihoodthat our net deferred tax assets will be realized from future taxable income. To the extent we believe that it is more likely than not that some portionor all of our deferred tax assets will not be realized, we establish a valuation allowance. At December 31, 2016, we had a valuation allowance oncertain foreign net operating losses based on our assessment that it is more likely than not that the deferred tax asset will not be realized. To theextent we establish a valuation allowance or change the allowance in a period, we reflect the change with a corresponding increase or decrease in our“Income/asset tax expense” line in our consolidated statement of income.Stock-based compensationOur board of directors adopted the 2009, 2010, 2011, 2012, 2013, 2014, 2015 and 2016 long-term retention plans (the “2009, 2010, 2011,2012, 2013, 2014, 2015 and 2016 LTRPs”, respectively). See “Item 7A. Quantitative and Qualitative Disclosures About Market Risk —EquityPrice Risk” for details on the LTRPs.All 2009, 2010, 2011, 2012, 2013, 2014, 2015 and 2016 LTRPs have performance and/or eligibility conditions to be achieved at eachyear-end and also require the employee to be still employed by the Company at the payment date.The variable awards compensation cost of the 2009, 2010, 2011, 2012, 2013, 2014, 2015 and 2016 LTRPs are recognized in accordance withthe graded-vesting attribution method and are accrued up to each payment date. The 2009, 2010, 2011, 2012, 2013, 2014, 2015 and 2016 LTRPsfixed awards are recognized in straight line bases using the equal annual accrual method.The following tables summarize the accrued compensation expense for 2009, 2010, 2011, 2012, 2013, 2014, 2015 and 2016 LTRPs accruedcompensation expense for the years ended December 31, 2016, 2015 and 2014: Year ended December 31, 2016 2015 2014 (In thousands)LTRP 2009 692 16 665 LTRP 2010 1,122 339 930 LTRP 2011 1,420 465 1,108 LTRP 2012 1,749 641 1,385 LTRP 2013 3,897 2,205 3,935 LTRP 2014 3,653 2,763 3,829 LTRP 2015 4,641 3,784 —LTRP 2016 5,809 — — 22,983 10,213 11,852 On September 27, 2013, our Board of Directors adopted a director compensation program or the “2013 Director Compensation Program” thatsets compensation for the Company’s outside directors for the period of June 2013 to June 2016. The 2013 Director Compensation Program providesthat each outside director of the Company receives an annual fee for Board services, comprised of a non-adjustable Board service award and anadjustable Board service award (based on the average closing price of our common stock). See Note 11-Compensation Plan for Outside Directors toour consolidated financial statements for details on our 2013 Director Compensation Program. On August 2, 2016, our Board of Directors adopted a director compensation program or the “2016 Director Compensation Program” that setscompensation for the Company’s outside directors for the period of June 2016 to June 2019. The 2016 Director Compensation Program providesthat each outside director of the Company receives an annual fee for Board services, comprised of a non-adjustable Board service award and anadjustable Board service award (based on the average closing price of our common stock). See Note 11-Compensation Plan for Outside Directors toour consolidated financial statements for details on our 2016 Director Compensation Program. The 2016 Director Compensation Program is filed asExhibit 10.09 to our Quarterly Report on Form 10-Q filed with the SEC on August 5, 2016. 52 Table of Contents The total accrued compensation cost related to our outside directors for the years ended December 31, 2016, 2015 and 2014 was the following:Year ended December 31,201620152014(In thousands)Chairman Fee64 61 61 Adjustable Award783 718 545 Non-adjustable Award444 398 359 1,291 1,177 965 Stock option awards granted under the “Amended and Restated 1999 Stock Option and Restricted Stock Plan”, (the “1999 Plan”) are at thediscretion of our Board of Directors and may be in the form of either incentive or nonqualified stock options. As of December 31, 2016, there are nooutstanding options granted under the 1999 Plan. As of December 31, 2016, there were 232,825 shares of common stock available for additionalawards under the 1999 Plan.There were no stock-based compensation expenses related to stock options for the years ended December 31, 2016, 2015 and 2014. Thecalculation of the stock-based compensation is based on the estimated fair value of our stock at each balance sheet date and is subject to changesbased upon new information and future events.No stock options were granted during the period from January 1, 2007 to December 31, 2016.Recent accounting pronouncementsSee Item 8 of Part II, “Financial Statements and Supplementary Data-Note 2-Summary of significant accounting policies-Recently issuedaccounting pronuncements.” 53 Table of Contents Results of operationsThe following table sets forth, for the periods presented, certain data from our consolidated statements of income. This information should beread in conjunction with our audited consolidated financial statements and the notes to those statements included elsewhere in this report.Statement of income dataYear Ended December 31,(In millions)2016 (*)2015 (*)2014 (*)Net revenues$844.4 $651.8 $556.5 Cost of net revenues(307.5)(215.0)(159.0)Gross profit536.9 436.8 397.6 Operating expenses:Product and technology development(98.5)(76.4)(53.6)Sales and marketing(156.3)(128.6)(111.6)General and administrative(87.3)(76.3)(62.4)Impairment of Long-Lived Assets(13.7)(16.2)(49.5)Total operating expenses(355.8)(297.6)(277.1)Income from operations181.1 139.2 120.5 Other income (expenses):Interest income and other financial gains35.4 20.6 15.3 Interest expense and other financial charges(25.6)(20.4)(11.7)Foreign currency (losses) / gains(5.6)11.1 (2.4)Net income before income tax expense185.3 150.5 121.8 Income tax expense(49.0)(44.7)(49.1)Net income$136.4 $105.8 $72.7 (*)The table above may not total due to rounding. 54 Table of Contents Year Ended December 31,(% of net revenues)2016 (*)2015 (*)2014 (*)Net revenues100% 100% 100% Cost of net revenues(36.4)(33.0)(28.6)Gross profit63.6 67.0 71.4 Operating expenses:Product and technology development(11.7)(11.7)(9.6)Sales and marketing(18.5)(19.7)(20.1)General and administrative(10.3)(11.7)(11.2)Impairment of Long-Lived Assets(1.6)(2.5)(8.9)Total operating expenses(42.1)(45.7)(49.8)Income from operations21.4 21.4 21.6 Other income (expenses):Interest income and other financial gains4.2 3.2 2.8 Interest expense and other financial charges(3.0)(3.1)(2.1)Foreign currency (losses) / gains(0.7)1.7 (0.4)Net income before income tax expenses21.9 23.1 21.9 Income tax expense(5.8)(6.9)(8.8)Net income16.1 16.2 13.1 Less: Net Income attributable to Noncontrolling — —0.0 Net income attributable to Mercadolibre, Inc. shareholders16.1% 16.2% 13.0% (*)Percentages have been calculated using the whole figures instead of rounding figures. The table above may not total due to rounding. 55 Table of Contents Principal trends in results of operationsGrowth in net revenuesSince our inception, we have consistently generated revenue growth from our Marketplace and Non-Marketplace streams, driven by the stronggrowth of our key operational metrics. Our growth in net revenues was 29.6% from 2015 to 2016 and 17.1% from 2014 to 2015. From 2015 to 2016,our Successful Items sold increased by 41.0%, our Gross Merchandise Volume or “GMV” (excluding motor vehicles, vessels, aircraft and real estate) increased by 12.5% and MercadoPago total payment volume increased by 49.6%. Our number of confirmed registered users was 20.4% higher as ofDecember 31, 2016 than as of December 31, 2015. From 2014 to 2015, our successful items sold increased by 26.8% and MercadoPago totalpayment volume increased by 47.1%. Our number of confirmed registered users was 19.6% higher as of December 31, 2015 than as of December 31,2014. See Item 6 of Part II, “Selected Financial Data-Other data” for details on the measures described in this paragraph. We believe that our growthin net revenues should continue in the future. However, despite this positive historical trend, the current weak global macro-economic environment,coupled with devaluations of certain local currencies in Latin America versus the U.S. dollar, the effects of Venezuelan translations of localcurrencies into U.S. dollar, Venezuelan Government limits to prices and high interest rates in those countries, could cause a decline in year-over-yearnet revenues, particularly as measured in U.S. dollars.Gross profit marginsDuring the past years, our business has experienced decreasing gross profit margins, as defined by total net revenues minus total cost of netrevenues, as a percentage of net revenues.Our gross profit margins were 63.6%, 67.0% and 71.4% for the years ended December 31, 2016, 2015 and 2014, respectively. The decrease inour gross profit margins resulted primarily from:(i) Higher penetration of our payment and shipping services into our Argentine, Brazilian and Mexican marketplaces. For the year endedDecember 31, 2016, total volume of payments on marketplace represented 69.9% of our total GMV; as compared to 52.6% and 36.5% for the yearsended December 31, 2015 and 2014, respectively. Additionally, for the year ended December 31, 2016, the total number of items shipped throughour shipping solution represented 47.8% of our total number of successful items sold, as compared to 35.2% and 17.6% for the years endedDecember 31, 2015 and 2014, respectively. Transactions that include such services intrinsically incur incremental costs such as collection fees,which result in lower gross profit margins. In addition, our financing and shipping revenues are reported net of third party provider costs while salestaxes are paid on the gross amount of revenues, thus, decreasing our gross profit margins. For the year ended December 31, 2016, collection fees andsales taxes increased $40.3 million and $23.1 million, respectively, as compared to the year ended December 31, 2015. For the year ended December31, 2015, collection fees and sales taxes increased $36.2 million and $13.1 million, respectively, as compared to the year ended December 31, 2014.(ii) Increased customer support costs of $14.8 million from 2015 to 2016, and $3.9 million from 2014 to 2015; mainly as a consequence ofsalaries and wages. The number of employees related to customer support was 1,788, 1,395 and 1,091 as of December 31, 2016, 2015 and 2014,respectively.In the future, gross profit margins could decline if the penetration of our payment solution and shipping grows faster than our marketplace.Operating income marginsFor 2016 as compared to 2015, our operating income margin remained stable. For the year ended December 31, 2015 as compared with the yearended December 31, 2014, our operating income margin decreased from 21.6% to 21.4%, as a consequence of increases in costs of net revenues, asdescribed in Gross profit margins section above, increases in product and technology development expenses (driven mainly salaries and wages andmaintenance expenses), in sales and marketing (driven mainly by portal deals and buyer protection program expenses), and in general andadministrative expenses (mainly driven by salaries and wages), all at the same pace as our growth revenues.We anticipate that as we continue to invest in product development, sales and marketing and human resources in order to promote our servicesand capture the long-term business opportunity offered by the Internet in Latin America, it is increasingly difficult to sustain growth in operatingincome margins, and we could experience further decreases in operating income margins.Net revenuesFor the years endedChange from 2015For the years endedChange from 2015December 31,to 2016 (*)December 31,to 2016 (*)20162015in Dollarsin %20152014in Dollarsin %(in millions, except percentages)(in millions, except percentages)Total Net Revenues$ 844.4$ 651.8$ 192.629.6% $ 651.8$ 556.5$ 95.317.1% As a percentage of net revenues (*)100.0% 100.0% 100.0% 100.0% (*) Percentages have been calculated using whole-dollar amounts rather than rounded amounts that appear in the table. The table above may not total due to rounding. 56 Table of Contents Years endedChange from 2015Years endedChange from 2014December 31,to 2016 (**)December 31,to 2015 (**)Consolidated Net Revenues byrevenue stream20162015in Dollarsin %20152014in Dollarsin %(in millions, except percentages)(in millions, except percentages)BrazilMarketplace$ 254.3 $ 159.9 $ 94.4 59.1% $ 159.9 $ 175.9 $ (16.1)-9.1%Non-Marketplace200.7 130.7 70.0 53.5% 130.7 97.7 33.0 33.8% 455.0 290.6 164.4 56.6% 290.6 273.6 17.0 6.2% ArgentinaMarketplace$ 156.2 $ 155.9 $ 0.4 0.2% $ 155.9 $ 101.7 $ 54.2 53.3% Non-Marketplace106.0 89.1 16.9 18.9% 89.1 49.0 40.2 82.0% 262.3 245.0 17.2 7.0% 245.0 150.7 94.3 62.6% MexicoMarketplace$ 29.0 $ 23.6 $ 5.5 23.2% $ 23.6 $ 25.5 $ (2.0)-7.7%Non-Marketplace17.3 16.8 0.5 3.1% 16.8 12.1 4.6 38.3% 46.3 40.3 6.0 14.9% 40.3 37.7 2.7 7.1% VenezuelaMarketplace$ 33.7 $ 36.9 $ (3.2)-8.6%$ 36.9 $ 52.3 $ (15.4)-29.4%Non-Marketplace3.5 3.6 (0.1)-3.0%3.6 5.8 (2.2)-38.0%37.2 40.5 (3.3)-8.1%40.5 58.0 (17.6)-30.2%Other countriesMarketplace$ 18.3 $ 16.8 $ 1.5 9.1% $ 16.8 $ 20.7 $ (3.9)-19.0%Non-Marketplace25.3 18.6 6.7 36.1% 18.6 15.8 2.8 17.5% 43.6 35.4 8.2 23.3% 35.4 36.5 (1.2)-3.2%Marketplace491.6 393.0 98.6 25.1% 393.0 376.2 16.9 4.5% Non-Marketplace (*)352.8 258.8 94.0 36.3% 258.8 180.4 78.4 43.5% Total$ 844.4 $ 651.8 $ 192.6 29.6% $ 651.8 $ 556.5 $ 95.3 17.1% (*) Includes, among other things, Ad Sales, Real Estate, Motors, Financing Fees, Off-platform Payment Fees, Shipping Fees and other ancillary services.(**)Percentages have been calculated using whole-dollar amounts rather than rounded amounts that appear in the table. The table above may not total due to rounding.On a segment basis, our net revenues for the years ended December 31, 2016 and 2015, increased across all geographic segments, except for theVenezuelan segment and Other countries segment in 2015.BrazilMarketplace revenue in Brazil grew 59.1% in the year ended December 31, 2016 as compared to the same period in 2015. The growth wasprimarily a consequence of an increase in local currency volume of 56.4% and in our take rate (equal to net revenues as a percentage of grossmerchandise volume) of 6.4%. Those increases were partially offset by a local currency devaluation of 4.4%. Non-Marketplace revenue grew 53.5%,a $70.0 million increase, during the same period, mainly driven by increases in the volume of financing transactions offered and off-platformtransactions to our users, volume of items shipped and in ad sales.Marketplace revenue in Brazil decreased 9.1% in the year ended December 31, 2015 as compared to the same period in 2014. The decrease wasprimarily a consequence of 29.4% local currency devaluation, partially offset by a 23.0% increase in local currency volume and a 4.7% increase inour take rate. Non-Marketplace revenue grew 33.8 %, a $33.0 million increase, during the same period, mainly driven by increases in the volume offinancing transactions offered to our users and the volume of shipped items.ArgentinaMarketplace revenue in Argentine increased 0.2% for the year ended December 31, 2016 as compared to the same period in 2015, mainly dueto a 44.7% increase in local currency volume and in our take rate of 10.9%, which was substantially offset by a 37.5% devaluation of the Argentinepeso. Non-Marketplace revenue grew 18.9%, a $16.9 million increase, during the same period mainly driven by increases in the volume of paymentsof off-platform and financing transactions offered to our users, the volume of shipped items and ad sales. 57 Table of Contents Marketplace revenue in Argentine increased 53.3% in the year ended December 31, 2015 as compared to the same period in 2014, mainly dueto a 76.6 % increase in local currency volume. The increase was partially offset by a local currency devaluation of 12.3% and 1.1 % decrease in ourtake rate. Non-Marketplace revenue grew 82 %, a $ 40.2 million increase, during the same period mainly driven by increases in the volume offinancing transactions offered to our users, the volume of shipped items and in off-platform payments transactions.MexicoMarketplace revenue in Mexico grew 23.2% during the year ended December 31, 2016 as compared to the same period of 2015. The increase inour Mexican marketplace revenues primarily reflects an increase in local currency volume of 17.3% and a 23.7% increase in our take rate, partiallyoffset by a 15.1% devaluation of the local currency. Non-Marketplace revenue grew 3.1%, a $0.5 million increase, mainly driven by increases in thevolume of financing transactions offered to our users and shipping transactions. Marketplace revenues of our Mexican segment decreased 7.7% during the year ended December 31, 2015 when compared to the same period in2014, mainly due to a 16.2% local currency devaluation, partially offset by a 8.4% increase in local currency volume and a 1.6 % increase in ourtake rate. Non-Marketplace revenue increased 38.3% or $4.6 million during the same period, mainly driven by increases in the volume of financingtransactions offered to our users, and in classifieds insertion fees, partially offset by the devaluation of the local currency.VenezuelaMarketplace revenue in Venezuela decreased 8.6% during the year ended December 31, 2016 when compared to the same period in 2015,mainly due to a 67.1% local currency devaluation (see section “Foreign Currency Translation — Venezuelan currency status”), partially offset by a161.1% increase in local currency volume and a 6.3% increase in our take rate. Non-Marketplace revenue decreased 3.0%, or $0.1 million during thesame period, mainly due to the devaluation mentioned above, which was partially offset by an increase in the volume of transactions..Marketplace revenues of our Venezuelan segment during the year ended December 31, 2015, decreased 29.4% when compared to the sameperiod in 2014, mainly due to a 79.1% local currency devaluation (see “Foreign Currency Translation — Venezuelan currency status”) and a 15.2 %decrease in our take rate. These decreases were partially offset by a 298.2% increase in local currency volume. The Non-Marketplace businessdecreased 38.0 %, or $2.2 million during the same period, mainly due to the devaluation mentioned above, which was partially offset by an increasein the volume of transactions.The following table sets forth our total net revenues and the sequential quarterly growth of these net revenues for the periods described below:Quarter EndedMarch 31,June 30,September 30,December 31,(in millions, except percentages)(*)2016Net revenues$ 157.6$ 199.6$ 230.8$256.3 Percent change from prior quarter-13%27% 16% 11% 2015Net revenues$ 148.1$ 154.3$ 168.6$ 180.7Percent change from prior quarter-8%4% 9% 7% 2014Net revenues$ 115.4$ 131.8$ 147.9$ 161.4Percent change from prior quarter-14%14% 12% 9% (*)Calculated using whole-dollar amounts rather than rounded amounts that appear in the table. 58 Table of Contents The following table set forth the growth in net revenues in local currencies for the years ended December 31, 2016 and 2015:Changes from (*)(% of revenue growth in Local Currency)2015 to 20162014 to 2015Brazil61.3% 50.2% Argentina70.6% 84.8% Mexico35.3% 27.9% Venezuela188.6% 278.0% Other Countries44.7% 10.7% Total Consolidated70.3% 79.6% (*) The local currency revenue growth was calculated by using the average monthly exchange rates for each month during 2015 and applying them to the correspondingmonths in 2016, so as to calculate what our financial results would have been had exchange rates remained stable from one year to the next.In Venezuela, the increase in our net revenues is mainly due to higher average selling prices posted by sellers during the year ended December31, 2016, which we do not control. The increase in average selling prices is a consequence of: (i) high inflation rate in that country; (ii) a shortage ofproducts in Venezuela and (iii) changes in the mix of categories of the items sold in our marketplace.In Argentina, the increase in our net revenues is mainly due to higher average selling prices posted by sellers during the year ended December31, 2016, which we do not control. The increase in average selling prices is a consequence of high inflation rates in Argentina. Additionally, theincrease in our net revenues is a consequence of an increase of shipped items volume and increases in our MercadoPago transactions.In Brazil, the increase in local currency growth, as compared to U.S. dollar growth, is mainly a consequence of a higher inflation as comparedwith U.S. dollar devaluation.For more explanation of the revenue growth, see above mentioned disclosures in this section. See also “Critical accounting policies andestimates – Foreign Currency Translation”. Cost of net revenues Years endedChange from 2015Years endedChange from 2014December 31,to 2016 (*)December 31,to 2015 (*)20162015in Dollarsin %20152014in Dollarsin %(in millions, except percentages)(in millions, except percentages)Total cost of net revenues$ 307.5$ 215.0$ 92.543.0% $ 215.0$ 159.0$ 56.035.2% As a percentage of net revenues (*)36.4% 33.0% 33.0% 28.6% (*)Percentages have been calculated using whole-dollar amounts rather than rounded amounts that appear in the table. The table above may not total due torounding.For the year ended December 31, 2016 as compared to the year ended December 31, 2015, the increase of $92.5 million in cost of net revenueswas primarily attributable to: i) an increase in collection fees amounting to $40.3 million, or 35.4%, which was mainly attributable to our Argentineand Brazilian operations as a result of the higher penetration of Mercado Pago in those countries. For the year ended December 31, 2016, totalvolume of payments on marketplace represents 69.9% of our total GMV as compared to 52.6% for year ended December 31, 2015; ii) an increase insales tax amounting to $23.1 million, mainly in Argentina and Brazil, iii) a $14.8 million increase in customer support costs mainly as aconsequence of higher salaries and wages due to new hirings and increased temporary services, iv) a $4.7 million increase in hosting costs, and v) a$4.3 million increase in mobile points of sale costs..For the year ended December 31, 2015 as compared to the year ended December 31, 2014, the increase of $56.0 million in cost of net revenueswas primarily attributable to: i) an increase in collection fees amounting to $ 36.2 million, or 46.8%, which was mainly attributable to our Argentineand Brazilian operations as a result of the higher penetration of MercadoPago in those countries which has a lower contribution margin (for the yearended December 31, 2015, total volume of payments on marketplace represented 52.6% of our total GMV as compared to 36.5% for the yearended December 31, 2014; ii) an increase in sales taxes amounting to $ 13.1 million, mainly related to the growth of our Argentine and Brazilianoperations; iii) a $ 3.9 million increase in customer support costs mainly as a consequence of salaries and wages paid to additional personnel andtemporary services. 59 Table of Contents Product and technology developmentYears endedChange from 2015Years endedChange from 2014December 31,to 2016 (*)December 31,to 2015 (*)20162015in Dollarsin %20152014in Dollarsin %(in millions, except percentages)(in millions, except percentages)Product and technology development$ 98.5$ 76.4$ 22.128.9% $ 76.4$ 53.6$ 22.842.6% As a percentage of net revenues (*)11.7% 11.7% 11.7% 9.6% (*) Percentages have been calculated using whole-dollar amounts rather than rounded amounts that appear in the table. The table above may not total due to rounding. For the year ended December 31, 2016 as compared to the year ended December 31, 2015, the increase in product and technology developmentexpenses amounted to $22.1 million or 28.9% was primarily attributable to; i) an increase of $8.8 million in salaries and wages due mainly to newhirings in 2016, ii) an increase in maintenance expenses of $3.1 million; iii) an increase in depreciation and amortization expenses of $4.3 million;and iv) an increase in other product and technology development expenses of $5.8 million.For the year ended December 31, 2015 as compared to the year ended December 31, 2014, the increase in product and technology developmentexpenses amounted to $22.8 million or 42.6% was primarily attributable to an increase of $11.7 million in salaries which was mainly attributable toArgentine segment, ii) an increase in communication and maintenance expenses of $ 4.8 million; iii) an increase in depreciation and amortizationexpenses of $ 4.2 million and iv) an increase in other expenses of $2.1 million.We believe product development is one of our key competitive advantages and intend to continue to invest in adding engineers to meet theincreasingly sophisticated product expectations of our customer base.Sales and marketingYears endedChange from 2015Years endedChange from 2014December 31,to 2016 (*)December 31,to 2015 (*)20162015in Dollarsin %20152014in Dollarsin %(in millions, except percentages)(in millions, except percentages)Sales and marketing$ 156.3$ 128.6$ 27.721.5% $ 128.6$ 111.6$ 17.015.2% As a percentage of net revenues (*)18.5% 19.7% 19.7% 20.1% (*)Percentages have been calculated using whole-dollar amounts rather than rounded amounts that appear in the table. The table above may not total due torounding.For the year ended December 31, 2016, the $27.7 million increase in sales and marketing expenses when compared to the year endedDecember 31, 2015 was primarily attributable to: i) an increase of $15.3 million in on line portal deals expenses; ii) a $7.3 million increase in ourbuyer protection program expenses; iii) a $6.3 million increase in salaries and wages; iv) a $5.0 million increase in other marketing expenses; and v)a $1.1 million increase in depreciation and amortization; partially offset by a $6.8 million decrease in our offline advertising expenses and a $2.2million decrease in bad debt expenses due to a higher penetration of MercadoPago and improvements in recoveries process, which represented 1.5%of our net revenues for the year ended December 31, 2016 as compared to bad debt expenses equal to 2.3% for the year ended December 31, 2015.For the year ended December 31, 2015, the $17.0 million increase in sales and marketing expenses when compared to the same period in2014 was primarily attributable to: i) a $7.7 million increase in expenses related to our buyer protection program; ii) a $5.8 million increase in off-line marketing expenses; iii) a $4.8 million increase in salaries and wages; iv) a $ 3.2 million increase in other marketing expenses and v) a $3.0million increase in chargebacks. These increases in sales and marketing expenses were partially offset by a decrease in bad debt expenses of$6.8 million due to a higher penetration of MercadoPago and improvements in recoveries process, which represented 2.3% of our net revenues forthe year ended December 31, 2015 as compared to bad debt expenses equal to 3.9% for the year ended December 31, 2014. 60 Table of Contents General and administrative Years endedChange from 2015Years endedChange from 2014December 31,to 2016 (*)December 31,to 2015 (*)20162015in Dollarsin %20152014in Dollarsin %(in millions, except percentages)(in millions, except percentages)General and administrative$ 87.3$ 76.3$ 11.014.4% $ 76.3$ 62.4$ 14.022.4% As a percentage of net revenues (*)10.3% 11.7% 11.7% 11.2% (*)Percentages have been calculated using whole-dollar amounts rather than rounded amounts that appear in the table. The table above may not total due torounding.For the year ended December 31, 2016, the $11.0 million increase in general and administrative expenses when compared to the same period in2015 was primarily attributable to a $13.6 million increase in salaries and wages mainly as a consequence of increases in our long-term retentionprogram expenses. This increase was partially offset by: i) a $1.6 million decrease in audit and legal fees; ii) a $0.7 million decrease in tax and otherfees; iii) a $0.5 million decrease in office expenses; and iv) a $0.7 million decrease in depreciation and amortization expenses.For the year ended December 31, 2015, the $14.0 million increase in general and administrative expenses when compared to the same period in2014 was primarily attributable to: i) a $6.9 million increase in salaries and wages mainly as a consequence of the LTRP; ii) a $3.3 million increasein other general and administrative expenses, iii) a $1.7 million increase in depreciation and amortization expenses; iv) a $1.3 million increase intax and other fees and v) a $0.5 million increase in audit fees. These increases were partially offset by a $0.8 million net decrease in legal fees.Impairment of Long-Lived AssetsYears endedChange from 2015Years endedChange from 2014December 31,to 2016 (*)December 31,to 2015 (*)20162015in Dollarsin %20152014in Dollarsin %(in millions, except percentages)(in millions, except percentages)Impairment of Long-Lived Assets$ 13.7$ 16.2$ (2.5)-15.5%$ 16.2$ 49.5$ (33.3)-67.2%As a percentage of net revenues (*)1.6% 2.5% 2.5% 8.9% (*)Percentages have been calculated using whole-dollar amounts rather than rounded amounts that appear in the table. The table above may not total due to rounding.We recorded an impairment of certain real estate offices owned by our Venezuelan subsidiaries of $13.7 million, $16.2 million and $49.5million during the second quarter of 2016, the first quarter of 2015 and the second quarter of 2014, respectively. For further information, see section“Foreign Currency Translation— Venezuelan currency status.”Other income, netYears endedChange from 2015Years endedChange from 2014December 31,to 2016 (*)December 31,to 2015 (*)20162015in Dollarsin %20152014in Dollarsin %(in millions, except percentages)(in millions, except percentages)Other income (expense), net$ 4.3$ 11.3$ (7.0)-62.2%$ 11.3$ 1.3$ 10.0752.5% As a percentage of net revenues (*)0.5% 1.7% 1.7% 0.2% (*) Percentages have been calculated using whole-dollar amounts rather than rounded amounts that appear in the table. The table above may not total due to rounding.For the year ended December 31, 2016, the $7.0 million decrease in other income, net when compared to the same period in 2015was primarily attributable to: i) a $16.7 million increase in foreign exchange loss mainly as a result of lower foreign exchange gain in Argentina andBrazil of $14.6 million and $15.2 million, respectively, partially offset by a lower foreign exchange loss in Venezuela of $13.0 million; and (ii) a$5.2 million increase in interest expenses due mainly to the mortgage loan entered into in the third quarter of 2015 for the acquisition of real estatein Venezuela, and other financial charges in Brazil. These decreases were partially offset by a $15.0 million increase in interest income arising fromour financial investments in Brazil and Argentina.For the year ended December 31, 2015, the $10.0 million increase in other income, net when compared to the same period in 2014 wasprimarily attributable to: i) a foreign exchange gain of $13.5 million mainly as a result of a foreign exchange gain in Argentina of $22.5 million anda $14.6 million foreign exchange gain in Brazil, partially offset by a $20.7 million foreign exchange loss in Venezuela as a result of using 61 Table of Contents the SIMADI exchange rate beginning on March 31, 2015 and ii) a $5.1 million increase in interest income. These increases were partially offset byan $8.7 million increase in interest expenses due to the Convertible Notes issued on June 30, 2014.Income and asset taxYears endedChange from 2015Years endedChange from 2014December 31,to 2016 (*)December 31,to 2015 (*)20162015in Dollarsin %20152014in Dollarsin %(in millions, except percentages)(in millions, except percentages)Income and asset tax$ 49.0$ 44.7$ 4.39.5% $ 44.7$ 49.1$ (4.4)-9.0%As a percentage of net revenues (*)5.8% 6.9% 6.9% 8.8% (*)Percentages have been calculated using whole-dollar amounts rather than rounded amounts that appear in the table. The table above may not total due torounding.During the year ended December 31, 2016 as compared to the same period in 2015, income and asset tax increased by $4.3 million mainly as aconsequence of: i) an increase in our pre-tax gains mainly in our Brazilian subsidiaries; and ii) the tax holiday granted to our Argentine subsidiaryrelated to the software development law recorded in the third quarter of 2015 that was proportionally higher than the tax holiday granted in 2016, asit included a retroactive application from September 18, 2014. As a result of the application of this tax benefit, we recorded an income tax benefitof $22.6 million during 2016. Furthermore, the Company recorded a labor cost benefit of $5.5 million and $2.0 million was accrued to pay softwaredevelopment law audit fees. Aggregate per share effect of the Argentine tax holiday amounted to $0.51 per share for the year ended December 31,2016.During the year ended December 31, 2015 as compared to the same period in 2014, income and asset tax decreased by $4.4 million. Itwas mainly a consequence of the retroactive tax holiday granted to our Argentine subsidiary related to the software development law during thethird quarter of 2015. As a result of being eligibility under the new law, we recorded an income tax benefit of $24.6 million during 2015, with acorresponding $21.0 million income tax benefit in 2015 and a $3.6 million income tax benefit in the fourth quarter of 2014. Furthermore, theCompany recorded a labor cost benefit of $5.2 million, a corresponding $3.9 million labor cost benefit in 2015 and a $1.3 million labor cost benefitin the fourth quarter of 2014. Additionally, $2.0 million was accrued to pay software development law audit fees. Aggregate per share effect of theArgentine tax holiday amounted to $0.56 per share for the year ended December 31, 2015. This decrease was partially offest by an increase intaxable income.Our blended tax rate is defined as income and asset tax expense as a percentage of income before income and asset tax. Our effective incometax rate is defined as the provision for income taxes (net of charges related to dividend distributions from foreign subsidiaries that are offset withdomestic foreign tax credits) as a percentage of income before income and asset tax. The effective income tax rate excludes the effects of the deferredincome tax, and the assets and complementary income tax.The following table summarizes the changes in our blended and effective tax rate for the years ended December 31, 2016, 2015 and 2014:Years endedDecember 31,201620152014Blended tax rate26.4%29.7%40.3%Effective tax rate30.0%30.5%54.8% Our blended and effective tax rate for the year ended December 31, 2016 as compared to the same period in 2015 decreased mainly due to theone-time loss recorded in our Venezuelan subsidiaries during the first quarter of 2015 related to the impairment of long-lived assets (which is notdeductible for tax purposes) and the devaluation of the BsF net asset position. The 2015 non deductible tax effect was higher to the one-time lossrecorded in the second quarter of 2016, and for that reason our blended and effective tax rate decreased.Our blended and effective tax rates for the year ended December 31, 2015 decreased significantly as compared to the same period in 2014mainly due to the retroactive tax holiday granted to our Argentinean subsidiary related to the software development law. As a result of our eligibilityunder the new law, we recorded an income tax benefit of $24.6 million during 2015. 62 Table of Contents The following table sets forth our effective income tax rate related to our main locations for the years ended December 31, 2016, 2015 and2014: Years endedDecember 31,201620152014Effective tax rate by countryArgentina19.3% 15.5% 26.9% Brazil26.6% 29.9% 33.8% Mexico-7.0%-18.2%22.0% Venezuela-1.0%-16.4%-50.6%The increase in the effective income tax rate in our Argentine subsidiaries during the year ended December 31, 2016 as compared to the sameperiod in 2015, is due to the tax holiday granted during third quarter of 2015 to our Argentine subsidiary related to the new software developmentlaw, which was higher to the tax holiday recorded in 2016, as it included a retroactive application from September 18, 2014.The decrease in the effective income tax rate in our Argentine subsidiaries during the year period ended December 31, 2015 as compared to thesame period in 2014, is due to the retroactive tax holiday granted to our Argentinean subsidiary related to the software development law. On August 17, 2011, the Argentine government issued a new software development law and on September 9, 2013 a regulatory decree wasissued, which established the new requirements to become a beneficiary of the new software development law. The new decree establishescompliance requirements with annual incremental ratios related to exports of services and research and development expenses that must be achievedto remain within the tax holiday. The Argentine operation will have to achieve certain required ratios annually under the new software developmentlaw. During May 2014, we presented all the required documentation in order to apply for the new software development law.On September 17, 2015, the Argentine Industry Secretary approved the Company’s application for eligibility under the new softwaredevelopment law for the Company’s Argentinean subsidiary, Mercadolibre S.R.L. Furthermore, on September 18, 2016, the Argentine IndustrySecretary approved the Company’s application for eligibility under the new software development law for the Company’s Argentinean subsidiaries,Neosur S.RL. and Business Vision S.A. As a result, the Company’s Argentinean subsidiaries have been granted a tax holiday retroactive fromSeptember 18, 2014. A portion of the benefits obtained as beneficiaries of the new law is a relief of 60% of total income tax related to softwaredevelopment activities and a 70% relief in payroll taxes related to software development activities.The decree establishes compliance requirements with annual incremental ratios related to exports of services and research and developmentexpenses that must be achieved to remain within the tax holiday. The Argentine operation will have to achieve certain required ratios annuallyunder the new software development law.The decrease in our Brazilian effective income tax rate for the year ended December 31, 2016 as compared to the same period in 2015, wasmainly related to temporary differences deducted in the current period. The decrease in our Brazilian effective income tax rate for the year endedDecember 31, 2015 as compared to the same period in 2014 was mainly related to temporary differences deducted in the current period.The increase in our Mexican effective income tax rate for the year ended December 31, 2016 as compared with 2015, is due to the higher pre-tax losses recorded during 2016 as a result of the devaluation in that country. The negative effective tax rate of our Mexican segment during the yearended December 31, 2015 as compared with the same periods in 2014 is due to the pre-tax loss recorded during 2015 as a result of the devaluation inthat country. The foreign exchange loss is a consequence of U.S. Dollars intercompany liabilities assumed due to business acquisitions.For the years ended December 31, 2016, 2015 and 2014, our Venezuelan negative effective income tax rate was driven by losses recorded inour Venezuelan subsidiaries related to the impairment of long-lived assets and foreign exchange losses, which generated a net loss before incometax. The impairment of long-lived assets charge is non-deductible for tax purposes. The main difference year over year is that in the year endedDecember 31, 2016, the loss carryforward generated by the devaluation of the local currency was considered not recoverable for tax purposes, whilein 2015 and 2014 it was considered recoverable and for that reason we record a deferred tax asset. We do not expect the domestic effective income tax rate related to dividend distributions from foreign subsidiaries to have a significant impacton our company since our strategy is to reinvest our cash surplus in our international operations, and to distribute dividends when they can be offsetwith available tax credits. 63 Table of Contents Deferred Income TaxThe following table summarizes the composition of our deferred tax assets for the years ended December 31, 2016 and 2015:Year EndedYear EndedDecember 31, (*)December 31, (*)Deferred tax assets2016in %2015in %(in millions, except percentages)(in millions, except percentages)Brazilian operations$5.5 10.2 %$4.3 12.8 %Foreign tax credits & others domestic deferred tax assets15.3 28.3 11.4 33.8 Operations in other countries4.6 8.5 2.5 7.5 Mexican operations8.6 16.0 4.1 12.2 Chilean operations1.3 2.4 1.2 3.7 Venezuelan operations7.3 13.5 2.6 7.7 Argentine operations11.4 21.2 7.6 22.4 Total$53.9 100.0 %$33.7 100.0 %(*) Percentages have been calculated using the whole figures instead of rounding figures. The table above may not total due to rounding At December 31, 2016, our deferred tax assets were comprised mainly of foreign exchange effects, payroll and social security payable,allowance for doubtful accounts and provisions, representing 25.1%, 17.8%, 15.4% and 7.4%, respectively of the total deferred tax assets. AtDecember 31, 2015, our deferred tax assets were comprised mainly of foreign exchange effects, allowance for doubtful accounts, payroll and socialsecurity payable and provisions, representing 30.0%, 23.1%, 15.3% and 9.2%, respectively of the total deferred tax assets.The following table summarizes the composition of our deferred tax assets from loss carryforwards for the years ended December 31, 2016 and2015:Year EndedYear EndedDecember 31, (*)December 31, (*)Loss carryforwards2016in %2015in %(in millions, except percentages) (in millions, except percentages) Brazilian operations$0.2 1.3 %$0.0 0.2 %Mexican operations6.2 45.1 2.3 61.2 Chilean operations0.5 3.4 0.5 13.9 Venezuelan operations4.5 32.6 — —Domestic loss carryforwards0.4 2.9 0.4 11.3 Operations in other countries2.0 14.7 0.5 13.4 Total$13.8 100.0 %$3.7 100.0 %(*) Percentages have been calculated using the whole figures instead of rounding figures. The table above may not total due to rounding.We also assess the likelihood that our net deferred tax assets will be realized from future taxable income. To the extent we believe that it ismore likely than not that some portion or the total deferred tax assets will not be realized, we establish a valuation allowance.At December 31, 2016 and 2015, our valuation allowance amounted to $9.0 million and $4.0 million, respectively. 64 Table of Contents The following table summarizes the composition of our valuation allowance for the years ended December 31, 2016 and 2015:Year EndedYear EndedDecember 31, (*)December 31, (*)Valuation Allowance2016in %2015in %(in millions, except percentages) (in millions, except percentages) Mexican operations$1.8 20.0 %$1.0 26.0 %Argentine operations3.2 36.1 2.9 74.0 Venezuelan Operations3.9 43.9 —0.0 Total$9.0 100.0 %$4.0 100.0 %(*) Percentages have been calculated using the whole figures instead of rounding figures. The table above may not total due to rounding.Our valuation allowance is based on our assessment that it is more likely than not that the deferred tax asset will not be realized. Thefluctuations in the valuation allowance will depend on the capacity of each country’s operations to generate taxable income or our execution offuture tax planning strategies that allow us to use the aforementioned deferred tax assets. To the extent we establish a valuation allowance or changethe allowance in a period, we reflect the change with a corresponding increase or decrease in our tax provision in our consolidated statement ofincome.The $3.2 million and $2.9 million of valuation allowance in Argentina as of December 31, 2016 and 2015, respectively, is a consequence ofmore restrictive requirements to compute doubtful accounts as an income tax deduction.The $3.9 million of valuation allowance in Venezuela as of December 31, 2016 is because the loss carryforward in that country was considerednot fully recoverable for tax purposes based on estimates of future earnings. The tax loss carryforward in Venezuela was mainly generated by theimpairment of long-lived assets and the currency devaluation recognized in that jurisdiction.As of December 31, 2016 there are $184.7 million of the non-U.S. subsidiaries’ undistributed earnings that have not been considered incalculating deferred income taxes. In determining the amount of non-U.S. subsidiaries’ undistributed earnings for that calculation, the Companydoes not consider a portion of the non-U.S. subsidiaries earnings as of December 31, 2016 to be subject to U.S. federal income tax purposes becausesuch earnings are intended to be indefinitely reinvested in our international operations and potential acquisitions related to those operations. Upondistribution of those earnings in the form of dividends or otherwise, the Company would be subject to U.S. income taxes if such distribution exceedsavailable foreign tax credits. It is not practicable to determine the income tax liability that might be incurred if these earnings were to be distributed.The Company does not expect a material impact in any repatriation of undistributed earnings of foreign subsidiaries on our operations since thetaxable domestic gains generated by any dividend distributions will be mostly offset with foreign tax credits that arise from income tax paid in ourforeign operations, which the Company is allowed to compute for domestic income tax purposes.Historically, these provisions have adequately provided for our actual income tax liabilities. Our future effective tax rates could be adverselyaffected by earnings being lower than anticipated in countries where we have lower statutory rates and higher than anticipated in countries where wehave higher statutory rates, by changes in the valuations of our deferred tax assets or liabilities, or by changes or interpretations in tax laws,regulations or accounting principles.Segment informationSee Note 7 to our consolidated financial statements for detailed description about our reporting segments.(In millions, except for percentages)Year ended December 31, 2016BrazilArgentinaMexicoVenezuelaOther CountriesTotalNet revenues$ 455.0 $ 262.3 $ 46.3 $ 37.2 $ 43.6 $ 844.4 Direct costs(270.9)(152.1)(41.0)(17.7)(31.5)(513.3)Impairment of Long-lived Assets — — —(13.7) —(13.7)Direct contribution184.1 110.1 5.4 5.7 12.1 317.4 Margin40.5% 42.0% 11.6% 15.4% 27.6% 37.6% Year ended December 31, 2015BrazilArgentinaMexicoVenezuelaOther CountriesTotalNet revenues$ 290.6 $ 245.0 $ 40.3 $ 40.5 $ 35.4 $ 651.8 Direct costs(180.4)(134.8)(31.3)(15.3)(24.6)(386.3)Impairment of Long-lived Assets — — —(16.2) —(16.2)Direct contribution110.2 110.3 9.1 9.0 10.8 249.2 Margin37.9% 45.0% 22.5% 22.1% 30.4% 38.2% 65 Table of Contents Change from the year ended December 31, 2016 to December 31, 2015BrazilArgentinaMexicoVenezuelaOther CountriesTotalNet revenuesin Dollars$ 164.4 $ 17.2 $ 6.0 $ (3.3)$ 8.2 $ 192.6 in %56.6% 7.0% 14.9% -8.1%23.3% 29.6% Direct costsin Dollars$ (90.5)$ (17.4)$ (9.7)$ (2.4)$ (6.9)$ (126.9)in %50.2% 12.9% 30.9% 16.0% 28.2% 32.9% Impairment of Long-Lived Assetsin Dollars$ — $ — $ — $ 2.5 $ — $ 2.5 in %0.0% 0.0% 0.0% -15.5%0.0% -15.5%Direct contributionin Dollars$ 73.9 $ (0.1)$ (3.7)$ (3.2)$ 1.3 $ 68.2 in %67.0% -0.1%-40.6%-36.0%12.0% 27.4% The table above may not total due to rounding.(*) Percentages have been calculated using whole-dollar amounts rather than rounded amounts that appear in the table. The table above may not total due to rounding.Year ended December 31, 2015BrazilArgentinaMexicoVenezuelaOther CountriesTotalNet revenues$ 290.6 $ 245.0 $ 40.3 $ 40.5 $ 35.4 $ 651.8 Direct costs(180.4)(134.8)(31.3)(15.3)(24.6)(386.3)Impairment of Long-lived Assets — — —(16.2) —(16.2)Direct contribution110.2 110.3 9.1 9.0 10.8 249.2 Margin37.9% 45.0% 22.5% 22.1% 30.4% 38.2% Year ended December 31, 2014BrazilArgentinaMexicoVenezuelaOther CountriesTotalNet revenues$ 273.6 $ 150.7 $ 37.7 $ 58.0 $ 36.5 $ 556.5 Direct costs(158.4)(81.3)(24.1)(16.6)(20.2)(300.5)Impairment of Long-lived Assets — — —(49.5) —(49.5)Direct contribution115.2 69.4 13.6 (8.1)16.4 206.5 Margin42.1% 46.1% 36.1% -13.9%44.8% 37.1% Change from the year ended December 31, 2015 to December 31, 2014BrazilArgentinaMexicoVenezuelaOther CountriesTotalNet revenuesin Dollars$ 17.0 $ 94.3 $ 2.7 $ (17.6)$ (1.2)$ 95.3 in %6.2% 62.6% 7.1% -30.2%-3.2%17.1% Direct costsin Dollars$ (22.0)$ (53.5)$ (7.2)$ 1.3 $ (4.4)$ (85.8)in %13.9% 65.8% 30.0% -7.8%22.0% 28.6% Impairment of Long-Lived Assetsin Dollars$ — $ — $ — $ 33.3 $ — $ 33.3 in %0.0% 0.0% 0.0% -67.2%0.0% -67.2%Direct contributionin Dollars$ (5.0)$ 40.9 $ (4.5)$ 17.0 $ (5.6)$ 42.7 in %-4.4%58.9% -33.4%-211.3%-34.3%20.7% (*)Percentages have been calculated using whole-dollar amounts rather than rounded amounts that appear in the table. The table above may not total due torounding. 66 Table of Contents Net revenuesNet revenues for the year ended December 31, 2016, 2015 and 2014 are described above in “Item 7 – Management’s Discussion and Analysisof Financial Condition and Results of Operations – Net revenues”.Direct costs and Impairment of Long-Lived AssetsBrazilFor the year ended December 31, 2016 as compared to the same period in 2015, direct costs increased by 50.2%, mainly driven by: i) a 68.5%increase in cost of net revenues, mainly attributable to an increase in collection fees as a consequence of higher penetration of Mercado Pagobusiness, sales tax costs and salaries and wages; ii) a 31.5% increase in sales and marketing expenses, mainly due to higher on line portal dealsexpenses, salaries and wages, buyer protection program expenses and other marketing expenses; iii) a 69.5% increase in product and technologydevelopment expenses, mainly due to an increase in salaries and wages and higher depreciation and amortization expenses; and iv) a 12.5%increase in general and administrative expenses, mainly attributable to increases in salaries and wages.For the year ended December 31, 2015 as compared to the same period in 2014, direct costs increased by 13.9%, mainly driven by: i) a 14.8%increase in cost of net revenues, which was mainly attributable to an increase in collection fees as a consequence of higher penetration of our MercadoPago business and sales tax costs; ii) a 96.1% increase in product and technology development expenses, mainly due to an increase insalaries and wages, higher depreciation and amortization expenses and other product and development expenses, iii) a 6.3 % increase in sales andmarketing expenses, mainly due to an increase in buyer protection program expenses, off-line marketing expenses and other marketing expenses,partially offset by a decrease in bad debt expenses and online marketing expenses and iv) a 36.8 % increase in general and administrative expenses,mainly attributable to an increase in depreciation and amortization expenses, salaries and wages, offices expenses and other expenses partially offsetby decrease in legal fees.ArgentinaFor the year ended December 31, 2016 as compared to the same period in 2015, direct costs increased by 12.9%, mainly driven by: i) a 17.4%increase in cost of net revenues, mainly attributable to an increase in collection fees as a consequence of a higher penetration of our MercadoPagobusiness, customer support and sales taxes costs; ii) a 76.8% increase in product and technology development expenses, mainly due to higherdepreciation and amortization expenses. These increases were partially offset by a 23.1% decrease in general and administrative expenses. For the year ended December 31, 2015 as compared to the same period in 2014, direct costs increased by 65.8%, mainly driven by: i) a 65.6 %increase in cost of net revenues, mainly attributable to an increase in collection fees as a consequence of a higher penetration of our MercadoPagobusiness, customer support costs and sales taxes; ii) a 53.6 % increase in sales and marketing expenses, mainly due to an increase in on-linemarketing expenses, higher buyer protection program expenses, salaries and wages, chargeback expenses and other marketing expenses; iii) a 26.3%increase in product and technology development expenses, mainly due to an increase in higher depreciation and amortization expenses and iv)a 87.8% increase in general and administrative expenses, mainly due to increases in tax, legal and other fees.MexicoFor the year ended December 31, 2016 as compared to the same period in 2015, direct costs increased by 30.9%, mainly driven by: i) a 55.8%increase in cost of net revenues, mainly attributable to an increase in collection fees due to higher MercadoPago penetration and customer supportcosts; ii) a 21.9% increase in sales and marketing expenses, mainly due to increases in online marketing expenses; iii) a 37.9% increase in productand technology development expenses as a result of increases in salaries and wages and depreciation and amortization expenses and iv) a 17.4%increase in general and administrative expenses, mainly attributable to an increase in salaries and wages.For the year ended December 31, 2015 as compared to the same period in 2014, direct costs increased by 30.0%, mainly driven by: i) a 45.2%increase in general and administrative expenses, mainly attributable to an increase in salaries and wages, and higher depreciation and amortizationexpenses; ii) a 34.0 % increase in cost of net revenues that was mainly attributable to an increase in collection fees due to higher MercadoPagopenetration and other costs; iii) a 13.0% increase in sales and marketing expenses, mainly due to an increase in on-line and off-line marketingexpenses, chargebacks, salaries and wages and other marketing expenses partially offset by a decrease in bad debt expenses andvi) a 57.9% increase in product and technology development expenses as a result of increases in maintenance and depreciation and amortizationexpenses .VenezuelaDuring the second quarter of 2016 and the first quarter of 2015, we recorded impairments of long-lived and other non-current assets of $13.7million and $16.2 million, respectively, in our Venezuelan subsidiaries. Additionally, direct costs increased by $2.4 million during the year endedDecember 31, 2016 as compared to the same period in 2015, primarily due to: i) a 21.3% increase in sales and marketing expenses that was mainlyattributable to an increase in bad debt expenses, chargeback expenses and depreciation and amortization expenses; ii) a 11.2% increase in cost ofnet revenues that was mainly attributable to an increase in customer support costs and certain new taxes on payment business; and iii) 67 Table of Contents a 261.2% increase in product and technology development expenses attributable to an increase in depreciation and amortization expenses. Theseincreases were partially offset by a 9.8% decrease in general and administrative expenses, mainly due to decreases in depreciation and amortizationexpenses.During the first quarter of 2015 and the second quarter of 2014, we recorded impairments of long-lived and other non-current assets of $16.2million and $49.5 million respectively in our Venezuelan subsidiaries. Additionally, direct costs decreased by $1.3 million during the year endedDecember 31, 2015 as compared to the same period in 2014, primarily due to: i) a 40.4% decrease in sales and marketing expenses that was mainlyattributable to a decrease in salaries and wages, bad debt expenses and other marketing expenses; ii) a 65.3% decrease in general and administrativeexpenses that was mainly attributable to a decrease in salaries and wages and higher depreciation and amortization expenses; iii) a 56.3% decreasein product and technology development expenses attributable to decreases in salaries and wages, communication and maintenance expenses and indepreciation and amortization expenses, offset by a 36.8% increase in costs of net revenues mainly attributable to an increase in customer supportcosts. These decreases are related to local currency devaluation in that country. See section “Critical accounting policies and estimates – Foreigncurrency translation”. As a result of the above mentioned decreases and excluding the impairment of long lived assets, direct contribution increasedduring 2015 as compared to 2014.Liquidity and Capital ResourcesOur main cash requirement historically has been working capital to fund MercadoPago financing operations in Brazil. We also require cash forcapital expenditures relating to technology infrastructure, software applications, office space, business acquisitions to fund the payment of quarterlycash dividends on shares of our common stock, grant credits to our merchants and to fund the interest payments on our issued Convertible Notes.Since our inception, we have funded our operations primarily through contributions received from our stockholders during the first two years ofoperations, from funds raised during our initial public offering, and from cash generated from our operations. As discussed above under “Criticalaccounting policies and estimates” we issued on June 30, 2014, $330 million principal balance of Convertible Notes for net proceeds to us of$321.7 million.We have funded MercadoPago by discounting credit card receivables, with loans backed with credit card receivables and throughcash advances derived from our business. We have funded merchant credits with domestic cash resources.As of December 31, 2016, our main source of liquidity, amounting to $487.5 million of cash and cash equivalents and short-term investmentsand $153.8 million of long-term investments has been provided by cash generated from operations and from the issuance of the Convertible Notes.We consider our long-term investments as part of our liquidity because long-term investments are comprised of available-for-sale securitiesclassified as long-term as a consequence of their contractual maturities.The significant components of our working capital are cash and cash equivalents, short-term investments, accounts receivable, loansreceivable, accounts payable and accrued expenses, funds receivable from and payable to MercadoPago users, and short-term debt. As long as wecontinue transferring credit card receivables to financial institutions in return for cash, we will continue generating cash.As of December 31, 2016, cash and investments of our foreign subsidiaries amounted to $357.7 million or 55.8% of our consolidated cash andinvestments and 43.9% of our consolidated cash and investments are held outside the U.S., mostly in Brazil and Argentina. Our strategy is toreinvest the undistributed earnings of our foreign operations in those operations and to distribute dividends when they can be offset with availabletax credits. We do not expect a material impact in any repatriation of undistributed earnings of foreign subsidiaries on our operations since thetaxable domestic gains generated by any dividend distributions will be mostly offset with foreign tax credits that arise from income tax paid in ourforeign operations, which we are allowed to compute for domestic income tax purposes.If we were to change the way we manage our business, our working capital needs could be funded as they were funded in the past, through acombination of the sale of credit card coupons or obtain loans from financial institutions and cash advances from our business.The following table presents our cash flows from operating activities, investing activities and financing activities for the years endedDecember 31, 2016, 2015 and 2014:Years endedDecember 31, (*)(In millions)201620152014Net cash provided by (used in):Operating activities$ 190.3$ 221.4$ 196.8Investing activities(84.2)(183.5)(322.4)Financing activities(19.7)(27.7)264.3 Effect of exchange rates on cash and cash equivalents(19.1)(66.4)(55.8)Net decrease in cash and cash equivalents$ 67.3$ (56.3)$ 82.9(*)The table above may not total due to rounding. 68 Table of Contents Net cash provided by operating activitiesCash provided by operating activities consists of net income adjusted for certain non-cash items, and the effect of changes in working capitaland other activities:Years endedChange fromDecember 31,2015 to 2016 (*)20162015in Dollarsin %(in millions, except percentages)Net Cash (used in) provided by:Operating activities$ 190.3$ 221.4$ (31.1)-14.1%(*)Percentages have been calculated using whole-dollar amounts rather than rounded amounts that appear in the table.The $31.1 million decrease in net cash provided by operating activities during the year ended December 31, 2016, as compared to the sameperiod in 2015, was primarily driven by a $71.5 million increase in credit card receivables, a $22.1 million increase in other assets and $15.7 milliondecrease in accounts payable and accrued expenses. These decreases in operating cash flow were partially offset by a $44.7 million increase in fundspayable to customers and a $21.0 million decrease in accounts receivable.Years endedDecember 31,Change from 2014 to 2015 (*)20152014in Dollarsin %(in millions, except percentages)Net Cash provided by:Operating activities$ 221.4$ 196.8$ 24.612.5% (*)Percentages have been calculated using whole-dollar amounts rather than rounded amounts that appear in the table.The $24.6 million increase in net cash provided by operating activities during the year ended December 31, 2015, as compared to the sameperiod in 2014, was primarily driven by a $58.3 million increase in funds payable to customers, a $35.6 million increase in net income adjusted bynon-cash operating results and $3.6 million decrease in other assets. These increases in operating cash flow were partially offset by a $64.0 millionincrease in accounts receivables and credit card receivables, a $5.1 million decrease in accounts payable and accrued expenses and a $3.8 millionincrease in prepaid expenses.Net cash used in investing activitiesYears endedChange fromDecember 31,2015 to 2016 (*)20162015in Dollarsin %(in millions, except percentages)Net Cash used in:Investing activities$ (84.2)$ (183.5)$ 99.3-54.1%(*)Percentages have been calculated using whole-dollar amounts rather than rounded amounts that appear in the table.Net cash used in investing activities in the year ended December 31, 2016 resulted mainly from purchases of investments of $3,501.3 millionpartially offset by proceeds from the sale and maturity of investments of $3,508.3 million, as part of our financial strategy. We used $0.4 million inthe purchase of intangible assets, $68.5 million in the purchase of property, plant and equipment (mainly in our Argentine and Brazilian offices andin information technology in Argentina and Brazil), $7.3 million to fund the acquisitions of Monits and Axado (see note 6 to our consolidatedfinancial statements), $8.4 million in advances for property and equipment (mainly offices in Argentina and Venezuela), and $6.6 million inprincipal loans receivable granted to merchants under our MercadoCredito solution.Years endedDecember 31,Change from 2014 to 2015 (*)20152014in Dollarsin %(in millions, except percentages)Net Cash used in:Investing activities$ (183.5)$ (322.4)$ 138.9-43.1%(*)Percentages have been calculated using whole-dollar amounts rather than rounded amounts that appear in the table. 69 Table of Contents Net cash used in investing activities in the year ended December 31, 2015 resulted mainly from purchases of investments of $1,949.8 millionpartially offset by proceeds from the sale and maturity of investments of $1,875.5 million, as part of our financial strategy. We used $1.7 million inthe purchase of intangible assets, $39.2 million in the purchase of property plant and equipment (mainly in our Argentine offices and in informationtechnology in Argentina and Brazil), $45.0 million to fund the acquisition of KPL Soluções Ltda and Metros Cúbicos S.A. de C.V. (see note 6 to ourconsolidated financial statements), and $23.4 million in advances for property and equipment in Venezuela.Net cash used in financing activitiesYears endedChange fromDecember 31,2015 to 2016 (*)20162015in Dollarsin %(in millions, except percentages)Net Cash used in:Financing activities$ (19.7)$ (27.7)$ 8.0-29.0%(*)Percentages have been calculated using whole-dollar amounts rather than rounded amounts that appear in the table.For the year ended December 31, 2016, our primary use of cash was to fund $24.4 million in cash dividends and $6.7 million for the paymentson loans payable and other financing. In addition, we generated $11.4 million proceeds from our loans payable and other financial liabilities.Years endedDecember 31,Change from 2014 to 2015 (*)20152014in Dollarsin %(in millions, except percentages)Net Cash (used in) / provided by:Financing activities$ (27.7)$ 264.3$ (292.0)-110.5%(*)Percentages have been calculated using whole-dollar amounts rather than rounded amounts that appear in the table.For the year ended December 31, 2015, our primary use of cash was to fund $21.0 million in cash dividends paid on January 15, April 15, July15, 2015 and October 15, 2015. In addition, we used $ 9.1 million for the payment of financial liabilities and $2.7 million for the repurchase ofcommon stock. We received $5.0 million from financial institutions to fund the acquisitions of the Venezuelan offices acquired during the thirdquarter.In the event that we decide to pursue strategic acquisitions in the future, we may fund them with available cash, third party debt financing, orby raising equity capital, as market conditions allow.DebtOn June 30, 2014, we issued $330 million of 2.25% convertible senior notes due 2019 (the “Notes”). The Notes are unsecured, unsubordinatedobligations of our Company, which pay interest in cash semi-annually, on January 1 and July 1, at a rate of 2.25% per annum. The Notes will matureon July 1, 2019 unless earlier repurchased or converted in accordance with their terms prior to such date. The Notes may be converted, under theconditions specified below, based on an initial conversion rate of 7.9353 shares of common stock per $1,000 principal amount of Notes (equivalentto an initial conversion price of $126.02 per share of common stock), subject to adjustment as described in the indenture governing the Notes.Holders may convert their notes at their option at any time prior to January 1, 2019 only under the following circumstances: (1) during anycalendar quarter commencing after the calendar quarter ending on September 30, 2014 (and only during such calendar quarter), if the last reportedsale price of the common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending onthe last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicabletrading day; (2) during the five business day period after any five consecutive trading day period (the “measurement period”) in which the tradingprice per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported saleprice of our common stock and the conversion rate on each such trading day; or (3) upon the occurrence of specified corporate events. On or afterJanuary 1, 2019 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert theirnotes at any time, regardless of the foregoing circumstances. Upon conversion, we will pay or deliver, as the case may be, cash, shares of our commonstock or a combination of cash and shares of our common stock, at our election.The price of the Company’s common stock was greater than 130% of the conversion price for at least 20 trading days during the 30 consecutivetrading days ending on the last trading day of the Company’s fiscal quarter ended September 30, 2016. Therefore, as of September 30, 2016, theconversion threshold had been met and the Notes became convertible at the holders’ option. During the period from October 1, 2016 throughDecember 31, 2016, 12 Notes were converted for a total amount of $12 thousands. During the fourth quarter of 2016, the conversion 70 Table of Contents threshold had not been met. The determination of whether or not the Notes are convertible must continue to be performed on a quarterly basis. Uponconversion, the Company will pay or deliver, as the case may be, cash, shares of the Company’s common stock or a combination of cash and sharesof the Company’s common stock, at the Company’s election. The intention of the Company is to share-settle the total amount due upon conversionof the Notes.The total estimated fair value of the Notes was $458.8 million and $364.7 million as of December 31, 2016 and 2015, respectively. The fairvalue was determined based on the closing trading price per $100 of the Notes as of the last day of trading for the period. Based onthe $156.1 closing price of the Company’s common stock on December 31, 2016, the if-converted value of the Notes exceeded their principalamount by $78.9 million.Capped call transactionsThe net proceeds from the Notes were $321.7 million after considering the transaction costs in an amount of $8.3 million. In connection withthe issuance of the Notes, we paid $19.7 million to enter into capped call transactions with respect to our common stock (the “Capped CallTransactions”), with certain financial institutions. The Capped Call Transactions are expected generally to reduce the potential dilution uponconversion of the Convertible Notes in the event that the market price of our common stock is greater than the strike price of the Capped CallTransactions, initially set at $126.02 per common share, which corresponds to the initial conversion price of the Notes and is subject to anti-dilutionadjustments substantially similar to those applicable to the conversion rate of the Notes, and have a cap price of $155.78 per common share.Therefore, as a result of executing the Capped Call Transactions, we will reduce our exposure to potential dilution once the market price of ourcommon shares exceeds the strike price of $126.02 and up to a cap price of $155.78 per common share. The Capped Call Transactions allow us toreceive shares of our common stock and/or cash related to the excess conversion value that we would pay to the holders of the Notes uponconversion, up to the cap price.Cash DividendsSee “Item 5—Market for registrant’s common equity, related stockholder matters and issuer purchases of equity securities—Dividend Policy”for more information regarding our dividend distributions.We currently expect to continue paying comparable cash dividends on a quarterly basis. However, any future determination as to thedeclaration of dividends on our common stock will be made at the discretion of our board of directors and will depend on our earnings, operatingand financial condition, capital requirements and other factors deemed relevant by our board of directors, including the applicable requirements ofthe Delaware General Corporation Law.Capital expendituresOur capital expenditures (comprised by our payments for property and equipment, intangible assets and acquired business) for the year endedDecember 31, 2016 and 2015 amounted to $84.7 million and $109.3 million respectively.During the year ended December 31, 2016 and 2015, we invested $30.9 million and $6.5 million in our Brazilian, Colombian and Argentineoffices, respectively; and $28.1 million and $22.7 million, respectively, in Information Technology mainly in Argentina, Brazil and the UnitedStates.During April 2016, our Venezuelan subsidiary acquired commercial properties in process of construction for a total of 135.81 square meters, inCaracas, Venezuela for a total purchase price of BF$1,359 million, or $3.7 million, for investment purposes and included in non-current other assets.The Venezuelan subsidiary paid the purchase price in Bolivares Fuertes. According to the purchase agreements, the commercial properties will bedelivered in September 2017.On February 12, 2016, through our subsidiaries Meli Participaciones S.L. and Marketplace Investment LLC, we acquired 100% of the issuedand outstanding shares of capital stock of Monits S.A., a software development company located and organized under the laws of Buenos Aires,Argentina, for the purchase price of $3.1 million, measured at its fair value. We believe this acquisition will allow us to enhance our softwaredevelopment capabilities.On June 1, 2016, through our subsidiary Ebazar.com.br Ltda., we acquired 100% of the issued and outstanding shares of capital stock of Axado,a company that develops logistic software for the e-commerce industry in Brazil, for the purchase price of $5.5 million, measured at its fair value. Webelieve this acquisition will allow us to enhance our software development capabilities on Transportation Management System and will contributeto our shipping business performance.In August 2016, our Argentine subsidiary acquired 6,057 square meters and 50 parking spaces, in an office building in process of constructionin Buenos Aires, for a total amount of $481.4 million Argentine pesos or $31.4 million, plus VAT. The price of the transaction is payable as follows:i) $9.4 million was paid at the date of signing the purchase agreement and recorded as an advance for fixed assets within non-current other assets, ii)$19.0 million will be paid in 14 monthly installments beginning in July 2017, and (iii) 3.0 million will be paid once the 71 Table of Contents properties are delivered by the seller. According to the purchase agreement, 2,224 square meters will be delivered in September 2017 and 3,833square meters will be delivered in September 2018. In connection with this acquisition, in February 2017, we obtained a preliminary approval thatallows us to defer during a 2-year period payments of sales tax up to the amounts disbursed for the building. These deferred payments will beextinguished (i.e. as tax reliefs) upon receiving definitive approval from the City of Buenos Aires government within that 2-year period.In 2015, our Venezuelan subsidiary acquired five offices in process of construction, in Caracas, Venezuela for a total purchase priceof BF$4,645.6 million, or $23.4 million, for investment purposes and included in non-current other assets. The Venezuelan subsidiary paid thepurchase price in Bolivares Fuertes, and funded the transaction with funds from its own operations and with a mortgage loan amounting to BF$1,000million celebrated with Banco del Caribe, C.A. Banco Universal to be paid in monthly installments during five years, and included in current andnon-current liabilities under the caption “Loans payable and other financial liabilities”. The mortgage loan bears a fixed interest rate of 24% perannum. The amount of the mortgage climbs to BF$742 million, or $1.1 million as of December 31, 2016. The offices are expected to be completedin August 2017.In April 2015, we acquired 100% of the issued and outstanding shares of capital stock of KPL Soluções Ltda., a company that developsenterprise resource planning (“ERP”) software for the e-commerce industry in Brazil, for and aggregate purchase price of $22.7 million. Theobjective of this acquisition was to offer an even more seamless way for our customers to sell on our marketplace.Also in April 2015, we acquired 100% of the issued and outstanding shares of capital stock of Metros Cúbicos, S.A. de C.V., a company thatoperates an online classified advertisement platform dedicated to the sale of real estate in Mexico. The aggregate purchase price was $29.9 million.The objective of this acquisition was to increase our participation in the e-commerce business in that country.We are continuing to increase our level of investment in hardware and software licenses to improve and update our platform’s technology andour internally-developed software. We anticipate continued investments in capital expenditures related to information technology in the future aswe strive to maintain our position in the Latin American e-commerce market.We believe that our existing cash and cash equivalents, including the sale of credit card receivables and cash generated from operations will besufficient to fund our operating activities, property and equipment expenditures and to pay or repay obligations going forward.Off-balance sheet arrangementsAs of December 31, 2016, we had no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future materialeffect on our consolidated financial condition, results of operations, liquidity, capital expenditures or capital resources.Contractual obligationsWe have certain fixed contractual obligations and commitments that include future estimated payments. Changes in our business needs,cancellation provisions and other factors may result in actual payments differing materially from the estimates below. We cannot provide certaintyregarding the timing and amount of payments. Contractual obligations at December 31, 2016 are as follows: Payment due by period Total Less than 1 to 3 3 to 5 More than(in millions)(*)1 year (*)years (*)years (*)5 years (*)Long-Term Debt Obligations (1)$369.4 $21.3 $348.0 $ —$ —Operating lease obligations (2)45.2 5.5 13.6 12.5 13.6 Purchase obligations125.3 73.0 52.3 — —Total$539.9 $99.8 $413.9 $12.5 $13.6 h(*)The table above may not total due to rounding.(1)On June 30, 2014, we issued $330 million of 2.25% convertible senior notes due 2019 (the “Notes”). The Notes are unsecured,unsubordinated obligations of our Company, which pay interest in cash semi-annually, on January 1 and July 1, at a rate of 2.25% perannum. The Notes will mature on July 1, 2019 unless earlier repurchased or converted in accordance with their terms prior to such date.During third quarter of 2015, through our Venezuelan subsidiary, we obtained a mortgage loan from Banco del Caribe, C.A. BancoUniversal to fund the acquisition of an Office building in Caracas of BF$1,000 million to be paid in monthly installments during fiveyears and bears a fixed interest rate of 24% per annum. Additionally, includes minor financial debts of other locations. See Note 15 toour Financial Statements.(2)Includes leases of office space.We have leases for office space in certain countries in which we operate. Purchase obligation amounts include minimum purchase commitmentsfor advertising, capital expenditures (technological equipment and software licenses) and other goods and services that were entered into in theordinary course of business. We have developed estimates to project payment obligations based upon historical trends, when available, 72 Table of Contents and our anticipated future obligations. Given the significance of performance requirements within our advertising and other arrangements, actualpayments could differ significantly from these estimates. Item 7A. Quantitative and Qualitative Disclosures About Market RiskWe are exposed to market risks arising from our business operations. These market risks arise mainly from the possibility that changes ininterest rates and the U.S. dollar exchange rate with local currencies, particularly the Brazilian Real and Argentine Peso due to Brazil’s andArgentine’s respective share of our revenues, may affect the value of our financial assets and liabilities.Foreign currenciesAs of December 31, 2016, we hold cash and cash equivalents in local currencies in our subsidiaries, and have receivables denominated in localcurrencies in all of our operations. Our subsidiaries generate revenues and incur most of their expenses in local currency. As a result, our subsidiariesuse their local currency as their functional currency, except for our Venezuelan subsidiaries which use the U.S. dollar as if it is the functionalcurrency due to Venezuela being a highly inflationary environment. As of December 31, 2016, the total cash and cash equivalents denominated inforeign currencies totaled $166.2 million, short-term investments denominated in foreign currencies totaled $113.4 million and accounts receivable,credit cards receivables and loans receivables in foreign currencies totaled $339.6 million. As of December 31, 2016, we had no long-terminvestments denominated in foreign currencies. To manage exchange rate risk, our treasury policy is to transfer most cash and cash equivalents inexcess of working capital requirements into U.S. dollar-denominated accounts in the United States. As of December 31, 2016, our U.S. dollar-denominated cash and cash equivalents and short-term investments totaled $207.8 million and our U.S. dollar-denominated long-term investmentstotaled $153.8 million. For the year ended December 31, 2016, we had a consolidated loss on foreign currency of $5.6 million mainly as aconsequence of a $7.7 million loss on forex exchange in our Venezuelan subsidiaries and a $5.7 million loss on forex exchange in our Mexicansubsidiaries, partially offset by a $7.8 million gain on forex exchange in our Argentine subsidiaries (See “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations—Results of operations—Other income (expenses), net” for more information).If the U.S. dollar weakens against foreign currencies, the translation of these foreign-currency-denominated transactions will result in increasednet revenues, operating expenses, and net income while the re-measurement of our net asset position in U.S. dollars will have a negative impact inour Statement of Income. Similarly, our net revenues, operating expenses and net income will decrease if the U.S. dollar strengthens against foreigncurrencies, while the re-measurement of our net asset position in U.S. dollars will have a positive impact in our Statement of Income.The following table sets forth the percentage of consolidated net revenues by segment for the years ended December 31, 2016, 2015 and 2014:Years ended December 31,(% of total consolidated net revenues) (*)2016 2015 2014 Brazil53.9 %44.6 %49.2 %Argentina31.1 37.6 27.1 Mexico5.5 6.2 6.8 Venezuela4.4 6.2 10.4 Other Countries5.2 5.4 6.6 (*)Percentages have been calculated using whole-dollar amounts rather than rounded amounts that appear in the table. The table abovemay not total due to rounding. 73 Table of Contents Foreign Currency Sensitivity AnalysisThe table below shows the impact on our net revenues, expenses, other expenses and income tax, net income and equity for a positive and anegative 10% fluctuation on all the foreign currencies to which we are exposed to as of December 31, 2016 and for the year then ended:Foreign Currency Sensitivity Analysis (*)(In millions)-10%Actual+10%(1)(2)Net revenues$ 938.1$ 844.4$ 767.7Expenses(736.5)(663.3)(603.5)Income from operations201.6 181.1 164.3 Other expenses and income tax related to P&L items(42.0)(39.1)(36.8)Foreign Currency impact related to the remeasurement of our Net Assetposition(6.2)(5.6)(5.0)Net income153.4 136.4 122.5 Total Shareholders' Equity$ 468.0$ 428.9$ 401.0(1)Appreciation of the subsidiaries local currency against U.S. Dollar(2)Depreciation of the subsidiaries local currency against U.S. Dollar(*) The table above does not total due to rounding.The table above shows an increase in our net income when the U.S. dollar weakens against foreign currencies because the re-measurement ofour net asset position in U.S. dollars has a lesser impact than the increase in net revenues, operating expenses, and other expenses, net and incometax lines related to the translation effect. Similarly, the table above shows a decrease in our net income when the U.S. dollar strengthens againstforeign currencies because the re-measurement of our net asset position in U.S. dollars has a lesser impact than the decrease in net revenues,operating expenses, and other expenses, net and income tax lines related to the translation effect.In the past we have entered into transactions to hedge portions of our foreign currency translation exposure; however, during the three yearperiod ended December 31, 2016 we did not entered into any such hedging transactions.Venezuelan SegmentIn accordance with U.S. GAAP, we have classified our Venezuelan operations as highly inflationary since January 1, 2010, using the U.S. dollaras the functional currency for purposes of reporting our financial statements. Therefore, no translation effect has been accounted for in othercomprehensive income related to our Venezuelan operations. As of December 31, 2016, monetary assets and liabilities in BsF were re-measured tothe U.S. dollar using the SIMADI closing exchange rate of 673.8 BsF per U.S. dollar.The following table sets forth the assets, liabilities and net assets of our Venezuelan subsidiaries, before intercompany eliminations of a netliability of $15.8 million and $24.6 million, as of December 31, 2016 and December 31, 2015, respectively, and net revenues for the yearsended December 31, 2016, 2015 and 2014:Year ended December 31,201620152014Venezuelan operations(In millions)Net Revenues$ 37.2$ 40.5$ 58.0December 31,December 31,20162015(In millions)Assets66.2 65.4 Liabilities(23.0)(36.3)Net Assets$ 43.2$ 29.1As of December 31, 2016, the net assets of our Venezuelan subsidiaries amount to 10.1% of our consolidated net assets, and cash andinvestments of our Venezuelan subsidiaries held in local currency in Venezuela amounted to 2.1% of our consolidated cash and investments. 74 Table of Contents See Item 7 of Part II, “Management’s discussion and analysis of financial condition and results of operations—Critical accounting policies andestimates—Foreign Currency Translation” for details on the currency status of our Venezuelan segment.Although the current mechanisms available to obtain U.S. dollars for dividend distributions to shareholders outside of Venezuela implyincreased restrictions, we do not expect that the current restrictions to purchase U.S. dollars will have a significant adverse effect on our business strategy with regard to the investment in Venezuela.In order to assist investors in their overall understanding of the impact on our Venezuelan segment reporting, we developed a scenario thatconsiders a 550% additional devaluation over the SIMADI rate as of the date of this report, applied for the period starting on January 1, 2016 toDecember 31, 2016. These disclosures may help investors to project sensitivities, on segment information captions, to devaluations of whateverorder of magnitude they choose by simple arithmetic calculations. The information is just a scenario and does not represent a forward-lookingstatement about our expectations or projections related to future events in Venezuela. The investors and other readers or users of the financialinformation presented in this caption are cautioned not to place undue reliance on this scenario. This information is not a guarantee of future events.The information disclosed below does not include any inflation effect, nor the devaluation impact related to the assumed devaluation or anyother effect derived from the assumed devaluation. The information below should not be considered in isolation or as a substitute for measures ofperformance prepared in accordance with U.S. GAAP. In addition, this information is not based on any comprehensive set of accounting rules orprinciples.The evolution of the Venezuelan economy and any future governmental interventions in the Venezuelan economy are beyond our ability tocontrol or predict. New events could happen in the future in Venezuela and it is not possible for management to predict all such events, nor can itassess the impact of all such events on our Venezuelan business.The table below provides specific sensitivity information of our Venezuelan segment reporting for the period indicatedassuming approximately a 550% additional devaluation over the SIMADI rate as of the date of this report, applied for the period startingon January 1, 2016 to December 31, 2016:Year endedDecember 31, 2016Actual (*)Sensitivity(**)(In million)Net revenues$37.2 $4.7 Direct costs(17.7)(6.9)Direct contribution before impairment of Long-lived assets$19.5 $(2.2)Direct Contribution Margin before impairment %52.3% -46.8%(*)As reported. Direct Contribution Margin does not include one time impairments of long-lived assets and international customer servicecosts have been allocated considering previous year exchange rate.(**)Computing a hypothetical devaluation of the Venezuelan segment from January 1 to December 31, 2016 assuming an exchange rate of3,705.69 BsF per U.S. dollar (550% of the exchange rate as of December 31, 2016). Despite the continued uncertainty and restrictions relating to foreign currency exchange in Venezuela as described above, we believe that ourunderlying business in that country is competitively well-positioned and continues to exhibit solid growth, in terms of units sold, even whileeconomic conditions in the Venezuelan economy remain difficult. As economic conditions in that country improve, we expect that our business inVenezuela will benefit accordingly. Although in May 2014, March 2015 and June 2016 we experienced a strong devaluation of our business inVenezuela, we cannot assure you that the BsF will not experience further devaluations or that the Venezuelan government will not default on itsobligations to creditors in the future, which may be significant and could have a material negative impact on our future financial results of ourVenezuela segment and value of our bolivar denominated net assets. However, for the reasons stated at the beginning of this paragraph, we remainstrongly committed to our business and investment in Venezuela.Argentine SegmentThe former Argentine government had implemented certain measures that control and restrict the ability of companies and individuals toexchange Argentine Pesos for foreign currencies. Those measures include, among other things, the requirement to obtain the prior approval from theArgentine Tax Authority of the foreign currency transaction (for example and without limitation, for the payment of non-Argentine goods andservices, payment of principal and interest on non-Argentine debt and also payment of dividends to parties outside of the country), and eventuallyrestrict, the ability to exchange Argentine pesos for other currencies, such as U.S. dollars. 75 Table of Contents During January 2014 the Argentine peso exchange rate against the U.S. dollar increased 23%, from 6.52 Argentine Pesos per U.S. dollar as ofDecember 31, 2013 to 8.0 Argentine Pesos per U.S. dollar. Due to the abovementioned increase in the Argentine peso exchange rate against the U.S.dollar, during the first quarter of 2014, the reported Other Comprehensive Loss increased in $14.6 million as a result of having a net asset position inArgentine Pesos; and the Company recognized a foreign exchange gain of $4.6 million.On December 17, 2015 the new Argentine government introduced significant changes into the foreign exchange regulatory framework that hadbeen in place for the past four years under former president. These new measures include the removal of Argentina’s strict currency controls thatrestricted the ability of companies and individuals to exchange Argentine pesos for foreign currencies.During December 2015 the Argentine peso exchange rate increased 37% against the U.S. dollar, to 13.30 Argentine pesos per U.S. dollar as ofDecember 31, 2015. Due to such increase in the Argentine peso exchange rate against the U.S. dollar, during the fourth quarter of 2015, theCompany recognized a foreign exchange gain of $18.2 million (as a result of having a net asset position in U.S. dollars) and the reported OtherComprehensive Loss increased by $22.8 million (as a result of having a net asset position in Argentine pesos). As of December 31, 2016, theArgentine Peso exchange rate against the U.S. dollar was 15.89.With this new policy, prior approval of foreign exchange transactions by the Argentine Administration of Public Revenues or Central Bank isno longer required for the purchase of foreign currency and the access to the local foreign exchange market without requiring prior Central Bankapproval is allowed.Had a hypothetical devaluation of 10% of the Argentine Peso against the U.S. dollar occurred on December 31, 2016, the reported net assets inour Argentine subsidiaries would have decreased by approximately $14.3 million with the related impact in Other Comprehensive Income.Additionally, we would have recorded a foreign exchange gain amounting to approximately $1.1 million in our Argentine subsidiaries. Brazilian SegmentDuring 2015, the Brazilian Reais exchange rate against the U.S. dollar increased in 47%, from 2.66 Brazilian Reais per U.S .dollar as ofDecember 31, 2014 to 3.90 Brazilian Reais per U.S. dollar as of December 31, 2015. Due to the abovementioned devaluation, during the year endedDecember 31, 2015, the reported Other Comprehensive Loss of the Brazilian segment increased in $9.0 million as a result of having a net assetposition in Brazilian Reais; and the Company recognized a foreign exchange gain of $14.6 million during the same period. During 2016, there wereno significant changes in the exchange rate. As of December 31, 2016, the Brazilian Reais exchange rate against the U.S. dollar was 3.26.Had a hypothetical increase in the Brazilian Reais exchange rate against the U.S. dollar of 10% occurred on December 31, 2016, the reportednet assets in our Brazilian subsidiaries would have decreased by approximately $7.5 million with the related impact in Other ComprehensiveIncome. Additionally, we would have recorded a foreign exchange gain amounting to approximately $0.01 million in our Brazilian subsidiaries.InterestOur earnings and cash flows are also affected by changes in interest rates. These changes could have an impact on the interest rates thatfinancial institutions charge us prior to the time we sell our MercadoPago receivables. As of December 31, 2016, MercadoPago’s funds receivablefrom credit cards totaled $307.9 million. Interest rate fluctuations could also impact interest earned through our MercadoCredito solution. As ofDecember 31, 2016, loans granted under our MercadoCredito solution totaled $6.3 million. Interest rate fluctuations could also negatively affectcertain of our fixed rate and floating rate investments comprised primarily of time deposits, money market funds, investment grade corporate debtsecurities and sovereign debt securities. Investments in both fixed rate and floating rate interest earning products carry a degree of interest rate risk.Fixed rate securities may have their fair market value adversely impacted due to a rise in interest rates, while floating rate securities may produce lessincome than predicted if interest rates fall.Under our current policies, we do not use interest rate derivative instruments to manage exposure to interest rate changes. As of December 31,2016, the average duration of our available for sale securities, defined as the approximate percentage change in price for a 100-basis-point change inyield, was 1.27%. If interest rates were to instantaneously increase (decrease) by 100 basis points, the fair market value of our available for salesecurities as of December 31, 2016 could decrease (increase) by approximately $3.8 million.As of December 31, 2016, our short-term investments amounted to $253.3 million and our long-term investments amounted to $153.8 million.These investments can be readily converted at any time into cash or into securities with a shorter remaining time to maturity. We determine theappropriate classification of our investments at the time of purchase and re-evaluate such designations as of each balance sheet date. 76 Table of Contents Equity Price RiskOur board of directors adopted the 2009, 2010, 2011 and 2012 long-term retention plans (the “2009, 2010, 2011 and 2012 LTRPs), underwhich certain eligible employees receive awards (“LTRP Awards”), which are payable as follows:·eligible employees will receive a fixed payment equal to 6.25% of his or her LTRP Award under the 2009, 2010, 2011, and/or 2012LTRP, respectively, once a year for a period of eight years. The 2009 LTRP awards began paying out starting in 2010, the 2010 LTRPAwards starting in 2011, the 2011 LTRP Awards starting in 2012 and the 2012 LTRP Awards starting in 2013(the “2009, 2010, 2011 or2012 Annual Fixed Payment”, respectively); and·on each date we pay the respective Annual Fixed Payment to an eligible employee, he or she will also receive a payment (the “2009,2010, 2011 or 2012 Variable Payment”, respectively) equal to the product of (i) 6.25% of the applicable 2009, 2010, 2011 and/or 2012LTRP Award and (ii) the quotient of (a) divided by (b), where (a), the numerator, equals the Applicable Year Stock Price (as definedbelow) and (b), the denominator, equals the 2008 (with respect to the 2009 LTRP), 2009 (with respect to the 2010 LTRP), 2010 (withrespect to the 2011 LTRP) and 2011 (with respect to the 2012 LTRP) Stock Price, ($13.81, $45.75, $65.41 and $77.77 for the 2009,2010, 2011 and 2012 LTRP, respectively, which was the average closing price of the Company’s common stock on the NASDAQ GlobalMarket during the final 60 trading days of 2008, 2009, 2010 and 2011, respectively). The “Applicable Year Stock Price” equals theaverage closing price of the Company’s common stock on the NASDAQ Global Market during the final 60 trading days of the yearpreceding the applicable payment date.The 2009, 2010, 2011 and 2012 LTRPs are filed as Exhibits 10.01, 10.02, 10.03 and 10.04, respectively, to our Quarterly Report on Form 10-Qfiled with the SEC on August 5, 2016, and the above description of such LTRPs is qualified in its entirety by reference to such exhibits.On September 27, 2013, our Board of Directors, upon the recommendation of the compensation committee, approved the 2013 Long TermRetention Plan (the “2013 LTRP”), on March 31, 2014, the Board of Directors, upon the recommendation of the compensation committee, approvedthe 2014 employee retention plan (the “2014 LTRP”) and on August 4, 2015, the Board of Directors, upon the recommendation of the compensationcommittee, approved the 2015 employee retention plan (the “2015 LTRP”).In order to receive an award under the 2013, 2014 and/or 2015 LTRP, each eligible employee must satisfy the performance conditionsestablished by the Board of Directors for such employee. If these conditions are satisfied, the eligible employee will, subject to his or her continuedemployment as of each applicable payment date, receive the full amount of his or her 2013, 2014 and/or 2015 LTRP award, payable as follows:·the eligible employee will receive a fixed payment, equal to 8.333% of his or her 2013, 2014 and/or 2015 LTRP bonus once a year for aperiod of six years starting in March 2014, 2015 and/or 2016 respectively (the “2013, 2014 or 2015 Annual Fixed Payment”,respectively); and·on each date we pay the Annual Fixed Payment to an eligible employee, he or she will also receive a payment (the “2013, 2014 or 2015Variable Payment”, respectively) equal to the product of (i) 8.333% of the applicable 2013, 2014 and/or 2015 LTRP award and (ii) thequotient of (a) divided by (b), where (a), the numerator, equals the Applicable Year Stock Price (as defined below) and (b), thedenominator, equals the 2012 (with respect to the 2013 LTRP), 2013 (with respect to the 2014 LTRP) and 2014 (with respect to the 2015LTRP) Stock Price, defined as $79.57, $118.48 and $127.29 for the 2013, 2014 and 2015 LTRP, respectively, which was the averageclosing price of our common stock on the NASDAQ Global Market during the final 60 trading days of 2012, 2013, 2014 and 2015respectively. The “Applicable Year Stock Price” shall equal the average closing price of our common stock on the NASDAQ GlobalMarket during the final 60 trading days of the year preceding the applicable payment date.The 2013, 2014 and 2015 LTRPs are filed as Exhibits 10.05, 10.06 and 10.07, respectively, to our Quarterly Report on Form 10-Q filed withthe SEC on August 5, 2016, and the above description of such LTRPs is qualified in its entirety by reference to such exhibits.On August 2, 2016, the Board of Directors, upon the recommendation of the Compensation Committee, adopted the 2016 LTRP whichprovides for the grant to eligible employees of a fixed award (the 2016 LTRP Fixed Award) and a variable award (the 2016 LTRP Variable Award).In order to receive awards under the 2016 LTRP, each eligible employee must satisfy the performance conditions established by the Board ofDirectors for such employee, which generally are expected to be based on pre-set goals for the Company’s financial and operational performance. Ifthese conditions are satisfied, the eligible employee will, subject to his or her continued employment as of each applicable payment date, receive thefull amount of his or her 2016 LTRP Awards, payable as follows:·Fixed award: The eligible employee will receive a fixed payment equal to 16.66% of his or her 2016 LTRP Fixed Award once a year for aperiod of six years starting in March 2017 (the “Annual Fixed Payment”); and·Variable award: On each date the Company pays the Annual Fixed Award to the eligible employee, he or she will also receive the 2016LTRP Variable Award payment equal to the product of (i) 16.66% of the applicable 2016 LTRP Variable Award and (ii) the quotient of (a)divided by (b), where (a), the numerator, equals the Applicable Year Stock Price (as defined below) and (b), the denominator, equals the2015 Stock Price (as defined below). For purposes of the 2016 LTRP, the “2015 Stock Price” shall equal $111.02 (the average closingprice of the Company´s common stock on the NASDAQ Global Market during the final 60 -trading days of 2015) and the “ApplicableYear Stock Price” shall equal the average closing price of the Company´s common stock on the NASDAQ Global Market during the final60-trading days of the year preceding the applicable payment date for so long as the Company´s common stock is listed on the NASDAQ. 77 Table of Contents At December 31, 2016, the total contractual obligation of our 2009, 2010, 2011, 2012, 2013, 2014, 2015 and 2016 Variable Payment LTRPliability amounted to $43.1 million. As of December 31, 2016, the accrued liability related to the 2009, 2010, 2011, 2012, 2013, 2014, 2015 and2016 Variable Payment portion of the LTRP included in social security payable in our consolidated balance sheet amounted to $27.1 million.The following table shows a sensitivity analysis of the risk associated with our contractual obligation related to the 2009, 2010, 2011, 2012,2 013, 2014, 2015 and 2016 Variable Payment if our common stock price per share were to experience increases or decreases by up to 40%: As of December 31, 2016MercadoLibre, Inc2009, 2010, 2011, 2012, 2013, 2014, 2015 and 2016Equity Pricevariable LTRP liability(In thousands, except equity price)Change in equity price in percentage40% 229.85 60,406 30% 213.43 56,091 20% 197.02 51,777 10% 180.60 47,462 Static(*)164.18 43,147 -10%147.76 38,832 -20%131.34 34,518 -30%114.93 30,203 -40%98.51 25,888 (*)Average closing stock price for the last 60 trading days of the closing date ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAThe consolidated financial statements and accompanying notes listed in Part IV, Item 15(a)-(1) of this report are included elsewhere in thisreport and incorporated herein by reference. ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURESNot applicable. ITEM 9A.CONTROLS AND PROCEDURESEvaluation of Disclosure Controls and ProceduresBased on the evaluation of our disclosure control and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the endof the period covered by this report, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls andprocedures are effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under theExchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and is accumulated andcommunicated to management as appropriate to allow timely decisions regarding required disclosure.Changes in Internal Control over Financial ReportingThere were no changes in our internal controls over financial reporting as defined in Exchange Act Rule 13a-15(f) that occurred during our mostrecently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financialreporting.Management’s Report on Internal Control over Financial ReportingOur management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) to provide reasonable assurance regarding the reliability of our financial reporting and the preparationof financial statements for external purposes in accordance with U.S. generally accepted accounting principles.Our management, including our Chief Executive Officer and our Chief Financial Officer, conducted an evaluation of the effectiveness of ourinternal control over financial reporting based on the framework in Internal Control Integrated Framework updated by the Committee of 78 Table of Contents Sponsoring Organizations of the Treadway Commission in 2013. Management’s assessment included evaluation of elements such as the design andoperating effectiveness of key financial reporting controls, process documentation, accounting policies, and our overall control environment. Basedon its evaluation under the framework in Internal Control—Integrated Framework (2013), our management concluded that our internal control overfinancial reporting was effective as of December 31, 2016 to provide reasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles. We reviewedthe results of management’s assessment with the Audit Committee of our board of directors.The effectiveness of our internal control over financial reporting as of December 31, 2016 has been audited by Deloitte & Co. S.A., anindependent registered public accounting firm, as stated in their report which appears in Item 15(a) of this Annual Report on Form 10-K.Inherent Limitations on Effectiveness of ControlsOur management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls or ourinternal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated,can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect thefact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherentlimitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur orthat all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts ofsome persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in parton certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goalsunder all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controlsmay become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.ITEM 9B.OTHER INFORMATIONNot applicable. PART III ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCEInformation on our directors and executive officers and the audit committee and nominating and corporate governance committee of our board ofdirectors is incorporated by reference from our Proxy Statement (under the headings “Proposal One” “Information on Our Board of Directors andCorporate Governance,” “Section 16(a) Beneficial Ownership Reporting Compliance” and “Executive Officers”) to be filed with the SEC withrespect to our 2017 Annual Meeting of Stockholders (the “2017 Proxy Statement”). ITEM 11.EXECUTIVE COMPENSATIONThe information presented under the headings “Director Compensation,” “Executive Compensation” and “Compensation Committee Interlocks andInsider Participation” in our 2017 Proxy Statement to be filed with the SEC is incorporated herein by reference. 79 Table of Contents ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATEDSTOCKHOLDERS MATTERSThe information presented under the headings “Beneficial Ownership of Our Common Stock” in our 2017 Proxy Statement to be filed with theSEC is incorporated herein by reference.The following table represents information as of December 31, 2016 with respect to equity compensation plans under which shares of theCompany’s common stock are authorized for issuance: Equity Compensation Plan Information PlanCategory Number ofsecuritiesto be issueduponexercise ofoutstandingoptions,Warrantsand Rights Weighted-averageexercise price ofoutstanding options,Warrants andrights Number ofsecuritiesremainingavailable forfutureissuanceunder equitycompensationplans(excludingsecuritiesreflected incolumn (a)) (a) (b) (c) Equity compensation plans approved bysecurity holders (1) — — 232,825 Total — — 232,825 (1)Represents our 2009 Equity Compensation which was approved by our stockholders on June 10, 2009. 80 Table of Contents Description of Amended and Restated 1999 Stock Option and Restricted Stock PlanOur 1999 Plan was adopted by our board of directors on November 3, 1999. The 1999 Plan provides for the grant of incentive stock options,within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended or the Internal Revenue Code, to our employees, and non-qualified stock options and restricted stock to our employees, directors, agents, advisors, independent consultants and contractors. Incentive stockoptions and non-qualified stock options are referred to as “stock options,” and together with restricted stock are referred to as “awards”. The 1999Plan expired on November 3, 2009 and as a result, no new awards may be made under the 1999 Plan. However, any outstanding awards at theexpiration shall remain in effect until the earlier of the exercise, termination or expiration of such outstanding awards. At December 31, 2016, therewere no outstanding options to purchase shares of common stock under the 1999 Plan.Number of shares of common stock available under the stock option plan. A total of 4,732,400 shares of common stock were reserved forissuance pursuant to the 1999 Plan. Shares covered by awards that are forfeited or terminated without exercise will be available for future awards.The shares of common stock issuable under the 1999 Plan shall be (1) authorized but unissued shares, (2) shares of common stock held in ourtreasury, or (3) a combination of (1) and (2).Administration of the stock option plan . The 1999 Plan is administered by our board of directors or a committee appointed by the board ofdirectors (the body in charge of administering the 1999 Plan is referred to as the “administrator”). If the common stock is registered underSection 12(b) or 12(g) of the Exchange Act, the board of directors shall consider in selecting the administrator and the membership of any committeeacting as administrator the provisions of Section 162(m) of the Internal Revenue Code regarding “outside directors” and the provisions of Rule 16b-3 under the Exchange Act regarding “non-employee directors.” The administrator determines the recipients of awards, times at which awards aregranted, number of shares subject to each type of award, the time for vesting of each award and the duration of the exercise period for options.Price, exercise and termination of awards . The exercise price for each share of common stock subject to an option is determined by theadministrator, and in the case of an incentive stock option the exercise price cannot be less than 100% of the fair market value of the shares ofcommon stock on the date of the grant (or 110% in the case of employees who directly or indirectly own more than 10% of the total combinedvoting power of all classes of our stock).Options are exercisable on their vesting date, which is determined by the administrator and set forth in the award agreement governing anyparticular option. Vesting dates can be accelerated on the occurrence of a specified event, as provided in an award agreement, or can be acceleratedat the discretion of the administrator.If a participant in the Stock Option Plan ceases to be employed or perform services for us, we have the right to repurchase any unvested sharesat the exercise price paid per share. The terms and procedures of a repurchase are to be set forth in the Award Agreement that governs the relevantunvested shares.If an option expires or is terminated or canceled without having been exercised it shall become null and void and of no further force and effect.The term of an option may not exceed beyond the tenth anniversary on which the option is granted (or the fifth anniversary in the case of incentivestock options granted to employees who directly or indirectly own 10% of the total combined voting power of all classes of our stock.) An optionterminates 30 days after a participant ceases to be an employee or director as a result of a termination without cause, and after 10 days of terminationin the case of a termination for cause. Cause includes the conviction of a crime involving fraud, theft, dishonesty or moral turpitude, the participant’scontinuous disregard of or willful misconduct in carrying lawful instructions of superiors, continued use of alcohol or drugs that interfered with theperformance of the participant’s duties, the conviction of participant for committing a felony or similar foreign crime, and any other cause fortermination set forth in a participant’s employment agreement. An option terminates 10 days after a participant ceases to be an independentconsultant, contractor or advisor to us or agent of ours for any reason. It also terminates three months after the death or permanent disability of aparticipant, or, if the participant is a party to an employment agreement, the disability of such participant as defined in the employment agreement.Other reasons for termination may be set out in the Award Agreement.An option will not be considered an incentive stock option to the extent that the aggregate fair market value (on the date of the grant of theincentive stock option) of all stock with respect to which incentive stock options are exercisable for the first time by a participant during anycalendar year is greater than $100,000. No option shall be affected by a change of duties or position of a participant (including transfer to oursubsidiaries) as long as the participant continues to be our employee or an employee of our subsidiaries.Adjustments upon the occurrence of material transactions . In the event we undergo dissolution or liquidation, a reorganization, merger orconsolidation in which we are not the surviving entity, or a sale of all or substantially all of our assets (each, a “Material Transaction”) holders ofoptions will be given 10-day prior written notice and will decide within those 10 days whether to exercise their respective options. Any option thatis not so exercised will terminate. However, such notice and exercise mechanism would not apply if provision is made in connection with a MaterialTransaction for assumption of outstanding options, or substitution of options for new options or equity securities, with any appropriate adjustmentsas to the number, kind and prices of shares subject to options. 81 Table of Contents Transferability . Unless the prior written consent of the administrator is obtained, no option can be assigned or otherwise transferred by anyparticipant except by will or by the laws of descent and distribution. Except in the case of an approved transfer, an option may be exercised duringthe lifetime of a participant only by the participant or his/her legal representative if the participant is legally disabled.Restricted stock . Restricted stock awards are awards of shares of common stock that vest according to the terms and conditions established bythe administrator. The administrator may impose whatever restrictions on transferability, risk of forfeiture and other restrictions as it determines. Aholder of restricted stock has the rights of a stockholder, including the right to vote the restricted stock. During the restricted period applicable to therestricted stock, it may not be sold, transferred, pledged, hypothecated, margined or otherwise encumbered. Except as otherwise determined by theadministrator, restricted stock that is subject to restrictions is subject to forfeiture upon termination of a participant’s employment.Amendment . Our board of directors may modify the 1999 Plan at any time. The approval by a majority of our stockholders is necessary ifrequired by law or necessary to comply with any applicable laws and regulations. No amendment will affect the terms of any award granted prior tothe effectiveness of such amendment, except with the consent of the holder of the award. ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCEThe information presented under the heading “Certain Relationships and Related Transactions” and “Information on Our Board of Directors andCorporate Governance” in our 2017 Proxy Statement to be filed with the SEC is incorporated herein by reference. ITEM 14.PRINCIPAL ACCOUNTANT FEES AND SERVICESThe information presented under the heading “Ratification of Independent Registered Public Accounting Firm” in our 2017 Proxy Statement to befiled with the SEC is incorporated herein by reference. 82 Table of Contents PART IV ITEM 15.EXHIBITS, FINANCIAL STATEMENT SCHEDULES (a)Financial Statements. The following financial statements are included in this report: Page Consolidated Financial Statements Report of Independent Registered Public Accounting Firm 2 Consolidated balance sheets as of December 31, 2016 and 2015 3 Consolidated statements of income for the years ended December 31, 2016, 2015 and 2014 4 Consolidated statements of comprehensive income for the years ended December 31, 2016,2015 and 2014 5 Consolidated statements of equity for the years ended December 31, 2016, 2015 and 2014 6 Consolidated statements of cash flows for the years ended December 31, 2016, 2015 and2014 8 Notes to consolidated financial statements10 (b)Exhibits. The exhibits required by Item 601 of Regulation S-K are listed below. ExhibitNumberExhibit Title 3.01Registrant’s Amended and Restated Certificate of Incorporation. (1) 3.02Registrant’s Amended and Restated Bylaws. (1) 4.01Form of Specimen Certificate for the Registrant’s Common Stock (3) 4.02Second Amended and Restated Registration Rights Agreement, dated September 24, 2001, by and among theRegistrant and the investors named therein. (1) 4.03Indenture with respect to the Registrant’s 2.25% Convertible Senior Notes due 2019, dated as of June 30, 2014,between the Registrant and Wilmington Trust, National Association, as trustee. (8) 10.01Form of Indemnity Agreement entered into by the Registrant with each of its directors and executive officers. (2) 10.02Concession Contract, dated as February 7, 2007, between Border’s Parking S.R.L. and MercadoLibre S.A. (1) 10.03Management Incentive Bonus Plan of the Registrant. (2) 10.04Employment Agreement with Officers. (2) 10.05Employment Agreement with Osvaldo Gimenez, dated as of March 26, 2008 (3) 10.06Property Lease Agreement, dated February 1, 2011, between MercadoLibre Colombia S.A and Mongiana Ltda*(4) 10.07Property Lease Agreement, dated July 6, 2010 between MercadoLivre.com Atividades de Internet Ltda. and STMSociedade Técnica de Montageus Ltda. (4) 83 Table of Contents 10.08Free Trade Zone Direct User Agreement Aguada Park (Item 5.A.), as amended, dated August 29, 2011, betweenMELI Uruguay S.R.L. and ITSEN S.A. dated May 21, 2012 and May 22, 2012 (5) 10.09Preliminary sales contract, as of May 8, 2013, by and among Mercadolibre S.R.L., Ribera Desarrollos S.A., Inc.S.A., Sociedad Anónima La Nación and Desarrolladora Urbana S.A. (6) 10.10Purchase Agreement, dated as of May 16, 2013, between MercadoLibre Venezuela SRL and Grupo Lods 299,Isalys, Bassben, Arturo Soria, Imas 2006, Miriru, Rurimi, Vivand 2006, Sgm Y 432511, S.N.C. (6) 10.11Memorandum of understanding, dated as of September 19, 2013, between MercadoLibre Venezuela SRL andLopco de Venezuela, C.A. (7) 10.12Base Call Option Transaction Confirmation, dated as of June 24, 2014, between MercadoLibre and JPMorganChase Bank, National Association, London Branch (9) 10.13Base Call Option Transaction Confirmation, dated as of June 24, 2014, between MercadoLibre and Bank ofAmerica, N.A. (10) 10.14Base Call Option Transaction Confirmation, dated as of June 24, 2014, between MercadoLibre and Citibank N.A.(11) 10.15Base Call Option Transaction Confirmation, dated as of June 24, 2014, between MercadoLibre and DeutscheBank AG, London Branch (12) 10.16Additional Call Option Transaction Confirmation, dated as of June 27, 2014, between MercadoLibre andJPMorgan Chase Bank, National Association, London Branch (13) 10.17Additional Call Option Transaction Confirmation, dated as of June 27, 2014, between MercadoLibre and Bank ofAmerica, N.A. (14) 10.18Additional Call Option Transaction Confirmation, dated as of June 27, 2014, between MercadoLibre and CitibankN.A. (15) 10.19Additional Call Option Transaction Confirmation, dated as of June 27, 2014, between MercadoLibre andDeutsche Bank AG, London Branch (16) 10.20Purchase Agreement, dated as of June 24, 2014, by and among the Company, and Goldman, Sachs & Co.,Deutsche Bank Securities Inc. and J.P. Morgan Securities LLC, as representatives of the several initial purchasersnamed therein (17) 10.21Amended and Restated 2009 Long-Term Retention Plan (18) 10.22Amended and Restated 2010 Long-Term Retention Plan (18) 10.23Amended and Restated 2011 Long-Term Retention Plan (18) 10.24Amended and Restated 2012 Long-Term Retention Plan (18) 10.25Amended and Restated 2013 Long-Term Retention Plan (18) 84 Table of Contents 10.26Amended and Restated 2014 Long-Term Retention Plan (18) 10.27Amanded and Restated 2015 Long-Term Retention Plan (18) 10.282016 Long-Term Retention Plan (18)10.29MercadoLibre Inc. 2016 Director Compensation Program (18) 21.01List of Subsidiaries* 23.01Consent of Deloitte & Co. S.A., Independent Registered Public Accounting Firm on Form S-8*23.02Consent of Deloitte & Co. S.A., Independent Registered Public Accounting Firm on Form S-3* 31.01Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14, as adopted pursuant toSection 302 of the Sarbanes-Oxley Act of 2002. * 31.02Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14, as adopted pursuant toSection 302 of the Sarbanes-Oxley Act of 2002. * 32.01Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 ofthe Sarbanes-Oxley Act of 2002. ** 32.02Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 ofthe Sarbanes-Oxley Act of 2002. **101.INSXBRL Instance Document*101.SCHXBRL Taxonomy Extension Schema Document*101.CALXBRL Taxonomy Extension Calculation Linkbase Document*101.LABXBRL Taxonomy Extension Label Linkbase Document*101.PREXBRL Taxonomy Extension Presentation Linkbase Document*101.DEFXBRL Taxonomy Extension Definition Linkbase Document**Filed Herewith**Furnished Herewith(1)Incorporated by reference to the Company´s Registration Statement on Form S-1 filed on May 11, 2007(2)Incorporated by reference to Amendment No. 1 to the Company´s Registration Statement on Form S-1 filed onJuly 13, 2007(3)Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2008filed on February 27, 2009(4)Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2010filed on February 25, 2011(5)Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012filed on August 3, 2012(6)Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2013filed on August 7, 2013(7)Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30,2013 filed on November 8, 2013 85 Table of Contents (8)Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on June 30, 2014(9)Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 30, 2014(10)Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on June 30, 2014(11)Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on June 30, 2014(12)Incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on June 30, 2014(13)Incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on June 30, 2014(14)Incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed on June 30, 2014(15)Incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K filed on June 30, 2014(16)Incorporated by reference to Exhibit 10.8 to the Company’s Current Report on Form 8-K filed on June 30, 2014(17)Incorporated by reference to Exhibit 1.1 to the Company’s Current Report on Form 8-K filed on June 30, 2014(18)Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2016filed on August 5, 2016ITEM 16. FORM 10-K SUMMARYNone. 86 Table of Contents SIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused thisreport to be signed on its behalf by the undersigned, thereunto duly authorized. MERCADOLIBRE, INC. By: /s/ Marcos Galperin Marcos Galperin Chief Executive Officer Date: February 24, 2017Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following personson behalf of the Registrant and in the capacities and on the dates indicated. Signature Title Date/s/ Marcos GalperinMarcos Galperin Chief Executive Officer and Director (Principal ExecutiveOfficer) February 24, 2017 /s/ Pedro ArntPedro Arnt Chief Financial Officer (Principal Financial Officer and PrincipalAccounting Officer) February 24, 2017 /s/ Mario VazquezMario Vazquez Director February 24, 2017 /s/ Susan SegalSusan Segal Director February 24, 2017 /s/ Michael SpenceMichael Spence Director February 24, 2017 /s/ Nicolás AguzinNicolás Aguzin Director February 24, 2017 /s/ Nicolás GalperinNicolás Galperin Director February 24, 2017 /s/ Emiliano CalemzukEmiliano Calemzuk Director February 24, 2017 /s/ Meyer MalkaMeyer Malka Director February 24, 2017 /s/ Javier OlivanJavier Olivan Director February 24, 2017/s/ Roberto Balls SalloutiRoberto Balls Sallouti Director February 24, 2017 87 Table of Contents EXHIBIT INDEXExhibitNumberExhibit Title 3.01Registrant’s Amended and Restated Certificate of Incorporation. (1) 3.02Registrant’s Amended and Restated Bylaws. (1) 4.01Form of Specimen Certificate for the Registrant’s Common Stock (3) 4.02Second Amended and Restated Registration Rights Agreement, dated September 24, 2001, by and among theRegistrant and the investors named therein. (1) 4.03Indenture with respect to the Registrant’s 2.25% Convertible Senior Notes due 2019, dated as of June 30, 2014,between the Registrant and Wilmington Trust, National Association, as trustee. (8) 10.01Form of Indemnity Agreement entered into by the Registrant with each of its directors and executive officers. (2) 10.02Concession Contract, dated as February 7, 2007, between Border’s Parking S.R.L. and MercadoLibre S.A. (1) 10.03Management Incentive Bonus Plan of the Registrant. (2) 10.04Form of Employment Agreements with Officers. (2) 10.05Employment Agreement with Osvaldo Gimenez, dated as of March 26, 2008 (3) 10.06Property Lease Agreement, dated February 1, 2011, between MercadoLibre Colombia S.A and Mongiana Ltda*(4) 10.07Property Lease Agreement, dated July 6, 2010 between MercadoLivre.com Atividades de Internet Ltda. and STMSociedade Técnica de Montageus Ltda. (4) 10.08Free Trade Zone Direct User Agreement Aguada Park (Item 5.A.), as amended, dated August 29, 2011, betweenMELI Uruguay S.R.L. and ITSEN S.A. dated May 21, 2012 and May 22, 2012 (5) 10.09Preliminary sales contract, as of May 8, 2013, by and among Mercadolibre S.R.L., Ribera Desarrollos S.A., Inc.S.A., Sociedad Anónima La Nación and Desarrolladora Urbana S.A. (6) 10.10Purchase Agreement, dated as of May 16, 2013, between MercadoLibre Venezuela SRL and Grupo Lods 299,Isalys, Bassben, Arturo Soria, Imas 2006, Miriru, Rurimi, Vivand 2006, Sgm Y 432511, S.N.C. (6) 10.11Memorandum of understanding, dated as of September 19, 2013, between MercadoLibre Venezuela SRL andLopco de Venezuela, C.A. (7) 10.12Base Call Option Transaction Confirmation, dated as of June 24, 2014, between MercadoLibre and JPMorganChase Bank, National Association, London Branch (9) 10.13Base Call Option Transaction Confirmation, dated as of June 24, 2014, between MercadoLibre and Bank ofAmerica, N.A. (10) 10.14Base Call Option Transaction Confirmation, dated as of June 24, 2014, between MercadoLibre and Citibank N.A.(11) 88 Table of Contents 10.15Base Call Option Transaction Confirmation, dated as of June 24, 2014, between MercadoLibre and DeutscheBank AG, London Branch (12) 10.16Additional Call Option Transaction Confirmation, dated as of June 27, 2014, between MercadoLibre andJPMorgan Chase Bank, National Association, London Branch (13) 10.17Additional Call Option Transaction Confirmation, dated as of June 27, 2014, between MercadoLibre and Bank ofAmerica, N.A. (14) 10.18Additional Call Option Transaction Confirmation, dated as of June 27, 2014, between MercadoLibre and CitibankN.A. (15) 10.19Additional Call Option Transaction Confirmation, dated as of June 27, 2014, between MercadoLibre andDeutsche Bank AG, London Branch (16) 10.20Purchase Agreement, dated as of June 24, 2014, by and among the Company, and Goldman, Sachs & Co.,Deutsche Bank Securities Inc. and J.P. Morgan Securities LLC, as representatives of the several initial purchasersnamed therein (17) 10.21Amended and Restated 2009 Long-Term Retention Plan (18) 10.22Amended and Restated 2010 Long-Term Retention Plan (18) 10.23Amended and Restated 2011 Long-Term Retention Plan (18) 10.24Amended and Restated 2012 Long-Term Retention Plan (18) 10.25Amended and Restated 2013 Long-Term Retention Plan (18) 10.26Amended and Restated 2014 Long-Term Retention Plan (18) 10.27Amended and Restated 2015 Long-Term Retention Plan (18)10.282016 Long-Term Retention Plan (18)10.29MercadoLibre Inc. 2016 Director Compensation Program (18) 21.01List of Subsidiaries* 23.01Consent of Deloitte & Co. S.A., Independent Registered Public Accounting Firm on Form S-8*23.02Consent of Deloitte & Co. S.A., Independent Registered Public Accounting Firm on Form S-3* 31.01Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14, as adopted pursuant toSection 302 of the Sarbanes-Oxley Act of 2002. * 31.02Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14, as adopted pursuant toSection 302 of the Sarbanes-Oxley Act of 2002. * 32.01Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 ofthe Sarbanes-Oxley Act of 2002. ** 32.02Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 ofthe Sarbanes-Oxley Act of 2002. ** 89 Table of Contents 101.INSXBRL Instance Document*101.SCHXBRL Taxonomy Extension Schema Document*101.CALXBRL Taxonomy Extension Calculation Linkbase Document*101.LABXBRL Taxonomy Extension Label Linkbase Document*101.PREXBRL Taxonomy Extension Presentation Linkbase Document*101.DEFXBRL Taxonomy Extension Definition Linkbase Document**Filed Herewith**Furnished Herewith(1)Incorporated by reference to the Registration Statement on Form S-1 of MercadoLibre, Inc. filed on May 11, 2007(2)Incorporated by reference to Amendment No. 1 to the Registration Statement on Form S-1 of MercadoLibre, Inc.filed on July 13, 2007(3)Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2008filed on February 27, 2009(4)Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2010filed on February 25, 2011(5)Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012filed on August 3, 2012(6)Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2013filed on August 7, 2013(7)Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30,2013 filed on November 8, 2013(8)Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on June 30, 2014(9)Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 30, 2014(10)Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on June 30, 2014(11)Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on June 30, 2014(12)Incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on June 30, 2014(13)Incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on June 30, 2014(14)Incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed on June 30, 2014(15)Incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K filed on June 30, 2014(16)Incorporated by reference to Exhibit 10.8 to the Company’s Current Report on Form 8-K filed on June 30, 2014(17)Incorporated by reference to Exhibit 1.1 to the Company’s Current Report on Form 8-K filed on June 30, 2014(18)Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2016filed on August 5, 2016 90 Table of Contents MercadoLibre, Inc.Consolidated Financial Statementsas of December 31, 2016 and 2015and for the three years in the periodended December 31, 2016 1 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors andShareholders of MercadoLibre, Inc.City of Buenos Aires, ArgentinaWe have audited the accompanying consolidated balance sheets of MercadoLibre, Inc. and its subsidiaries (the "Company") as of December 31,2016 and 2015, and the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the three years in theperiod ended December 31, 2016. We also have audited the Company's internal control over financial reporting as of December 31, 2016, based onthe criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the TreadwayCommission (COSO). The Company's Management is responsible for these consolidated financial statements, for maintaining effective internalcontrol over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanyingManagement’s Report on Internal Control over Financial Reporting (Item 9A). Our responsibility is to express an opinion on these consolidatedfinancial statements and an opinion on the Company's internal control over financial reporting based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standardsrequire that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatementand whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statementsincluded examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accountingprinciples used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internalcontrol over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a materialweakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits alsoincluded performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basisfor our opinions.A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive andprincipal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and otherpersonnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policiesand procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositionsof the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financialstatements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only inaccordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timelydetection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper managementoverride of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of anyevaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may becomeinadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of MercadoLibre,Inc. and its subsidiaries as of December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the three years in theperiod ended December 31, 2016, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion,the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on the criteriaestablished in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission(COSO).City of Buenos Aires, ArgentinaFebruary 21, 2017DELOITTE & Co. S.A.Diego O. De Vivo Partner 2 Table of Contents MercadoLibre, Inc.Consolidated Balance SheetsAs of December 31, 2016 and 2015(In thousands of U.S. dollars, except par value)December 31,December 31,20162015AssetsCurrent assets:Cash and cash equivalents$ 234,140 $ 166,881Short-term investments253,321 202,112 Accounts receivable, net25,435 28,428 Credit cards receivable, net307,904 131,946 Loans receivable, net6,283 —Prepaid expenses15,060 6,007 Inventory1,103 222 Other assets26,215 9,577 Total current assets869,461 545,173 Non-current assets:Long-term investments153,803 187,621 Property and equipment, net124,261 81,633 Goodwill91,797 86,545 Intangible assets, net26,277 28,991 Deferred tax assets45,017 29,688 Other assets56,819 43,955 Total non-current assets497,974 458,433 Total assets$ 1,367,435$ 1,003,606Liabilities and EquityCurrent liabilities:Accounts payable and accrued expenses$ 105,106$ 62,038Funds payable to customers370,693 203,247 Salaries and social security payable48,898 32,918 Taxes payable27,338 10,092 Loans payable and other financial liabilities11,583 1,965 Other liabilities6,359 7,667 Dividends payable6,624 4,548 Total current liabilities576,601 322,475 Non-current liabilities:Salaries and social security payable16,173 10,422 Loans payable and other financial liabilities301,940 294,342 Deferred tax liabilities34,059 27,049 Other liabilities9,808 9,860 Total non-current liabilities361,980 341,673 Total liabilities$ 938,581$ 664,148Equity:Common stock, $0.001 par value, 110,000,000 shares authorized,44,157,364 and 44,156,854 shares issued and outstanding at December 31,2016 and December 31, 2015, respectively$44 $44 Additional paid-in capital137,982 137,923 Retained earnings550,641 440,770 Accumulated other comprehensive loss(259,813)(239,279)Total Equity428,854 339,458 Total Liabilities and Equity$ 1,367,435$ 1,003,606The accompanying notes are an integral part of these consolidated financial statements. 3 Table of Contents MercadoLibre, Inc.Consolidated Statements of IncomeFor the years ended December 31, 2016, 2015 and 2014(In thousands of U.S. dollars, except for share data) Year Ended December 31,201620152014Net revenues$ 844,396$ 651,790$ 556,536Cost of net revenues(307,538)(214,994)(158,978)Gross profit536,858 436,796 397,558 Operating expenses:Product and technology development(98,479)(76,423)(53,600)Sales and marketing(156,296)(128,609)(111,627)General and administrative(87,310)(76,342)(62,364)Impairment of Long-Lived Assets(13,717)(16,226)(49,496)Total operating expenses(355,802)(297,600)(277,087)Income from operations181,056 139,196 120,471 Other income (expenses):Interest income and other financial gains35,442 20,561 15,336 Interest expense and other financial losses(25,605)(20,391)(11,659)Foreign currency (losses) gains(5,565)11,125 (2,352)Net income before income tax expense185,328 150,491 121,796 Income tax expense(48,962)(44,702)(49,143)Net income$ 136,366$ 105,789$ 72,653Less: Net Income attributable to Redeemable Noncontrolling Interest — —72 Net income attributable to MercadoLibre, Inc. shareholders$ 136,366$ 105,789$ 72,581 Year Ended December 31,201620152014Basic EPSBasic net income attributable to MercadoLibre, Inc.Shareholders per common share$ 3.09$ 2.40$ 1.63Weighted average of outstanding common shares44,157,251 44,155,680 44,153,884 Diluted EPSDiluted net income attributable to MercadoLibre, Inc.Shareholders per common share$ 3.09$ 2.40$ 1.63Weighted average of outstanding common shares44,157,251 44,155,680 44,153,884 Cash Dividends declared0.600 0.412 0.664 The accompanying notes are an integral part of these consolidated financial statements. 4 Table of Contents MercadoLibre, Inc.Consolidated Statements of Comprehensive IncomeFor the years ended December 31, 2016, 2015 and 2014(In thousands of U.S. dollars)Year Ended December 31,201620152014Net income$ 136,366$ 105,789$ 72,653Other comprehensive loss, net of income tax:Currency translation adjustment(20,619)(103,912)(47,214)Unrealized net losses on available for sale investments(587)(672)(379)Less: Reclassification adjustment for (losses) gains on available for saleinvestments included in net income(672)(379)25 Net change in accumulated other comprehensive loss, net of income tax(20,534)(104,205)(47,618)Total Comprehensive Income$ 115,832$ 1,584$ 25,035Less: Comprehensive loss attributable to Redeemable Noncontrolling Interest — —(332)Comprehensive Income attributable to MercadoLibre, Inc. Shareholders$ 115,832$ 1,584$ 25,367The accompanying notes are an integral part of these consolidated financial statements. 5 Table of Contents MercadoLibre, Inc.Consolidated Statement of EquityFor the years ended December 31, 2016, 2015 and 2014(In thousands of U.S. dollars) AccumulatedAdditionalotherCommon stockpaid-inTreasuryRetainedcomprehensiveTotalSharesAmountcapitalStockEarningslossEquityBalance as of December 31, 201344,154 $ 44 $ 121,562 $ (1,012) $ 310,345 $ (87,456) $ 343,483 Stock-based compensation1 —118 — — —118 Dividend distribution — — — —(29,318) —(29,318)LTRP shares issued21 —1,930 — — —1,930 Common Stock repurchased(21) —(2,956)1,012 — —(1,944)Convertible Notes - Equity component — —29,775 — — —29,775 Capped Call — —(12,784) — — —(12,784)Change in redeemable amount of noncontrolling interest — — — —(435) —(435)Net income — — — —72,581 —72,581 Other comprehensive loss — — — — —(47,618)(47,618)Balance as of December 31, 201444,155 $ 44 $ 137,645 $ — $ 353,173 $ (135,074)$ 355,788 Stock-based compensation2 —279 — — —279 Dividend distribution — — — —(18,192) —(18,192)LTRP shares issued19 19 2,713 — — —2,732 Common Stock repurchased(19)(19)(2,714) — — —(2,733)Net income — — — —105,789 —105,789 Other comprehensive loss — — — — —(104,205)(104,205)Balance as of December 31, 201544,157 $ 44 $ 137,923 $ — $ 440,770 $ (239,279)$ 339,458 The accompanying notes are an integral part of these consolidated financial statements. 6 Table of Contents MercadoLibre, Inc.Consolidated Statement of EquityFor the years ended December 31, 2016, 2015 and 2014(In thousands of U.S. dollars) AccumulatedAdditionalotherCommon stockpaid-inTreasuryRetainedcomprehensiveTotalSharesAmountcapitalStockEarningslossEquityBalance as of December 31, 201544,157 $ 44 $ 137,923 $ — $ 440,770 $ (239,279)$ 339,458 Stock-based compensation — —56 — — —56 Dividend distribution — — — —(26,495) —(26,495)Exercise of convertible notes — —3 — — —3 Net income — — — —136,366 —136,366 Other comprehensive loss — — — — —(20,534)(20,534)Balance as of December 31, 201644,157 $ 44 $ 137,982 $ — $ 550,641 $ (259,813)$ 428,854 The accompanying notes are an integral part of these consolidated financial statements. 7 Table of Contents MercadoLibre, Inc.Consolidated Statement of Cash FlowsFor the years ended December 31, 2016, 2015 and 2014(In thousands of U.S. dollars) Year Ended December 31,201620152014Cash flows from operations:Net income attributable to MercadoLibre, Inc. Shareholders$ 136,366$ 105,789$ 72,581Adjustments to reconcile net income to net cash provided by operatingactivities:Net income attributable to Redeemable Noncontrolling Interest — —72 Unrealized Devaluation Loss, net4,967 14,717 13,808 Impairment of Long-Lived Assets13,717 16,226 49,496 Depreciation and amortization29,022 23,209 16,947 Accrued interest(17,794)(12,783)(9,029)Non cash interest and convertible bonds amortization of debt discount andamortization of debt issuance costs9,837 17,272 7,874 LTRP accrued compensation22,983 10,213 11,852 Deferred income taxes(6,188)4,354 (20,237)Changes in assets and liabilities:Accounts receivable (15,428)(36,476)(36,120)Credit cards receivable(180,592)(109,139)(45,521)Prepaid expenses(9,133)(3,907)(157)Inventory(787)(237) —Other assets(24,425)(2,340)(5,982)Accounts payable and accrued expenses47,980 63,668 68,780 Funds payable to customers164,060 119,353 61,072 Other liabilities(45)1,765 1,675 Interest received from investments15,719 9,686 9,682 Net cash provided by operating activities190,259 221,370 196,793 Cash flows from investing activities:Purchase of investments(3,501,283)(1,949,769)(2,577,130)Proceeds from sale and maturity of investments3,508,293 1,875,516 2,330,836 Payment for acquired businesses, net of cash acquired(7,284)(45,009)(36,814)Payment of remaining amount from business acquisition — —(4,000)Purchases of intangible assets(431)(1,746)(857)Changes in principal loans receivable, net(6,599) — —Advance for property and equipment(8,412)(23,380) —Purchases of property and equipment(68,527)(39,150)(34,426)Net cash used in investing activities(84,243)(183,538)(322,391)Cash flows from financing activities:Funds received from the issuance of convertible notes — —330,000 Transaction costs from the issuance of convertible notes — —(8,084)Purchase of convertible note capped call — —(19,668)Proceeds from loans payable and other financial liabilities11,435 5,033 —Payments on loans payable and other financing(6,684)(9,059)(7,704)Dividends paid(24,419)(20,974)(28,303)Repurchase of Common Stock —(2,714)(1,944)Net cash (used in) provided by financing activities(19,668)(27,714)264,297 Effect of exchange rate changes on cash and cash equivalents(19,089)(66,381)(55,840)Net increase (decrease) in cash and cash equivalents67,259 (56,263)82,859 Cash and cash equivalents, beginning of the year166,881 223,144 140,285 Cash and cash equivalents, end of the year$ 234,140$ 166,881$ 223,144The accompanying notes are an integral part of these consolidated financial statements. 8 Table of Contents MercadoLibre, Inc.Consolidated Statement of Cash FlowsFor the years ended December 31, 2016, 2015 and 2014(In thousands of U.S. dollars) Year Ended December 31,201620152014Supplemental cash flow information:Cash paid for interest$ 8,059$ 7,977$ 4,751Cash paid for income and asset taxes$ 74,008$ 65,550$ 67,662Non-cash financing activities:Stock based compensation$ 56$ 279$ 118LTRP shares issued$ —$ 2,713$ 1,930Exercise of convertible notes$ 3$ —$ —Non-cash investing activities:Contingent considerations and escrows from acquired business$ 1,215$6,841 $ 5,807Acquisition of business2016 (1)2015 (2)2014Cash and cash equivalents$ 93$ 752$ 1,102Accounts receivable609 1,039 5,932 Tax credits21 179 814 Other current assets224 50 19 Non current assets — —236 Fixed Assets71 238 564 Total assets acquired1,018 2,258 8,667 Accounts payable and accrued expenses434 381 4,372 Financial liabilities — —2,160 Taxes payable — —71 Payroll and social security payable — —527 Other liabilities389 727 —Total liabilities assumed823 1,108 7,130 Net assets acquired195 1,150 1,537 Goodwill, Identifiable Intangible Assets and deferred tax liabilities6,874 34,297 21,193 Trademarks251 4,568 7,577 Customer lists676 7,062 10,989 Software282 4,791 447 Non Solicitation Agreement314 734 1,015 Total purchase price8,592 52,602 42,758 Cash and cash equivalents acquired93 752 1,102 Payment for acquired businesses, net of cash acquired$ 8,499$ 51,850$ 41,656(1) Related to the acquisition of software development companies in Brazil and in Argentina – See Note 6.(2) Related to the acquisition of a software development company in Brazil and an online classified advertisement company in Mexico - See Note 6. The accompanying notes are an integral part of these consolidated financial statements. 9 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 1.Nature of BusinessMercadoLibre, Inc. (“MercadoLibre” or the “Company”) was incorporated in the state of Delaware, in the United States of America in October1999. MercadoLibre is the leading ecommerce company in Latin America, serving as an integrated regional platform and as an enabler of thenecessary online and technology tools to allow businesses and individuals to trade products and services in the region. The Company enablescommerce through its marketplace platform (including online classifieds for motor vehicles, vessels, aircraft, services and real estate), whichallows users to buy and sell in most of Latin America. Through MercadoPago, MercadoLibre enables individuals and businesses to send and receive online payments; through MercadoEnvios,MercadoLibre facilitates the shipping of goods from sellers to buyers; through our Advertising products, MercadoLibre facilitates advertisingservices to large retailers and brands to promote their product and services on the web; and through MercadoShops, MercadoLibre facilitatesusers to set-up, manage, and promote their own on-line web-stores under a subscription-based business model and through MercadoCreditsextends loans to specific merchants. In addition, MercadoLibre develops and sells software enterprise solutions to e-commerce business clientsin Brazil.As of December 31, 2016, MercadoLibre, through its wholly-owned subsidiaries, operated online ecommerce platforms directed towardsArgentina, Brazil, Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, Peru, Mexico, Panama, Honduras, Nicaragua, Salvador,Portugal, Uruguay, Bolivia, Guatemala, Paraguay and Venezuela. Additionally, MercadoLibre operates an online payments solution directedtowards Argentina, Brazil, Mexico, Venezuela, Colombia, Chile, Peru and Uruguay. It also offers a shipping solution directed towardsArgentina, Brazil, Mexico, Colombia and Chile. In addition, the Company operates a real estate classified platform that covers some areas ofState of Florida, in the United States of America. 2.Summary of significant accounting policiesPrinciples of consolidationThe accompanying consolidated financial statements are prepared in conformity with accounting principles generally accepted in the UnitedStates of America (U.S. GAAP) and include the accounts of the Company and its wholly-owned subsidiaries. Ownership interests of minorityinterests are recorded as noncontrolling interest. These consolidated financial statements are stated in U.S. dollars. Intercompany transactionsand balances have been eliminated for consolidation purposes.Substantially all net revenues, cost of net revenues and operating expenses, are generated in the Company’s foreign operations, amountingto 99.9%, 99.8% and 99.7% of the consolidated amounts during 2016, 2015 and 2014, respectively. Long-lived assets, intangible assets andGoodwill located in the foreign operations totaled $232,314 thousands and $184,178 thousands as of December 31, 2016 and 2015,respectively.Cash and cash equivalents, short-term and long-term investments, amounted to $641,264 thousands and $556,614 thousands as ofDecember 31, 2016 and 2015, respectively. As of December 31, 2016 those assets are located 56% in the United States of America and 44% inforeign locations, mainly in Brazil and Argentina. As of December 31, 2015 those assets are located 69% in the United States of America and31% in foreign locations, mainly in Brazil, Argentina and Venezuela.Use of estimatesThe preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptionsthat affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statementsand the reported amounts of revenues and expenses during the reporting period. Estimates are used for, but not limited to accounting forallowance for doubtful accounts and chargeback provisions, recoverability of goodwill and intangible assets with indefinite useful lives,impairment of short-term and long-term investments, impairment of long-lived assets, compensation costs relating to the Company’s long termretention plan, fair value of convertible debt, fair value of investments, recognition of income taxes and contingencies. Actual results coulddiffer from those estimates.Cash and cash equivalentsThe Company considers all highly liquid investments with an original maturity of three months or less when purchased, consisting primarily ofmoney market funds and certificates of deposit, to be cash equivalents. 10 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 2.Summary of significant accounting policies (continued)InvestmentsTime deposits are valued at amortized cost plus accrued interest. Debt securities classified as available-for-sale are recorded at fair value.Unrealized gains and losses on available-for-sale securities are reported as a component of other comprehensive (loss), net of the related taxprovisions or benefits.Investments are classified as current or non-current depending on their maturity dates and when it is expected to be converted into cash.The Company assesses whether an other-than-temporary impairment loss on its investments has occurred due to declines in fair value or othermarket conditions. With respect to debt securities, this assessment takes into account the intent to sell the security, whether it is more likelythan not that the Company will be required to sell the security before recovery of its amortized cost basis, and if the Company does not expectto recover the entire amortized cost basis of the security (that is, a credit loss exists). The Company did not recognize any other-than-temporaryimpairment on the investments in 2016, 2015 or 2014.Money market funds, corporate and sovereign debt securities and certain certificates of deposits are valued at fair value. See Note 8 “Fair ValueMeasurement of Assets and Liabilities” for further details.Credit cards receivables and funds payable to customersCredit cards receivables mainly relate to the Company’s payments solution and arise due to the time taken to clear transactions throughexternal payment networks or during the period of time until those credit cards receivables are sold to financial institutions.Credit cards receivables are presented net of the related provision for chargebacks. As of December 31, 2016 and 2015, there are no materialpast due credit cards receivables.Funds payable to customers relate also to the Company’s payments solution and are originated by the amounts due to sellers held by theCompany until the transaction is completed. Funds, net of any amount due to the Company by the seller, are maintained in the seller’s currentaccount until collection is requested by the customer.Loans receivable, netLoans receivable represents loans granted to certain merchants through the Company’s MercadoCredito solution, which was launched inArgentina in the fourth quarter of 2016. As of December 31, 2016, the Company extended approximately $10,311 thousands in credit tomerchants, of which $6,283 thousands were outstanding. Loans granted under the MercadoCredito solution were funded with domestic cashresources.Loans receivable are reported at their outstanding principal balances, net of allowances and estimated collectible interest. Loans receivable arepresented net of the allowance for uncollectible accounts, which represent management’s best estimate of probable incurred losses inherent inthe Company’s portfolio of loans receivable. Allowances are based upon several factors including, but not limited to, historical experience andthe current aging of customers. As of December 31, 2016, the allowance for uncollectible accounts amounted to $110 thousands.Through the Company’s MercadoCredito solution, merchants can borrow a certain percentage of their monthly sales volume (up to two monthsof sales) and are charged with a fixed interest rate based on the overall credit assessment of the merchant. Merchant credits are repaid in aperiod ranging between 3 and 12 months. As of December 31, 2016, $61 thousands loans receivable were past due over 30 days, representing a1.0% of outstanding loans receivable as of that date.The Company closely monitors credit quality for all loans receivable on a recurring basis. To assess a merchant seeking a loan under theMercadoCredito solution, the Company uses, among other indicators, a risk model internally developed, as a credit quality indicator to helppredict the merchant's ability to repay the principal balance and interest related to the credit. The risk model uses multiple variables aspredictors of the merchant's ability to repay the credit, including external and internal indicators. Internal indicators consider merchant'sannual sales volume, claims history, prior repayment history, and other measures. Based on internal scoring, merchants are rated from A (Prime)to F (Upper medium grade). In addition, the Company considers external bureau information to enhance the scoring model and the decisionmaking process. The internal rating and the bureau credit score are combined in a risk matrix, which is also used to price the loans based on therisk profile in each cell. As of December 31, 2016, the Company’s MercadoCredito solution was granted only to the most loyal merchants withthe best reputation on the site. 11 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 2.Summary of significant accounting policies (continued)Transfer of financial assetsThe Company may sell credit cards coupons to financial institutions, included within “Credit cards receivables”. These transactions areaccounted for as a true sale. Accounting guidance on transfer of financial assets establishes that the transferor has surrendered control overtransferred assets if and only if all of the following conditions are met: (1) the transferred assets have been isolated from the transferor, (2) eachtransferee has the right to pledge or exchange the assets it received and (3) the transferor does not maintain effective control over thetransferred assets. When all the conditions are met, the Company derecognizes the corresponding financial asset from its balance sheet. As ofDecember 31, 2016 and 2015, there is no continuing involvement with transferred financial assets. Addittionaly, the Company may discountcredit card cupons with financial institutions, included within “Credit card receivables”. The aggregate gain included in net revenues arisingfrom these financing transactions, net of the costs recognized on sale or discount of credit card coupons is $119,779 thousands, $96,345thousands and $71,409 thousands, for the years ended December 31, 2016, 2015 and 2014, respectively.Concentration of credit riskCash and cash equivalents, short-term and long-term investments, credit card receivables, accounts receivable and loans receivable arepotentially subject to concentration of credit risk. Cash and cash equivalents and investments are placed with financial institutions thatmanagement believes are of high credit quality. Accounts receivable are derived from revenue earned from customers located internationally.Accounts receivable balances are settled through customer credit cards, debit cards, and MercadoPago accounts, with the majority of accountsreceivable collected upon processing of credit card transactions. Loans receivable are granted to several loyal merchants with the bestreputation on the site. The Company maintains an allowance for doubtful accounts and credit cards receivables based upon its historicalexperience and current aging of customers. Historically, such charges have been within management expectations. However, unexpected orsignificant future changes in trends could result in a material impact to future statements of income or cash flows. Due to the relatively smalldollar amount of individual accounts receivable, the Company generally does not require collateral on these balances. The allowance fordoubtful accounts is recorded as a charge to sales and marketing expense.During the years ended December 31, 2016, 2015 and 2014, no single customer accounted for more than 5% of net revenues. As ofDecember 31, 2016 and 2015, no single customer, except for high credit quality credit card processing companies, accounted for more than5% of accounts receivables.Allowances for doubtful accountsThe Company maintains allowances for doubtful accounts, for management’s estimate of probable losses that may result if customers do notmake the required payments. Allowances are based upon several factors including, but not limited to, historical experience and the currentaging of customers. The Company writes-off accounts receivable when the customer balance becomes 180 days past due.Provision for chargebacksThe Company is exposed to losses due to credit card fraud and other payment misuse. Provisions for these items represent our estimate ofactual losses based on our historical experience, as well as economic conditions.InventoryInventory, consisting of points of sale (“POS”) devices available for sale, are accounted for using the first-in first-out (“FIFO”) method, and arevalued at the lower of cost or market value. Property and equipment, netProperty and equipment are recorded at their acquisition cost and depreciated over their estimated useful lives using the straight-line method.Repair and maintenance costs are expensed as incurred.Costs related to the planning and post implementation phases of website development are recorded as an operating expense. Direct costsincurred in the development phase of website are capitalized and amortized using the straight-line method over an estimated useful life of threeyears. During 2016 and 2015, the Company capitalized $20,738 thousands and $14,554 thousands, respectively.During 2015, the Company through its Venezuelan subsidiary acquired five offices in process of construction, in Caracas, Venezuela for a totalpurchase price of $23.4 million, for investment purposes and included in non-current other assets. 12 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 2.Summary of significant accounting policies (continued)Property and equipment, net (continued) During April 2016, the Company through its Venezuelan subsidiaray acquired commercial properties in process of construction for a total of135.81 square meters, in Caracas, Venezuela for a total purchase price of $3.7 million, for investment purposes and included in non-currentother assets.Furthermore, in August 2016, the Company through its Argentine subsidiary acquired 6,057 square meters and 50 parking spaces, in an officebuilding in process of construction located in Buenos Aires, for a total amount of $31.4 million, plus VAT. In connection with this acquisition,in February 2017, the Company obtained a preliminary approval that allows the Company to defer during a 2-year period payments of sales taxup to the amounts disbursed for the building. These deferred payments will be extinguished (i.e. as tax reliefs) upon receiving definitiveapproval from the City of Buenos Aires government within that 2-year period.Those buildings, excluding lands, are depreciated from the date when they are ready to be used, using the straight-line depreciation methodover a 50-year depreciable life. Goodwill and intangible assetsGoodwill represents the excess of the purchase price over the fair value of the net assets acquired in a business combination.Intangible assets consist of customer lists, trademarks, licenses, software, non-solicitation and non-compete agreements acquired in businesscombinations and valued at fair value at the acquisition date. Intangible assets with definite useful life are amortized over the period ofestimated benefit to be generated by those assets and using the straight-line method; their estimated useful lives ranges from three to ten years.Trademarks with indefinite useful life are not subject to amortization, but are subject to an annual impairment test, by comparing their carryingamount with their corresponding fair value. For any given intangible asset with indefinite useful life, if its fair value exceeds its carryingamount no impairment loss shall be recognized.Impairment of long-lived assetsThe Company reviews long-lived assets for impairments whenever events or changes in circumstances indicate that the carrying value of anasset may not be recoverable. Recoverability of assets to be held and used is measured by a comparing the carrying amount of an asset to theundiscounted future net cash flows expected to be generated by the asset. If such asset is considered to be impaired on this basis, theimpairment loss to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of such asset.As explained in the section “Foreign Currency Translation” of the present Note to these consolidated financial statements, the Company hasaccessed to more unfavorable exchange markets in Venezuela as from December 2013.Considering the changes in facts and circumstances in the exchange markets in Venezuela and the lower U.S. dollar-equivalent cash flowsexpected from the Venezuelan business, and long-lived assets expected use, the Company compared the carrying amount of the long-livedassets with the expected undiscounted future net cash flows and concluded that certain office spaces held in Caracas, Venezuela, should beimpaired. As a consequence, the Company estimated the fair value of the impaired long-lived assets and recorded impairment losses of $13.7million, $16.2 million and $49.5 million on June 30, 2016, March 31, 2015 and June 30, 2014, respectively, by using the market approach andconsidering prices for similar assets.Impairment of goodwill and intangible assets with indefinite useful lifeGoodwill and intangible assets with indefinite useful life are reviewed at the end of the year for impairment or more frequently, if events orchanges in circumstances indicate that the carrying value may not be recoverable. Goodwill is tested for impairment at the reporting unit level(considering each segment of the Company as a reporting unit) by comparing the reporting unit’s carrying amount, including goodwill, to thefair value of such reporting unit.As of December 31, 2016 and 2015, the Company elected to perform the quantitative impairment test for both goodwill and intangible assetswith indefinite useful life.For the year ended December 31, 2016, the fair values of the reporting units were estimated using the income approach. Cash flow projectionsused were based on financial budgets approved by management. The growth rates applied do not exceed the long-term average growth rate forthe business in which the reporting unit operates. The Company uses discount rates to each reporting unit in the range of 14.5% to 29.9%. Theaverage discount rate used for 2016 was 16.9 %. That rate reflected the Company’s estimated weighted average cost 13 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 2. Summary of significant accounting policies (continued)Impairment of goodwill and intangible assets with indefinite useful life (continued)of capital. Key drivers in the analysis include Confirmed Registered Users (“CRUs”), Gross Merchandise Volume (“GMV”), Total PaymentVolume (“TPV”), Average Selling Price (“ASP”), Successful Item sold (“SI”) and Take Rate defined as marketplace revenues as a percentage ofgross merchandise volume. In addition, the analysis include a business to e-commerce rate, which represents growth of e-commerce as apercentage of Gross Domestic Product (“GDP”), internet penetration rates as well as trends in the Company’s market share.If the carrying amount of the reporting unit exceeds its fair value, goodwill is considered impaired and the second step is performed to measurethe amount of impairment loss, if any. No impairment loss has been recognized in the years ended December 31, 2016, 2015 and 2014 andmanagement’s assessment of the fair value of each reporting unit exceeds its carrying value.Intangible assets with indefinite useful life are considered impaired if the carrying amount of the intangible asset exceeds its fair value. Noimpairment loss has been recognized in the years ended December 31, 2016, 2015 and 2014.Revenue recognitionThe Company generates revenues from different services provided. When more than one service is included in one single arrangement with thecustomer, the Company recognizes revenue according to multiple element arrangements accounting, distinguishing between each of theservices provided and allocating revenues based on their respective selling prices.Revenues are recognized when evidence of an arrangement exists, the fee is fixed or determinable and collection is reasonably assured.Revenues from services are separately recognized according to the following criteria described for each type of services:·Revenues from intermediation services derive from listing and final value fees paid by sellers. Revenues related to final value feesare recognized at the time that the transaction is successfully concluded.·Listing and optional feature services, which fees relate to the right of a seller to have the item offered listed in a preferential way, aswell as classified advertising services, are recorded as revenue ratably during the listing period. Those fees are charged at the timethe listing is uploaded onto the Company’s platform and is not subject to successful sale of the items listed.·Revenues derived from the use of the Company’s on-line payments solution, for transactions off-platform are earned once thetransaction is considered completed, when the payment is processed by the Company. The Company also earns revenues as a resultof offering financing to our MercadoPago users, either directly or when the Company elects to sell the corresponding financialassets to financial institutions. Interest earned on loans granted to merchants are recognized based on effective interest rates.·Advertising revenues such as the sale of banners are recognized on accrual basis during the average advertising period, andremaining advertising services such as sponsorship of sites and improved search standing are recognized based on “per-click”(which are generated each time users on our websites click through our text-based advertisements to an advertiser’s designatedwebsite) values and as the “impressions” (i.e., the number of times that an advertisement appears in pages viewed by users of ourwebsites) are delivered.·Revenues from shipping services are generated when a buyer elects to receive the item through our shipping service and the serviceis rendered to the client. Revenues are disclosed net of third party provider’s cost.Share-based paymentsThe liability related to the variable portion of the long term retention plans is remeasured at fair value (See Note 16 “Long Term RetentionPlan” for more details). In addition, the director compensation program includes an adjustable Board service award based on the averageclosing price of the Company’s common stock (see Note 11 “Compensation Plan for Outside Directors” for more details).Sales taxThe Company’s subsidiaries in Brazil, Argentina, Venezuela and Colombia are subject to certain sales taxes which are classified as cost of netrevenues and totaled $75,618 thousands, $52,477 thousands and $39,377 thousands for the years ended December 31, 2016, 2015 and 2014,respectively. 14 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 2.Summary of significant accounting policies (continued)Advertising costsThe Company expenses the costs of advertisements in the period during which the advertising space or airtime is used as sales and marketingexpense. Internet advertising expenses are recognized based on the terms of the individual agreements, which is generally over the greater ofthe ratio of the number of clicks delivered over the total number of contracted clicks, on a pay-per-click basis, or on a straight-line basis overthe term of the contract. Advertising costs totaled $55,310 thousands, $46,862 thousands and $42,052 thousands for the years endedDecember 31, 2016, 2015 and 2014, respectively.Comprehensive incomeComprehensive income is comprised of two components, net income and other comprehensive income. This last component is defined as allother changes in the equity of the Company that result from transactions other than with shareholders. Other comprehensive income includesthe cumulative translation adjustment relating to the translation of the financial statements of the Company’s foreign subsidiaries (exceptVenezuela since January 1, 2010, see “Foreign currency translation”) and unrealized gains and losses on investments classified as available-for-sale. Total comprehensive income attributable to MercadoLibre, Inc. shareholders’ for the years ended December 31, 2016, 2015 and 2014amounted to $115,832 thousands, $1,584 thousands and $25,367 thousands respectively.Foreign currency translationAll of the Company’s foreign operations have determined the local currency to be their functional currency, except for Venezuela sinceJanuary 1, 2010, as described below. Accordingly, these foreign subsidiaries translate assets and liabilities from their local currencies into U.S.dollars by using year-end exchange rates while income and expense accounts are translated at the average monthly rates in effect during theyear, unless exchange rates fluctuate significantly during the period, in which case the exchange rates at the date of the transaction are used.The resulting translation adjustment is recorded as a component of other comprehensive loss. Gains and losses resulting from transactionsdenominated in non-functional currencies are recognized in earnings. Net foreign currency transaction results are included in the consolidatedstatements of income under the caption “Foreign currency (losses) gain” and amounted to ($5,565) thousands, $11,125 thousands and ($2,352)thousands for the years ended December 31, 2016, 2015 and 2014, respectively.Venezuelan currency statusPursuant to U.S. GAAP, the Company has transitioned its Venezuelan operations to highly inflationary status as from January 1, 2010, whichrequires that transactions and balances are re-measured as if the U.S. dollar was the functional currency for such operation. The cumulativethree year inflation rate as of December 31, 2010 exceeded 100%. As of the date of these consolidated financial statements, the cumulativethree-year inflation rate excess 100%. Thus the Company continues to treat the economy of Venezuela as highly-inflationary. Therefore, notranslation effect was accounted for in other comprehensive income during the years ended December 31, 2016, 2015 and 2014 related to theVenezuelan operations.On February 10, 2015, the Venezuelan government issued a decree that unified the two previous foreign exchange systems “SICAD 1” and“SICAD 2” into a new single system (SICAD), with an initial public foreign exchange rate of 12 BsF per U.S. dollar. The SICAD auctionprocess remains available only to obtain foreign currency to pay for a limited list of goods considered to be of high priority by the Venezuelangovernment, which does not include those relating to the Company’s business. In the same decree the Venezuelan government created the“Sistema Marginal de Divisas” (“SIMADI”), a new foreign exchange system that is separate from SICAD, which publishes a foreign exchangerate from the Central Bank of Venezuela (“BCV”) on a daily basis.In light of the disappearance of SICAD 2, and the Company’s inability to gain access to U.S. dollars under SICAD, it started requesting and wasgranted U.S. dollars through SIMADI. As a result, the Company from that moment expected to settle its transactions throughSIMADI going forward and concluded that the SIMADI exchange rate should be used to re-measure its bolivar-denominated monetary assetsand liabilities and to re-measure the revenues and expenses of the Venezuelan subsidiaries effective as of March 31, 2015. In connection withthis re-measurement, the Company recorded a foreign exchange loss of $20.4 million during the first quarter of 2015, with no significantforeign exchange losses recorded during the second, third and fourth quarter of 2015. As of December 31, 2015 the SIMADI exchange rate was198.7 BsF per U.S. dollar.Considering this change in facts and circumstances and the lower U.S. dollar-equivalent cash flows then expected from the Venezuelanbusiness, the Company has reviewed its long-lived assets, goodwill and intangible assets with indefinite useful life for impairment andconcluded that the carrying value of certain real estate investments in Venezuela as of March 31, 2015 would not be fully recoverable. As aresult, the Company recorded an impairment of long-lived assets of $16.2 million on March 31, 2015. The carrying amount was adjusted 15 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 2.Summary of significant accounting policies (continued)Foreign currency translation (continued)to its estimated fair value of $9.2 million as of March 31, 2015, by using the market approach, and considering prices for similar assets.On March 9, 2016 the BCV issued the Exchange Agreement No.35, which is effective since March 10, 2016. The agreement established a“protected” exchange rate (“DIPRO”) for certain transactions, such as but not limited to: imports of goods of the food and health sectors, aswell as supplies associated with the production of said sectors; expenses relating to health treatments, sports, culture, scientific research, andother urgent matters defined by the exchange regulations. All foreign currency transactions not expressly provided in Exchange AgreementNo.35 will be processed on the alternate foreign currency markets governed by the exchange regulations, at the floating supplementary marketexchange rate (“DICOM”).Additionally, the agreement established that the alternate foreign currency markets referred to in Exchange Agreement No.33 of February 10,2015 (SIMADI) will continue to operate until replaced by others. As of the date of issuance of these consolidated financial statements, theSIMADI has not been replaced and for that reason, the Company continued using SIMADI. From March 31, 2016 through June 30, 2016, theSIMADI exchange rate increased from 273 BsF per U.S. dollar to 628 BsF per U.S. dollar, a 130% increase in the exchange rate. As aconsequence of the local currency devaluation, the Company recorded a foreign exchange loss of $4.9 million during the second quarter of2016.Considering the significant devaluation and the lower U.S. dollar-equivalent cash flows then expected from the Venezuelan business, theCompany reviewed its long-lived assets (including non-current other assets), goodwill and intangible assets with indefinite useful life forimpairment and concluded that the carrying value of certain real estate investments in Venezuela as of June 30, 2016 would not be fullyrecoverable. As a result, on June 30, 2016, the Company recorded an impairment related to offices and commercial property under constructionincluded within non-current other assets of $13.7 million. The carrying amount of offices and commercial property under construction wasadjusted to its estimated fair value of $12.5 million as of June 30, 2016, by using the market approach, and considering prices for similar assets.As of December 31, 2016, the SIMADI exchange rate was 673.8 BsF per U.S. dollar.Until 2010 the Company was able to obtain U.S. dollars for any purpose, including dividends distribution, using alternative mechanisms otherthan through the Commission for the Administration of Foreign Exchange Control (CADIVI). Those U.S. dollars, obtained at a higherexchange rate than the one offered by CADIVI, and held at U.S. bank accounts of its Venezuelan subsidiaries, were used until 2011 fordividend distributions from its Venezuelan subsidiaries. The Company has not distributed dividends from the Venezuelan subsidiaries since2011.The following table sets forth the assets, liabilities and net assets of the Company’s Venezuelan subsidiaries, before intercompany eliminationsof a net liability of $15,843 thousands and $24,634 thousands, as of December 31, 2016 and 2015 and net revenues for the years endedDecember 31, 2016, 2015 and 2014:December 31,201620152014(In thousands)Venezuelan operationsNet Revenues$37,185 $40,475 $58,026 December 31,December 31,20162015(In thousands)Assets66,165 65,407 Liabilities(22,950)(36,266)Net Assets$43,215 $29,141 16 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 2.Summary of significant accounting policies (continued)Foreign currency translation (continued)As of December 31, 2016, net assets (before intercompany eliminations) of the Venezuelan subsidiaries amounted to 10.1% of consolidated netassets, and cash and investments of the Venezuelan subsidiaries held in local currency in Venezuela amounted to 2.1% of our consolidatedcash and investments.The Company’s ability to obtain U.S. dollars in Venezuela is negatively affected by the exchange regulations in Venezuela that are describedabove and elsewhere in these financial statements. In addition, its business and ability to obtain U.S. dollars in Venezuela would be negativelyaffected by additional material devaluations or the imposition of significant additional and more stringent controls on foreign currencyexchange by the Venezuelan government.Despite the current difficult macroeconomic environment in Venezuela, the Company continues to actively manage, through its Venezuelansubsidiaries, its investment in Venezuela.Argentine currency statusThe former Argentine government had implemented certain measures that control and restrict the ability of companies and individuals toexchange Argentine Pesos for foreign currencies. Those measures include, among other things, the requirement to obtain the prior approvalfrom the Argentine Tax Authority of the foreign currency transaction (for example and without limitation, for the payment of non-Argentinegoods and services, payment of principal and interest on non-Argentine debt and also payment of dividends to parties outside of the country),and eventually restrict, the ability to exchange Argentine pesos for other currencies, such as U.S. dollars.During January 2014 the Argentine peso exchange rate against the U.S. dollar increased in 23%, from 6.52 Argentine Pesos per U.S. dollar as ofDecember 31, 2013 to 8.0 Argentine Pesos per U.S. dollar. Due to the abovementioned increase in the Argentine peso exchange rate against theU.S. dollar, during the first quarter of 2014, the reported Other Comprehensive Loss increased in $14.6 million as a result of having a net assetposition in Argentine Pesos; and the Company recognized a foreign exchange gain of $4.6 million.On December 17, 2015 the new Argentine government introduced significant changes into the foreign exchange regulatory framework that hadbeen in place for the past four years under former president. These new measures include the removal of Argentina’s strict currency controlsthat restricted the ability of companies and individuals to exchange Argentine pesos for foreign currencies.During December 2015 the Argentine peso exchange rate increased by 37% against the U.S. dollar to 13.30 Argentine pesos per U.S. dollar asof December 31, 2015. Due to such increase in the Argentine peso exchange rate against the U.S. dollar, during the fourth quarter of 2015, theCompany recognized a foreign exchange gain of $18.2 million (as a result of having a net asset position in U.S. dollars) and the reported OtherComprehensive Loss increased by $22.8 million (as a result of having a net asset position in Argentine pesos).With this new policy, prior approval of foreign exchange transactions by the Argentine Administration of Public Revenues or Central Bank isno longer required for the purchase of foreign currency. During 2016, there were no significant changes in the exchange rate. As of December31, 2016 the Argentine Peso exchange rate against the U.S. dollar was 15.89.Brazilian currency statusDuring 2015, the Brazilian Reais exchange rate against the U.S. dollar increased 47%, from 2.66 Brazilian Reais per U.S. dollar as ofDecember 31, 2014 to 3.90 Brazilian Reais per U.S. dollar as of December 31, 2015. Due to the fluctuations of the Brazilian foreign currencyagainst the U.S. dollar, we recognized a foreign exchange gain of $14.6 million during the year 2015. In addition, the reported OtherComprehensive Loss of our Brazilian segment increased by $9.0 million during the current year. During 2016, there were no significantchanges in the exchange rate. As of December 31, 2016 the Brazilian Reais exchange rate against the U.S. dollar was 3.26.Income and asset taxesThe Company is subject to U.S. and foreign income taxes. The Company accounts for income taxes following the liability method ofaccounting which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporarydifferences between the carrying amounts and the tax bases of assets and liabilities. Deferred tax assets are also recognized for tax losscarryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in whichthose temporary differences are expected to be recovered or settled. The effect on deferred tax assets or liabilities of a change in tax rates isrecognized in income in the period that includes the enactment date. A valuation allowance is recorded when, based on the available evidence,it is more likely than not that all or a portion of the Company’s deferred tax assets will not be realized. The Company’s income tax expenseconsists of taxes currently payable, if any, plus the change during the period in the Company’s deferred tax assets and liabilities. 17 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 2. Summary of significant accounting policies (continued)Income and asset taxes (continued)On August 17, 2011, the Argentine government issued a new software development law and on September 9, 2013 the regulatory decree wasissued, which established the new requirement to become beneficiary of the new software development law. The new decree establishescompliance requirements with annual incremental ratios related to exports of services and research and development expenses that must beachieved to remain within the tax holiday. The Argentine operation will have to achieve certain required ratios annually under the newsoftware development law.The Industry Secretary resolution which rules, among other provisions, on the mechanism to file the information to obtain the benefits derivedfrom the new software development law was issued in late February 2014. During May 2014, the Company presented all the requireddocumentation in order to apply for the new software development law.On September 17, 2015, the Argentine Industry Secretary issued Resolution 1041/2015 approving the Company’s application for eligibilityunder the new software development law for the Company’s Argentinean subsidiary, Mercadolibre S.R.L. Furthermore, on September 18, 2016,the Argentine Industry Secretary issued Resolutions 93/2016 and 97/2016 approving the Company’s application for eligibility under the newsoftware development law for the Company’s Argentinean subsidiaries, Neosur S.RL. and Business Vision S.A. As a result, the Company’sArgentinean subsidiaries have been granted a tax holiday retroactive from September 18, 2014. A portion of the benefits obtained asbeneficiaries of the new law is a relief of 60% of total income tax related to software development activities and a 70% relief in payroll taxesrelated to software development activities.The new software development law, which provides that beneficiaries must meet certain on-going eligibility requirements, will expire onDecember 31, 2019. As a result of the Company’s eligibility under the new law, it recorded an income tax benefit of $22.6 million and$24.6 million during 2016 and 2015, respectively. Furthermore, the Company recorded a labor cost benefit of $5.5 million and $5.2 millionduring 2016 and 2015. Additionally, $2.0 million and $2.0 million were accrued to pay software development law audit fees during 2016 and2015, respectively. Aggregate per share effect of the Argentine tax holiday amounted to $0.51 million and $0.56 for the years ended December,31 2016 and 2015, respectively. In November 2015, the Financial Accounting Standards Board (“FASB”) issued the Accounting Standards Update 2015-17, Balance SheetClassification of Deferred Taxes (ASU 2015-17). The new guidance requires that deferred income tax liabilities and assets be classified as non-current in a classified statement of financial position. The amendments in this Update are effective for fiscal years beginning after December15, 2016, with early adoption permitted.The company elected to apply the amendments retrospectively to all periods presented as it reduces the costs and complexity in current GAAPwithout affecting the quality of information provided to users of financial statements. The quantitative effect of the change on the December 31, 2015 balance sheet presented was a decrease in current deferred tax assets andcurrent deferred tax liabilities of 12,290 thousands and 2,551 thousands, respectively. Those balances were reclassified to non-current deferredtax assets and non-current deferred tax liabilities as appropriate. Consequently, all deferred taxes were presented as Non-current in balancesheet. As of December 31, 2016 and 2015, the Company had included under non-current deferred tax assets caption the foreign tax credits related tothe dividend distributions received from its subsidiaries for a total amount of $13,515 thousands and $10,102 thousands, respectively. Thoseforeign tax credits will be used to offset the future domestic income tax payable.Uncertainty in income taxesThe Company recognizes, if any, uncertainty in income taxes by applying the accounting prescribed by U.S. GAAP, for which a more likelythan not recognition threshold and measurement attribute for the financial statement recognition and measurement of an income tax positiontaken or expected to be taken in a tax return should be considered. It also provides guidance on de-recognition, classification of a liability forunrecognized tax benefits, accounting for interest and penalties, accounting in interim periods, and expanded income tax disclosures. TheCompany classifies interest and penalties, if any, within income and asset taxes expense, in the statement of income.The Company is subject to taxation in the U.S. and various foreign jurisdictions. The material jurisdictions that are subject to examination bytax authorities for tax years after 2008 primarily include the U.S., Argentina, Brazil and Mexico. 18 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 2.Summary of significant accounting policies (continued)Convertible Senior NotesOn June 30, 2014, the Company issued $330 million of 2.25% convertible senior notes due 2019 (the “Notes”). In connection with theissuance of the Notes, the Company paid $19,668 thousands to enter into capped call transactions with respect to its common shares (the“Capped Call Transactions”), with certain financial institutions. For more detailed information in relation to the Notes and the Capped Calltransactions, see Note 17 to these consolidated financial statements.The convertible debt instrument was separated into debt and equity components at issuance and a fair value was assigned. The value assignedto the debt component was the estimated fair value, as of the issuance date, of a similar debt without the conversion feature. As of the issuancedate, the Company determined the fair value of the liability component of the Notes based on market data that was available for senior,unsecured nonconvertible corporate bonds issued by comparable companies. Assumptions used in the estimate represent what marketparticipants would use in pricing the liability component, including market interest rates, credit standing, and yield curves, all of which aredefined as level 2 observable inputs. The difference between the cash proceeds and this estimated fair value, represents the value assigned tothe equity component and was recorded as a debt discount. The debt discount is amortized using the effective interest method from theorigination date through its stated contractual maturity date.The initial debt component of the Notes was valued at $283,015 thousands, based on the contractual cash flows discounted at an appropriatemarket rate for a non-convertible debt at the date of issuance, which was determined to be 5.55%. The carrying value of the permanent equitycomponent reported in additional paid-in-capital was initially valued at $46,985 thousands. The effective interest rate after allocation oftransaction costs to the liability component is 6.1% and is used to amortize the debt discount and transaction costs. Additionally, theCompany recorded a deferred tax liability related to the additional paid in capital component of the convertible notes amountingto $16,445 thousands.The cost of the capped call transactions, which net of deferred income tax effect amounts to $12,784 thousands, is included as a net reductionto additional paid-in capital in the stockholders’ equity section of these consolidated balance sheets.Recently issued accounting pronouncementsIn 2014, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance related to revenue recognition. This newstandard will replace all current GAAP guidance on this topic and eliminate all industry-specific guidance. The new revenue recognitionguidance provides a unified model to determine when and how revenue is recognized. The core principle is that a company should recognizerevenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entityexpects to be entitled in exchange for those goods or services. In 2016, the FASB issued several amendments to the standard, includingprincipal versus agent considerations when another party is involved in providing goods or services to a customer and the application ofidentifying performance obligations. As the Company evaluates the impact of this ASU, the more significant changes that the Companyidentified in the new standard as compared with the prior standard relates to the timing and the amount of revenue to be recognized. TheCompany continues assessing all potential impacts that this standard, and related amendments and interpretive guidance, will have on theconsolidated financial statements. The standard is required to be applied either retrospectively to each prior reporting period presented orretrospectively with the cumulative effect of initially applying it recognized at the date of initial application. The Company has not yetselected the transition method. The Company will adopt the new revenue standard in its first quarter of 2018.On July 22, 2015 the FASB issued the ASU 2015-11. The amendments in this update apply to inventory measured using first-in, first-out(“FIFO”), or average cost. An Entity should measure inventory within the scope of this ASU at the lower of cost and net realizable value. Netrealizable value is the estimated selling price in the ordinary course of business, less reasonably practicable costs of completion, disposal, andtransportation. Subsequent measurement is unchanged for inventory measured using LIFO or the retail inventory method. The amendments inthis Update are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The adoptionof this standard is not expected to have a material impact on the Company’s financial statements. On August 16, 2015 the FASB issued the ASU 2015-15. To clarify the SEC staff’s position on presenting and measuring debt issuance costsincurred in connection with line-of-credit arrangements. The guidance in Update 2015-03 does not address presentation or subsequentmeasurement of debt issuance costs related to line-of-credit arrangements. Given the absence of authoritative guidance within Update 2015-03for debt issuance costs related to line-of-credit arrangements, the SEC staff would not object to an entity deferring and presenting debt issuancecosts as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardlessof whether there are any outstanding borrowings on the line-of-credit arrangement. The adoption of this standard is not expected to have amaterial impact on the Company’s financial statements.On January 5, 2016 the FASB issued the ASU 2016-01. The amendments in this Update require all equity investments to be measured at fairvalue with changes in the fair value recognized through net income (other than those accounted for under equity method of accounting orthose that result in consolidation of the investee). The amendments in this Update also require an entity to present separately in other 19 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 2.Summary of significant accounting policies (continued)Recently issued accounting pronouncements (continued)comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific creditrisk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. Inaddition the amendments in this Update eliminate the requirement to disclose the fair value of financial instruments measured at amortizedcost for entities that are not public business entities and the requirement for to disclose the method(s) and significant assumptions used toestimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet for publicbusiness entities. The amendments in this Update are effective for fiscal years beginning after December 15, 2017, including interim periodswithin those fiscal years. The adoption of this standard is not expected to have a material impact on the Company’s financial statements.On February 25, 2016 the FASB issued the ASU 2016-02. The amendments in this Update create Topic 842, Leases, which supersedes Topic840, Leases. The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases. It represents animprovement over previous GAAP, which did not require lease assets and lease liabilities to be recognized for most leases. A lessee shouldrecognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing itsright to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accountingpolicy election by class of underlying asset not to recognize lease assets and lease liabilities. Topic 842 retains a distinction between financeleases and operating leases. The classification criteria for distinguishing between finance leases and operating leases are substantially similarto the classification criteria for distinguishing between capital leases and operating leases in the previous leases guidance. The result ofretaining a distinction between finance leases and operating leases is that under the lessee accounting model in Topic 842, the effect of leasesin the statement of comprehensive income and the statement of cash flows is largely unchanged from previous GAAP. Based on existing leasescurrently classified as operating leases, the Company expects to recognize on the statements of financial position right-of-use assets and leaseliabilities. The amendments in this Update are effective for fiscal years beginning after December 15, 2018, including interim periods withinthose fiscal years. The Company is assessing the effects that the adoption of this accounting pronouncement may have on the Company’sfinancial statements.On March 8, 2016 the FASB issued the ASU 2016-04. When an entity sells a prepaid stored-value product (such as gift cards,telecommunication cards, and traveler’s checks), it recognizes a financial liability for its obligation to provide the product holder with theability to purchase goods or services at a third-party merchant. When a prepaid stored-value product goes unused wholly or partially for anindefinite time period, the amount that remains on the product is referred to as breakage. There currently is diversity in the methodology usedto recognize breakage. Subtopic 405-20 includes derecognition guidance for both financial liabilities and nonfinancial liabilities, and Topic606, Revenue from Contracts with Customers, includes authoritative breakage guidance but excludes financial liabilities. The amendments inthis Update provide a narrow scope exception to the guidance in Subtopic 405-20 to require that breakage be accounted for consistent with thebreakage guidance in Topic 606. The new standard is effective for fiscal years beginning after December 15, 2017. The adoption of thisstandard is not expected to have a material impact in the Company’s financial statements.On March 14, 2016 the FASB issued the ASU 2016-06. Topic 815 requires that embedded derivatives be separated from the host contract andaccounted for separately as derivatives if certain criteria are met, including the “clearly and closely related” criterion. The amendments in thisUpdate clarify the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debtinstruments are clearly and closely related to their debt hosts. An entity performing the assessment under the amendments is required to assessthe embedded call (put) options solely in accordance with the four-step decision sequence. The amendments apply to all entities that areissuers of or investors in debt instruments (or hybrid financial instruments that are determined to have a debt host) with embedded call (put)options. The new standard is effective for fiscal years beginning after December 15, 2016. The adoption of this standard is not expected to havea material impact in the Company’s financial statements.On March 17, 2016 the FASB issued the ASU 2016-08 “Revenue from Contracts with Customers (Topic 606): Principal versus AgentConsiderations (Reporting Revenue Gross versus Net)”. The amendments in this Update will clarify the implementation guidance on principalversus agent considerations. The new standard is effective for fiscal years beginning after December 15, 2017. The Company is assessing theeffects that the adoption of this accounting pronouncement may have on its financial statements.On March 30, 2016 the FASB issued the ASU 2016-09. The Board is issuing this Update as part of its initiative to reduce complexity inaccounting standards. The areas for simplification in this Update involve several aspects of the accounting for employee share-based paymenttransactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statementof cash flows. Some of the areas for simplification apply only to nonpublic entities. In addition, the amendments in this Update eliminate theguidance in Topic 718 that was indefinitely deferred shortly after the issuance of FASB Statement No. 123 (revised 2004), Share-BasedPayment. This Accounting Standards Update is the final version of Proposed Accounting Standards Update—Compensation—StockCompensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which has been deleted. The new standard iseffective for fiscal years beginning after December 15, 2016. The adoption of this standard is not expected to have a material impact in theCompany’s financial statements. 20 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 2.Summary of significant accounting policies (continued)Recently issued accounting pronouncements (continued)On April 14, 2016 the FASB issued the ASU 2016-10 “Revenue from Contracts with Customers (Topic 606): Identifying PerformanceObligations and Licensing”. This Update clarifies guidance related to identifying performance obligations and licensing implementationguidance contained in the new revenue recognition standard. The Update includes targeted improvements based on input the Board receivedfrom the Transition Resource Group for Revenue Recognition and other stakeholders. The Update seeks to proactively address areas in whichdiversity in practice potentially could arise, as well as to reduce the cost and complexity of applying certain aspects of the guidance both atimplementation and on an ongoing basis. The new standard is effective for fiscal years beginning after December 15, 2017. The Company isassessing the effects that the adoption of this accounting pronouncement may have on its financial statements.On May 3, 2016 the FASB issued the ASU 2016-11 on “Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815)”. Theamendments in this Update eliminate some guidance related to revenue recognition and derivatives. The new standard is effective for fiscalyears beginning after December 15, 2016. The adoption of this standard is not expected to have a material impact in the Company’s financialstatements.On May 9, 2016 the FASB issued the ASU 2016-12 “Revenue from Contracts with Customers (Topic 606)—Narrow-Scope Improvements andPractical Expedients”. The amendments in this update address narrow-scope improvements to the guidance on collectability, noncashconsideration, and completed contracts at transition. Additionally, the amendments in this update provide a practical expedient for contractmodifications at transition and an accounting policy election related to the presentation of sales taxes and other similar taxes collected fromcustomers. The new standard is effective for fiscal years beginning after December 15, 2017. The Company is assessing the effects that theadoption of this accounting pronouncement may have on its financial statements.On June 16, 2016 the FASB issued the ASU 2016-13 “Financial Instruments-Credit Losses (Topic 326): Measurement of credit losses onfinancial instruments”. This update amends guidance on reporting credit losses for assets held at amortized cost basis and available for saledebt securities. For assets held at amortized cost basis, this update eliminates the probable initial recognition threshold in current GAAP and,instead, requires an entity to reflect it’s current estimate of all expected credit losses. For available for sale debt securities, credit losses shouldbe measured in a manner similar to current GAAP, however this topic will require that credit losses be presented as an allowance rather than as awrite-down. The new standard is effective for fiscal years beginning after December 15, 2019. The Company is assessing the effects that theadoption of this accounting pronouncement may have on its financial statements. On August 26, 2016 the FASB issued the “ASU 2016-15—Statement of cash flows (Topic 230): Classification of certain cash receipts and cashpayments”. This update addresses the following eight specific cash flow issues: debt prepayment or debt extinguishment costs; settlement ofzero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rateof the borrowing; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims;proceeds from the settlement of corporate-owned life insurance policies (COLIs) (including bank-owned life insurance policies (BOLIs));distributions received from equity method investees; beneficial interests in securitization transactions; and separately identifiable cash flowsand application of the predominance principle. The new standard is effective for fiscal years beginning after December 15, 2017. The adoptionof this standard is not expected to have a material impact in the Company’s financial statements. On October 24, 2016 the FASB issued the “ASU 2016-16—Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory”.This update eliminates the exception that prohibits recognizing current and deferred income tax consequences for an intra-entity asset transferuntil the asset or assets have been sold to an outside party. Consequently, this update requires to recognize the current and deferred income taxconsequences of an intra-entity asset transfer when the transfer occurs. The new standard is effective for fiscal years beginning after December15, 2017. The Company is assessing the effects that the adoption of this accounting pronouncement may have on its financial statements.On November 17, 2016 the FASB issued the “ASU 2016-18—Statement of cash flows (Topic 230): Resctricted cash”. The amendments in thisupdate require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generallydescribed as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cashequivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amountsshown on the statement of cash flows. The new standard is effective for fiscal years beginning after December 15, 2017. The adoption of thisstandard is not expected to have a material impact in the Company’s financial statements.On January 5, 2017 the FASB issued the “ASU 2017-01—Business combinations (Topic 805): Clarifying the definition of a business”. Theamendments in this Update clarify the definition of a business with the objective of adding guidance to the evaluation whether transactionsshould be accounted for as acquisitions (or disposals) of businesses. The amendments in this Update provide a screen to determine when a setof assets and activities is not a business, which requires that when substantially all of the fair value of the gross assets acquired (or disposed of)is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. If the screen is not met, it requiresthat to be considered a business, a set must include, at a minimum, an input and a substantive process that together 21 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 2.Summary of significant accounting policies (continued)Recently issued accounting pronouncements (continued)significantly contribute to the ability to create output, and removes the evaluation of whether a market participant could replace the missingelements. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. TheCompany is assessing the effects that the adoption of this accounting pronouncement may have on its financial statements.On January 26, 2017 the FASB issued the “ASU 2017-04—Intangibles—Goodwill and other (Topic 350): Simplifying the test for goodwillimpairment”. The amendments in this Update simplifies the measurement of goodwill by removing the second step of the goodwill impairmenttest. Instead, an entity will apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit'scarrying amount over its fair value, however, the loss recognized should not exceed the total amount of goodwill allocated to that reportingunit. The new standard is effective for fiscal years beginning after December 15, 2019 with early adoption permitted for interim or annualgoodwill impairment tests performed after January 1, 2017. The adoption of this standard is not expected to have a material impact in theCompany’s financial statements.3.Net income per shareBasic earnings per share for the Company’s common stock is computed by dividing, net income available to common shareholders attributableto common stock for the period, and the corresponding adjustment attributable to changes in redeemable non-controlling interest, by theweighted average number of common shares outstanding during the year.On June 30, 2014, the Company issued the 2.25% Convertible Senior Notes due 2019 (please refer to Note 17 of these consolidated financialstatements for discussion regarding these debt notes). The conversion of these debt notes are considered for diluted earnings per share utilizingthe “if converted” method, the effect of that conversion is not assumed for purposes of computing diluted earnings per share if the effect isantidilutive.The denominator for diluted net income per share for the years ended on December 31, 2016, 2015 and 2014 does not include any effect fromthe capped call because it would be antidilutive. In the event of conversion of any or all of the Notes, the shares that would be delivered to theCompany under the Note hedges are designed to partially neutralize the dilutive effect of the shares that the Company would issue under theNotes. For the years ended December 31, 2016, 2015 and 2014, the effects on diluted earnings per share were antidilutive and, as a consequence, theywere not computed for diluted earnings per share.The following table shows how net income is allocated for earnings per common share for the years ended December 31, 2016, 2015 and 2014:Year Ended December 31,201620152014(In thousands)BasicDilutedBasicDilutedBasicDilutedNet income$ 136,366$ 136,366$ 105,789$ 105,789$ 72,653$ 72,653Net income attributable to noncontrolling interests-- - -(72)(72)Change in redeemable amount of noncontrolling interest-- - -(435)(435)Net income attributable to MercadoLibre, Inc.Shareholders corresponding to common stock$ 136,366$ 136,366$ 105,789$ 105,789$ 72,146$ 72,146 22 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements Net income per share of common stock is as follows for the years ended December 31, 2016, 2015 and 2014:Year Ended December 31,201620152014(In thousands, except per share data)BasicDilutedBasicDilutedBasicDilutedNet income attributable toMercadoLibre, Inc. Shareholdersper common share$ 3.09$ 3.09$ 2.40$ 2.40$ 1.63$ 1.63Numerator:Net income attributable toMercadoLibre, Inc. Shareholders$ 136,366$ 136,366$ 105,789$ 105,789$ 72,146$ 72,146Denominator:Weighted average of commonstock outstanding forBasic earnings per share44,157,251 44,157,251 44,155,680 44,155,680 44,153,884 44,153,884 Adjusted weighted average ofcommon stock outstanding forDiluted earnings per share44,157,251 44,157,251 44,155,680 44,155,680 44,153,884 44,153,884 4.Short-term and long-term investmentsThe composition of short-term and long-term investments is as follows: December 31,December 31,20162015(In thousands)Short-term investmentsTime Deposits$ 113,414$ 76,658Sovereign Debt Securities2,166 13,962 Corporate Debt Securities102,367 102,977 Certificates of deposits35,374 8,515 Total$ 253,321$ 202,112Long-term investmentsSovereign Debt Securities$ 48,537$ 55,340Corporate Debt Securities105,266 129,280 Certificates of deposits —3,001 Total$ 153,803$ 187,621Unrealized losses of available-for-sale securities, net of tax, were $587 thousands, $672 thousands and $379 thousands for the years endedDecember 31, 2016, 2015 and 2014, respectively.As of December 31, 2016 and 2015, the Company has no securities considered held-to-maturity. 23 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 5.Balance sheet components December 31,December 31,20162015(In thousands)Accounts receivable, net:Users$ 25,535$ 24,745Other means of payments —2,739 Advertising5,047 3,394 Others debtors5,289 8,836 35,871 39,714 Allowance for doubtful accounts(10,436)(11,286)$ 25,435$ 28,428December 31,December 31,20162015(In thousands)Credit card receivablesCredit cards and other means of payments$ 310,415$ 133,180Allowance for chargebacks(2,511)(1,234)$ 307,904$ 131,946 December 31,December 31,20162015(In thousands)Current other assets:VAT credits$ 4,660$ 1,011Other taxes15,493 5,189 Other6,062 3,377 $ 26,215$ 9,577 December 31,December 31,20162015(In thousands)Non current other assets:Advances for fixed assets$ 24,134$ 23,380Legal deposits66 55 Judicial deposits27,981 16,378 Other4,638 4,142 $ 56,819$ 43,955 24 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 5.Balance sheet components (continued)Estimateduseful lifeDecember 31,December 31,(years)20162015(In thousands)Property and equipment, net:Equipment3 - 5$ 56,571$ 48,380Land & Building50 (1) (2)49,665 28,479 Furniture and fixtures3 - 522,690 13,506 Software371,602 43,989 Cars3323 93 200,851 134,447 Accumulated depreciation(76,590)(52,814)$ 124,261$ 81,633(1)Estimated useful life attributable to “Buildings”.(2)After impairment test. See Note 2, “Impairment of Long-lived Assets”. Year Ended December 31,201620152014(In thousands)Depreciation and amortization:Cost of net revenues$ 1,965$ 830$ 801Product and technology development20,581 16,260 12,074 Sales and marketing1,599 548 181 General and administrative4,877 5,571 3,891 $ 29,022$ 23,209$ 16,947 December 31,December 31,20162015(In thousands)Accounts payable and accrued expenses:Accounts payable$ 95,145$ 54,649Accrued expensesAdvertising4,227 3,005 Professional fees1,615 1,327 Other expense provisions4,098 3,054 Other current liabilities21 3 $ 105,106$ 62,038 December 31,December 31,2016215(In thousands)Current loans payable and other financial liabilities:Unsecured lines of credit$ 11,583$ 1,965$ 11,583$ 1,965 25 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 5.Balance sheet components (continued) December 31,December 31,20162015(In thousands)Non current loans payable and other financial liabilities:Convertible notes$ 300,935$ 290,477Unsecured lines of credit1,005 3,865 $ 301,940$ 294,342 December 31,December 31,20162015(In thousands)Current other liabilities:Contingent considerations and escrows from acquisitions$ 6,014$ 7,004Other345 663 $ 6,359$ 7,667 December 31,December 31,20162015(In thousands)Non current other liabilities:Provisions and contingencies$ 5,587$ 4,386Contingent considerations and escrows from acquisitions2,558 5,413 Other1,663 61 $ 9,808$ 9,860 December 31,December 31,December 31,201620152014(In thousands)Accumulated other comprehensive loss:Foreign currency translation$ (259,226)$ (238,607)$ (134,695)Unrealized gains on investments(909)(1,023)(578)Estimated tax loss on unrealized gains on investments322 351 199 $ (259,813)$ (239,279)$ (135,074)The following table summarizes the changes in accumulated balances of other comprehensive income for the year December 31, 2016: UnrealizedForeignEstimated taxGains onCurrency(expense)InvestmentsTranslationbenefitTotal 2016Total 2015(In thousands)Balances as of December 31, 2015$ (1,023)$ (238,607)$ 351$ (239,279)$ (135,074)Other comprehensive income before reclassificationsadjustments for (losses) gains on available for saleinvestments(909)(20,619)322 (21,206)(104,584)Amount of gain (loss) reclassified from accumulated othercomprehensive income1,023 —(351)672 379 Net current period other comprehensive (loss) income114 (20,619)(29)(20,534)(104,205)Ending balance$ (909)$ (259,226)$ 322$ (259,813)$ (239,279) 26 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 5.Balance sheet components (continued)The following table provides details about reclassifications out of accumulated other comprehensive income for the year ended December 31,2016:Amount of Gain(Loss)Reclassified fromDetails about AccumulatedAccumulatedOtherOther Comprehensive IncomeComprehensiveAffected Line ItemComponentsIncomein the Statement of Income(In thousands)Unrealized losses on investments$ (1,023)Interest expense and other financial lossesEstimated tax gain on unrealized losses on investments351 Income tax gainTotal reclassifications for the year$ (672)Total, net of income taxes6.Business combinations, goodwill and intangible assetsBusiness combinationsAcquisition of a software development company in ArgentinaOn February 12, 2016, the Company completed, through its subsidiaries Meli Participaciones S.L. and Marketplace Investment LLC, a limitedliability company organized under the laws of Delaware, USA (together referred to as the “Buyers”), the acquisition of the 100% of equityinterest of Monits S.A., a software development company located and organized under the laws of the Buenos Aires City, Argentina. Theobjective of the acquisition was to enhance the capabilities of the Company in terms of software development.The aggregate purchase price for the acquisition of the 100% of the acquired business was $3,056 thousands, measured at its fair value, amountthat included: (i) the total cash payment of $1,713 thousands at closing day; (ii) an escrow of $128 thousands and iii) a contingent additionalcash consideration up to $1,215 thousands. The Company’s consolidated statement of income includes the results of operations of the acquired business as from February 12, 2016. Thenet revenues and net income before intercompany eliminations of the acquired Company included in the Company’s consolidated statement ofincome since the acquisition amounted to $2,578 thousands and $168 thousands, respectively.In addition, the Company incurred in certain direct costs of the business combination which were expensed as incurred.As of December 31, 2016, the fair value of the contingent consideration recorded is $1,215 thousands. Contingent additional cashconsiderations are to be paid after the achievement of the performance targets.The following table summarizes the purchase price allocation for the acquisition:Monits S.A. In thousands of U.S. dollarsCash and cash equivalents$3 Other net tangible assets25 Total net tangible assets acquired28 Non solicitation agreement196 Goodwill2,832 Purchase Price$3,056 The purchase price was allocated based on the measurement of the fair value of assets acquired and liabilities assumed considering theinformation available as of the date of acquisition. The valuation of identifiable intangible assets acquired reflects management’s estimatesbased on the use of established valuation methods. Such assets consist of non-solicitation agreement for an amount of $196 thousands.Management of the Company estimates that the non-solicitation agreement will be amortized over a two-year period.The Company recognized goodwill for this acquisition based on management expectation that the acquired business will improve theCompany’s business. 27 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 6.Business combinations, goodwill and intangible assets (continued)Business combinations (continued)Arising goodwill has been allocated proportionally to each of the segments identified by the Company’s management, considering thesynergies expected from this acquisition and it is expected that the acquiree will contribute to the earnings generation process of suchsegments. Goodwill arising from this acquisition is not deductible for tax purposes.Acquisition of a software development company in Brazil On June 1, 2016, through its subsidiary Ebazar.com.br Ltda., the Company acquired 100% of the issued and outstanding shares of capital stockof Axado Informação e Tecnologia S.A. (“Axado”), a company that develops logistic software for the e-commerce industry in Brazil.The aggregate purchase price for the acquisition of the 100% of the acquired business was $5,536 thousands, measured at its fair value, whichincluded: (i) the total cash payment of $4,706 thousands at closing day; and (ii) an escrow of $830 thousands. Additionally, payments of $830thousands will be transferred to the sellers by the end of the first and second year after the acquisition, aiming to continue the employmentrelationship as key employees. This additional payment will be expensed over the period up to fulfillment of the conditions required by theselling and purchase agreement.In addition, the Company incurred certain direct costs of the business combination which were expensed as incurred.The Company’s consolidated statement of income includes the results of operations of the acquired business as from June 1, 2016. The netrevenues and net loss of the acquiree included in the Company’s statement of income since the acquisition amounted to $664 thousands and$50 thousands, respectively.The following table summarizes the purchase price allocation for the acquisition: Axado Informacao eTecnologia LtdaIn thousands of U.S. dollarsCash and cash equivalents$90 Other net tangible assets77 Total net tangible assetsacquired167 Customer lists676 Trademark251 Software282 Non-solicitation and Non-compete agreements118 Goodwill4,042 Purchase Price$5,536 The purchase price was allocated based on the measurement of the fair value of assets acquired and liabilities assumed considering theinformation available as of the date of acquisition. The valuation of identifiable intangible assets acquired reflects management’s estimatesbased on the use of established valuation methods. Such assets consist of trademark, customer lists, software and non-compete and non-solicitation agreements for a total amount of $1,327 thousands. Management of the Company estimates that customer lists and non-competeagreements will be amortized over a five -year period, while trademark and software will be amortized over a three-year period. The Company recognized goodwill for this acquisition based on management’s expectation that the acquired business will improve theCompany’s business. Arising goodwill was allocated to the Brazilian segment identified by the Company’s management, considering the synergies expected fromthis acquisition and it is expected that the acquiree will contribute to the earnings generation process of such segment. Goodwill arising fromthis acquisition is deductible for tax purposes.The results of operations for periods prior to the acquisitions, individually and in the aggregate, were not material to the consolidatedstatements of operations of the Company and, accordingly, pro forma information has not been presented. 28 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 6.Business combinations, goodwill and intangible assets (continued)Business combinations (continued)Acquisition of online classifieds advertisement company in MexicoOn April 22, 2015, through its subsidiaries Deremate.com de Mexico, S. de R.L. de C.V. and MercadoLibre, S. de R.L. de C.V., the Companyacquired 100% of the issued and outstanding shares of capital stock of Metros Cúbicos, S.A. de C.V., company that operates an onlineclassified advertisement platform dedicated to the sale of real estate in Mexico, in order to increase its participation on e-commerce business inthat country.The aggregate purchase price for the acquisition of the 100% of the acquired business was $29,917 thousands, measured at its fair value,amount that included: (i) the total cash payment of $26,917 thousands at closing day; and (ii) an escrow of $3,000 thousands held in an escrowaccount, according to the stock purchase agreement. An amount of $1,500 thousands related to the escrow was released in April 2016, whilethe remaining portion is outstanding as of the date of these financial statements.In addition, the Company incurred in certain direct costs of the business combination which were expensed as incurred.The Company’s consolidated statement of income includes the results of operations of the acquired business as from April 22, 2015. For theyear ended December 31, 2015, net revenues and net income of the acquiree included in the Company’s consolidated statement of incomesince the acquisition amounted to $2,862 thousands and $87 thousands, respectively.The following table summarizes the purchase price allocation calculated at the date of acquisition:Metros Cúbicos S.A. de C.V. In thousands of U.S. dollarsCash and cash equivalents$593 Other net tangible assets241 Trademark4,568 Customer lists3,924 Non-solicitation and Non-compete agreements229 Deferred tax assets and liabilities(2,616)Goodwill22,978 Purchase Price$29,917 The purchase price was allocated based on the measurement of the fair value of assets acquired and liabilities assumed. The valuation ofidentifiable intangible assets acquired reflects management’s estimates based on the use of established valuation methods. Such assets consistof trademarks, customer lists and non-solicitation and non-compete agreements for a total amount of $8,721 thousands. Management of theCompany estimates that trademarks have an indefinite useful life and the intangible asset associated with the customer list will be amortizedover a five -year period. The non-solicitation and non-compete agreement intangible asset will be amortized over a three -year period.The Company recognized goodwill for this acquisition based on management’s expectation that the acquired business will improve theCompany’s business in Mexico.Arising goodwill has been allocated to the Mexican segment identified by the Company’s management, considering the synergies expectedfrom this acquisition and it is expected that the acquiree will contribute to the earnings generation process of such segment. Goodwill arisingfrom this acquisition is not deductible for tax purposes.Acquisition of a software development company in BrazilOn April 1, 2015, through its subsidiaries Ebazar.com.br Ltda. (“Ebazar”) and MercadoLivre.com Atividades de Internet Ltda, the Companyacquired 100% of the issued and outstanding shares of capital stock of the company KPL Soluções Ltda., a company that develops ERPsoftware for the e-commerce industry in Brazil. 29 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 6.Business combinations, goodwill and intangible assets (continued)Business Combinations (continued)The aggregate purchase price for the acquisition of the 100% of the acquired business was $22,685 thousands, measured at its fair value,amount that included: (i) the total cash payment of $12,529 thousands at closing day; (ii) an escrow of $3,316 thousands, and (iii) thecontingent additional cash considerations up to $6,840 thousands in case the company achieves certain performance targets duringthe 24 months since the acquisition date, measured at fair value. Additionally, a payment of $1,584 thousands will be transferred to the sellersafter the end of the second year after the acquisition date, aiming to continue the employment relationship as key employees. This additionalpayment will be expensed over the 24 month-period up to fulfillment of the conditions required by the selling and purchase agreement. An amount of $264 thousands and $1,434 thousands related to the escrow described in the previous paragraph was released in January 2016and 2017, respectively.The Company’s consolidated statement of income includes the results of operations of the acquired business as from April 1, 2015. For the yearended December 31, 2015, net revenues and net loss of the acquiree included in the Company’s statement of income since the acquisitionamounted to $1,338 thousands and $343 thousands until its merger with Ebazar.com.br Ltda., respectively.In addition, the Company incurred in certain direct costs of the business combination which were expensed as incurred.As of December 31, 2016, the fair value of the contingent consideration recorded is $2,998 thousands. Contingent additional cashconsiderations are to be paid after the achievement of the performance targets.The following table summarizes the purchase price allocation for the acquisition:KPL Soluções Ltda. In thousands of U.S. dollarsCash and cash equivalents$159 Other net tangible assets27 Customer lists3,137 Software4,791 Non-solicitation and Non-compete agreements505 Goodwill14,066 Purchase Price$22,685 The purchase price was allocated based on the measurement of the fair value of assets acquired and liabilities assumed. The valuation ofidentifiable intangible assets acquired reflects management’s estimates based on the use of established valuation methods. Such assets consistof customer lists, software, non-solicitation and non-compete agreements for a total amount of $8,433 thousands. Management of the Companyestimates that customer lists, the software and the non-solicitation and non-compete agreements will be amortized over a five -year period.The Company recognized goodwill for this acquisition based on management’s expectation that the acquired business will improve theCompany’s business.Arising goodwill has been allocated to the Brazilian segment identified by the Company’s management, considering the synergies expectedfrom this acquisition and it is expected that the acquiree will contribute to the earnings generation process of such segment. Goodwill arisingfrom this acquisition is deductible for tax purposes. 30 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 6.Business combinations, goodwill and intangible assets (continued)Goodwill and intangible assetsThe composition of goodwill and intangible assets is as follows: December 31,December 31,20162015(In thousands)Goodwill$ 91,797$ 86,545Intangible assets with indefinite lives- Trademarks12,490 13,074 Amortizable intangible assets- Licenses and others8,738 8,691 - Non-compete agreement1,787 1,615 - Customer list14,580 12,971 - Trademarks993 —Total intangible assets$ 38,588$ 36,351Accumulated amortization(12,311)(7,360)Total intangible assets, net$ 26,277$ 28,991GoodwillThe changes in the carrying amount of goodwill for the years ended December 31, 2016 and 2015 are as follows:Year ended December 31, 2016BrazilArgentinaChileMexicoVenezuelaColombiaOther CountriesTotal(In thousands)Balance,beginningof the year $ 18,526 $ 7,430 $ 16,438 $ 33,834 $ 5,729 $ 3,437 $ 1,151 $ 86,545 - Businessacquisition5,635 700 —190 260 57 32 6,874 - Effect ofexchangerateschanges3,499 (1,543)950 (4,682) —149 5 (1,622)Balance,end of theyear$ 27,660 $ 6,587 $ 17,388 $ 29,342 $ 5,989 $ 3,643 $ 1,188 $ 91,797 Year ended December 31, 2015BrazilArgentinaChileMexicoVenezuelaColombiaOther CountriesTotal(In thousands)Balance,beginningof year$ 10,557 $ 11,859 $ 19,101 $ 15,719 $ 5,729 $ 4,521 $ 1,343 $ 68,829 - Businessacquisition14,066 — —22,978 — — —37,044 - Effect ofexchangerateschanges(6,097)(4,429)(2,663)(4,863) —(1,084)(192)(19,328)Balance,end of theyear$ 18,526 $ 7,430 $ 16,438 $ 33,834 $ 5,729 $ 3,437 $ 1,151 $ 86,545 31 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 6.Business combinations, goodwill and intangible assets (continued)Intangible assets with definite useful lifeIntangible assets with definite useful life are comprised of customer lists and user base, non-compete and non-solicitation agreements, acquiredsoftware licenses and other acquired intangible assets including developed technologies. Aggregate amortization expense for intangible assetstotaled $4,030 thousands, $3,147 thousands and $1,692 thousands for the years ended December 31, 2016, 2015 and 2014, respectively.The following table summarizes the remaining amortization of intangible assets with definite useful life as of December 31, 2016:For year ended 12/31/2017$3,566 For year ended 12/31/20183,041 For year ended 12/31/20192,387 For year ended 12/31/20201,692 Thereafter3,101 $13,787 7.SegmentsReporting segments are based upon the Company’s internal organizational structure, the manner in which the Company’s operations aremanaged, the criteria used by management to evaluate the Company’s performance, the availability of separate financial information, andoverall materiality considerations.Segment reporting is based on geography as the main basis of segment breakdown to reflect the evaluation of the Company’s performancedefined by the management. The Company’s segments include Brazil, Argentina, Mexico, Venezuela and other countries (such as Chile,Colombia, Costa Rica, Dominican Republic, Ecuador, Peru, Panama, Honduras, Nicaragua, Salvador, Portugal, Uruguay, Bolivia, Guatemala,Paraguay and USA).Direct contribution consists of net revenues from external customers less direct costs and any impairment of long lived assets. Direct costsinclude specific costs of net revenues, sales and marketing expenses, and general and administrative expenses over which segment managershave direct discretionary control, such as advertising and marketing programs, customer support expenses, allowances for doubtful accounts,payroll, third party fees. All corporate related costs have been excluded from the Company’s direct contribution.Expenses over which segment managers do not currently have discretionary control, such as certain technology and general and administrativecosts are monitored by management through shared cost centers and are not evaluated in the measurement of segment performance. 32 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 7.Segments (continued)The following tables summarize the financial performance of the Company’s reporting segments: Year Ended December 31, 2016BrazilArgentinaMexicoVenezuelaOther CountriesTotal(In thousands)Net revenues$ 455,024 $ 262,252 $ 46,332 $ 37,185 $ 43,603 $ 844,396 Direct costs(270,922)(152,103)(40,951)(17,732)(31,549)(513,257)Impairment of Long-lived Assets---(13,717)-(13,717)Direct contribution184,102 110,149 5,381 5,736 12,054 317,422 Operating expenses and indirect costs of net revenues(136,366)Income from operations181,056 Other income (expenses):Interest income and other financial gains35,442 Interest expense and other financial losses(25,605)Foreign currency losses(5,565)Net income before income tax expense$ 185,328 Year Ended December 31, 2015BrazilArgentinaMexicoVenezuelaOther CountriesTotal(In thousands)Net revenues$ 290,602 $ 245,011 $ 40,338 $ 40,475 $ 35,364 $ 651,790 Direct costs(180,394)(134,750)(31,282)(15,287)(24,605)(386,318)Impairment of Long-lived Assets---(16,226)-(16,226)Direct contribution110,208 110,261 9,056 8,962 10,759 249,246 Operating expenses and indirect costs of net revenues(110,050)Income from operations139,196 Other income (expenses):Interest income and other financial gains20,561 Interest expense and other financial losses(20,391)Foreign currency gains11,125 Net income before income tax expense$ 150,491 33 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 7.Segments (continued)Year Ended December 31, 2014BrazilArgentinaMexicoVenezuelaOther CountriesTotal(In thousands)Net revenues$ 273,638 $ 150,668 $ 37,669 $ 58,026 $ 36,535 $ 556,536 Direct costs(158,412)(81,273)(24,068)(16,584)(20,163)(300,500)Impairment of Long-lived Assets---(49,496)-(49,496)Direct contribution115,226 69,395 13,601 (8,054)16,372 206,540 Operating expenses and indirect costs of net revenues(86,069)Income from operations120,471 Other income (expenses):Interest income and other financial gains15,336 Interest expense and other financial losses(11,659)Foreign currency losses(2,352)Net income before income tax expense$ 121,796 The following table summarizes the allocation of the long-lived tangible assets based on geography: December 31,December 31,20162015(In thousands)US property and equipment, net$ 9,771$ 12,756Other countriesArgentina25,071 22,379 Brazil55,706 17,150 Mexico2,307 2,475 Venezuela21,615 21,556 Other countries9,791 5,317 $ 114,490$ 68,877Total property and equipment, net$ 124,261$ 81,633 34 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 7.Segments (continued)The following table summarizes the allocation of the goodwill and intangible assets based on geography:December 31,December 31,20162015(In thousands)US intangible assets$ 250$ 235Other countries goodwill and intangible assetsArgentina7,717 8,763 Brazil31,170 21,338 Mexico38,860 46,186 Venezuela7,366 7,217 Other countries32,711 31,797 $ 117,824$ 115,301Total goodwill and intangible assets$ 118,074$ 115,536Consolidated net revenues by similar products and services for the years ended December 31, 2016, 2015 and 2014 were as follows:Consolidated Net Revenues201620152014(In thousands)Marketplace$ 491,628$ 393,014$ 376,156Non-marketplace (*)$ 352,768$ 258,776$ 180,380Total$ 844,396$ 651,790$ 556,536(*)Includes, among other things, Ad Sales, Real Estate, Motors, Financing Fees, Off-platform Payment Fees,Shipping and other ancillary services. 35 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 8.Fair value measurement of assets and liabilitiesThe following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis as of December 31,2016 and 2015:Quoted Prices inQuoted Prices inBalances as ofactive markets forSignificant otherUnobservableBalances as ofactive markets forSignificant otherUnobservableDecember 31,identical Assetsobservable inputsinputsDecember 31,identical Assetsobservable inputsinputsDescription2016(Level 1)(Level 2)(Level 3)2015(Level 1)(Level 2)(Level 3)(In thousands)AssetsCash and CashEquivalents:MoneyMarket Funds$ 111,198 $ 111,198 $ — $ — $ 46,423 $ 46,423 $ — $ — CorporateDebtSecurities — — — — 15,785 —15,785 — Investments:SovereignDebtSecurities50,703 50,703 — — 69,302 64,264 5,038 — CorporateDebtSecurities207,633 61,986 145,647 —232,257 51,974 180,283 — Certificates ofdeposit35,374 —35,374 —11,516 —11,516 — Total FinancialAssets$ 404,908 $ 223,887 $ 181,021 $ — $ 375,283 $ 162,661 $ 212,622 $ — Liabilities:Contingentconsiderations$4,213 $ — $ — $ 4,213 $ 9,007 $ — $ — $ 9,007 Long-termretention plan27,135 —27,135 —17,159 —17,159 —Total FinancialLiabilities$ 31,348 $ — $ 27,135 $ 4,213 $ 26,166 $ — $ 17,159 $ 9,007 As of December 31, 2016 and 2015, the Company’s financial assets valued at fair value consisted of assets valued using i) Level 1 inputs:unadjusted quoted prices in active markets (Level 1 instrument valuations are obtained from observable inputs that reflect quoted prices(unadjusted) for identical assets in active markets) and; ii) Level 2 inputs: obtained from readily-available pricing sources for comparableinstruments as well as instruments with inactive markets at the measurement date.As of December 31, 2016 and 2015, the Company´s liabilities were valued at fair value using level 2 inputs and level 3 inputs (valuationsbased on unobservable inputs reflecting Company own assumptions). Fair value of contingent considerations are determined based on theprobability of achievement of the performance targets arising from each acquisition, as well as the Company’s historical experience withsimilar arrangements. For the year ended December 31, 2016, the Company recognized in earnings a loss of $377 thousands and a loss of $961thousands within other comprehensive income, in relation with contingent considerations. In addition, during the year ended December 31,2016, the Company assumed additional contingent considerations for an amount of $1,215 thousands and settled contingent considerationsfor an amount of $7,347 thousands.The unrealized net gains or loss on short term and long term investments are reported as a component of other comprehensive income. TheCompany does not anticipate any significant realized losses associated with those investments in excess of the Company’s historical cost.As of December 31, 2016 and 2015, the carrying value of the Company’s financial assets and liabilities measured at amortized costapproximated their fair value mainly because of its short term maturity. These assets and liabilities included cash and cash equivalents(excluding money markets funds), accounts receivable, credit cards receivable, loans receivable, funds payable to customers, other assets,accounts payable, salaries and social security payable, taxes payable, provisions and other liabilities. The convertible senior notes, the rest ofthe loans payable and other financial liabilities approximate their fair value because the interest rates are not materially different from marketinterest rates. 36 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 8.Fair value measurement of assets and liabilities (continued)The following table summarizes the fair value level for those financial assets and liabilities of the Company measured at amortized cost as ofDecember 31, 2016 and 2015: Balances as ofSignificant otherBalances as ofSignificant otherDecember 31,observable inputsDecember 31,observable inputs2016(Level 2)2015(Level 2)(In thousands)AssetsTime Deposits$ 113,414$ 113,414$ 76,658$ 76,658Accounts receivable, net25,435 25,435 28,428 28,428 Credit Cards receivable, net307,904 307,904 131,946 131,946 Loans receivable, net6,283 6,283 — —Other assets58,900 58,900 53,532 53,532 Total Assets$ 511,936$ 511,936$ 290,564$ 290,564LiabilitiesAccounts payable and accrued expenses$ 105,106$ 105,106$ 62,038$ 62,038Funds payable to customers370,693 370,693 203,247 203,247 Salaries and social security payable37,936 37,936 26,181 26,181 Taxes payable27,338 27,338 10,092 10,092 Dividends payable6,624 6,624 4,548 4,548 Loans payable and other financial liabilities (*)313,523 313,523 296,307 296,307 Other liabilities11,954 11,954 8,520 8,520 Total Liabilities$ 873,174$ 873,174$ 610,933$ 610,933 (*) The fair value of the convertible senior notes (including the equity component) is disclosed in Note 17.As of December 31, 2016 and 2015, the Company held no direct investments in auction rate securities, collateralized debt obligations orstructured investment vehicles, and did not have any non-financial assets or liabilities measured at fair value. 37 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 8.Fair value measurement of assets and liabilities (continued)As of December 31, 2016 and 2015, the fair value of money market funds, short and long-term investments classified as available for salesecurities are as follows: December 31, 2016 Cost Gross UnrealizedGains(1) Gross UnrealizedLosses (1) Estimated Fair Value (In thousands)Cash and cash equivalents Money Market Funds $ 111,198 $ — $ — $ 111,198Total Cash and cash equivalents 111,198 — — 111,198 Short-term investments Sovereign Debt Securities 2,166 — — 2,166 Corporate Debt Securities 102,509 26 (168) 102,367 Certificates of deposit 35,336 40 (2) 35,374 Total Short-term investments 140,011 66 (170) 139,907 Long-term investments Sovereign Debt Securities 48,943 — (406) 48,537 Corporate Debt Securities 105,632 90 (456) 105,266 Total Long-term investments 154,575 90 (862) 153,803 Total $ 405,784 $ 156 $ (1,032) $ 404,908 December 31, 2015Cost Gross UnrealizedGains(1) Gross UnrealizedLosses (1) Estimated Fair Value (In thousands)Cash and cash equivalents Money Market Funds $ 46,423 $ — $ — $ 46,423Corporate Debt Securities15,796 — (11) 15,785 Total Cash and cash equivalents62,219 — (11) 62,208 Short-term investments Sovereign Debt Securities13,981 — (19) 13,962 Corporate Debt Securities103,130 4 (157) 102,977 Certificates of deposit8,516 1 (2) 8,515 Total Short-term investments125,627 5 (178)125,454 Long-term investments Sovereign Debt Securities55,536 53 (249) 55,340 Corporate Debt Securities129,921 18 (659) 129,280 Certificates of deposit3,003 — (2) 3,001 Total Long-term investments188,460 71 (910) 187,621 Total$ 376,306 $ 76 $ (1,099) $ 375,283(1)Unrealized gains (losses) from securities are attributable to market price movements, net foreign exchange losses and foreign currencytranslation. Management does not believe any remaining significant unrealized losses represent other-than-temporary impairments basedon the evaluation of available evidence including the credit rating of the investments, as of December 31, 2016 and 2015. 38 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 8.Fair value measurement of assets and liabilities (continued)The material portion of the Sovereign Debt Securities is U.S. Treasury Notes with no significant risk associated.As of December 31, 2016, the estimated fair values of money market funds, short-term and long-term investments classified by its effectivematurities are as follows: One year or less251,105 One year to two years68,198 Two years to three years59,628 Three years to four years15,715 Four years to five years10,262 Total$ 404,908 9.Common stockAuthorized, issued and outstanding sharesAs of December 31, 2016 and 2015, as stated in the Company’s Fourth Amended and Restated Certificate of Incorporation (the “FourthAmended Certificate of Incorporation”), the Company has authorized 110,000,000 shares of Common Stock, par value $0.001 per share(“ Common Stock ”).As of December 31, 2016 and 2015, there were 44,157,364 and 44,156,854 shares of common stock issued and outstanding with a par value of$0.001 per share, respectively.Voting rightsEach outstanding share of common stock, is entitled to one vote on all matters submitted to a vote of holders of common stock, except forstockholders that beneficially own more than 20% of the shares of the outstanding common stock, in which case the board of directors (the“Board”) may declare that any shares of stock above such 20% do not have voting rights. The holders of common stock do not havecumulative voting rights in the election of directors.10.Mandatorily redeemable convertible preferred stockPursuant to the Fourth Amended Certificate of Incorporation, the Company authorized preferred stock consisting of 40,000,000 shares ofpreferred stock, par value $0.001 per share. As of December 31, 2016 and 2015, the Company has no preferred stock subscribed and or issued. 11.Compensation Plan for Outside DirectorsThe Company compensates its outside directors for their annual services provided through a cash payment, and from time to time through theissuance of equity awards, as follows: On September 27, 2013, the board of directors of the Company (the “Board”), upon the recommendation of the compensation committee of theBoard, adopted a director compensation program (the “2013 Director Compensation Program”) that sets compensation for the Company’soutside directors for the period of June 2013 to June 2016. The New Director Compensation Program, which became effective as of June 2013,provided that each outside director of the Company receives an annual fee for Board services, comprised of a non-adjustable Board serviceaward and an adjustable Board service award. The non-adjustable Board service award consisted of a fixed cash payment of $50thousands. The adjustable Board service award consisted of a fixed cash amount of $70 thousands multiplied by the quotient of (a) the averageclosing sale price of the Company’s common stock on the NASDAQ Global Market during the 30-trading day period preceding the AnnualMeeting of Stockholders held during the respective compensation period divided by (b) the average closing sale price of the Company’scommon stock on the NASDAQ Global Market during the 30-trading day period preceding the prior Annual Meeting of Stockholders. TheNew Director Compensation Program also included a non-adjustable chair service award for committee services from June 2013 to June2016. Under the terms of the New Director Compensation Program, the chair of each of the audit committee, the 39 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 11.Compensation Plan for Outside Directors (continued)compensation committee and the nominating and corporate governance committee and the lead independent director were entitled to receiveannual cash compensation in addition to existing director compensation in the amount of $22; $17; $7 and $15 thousands, respectively.On August 2, 2016, the Board, upon the recommendation of our Compensation Committee, adopted a new director compensation program orthe “2016 Director Compensation Program” that sets compensation for the Company’s outside directors for the period of June 2016 to June2019. The Director Compensation Program, which became effective as of June 2016, provides that each outside director of the Companyreceives an annual fee for Board services, comprised of a non-adjustable Board service award and an adjustable Board service award. The non-adjustable Board service award consists of a fixed cash payment of $60 thousands. The adjustable Board service award consists of a fixed cashamount of $100 thousands multiplied by the quotient of (a) the average closing sale price of the Company’s common stock on the NASDAQGlobal Market during the 30-trading day period preceding the Annual Meeting of Stockholders to be held during the respective compensationperiod divided by (b) the average closing sale price of our common stock on The NASDAQ Global Market during the 30-trading day periodpreceding the prior Annual Meeting of Stockholders. The Director Compensation Program also includes a non-adjustable chair service awardfor committee services from June 2016 to June 2019. Under the terms of the Director Compensation Program, the chair of each of the AuditCommittee, Compensation Committee and Nominating and Corporate Governance Committee and the lead independent director are entitledto receive annual cash compensation in addition to existing director compensation in the amount of $22, $22, $7 and $15 thousands,respectively.The following table summarizes the total accrued compensation cost related to outside Directors, included in operating expenses in theaccompanying consolidated statement of income, for the years ended December 31, 2016, 2015 and 2014: Year ended December 31,201620152014(In thousands)Chairman Fee$ 64$ 61$ 61Adjustable Award783 718 545 Non-adjustable Award444 398 359 $ 1,291$ 1,177$ 965 12. Equity compensation plan and restricted sharesPursuant to the “Amended and Restated 1999 Stock Option and Restricted Stock Plan”, (the “Plan”) the Company has reserved 4,732,400shares of Common Stock for issuance under the Plan.On June 10, 2009, the Annual Shareholders’ Meeting approved the adoption of the 2009 Equity Compensation Plan, which contains termssubstantially similar to the terms of the “1999 Stock Option and Restricted Stock Plan” scheduled to expire in November 2009. The 2009 planhas reserved for issuance 294,529 shares of the Company’s common stock under the 1999 plan. As of December 31, 2016, there are 232,825shares available for grant under the 1999 plan.Equity compensation awards granted under the Plan are at the discretion of the Company’s board of directors and may be in the form of eitherincentive or nonqualified stock options. As of December 31, 2016, there are no outstanding options granted under the Plan.There was no granting during the period from January 1, 2007 to December 31, 2016.13.Management incentive bonus planIn September 2001, the Company implemented the 2001 Management Incentive Bonus Plan (the “Incentive Plan”) to provide incentives to,and align the interests of, senior management with the Company’s shareholders. As established in the Incentive Plan, the Company’s ChiefExecutive Officer, with the consent of the board of directors, made the initial determination as to the executives entitled to the benefits underthe plan (the “Participants”) and the amounts of participation (the “Participation Percentages”). The board of directors administers theIncentive Plan. 40 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 13.Management incentive bonus plan (continued)Pursuant to the Incentive Plan, if the Company is sold, the Participants are entitled to receive a “sale bonus” and a “stay bonus” as follows:·If the purchase price is equal or greater than $20,000 thousands, then Participants shall be entitled to receive i) a sale bonus equal to5.5% of the purchase price and ii) a stay bonus equal to 7.1% of the purchase price; provided, however, that in no event shall theamount paid or payable by the purchaser considered for the Incentive Plan calculation exceed $78,335 thousands. Each Participantshall participate on these bonuses based on its Participation Percentage.·If the purchase price is less than $20,000 thousands, then Participants shall be entitled to receive a stay bonus equal to 7.1% of thepurchase price. Each Participant shall participate on this stay bonus based on its Participation Percentage.As the consummation of the sale is not considered probable, no provision has been recognized at December 31, 2016. 14.Income taxesThe components of pretax income in consolidated companies for the years ended December 31, 2016, 2015 and 2014 are as follows: Year Ended December 31,201620152014(In thousands)United States$ (12,321)$ (17,049)$ (10,848)Brazil106,123 70,261 91,136 Argentina115,032 116,652 53,065 Venezuela(15,202)(25,764)(31,360)Mexico(15,747)(4,743)6,094 Other Countries7,443 11,134 13,709 $ 185,328$ 150,491$ 121,796Income tax is composed of the following: Year Ended December 31,201620152014(In thousands)Income Tax:Current:U.S.$ 47$ 55$ 2Non-U.S.55,103 45,892 66,786 55,150 45,947 66,788 Deferred:U.S.1,337 1 465 Non-U.S.(7,525)(1,246)(18,110)(6,188)(1,245)(17,645)Income tax expense48,962 44,702 49,143 41 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 14.Income taxes (continued)The following is a reconciliation of the difference between the actual provision for income taxes and the provision computed by applying theblended income tax rate for 2016, 2015 and 2014 to income before taxes: Year Ended December 31,201620152014(In thousands)Net income before income tax$ 185,328$ 150,491$ 121,796Weighted average income tax rate34% 33% 33% Income tax expense at weighted average income tax rate$ 63,148$ 50,022$ 40,783Permanent differences:Federal and assets taxes31 33 4 Transfer pricing adjustments1,328 882 616 Non-deductible tax545 441 258 Non-deductible expenses599 1,911 2,311 Dividend distributions5,860 5,861 4,221 Impairment of Venezuela property and equipment3,216 5,226 14,734 Non-taxable income (*)(25,923)(27,385)(9,565)Currency translation(8,245)6,443 (5,218)Change in valuation allowance8,535 1,167 1,094 Business Combination — —(40)True up(132)101 (55)Income tax expense$ 48,962$ 44,702$ 49,143(*)Includes Argentine Tax holiday described in Note 2 “Income and asset tax” 42 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 14.Income taxes (continued)Deferred tax assets and liabilities are recognized for the future tax consequences of differences between the carrying amounts of assets andliabilities and their respective tax bases using enacted tax rates in effect for the year in which the differences are expected to reverse. Thefollowing table summarizes the composition of deferred tax assets and liabilities for the years ended December 31, 2016 and 2015: December 31,December 31,20162015(In thousands)Deferred tax assetsAllowance for doubtful accounts$8,171 $7,791 Unrealized net gains on investments—212 Property and equipment, net3,159 1,682 Accounts payable and accrued expenses888 1,023 Payroll and social security payable9,568 5,150 Taxes payable820 867 Provisions4,093 3,096 Foreign tax credit13,515 10,102 Tax loss carryforwards13,774 3,744 Total deferred tax assets53,988 33,667 Valuation allowance(8,971)(3,979)Total deferred tax assets, net45,017 29,688 Deferred tax liabilitiesProperty and equipment, net(9,611)(3,926)Customer lists(2,127)(2,602)Non compete agreement(78)(165)Outside basis dividends(13,515)(10,102)Trademarks(2,241)(2,538)Goodwill(1,514)(203)Convertible notes and Capped Call(4,961)(6,723)Foreign exchange effect(12)(790)Total deferred tax liabilities(34,059)(27,049)As of December 31, 2016, consolidated loss carryforwards for income tax purposes were $43,672 thousands. If not utilized, tax losscarryforwards will begin to expire as follows:2019$13,205 2020511 2021936 2022431 202312 202413 Thereafter21,134 Without due dates7,430 Total$43,672 43 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 14.Income taxes (continued)During the year ended December 31, 2016, the Company increased $3,937 thousands the valuation allowance in Venezuela because the losscarryforward in that country was considered not fully recoverable for tax purposes based on estimates of future earnings. The tax losscarryforward in Venezuela was mainly generated for the impairment of long-lived assets and the currency devaluation recognized in thatjurisdiction. In addition, during the same year, the Company increased the valuation allowance relating to the Mexican operation by 758thousands, as a consequence of the assessment of the recoverability of certain deferred tax assets in such jurisdictionDuring the year ended December 31, 2015, the Company reduced $73 thousands related to the valuation allowance of certain subsidiaries,acquired in 2008. In addition, during that same year, the Company increased the valuation allowance relating to Argentine operation by $173thousands, as a consequence of the assessment of the recoverability of certain deferred tax assets in such jurisdiction.The Company has not considered $184,654 thousands of the non-U.S. subsidiaries’ undistributed earnings as of December 31, 2016 incalculating deferred income taxes. In determining the amount of non-U.S. subsidiaries undistributed earnings for that calculation, theCompany does not consider a portion of the non-U.S. subsidiaries earnings as of December 31, 2016 to be subject to U.S. federal income taxpurposes because such earnings are intended to be indefinitely reinvested in its international operations and potential acquisitions related tothose operations. Upon distribution of those earnings in the form of dividends or otherwise, the Company would be subject to U.S. incometaxes if such distribution exceeds available foreign tax credits. It is not practicable to determine the income tax liability that might be incurredif these earnings were to be distributed. The Company does not expect a material impact in any repatriation of undistributed earnings offoreign subsidiaries on its operations since the taxable domestic gains generated by any dividend distributions will be mostly offset withforeign tax credits that arise from income tax paid in its foreign operations, which the Company is allowed to compute for domestic income taxpurposes.15.Commitments and ContingenciesLitigation and Other Legal MattersThe Company is subject to certain contingent liabilities with respect to existing or potential claims, lawsuits and other proceedings. TheCompany accrues liabilities when it considers probable that future costs will be incurred and such costs can be reasonably estimated. Theproceeding-related reserve is based on developments to date and historical information related to actions filed against the Company. As ofDecember 31, 2016, the Company had established reserves for proceeding-related contingencies and other estimated contingencies of $5,587thousands to cover legal actions against the Company in which its Management has assessed the likelihood of a final adverse outcome asprobable. Expected legal costs related to litigations are accrued when the legal service is actually provided. In addition, as of December 31,2016 the Company and its subsidiaries are subject to certain legal actions considered by the Company’s management and its legal counsels tobe reasonably possible for an aggregate amount up to $4,460 thousands.No loss amount has been accrued for such reasonably possible legal actions of which most significant (individually or in the aggregate) aredescribed below.As of December 31, 2016, there were 55 lawsuits pending against our Argentine subsidiary in the Argentine ordinary courts and 1,573 pendingclaims in the Argentine Consumer Protection Agencies, where a lawyer is not required to file or pursue a claim.As of December 31, 2016, 717 legal actions were pending in the Brazilian ordinary courts. In addition, as of December 31, 2016, there were2,923 cases still pending in Brazilian consumer courts. Filing and pursuing of an action before Brazilian consumer courts do not require theassistance of a lawyer.As of December 31, 2016, there were 9 claims pending against our Mexican subsidiaries in the Mexican ordinary courts and 130 claimspending against our Mexican subsidiaries in the Mexican Consumer Protection Agencies, where a lawyer is not required to file or pursue aclaim.In most of the cases filed against the Company, the plaintiffs asserted that the Company was responsible for fraud committed against them, orresponsible for damages suffered when purchasing an item on the Company’s website, when using MercadoPago, or when the Companyinvoiced them. 44 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 15.Commitments and Contingencies (continued)Citizen Watch do BrasilOn August 25, 2010, Citizen Watch do Brasil S/A, or Citizen, sued Brazilian subsidiaries in the 31st Central Civil Court State of São Paulo,Brazil. Citizen alleged that the Brazilian subsidiaries were infringing Citizen’s trademarks as a result of users selling allegedly counterfeitCitizen watches through the Brazilian page of the Brazilian subsidiaries’ website. Citizen sought an order enjoining the sale of Citizen-branded watches on the Brazilian subsidiaries’ Marketplace with a $6,000 daily non-compliance penalty. On September 23, 2010, theBrazilian subsidiaries were summoned of an injunction granted to prohibit the offer of Citizen products on its platform, but the penalty wasestablished at $6,000 per day.On September 26, 2010, the Brazilian subsidiaries presented their defense and appealed the decision of the injunction relief to the State Courtof Appeals of São Paulo on September 27, 2010. On October 22, 2010 the injunction granted to Citizen was suspended. On March 23, 2011,the Company’s appeal regarding the injunction granted to Citizen was ruled in favor of the Brazilian subsidiaries. On May 4, 2011, Citizenpresented a motion to clarify the decision but it was dismissed on March 14, 2012. On May 28, 2012, the Plaintiff filed a special recourserelated to the injunction relief to the State Court of Appeals, and the Brazilian subsidiaries presented their defense on August 16, 2012 whichwas not admitted. In September 2012, the Plaintiff filed a legal action against the Brazilian subsidiaries with same arguments alleged in theinjunction request and seeking for compensatory and statutory damages and defenses were presented on March 20, 2013. On January 9, 2013,Citizen presented a motion to request the appeal to be ruled by the Brazilian Superior Court of Justice (Superior Tribunal de Justiça). OnMarch 1, 2013, the Brazilian subsidiaries presented their response to that appeal. On August 27, 2013, the Brazilian Superior Court of Justiceruled against Citizen’s appeal. The Superior Court of Justice ruled that the Brazilian subsidiaries were not responsible for alleged infringementof intellectual property rights by its users and that they should comply with the “notice and take down” procedure it already have in place.On October 4, 2013, Citizen presented a motion to clarify mentioned decision issued by the Brazilian Superior Court of Justice and suchmotion was denied on November 11, 2013. Citizen then filed, on November 25, 2013, an Extraordinary Appeal aiming the decision renderedby Brazilian Superior Court of Justice to be reviewed by Brazilian Federal Supreme Court. On February 21, 2014, Brazilian subsidiariespresented its response to Citizen’s Extraordinary Appeal. On March 10, 2014, Citizen’s extraordinary appeal was not accepted by the BrazilianSuperior Court of Justice and, on March 26, 2014, Citizen filed an appeal against such decision, aiming at its Extraordinary Appeal to beaccepted and ruled by Brazilian Federal Supreme Court. On May 5, 2014 the Company presented its response to Citizen’s appeal to TheBrazilian Federal Supreme Court. On December, 19, 2014 Brazilian Federal Supreme Court overruled Citizen’s Extraordinary Appeal, endingthe discussion regarding the injunction sought by Citizen which was definitely not granted. On February 19, 2015 the judge preceding the31st Central Civil Court of the City of São Paulo, State of São Paulo, Brazil ruled the case in its merits totally in favor of the Braziliansubsidiary, stating that MercadoLivre shall not be held responsible for any of Citizen’s pleas and allegations and Citizen did not appeal thementioned decision and, as a consequence, the case is closed. On February 19, 2016 a final decision on the injunction was issued in favor ofthe Brazilian Subsidiary and therefore the case was closed.City of São Paulo Tax ClaimIn 2007 São Paulo tax authorities have asserted taxes and fines against our Brazilian subsidiary relating to the period from 2005 to 2007 in anapproximate amount of $5.9 million according to the exchange rate in effect at that time. In 2007, the Company presented administrativedefenses against the authorities’ claim and the tax authorities ruled against the Brazilian subsidiary. In 2009, the Company presented an appealto the Conselho Municipal de Tributos or São Paulo Municipal Council of Taxes which reduced the fine. On February 11, 2011, the Companyappealed this decision to the Câmaras Reunidas do Egrégio Conselho Municipal de Tributos or Superior Chamber of the São Paulo MunicipalCouncil of Taxes which affirmed the reduction of the fine. As of the date of these consolidated financial statements, the total amount of theclaim is $ 4.2 million including surcharges and interest. With this decision the administrative stage is finished. On August 15, 2011, theCompany made a deposit in court of R$ 9.5 million, which including accrued interests amounted to R$ 13.8 million or $ 4.2 million,according to the exchange rate at December 31, 2016, and filed a lawsuit in 8th Public Treasury Court of the County of São Paulo, State of SãoPaulo, Brazil, to contest the taxes and fines asserted by the Tax Authorities. On May 31, 2016, a lower court judge ruled in favor of theCompany and the São Paulo Municipal Council presented a motion to clarify mentioned decision, that was rejected. On November 29, 2016,the São Paulo Municipal Council appealed, and the Company presented its counter arguments. As of the date of these consolidated financialstatements, the Company is still waiting for a decision.In September 2012 São Paulo tax authorities have asserted taxes and fines against our Brazilian subsidiary related to our Brazilian subsidiary’sactivities in São Paulo for the period from 2007 through 2010. On July 27, 2012, the Company presented administrative defenses against theauthorities’ claim. On February 2, 2013, São Paulo tax authorities ruled against the Brazilian subsidiary maintaining claimed taxes and fines.On March 4, 2013, the Company presented an appeal to the Conselho Municipal de Tributos or São Paulo Municipal Council of Taxes. OnAugust 23, 2013, the Câmaras Reunidas do Egrégio Conselho Municipal de Tributos or Superior Chamber of the São Paulo Municipal Councilof Taxes ruled against the Company’s appeal. On September 5, 2013, the Company presented a special appeal to the Superior Chamber of theSão Paulo Municipal Council of Taxes. On October 18, 2013, the mentioned appeal was denied to 45 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 15.Commitments and Contingencies (continued)City of São Paulo Tax Claim (continued)our Brazilian subsidiary and confirmed the fines. With this decision the administrative stage is finished. On November 13, 2013, the Companyfiled a lawsuit before the 9th Treasury Court of the City of São Paulo, State of São Paulo, Brazil, to contest the taxes and fines asserted by theTax Authorities. On November 14, 2013, the Company made a deposit in court related to the lawsuit filed, of R$ 51.6 million or $ 15.8 million,according to the exchange rate at December 31, 2016. On January 28, 2014 São Paulo Municipal Council was summoned and on April 8, 2014the São Paulo Municipal Council presented its defense. On April 24, 2014, the Company presented our response to the mentioned defense. Asof December 31, 2016, the lower court’s ruling was still pending. In January 2005, the Brazilian subsidiary moved its operations to Santana de Parnaíba City, Brazil and began paying taxes to that jurisdictionand therefore the Company believes that has strong defenses to the claims of the São Paulo authorities with respect to these periods for both taxclaims. The Company’s management based on the external legal counsel opinion, believe that the risk of loss is remote for both claims, and asa result, has not reserved any provisions for these claims. The collection date of the legal deposits cannot be determined since it will depend onthe actual duration of the related legal proceedings.Tax ClaimsOn September 2, 2011, the Brazilian Federal tax authority has asserted taxes and fines against our Brazilian subsidiary relating to the incometax for the 2006 period in an approximate amount of R$5.1 million or $ 1.6 million, according to the exchange rate at December 31, 2016. OnSeptember 30, 2011, the Company presented administrative defenses against the authorities’ claim. On August 24, 2012, the Companypresented its appeal to the Board of Tax Appeals (CARF—Conselho Administrativo de Recursos Fiscais) against the tax authorities’ claims. OnDecember 5, 2013, the Board of Tax Appeals ruled against MercadoLivre’s appeal. The same Board of Tax Appeals recognized as due part ofthe tax compensation made by the Company, decreasing the outstanding debit to R$ 2.1 million or $ 639 thousands according to the exchangerate at December 31, 2016. On November 21, 2014, the Company appealed to the Superior Administrative Court of Tax Appeals. On September8, 2016 our appeal was not accepted. Mercado Livre filed an appeal against such decision, aiming the appeal to be accepted and ruled bySuperior Administrative Court of Tax Appeals. As of the date of these consolidated financial statements, the Superior Administrative Court ofTax Appeals ruling was still pending. The Company´s management, based on the external legal counsel opinion, believes that the tax positionadopted is more likely than not, based on the technical merits of the tax position. For that reason, the Company has not recorded any expenseor liability for the controversial amounts.Brazilian preliminary injunction against the Brazilian tax authoritiesOn November 6, 2014 the Company´s Brazilian subsidiaries requested a preliminary injunction against Receita Federal Do Brasil in order toavoid the income tax withholding over payments remitted by the Company´s Brazilian subsidiaries to the Company´s Argentine subsidiary forthe provision of IT support and assistance services; and requested the reimbursement of the amounts improperly withheld in the last five years.The injunction was granted considering that such withholding violates the provisions of the convention signed between the FederativeRepublic of Brazil and the Argentine Republic to prevent double taxation. In August 2015, such injunction was revoked by the first instancejudge decision of merit, which was favorable to Receita Federal Do Brasil. The Company presented an appeal in September, 2015 and as ofDecember 31, 2016, it is waiting for the second instance decision. As a result, the Company started making deposits in court for thecontroversial amounts. As of December 31, 2016, the Company recorded in the balance sheet deposits in court for R$25.8 million or $7.9million, according to the exchange rate at December 31, 2016 under the caption non-current other assets.The Company’s management, based on the external legal counsel opinion, believes that the tax position adopted is more likely than not, basedon the technical merits of the tax position and the existence of favorable decisions of the Federal Regional Courts. For that reason, theCompany has not recorded any expense or liability for the controversial amounts.Administrative tax claimsOn November 9, 2016, São Paulo tax authorities have asserted taxes and fines against our Brazilian subsidiary Ebazar, relating to theentitlement of PIS and COFINS credits from 2012 in an approximate amount of R$3.1 million or $945 thousands, according to the exchangerate as of December 31, 2016. The Company presented administrative defenses against the authorities’ claim. As of the date of theseconsolidated financial statements, the Company is still waiting for a decision. The opinion of the Company´s management, based on theexternal legal counsel opinion, is that the risk of losing the case is reasonably possible, but not probable.On December 27, 2016, São Paulo tax authorities have asserted taxes and fines against our Brazilian subsidiary MercadoPago.comRepresentações Ltda., relating to the entitlement of PIS and COFINS credits from 2012 in an approximate amount of R$12 million or $3.7million according to the exchange rate as of December 31, 2016. The Company will present administrative defenses against the authorities’claim. The opinion of the Company´s management, based on the external legal counsel opinion, is that the risk of losing the case is reasonablypossible, but not probable. 46 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 15.Commitments and Contingencies (continued)Administrative tax claims (continued)Other third parties have from time to time claimed, and others may claim in the future, that the Company was responsible for fraud committedagainst them, or that the Company has infringed their intellectual property rights. The underlying laws with respect to the potential liability ofonline intermediaries like the Company are unclear in the jurisdictions where the Company operates. Management believes that additionallawsuits alleging that the Company has violated copyright or trademark laws will be filed against the Company in the future.Intellectual property and regulatory claims, whether meritorious or not, are time consuming and costly to resolve, require significant amountsof management time, could require expensive changes in the Company’s methods of doing business, or could require the Company to enterinto costly royalty or licensing agreements. The Company may be subject to patent disputes, and be subject to patent infringement claims asthe Company’s services expand in scope and complexity. In particular, the Company may face additional patent infringement claimsinvolving various aspects of the payments businesses.From time to time, the Company is involved in other disputes or regulatory inquiries that arise in the ordinary course of business. The numberand significance of these disputes and inquiries are increasing as the Company’s business expands and the Company grows larger.Operating leasesThe Company has leases for office space in the various countries in which it operates. Total rental expense amounted to $6,112 thousands,$4,396 thousands and $3,111 thousands for the years ended December 31, 2016, 2015 and 2014, respectively.Minimum remaining annual commitments under the non-cancelable operating leases are as follows: For the year ended December 31, 2017$5,474 For the year ended December 31, 20186,378 For the year ended December 31, 20197,187 For the year ended December 31, 20206,493 For the year ended December 31, 20216,034 Thereafter13,634 $ 45,200 Employment ContractsEach of the executive officers of the Company are a party to individual employment agreements that provide for annual base estimated salariesaggregating approximately $1,518 thousands per year, a performance based estimated bonus aggregating to approximately $1,751 thousandsper year, and some fringe benefits. The employment agreements automatically renew annually, if not terminated by either party. Eachagreement includes clauses that provide in the event of employment termination without cause, the Company must pay the employee 12months of base salaryAdditionally, the executive officers of the Company are included in the Long Term Retention Plans mentioned in note 16. Under the 2009Plan the executive officers of the Company will receive approximately $650 thousands in a period of 3 months. Under the 2010 Plan theexecutive officers of the Company will receive approximately $2,001 thousands in a period of 1 year and 3 months. Under the 2011 Plan theexecutive officers of the Company will receive approximately $2,935 thousands in a period of 2 years and 3 months. Under the 2012 Plan theexecutive officers of the Company will receive approximately $4,011 thousands in a period of 3 years and 3 months. Under the 2013 Plan theexecutive officers of the Company will receive approximately $7,985 thousands in a period of 2 years and 3 months. Under the 2014 Plan theexecutive officers of the Company will receive approximately $8,291 thousands in a period of 3 years and 3 months. Under the 2015 Plan theexecutive officers of the Company will receive approximately $10,310 thousands in a period of 4 years and 3 months. Under the 2016 Plan theexecutive officers of the Company will receive approximately $13,394 thousands in a period of 5 years and 3 months. In all cases, theestimated amount has been calculated considering the Company’s closing stock price as of December 31, 2016. 47 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 15.Commitments and Contingencies (continued)Loans payable and other financial liabilitiesDuring last quarter of 2013, the Company through its Argentine subsidiary obtained two unsecured lines of credit from two Argentinean banks,denominated in Argentinean pesos, to fund the acquisition of office equipment in Buenos Aires. As of December 31, 2016, the first line ofcredit was fully paid and the amount outstanding under the remaining unsecured line of credit was $144 thousands. The unsecured line ofcredit bears interest fixed rate of 15.25% per annum and the last maturity date is in 11 months. During third quarter of 2015, the Company through its Venezuelan subsidiary obtained a mortgage loan from Banco del Caribe, C.A. BancoUniversal to fund the acquisition of an Office building in Caracas of $5,009 thousands to be paid in monthly installments during five years andbears a fixed interest rate of 24% per annum. The mortgage was constituted over the offices acquired up to an amount of $2,997 thousands tocover the amounts due to the bank. As of December 31, 2016, the amount due in relation to the mentioned mortgage loan amounts to $1,101thousands.During second quarter of 2016, the Company through its Brazilian subsidiary, obtained four lines of credit from Banco Nacional deDesenvolvimento Econômico e Social (BNDES) denominated in Reales, to fund the acquisition of machines and equipment. As of December31, 2016, the amount outstanding under these lines of credit is $330 thousands and matures in July 2017.During last quarter of 2016, the Company, through its Uruguayan subsidiary, obtained a line of credit from Citibank N.A. denominated inUruguayan pesos, to be applied to working capital needs. As of December 31, 2016, the amount outstanding under this line of credit is $1,376thousands, bears an interest fixed rate of 12.99% per annum and matures in January 2017.During last quarter of 2016, the Company, through its Chilean subsidiary, obtained a line of credit from Banco de Chile denominated inChilean pesos, to be applied to working capital needs. As of December 31, 2016, the amount outstanding under this line of credit is $9,640thousands, bears an interest fixed rate of 5.52% per annum and matures in February 2017.See additionally Note 17 with the detail of the 2.25% Convertible Senior Note due 2019. 16.Long term retention planOn August 2, 2016, the Board of Directors, upon the recommendation of the Compensation Committee, adopted the 2016 Long-Term Retention Plan (“2016 LTRP”). In addition to the annual salary and bonus of each employee, certain employees (“Eligible Employees”)are eligible to participate in the 2016 LTRP, which provides for the grant to an eligible employee of a fixed (a “2016 LTRP Fixed Award”) andvariable award, (a “2016 LTRP Variable Award”, and together with any 2016 LTRP Fixed Award, the “2016 LTRP Awards”). Each eligibleemployee will be granted both a 2016 LTRP Fixed Award and a 2016 LTRP Variable Award, in addition to receiving their annual salary andbonus. In order to receive payment in respect of the 2016 LTRP Awards, each eligible employee must satisfy the performance conditionsestablished by the Board of Directors for such employee. If these conditions are satisfied, the eligible employee will, subject to his or hercontinued employment as of each applicable payment date, receive the full amount of his or her 2016 LTRP Awards, payable as follows:·2016 LTRP Fixed Award: the eligible employee will receive a fixed payment equal to 16.66% of his or her 2016 LTRP Fixed Award oncea year for a period of six years starting in March 2017 (the “Annual Fixed Payment”); and·2016 LTRP Variable Award: on each date the Company pays the Annual Fixed Award to the eligible employee, he or she will also receivethe 2016 LTRP Variable Award payment equal to the product of (i) 16.66% of the applicable 2016 LTRP Variable Award and (ii) thequotient of (a) divided by (b), where (a), the numerator, equals the Applicable Year Stock Price (as defined below) and (b), thedenominator, equals the 2015 Stock Price (as defined below). For purposes of the 2016 LTRP, the “2015 Stock Price” shallequal $111.02 (the average closing price of the Company´s common stock on the NASDAQ Global Market during the final 60 -tradingdays of 2015) and the “Applicable Year Stock Price” shall equal the average closing price of the Company´s common stock on theNASDAQ Global Market during the final 60-trading days of the year preceding the applicable payment date for so long as the Company´scommon stock is listed on the NASDAQ. 48 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 16.Long Term Retention Plan (Continued)The rest of LTRP outstanding as of December 31, 2016, follows similar calculation method as explain above for 2016 LTRP. The followingtables summarize the 2009, 2010, 2011, 2012, 2013, 2014, 2015 and 2016 LTRP accrued compensation expense for the years endedDecember 31, 2016, 2015 and 2014:December 31, 2016December 31, 2015December 31, 2014Weighted-averageWeighted-averageWeighted-averageAggregateremainingAggregateremainingAggregateremainingIntrinsiccontractualIntrinsiccontractualIntrinsiccontractualvaluelife (years)valuelife (years)valuelife (years)(In thousands)Outstanding LTRP 20091,312 0.25 1,862 0.75 3,229 1.25 Outstanding LTRP 20102,062 0.75 2,151 1.25 2,308 1.75 Outstanding LTRP 20112,713 1.25 2,505 1.75 3,625 2.25 Outstanding LTRP 20123,569 1.75 3,094 2.25 4,354 2.74 Outstanding LTRP 20136,796 1.25 6,255 1.75 9,006 2.25 Outstanding LTRP 20146,357 1.75 5,582 2.25 7,526 2.74 Outstanding LTRP 20158,361 2.25 6,982 2.75 - -Outstanding LTRP 201611,977 2.75 - - - -The 2009, 2010, 2011, 2012, 2013, 2014, 2015 and 2016 LTRP have performance and/or eligibility conditions to be achieved at eachyear-end and also require the employee to stay in the Company at the payment date.The following tables summarize the LTRP accrued compensation expense for the years ended December 31, 2016, 2015 and 2014:Year ended December 31,201620152014(In thousands)LTRP 2009692 16 665 LTRP 20101,122 339 930 LTRP 20111,420 465 1,108 LTRP 20121,749 641 1,385 LTRP 20133,897 2,205 3,935 LTRP 20143,653 2,763 3,829 LTRP 20154,641 3,784 -LTRP 20165,809 --$ 22,983$ 10,213$ 11,852 49 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 17.2.25% Convertible Senior Notes Due 2019On June 30, 2014, the Company issued $330 million of 2.25% convertible senior notes due 2019 (the “Notes”). The Notes are unsecured,unsubordinated obligations of the Company, which pay interest in cash semi-annually, on January 1 and July 1, at a rate of 2.25% per annum.The Notes will mature on July 1, 2019 unless earlier repurchased or converted in accordance with their terms prior to such date. The Notes maybe converted, under specific conditions, based on an initial conversion rate of 7.9353 shares of common stock per $1,000 principal amount ofNotes (equivalent to an initial conversion price of $126.02 per share of common stock), subject to adjustment as described in the indenturegoverning the Notes. The net proceeds from the Notes were $322 million, net of the transaction costs.Holders may convert their notes at their option at any time prior to January 1, 2019 only under the following circumstances: (1) during anycalendar quarter commencing after the calendar quarter ending on September 30, 2014 (and only during such calendar quarter), if thelast reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive tradingdays ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price oneach applicable trading day; (2) during the five business day period after any five consecutive trading day period (the “measurement period”)in which the trading price per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of theproduct of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day; or (3) upon theoccurrence of specified corporate events. On or after January 1, 2019 until the close of business on the second scheduled trading dayimmediately preceding the maturity date, holders may convert their notes at any time, regardless of the foregoing circumstances. Theconversion rate is subject to customary anti-dilution adjustments. Following certain corporate events described in the Indenture that occurprior to the maturity date, the conversion rate will be increased for a holder who elects to convert its Notes in connection with such corporateevent in certain circumstances. The Indenture contains customary terms and covenants, including that upon certain events of default occurringand continuing, either the Trustee or the holders of at least 25% in principal amount of the outstanding Notes may declare 100% of theprincipal of, and accrued and unpaid interest on, all the Notes to be due and payable.The price of the Company’s common stock was greater than 130% of the conversion price for at least 20 trading days during the 30consecutive trading days ending on the last trading day of the Company’s fiscal quarter ended September 30, 2016. Therefore, as of September30, 2016, the conversion threshold had been met and the Notes became convertible at the holders’ option. During the period from October 1,2016 through December 31, 2016, 12 Notes were converted for a total amount of $12 thousands. During the fourth quarter of 2016, theconversion threshold had not been met. The determination of whether or not the Notes are convertible must continue to be performed on aquarterly basis. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of the Company’s common stock or acombination of cash and shares of the Company’s common stock, at the Company’s election. The intention of the Company is to share-settlethe total amount due upon conversion of the Notes.The total estimated fair value of the Notes was $458.8 million and $364.7 million as of December 31, 2016 and 2015, respectively. The fairvalue was determined based on the closing trading price per $100 of the Notes as of the last day of trading for the period. The Companyconsidered the fair value of the Notes as of December 31, 2016 and 2015 to be a Level 2 measurement. The fair value of the Notes is primarilyaffected by the trading price of our common stock and market interest rates. Based on the $156.1 closing price of the Company’s commonstock on December 31, 2016, the if-converted value of the Notes exceeded their principal amount by approximately $78.8 million.The convertible debt instrument was separated into debt and equity components at issuance and a fair value was assigned. The following tablepresents the carrying amounts of the liability and equity components:December 31, 2016December 31, 2015(In thousands)Amount of the equity component (1)$45,808 $45,808 2.25% convertible senior notes due 2019$330,000 $330,000 Unamortized debt discount (2)(25,097)(34,214)Unamortized transaction costs related to the debt component(3,968)(5,309)Contractual coupon interest accrual7,425 7,425 Contractual coupon interest payment(7,425)(7,425)Net carrying amount$300,935 $290,477 (1)Net of $1,177 thousands of transaction costs related to the equity component of the Notes.(2)As of December 31, 2016, the remaining period over which the unamortized debt discount will be amortized is 2.5 years. 50 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 17.2.25% Convertible Senior Notes Due 2019 (continued)The following table presents the interest expense for the contractual interest and the accretion of debt discount:Year ended December 31,201620152014(In thousands)Contractual coupon interest expense$7,425 $7,425 $3,733 Amortization of debt discount9,117 8,630 4,141 Amortization of debt issuance costs1,341 1,217 569 Total interest expense related to Notes$17,883 $17,272 $8,443 In connection with the issuance of the Notes, the Company paid $19,668 thousands to enter into capped call transactions with respect to itscommon shares (the “Capped Call Transactions”), with certain financial institutions. The Capped Call Transactions are expected generally toreduce the potential dilution upon conversion of the Convertible Notes and / or offset any cash payments the Company may be required tomake in excess of the principal amount of any converted notes in the event that the market price of the common shares is greater than the strikeprice of the Capped Call Transactions, initially set at $126.02 per common share, which corresponds to the initial conversion price of the Notesand is subject to anti-dilution adjustments substantially similar to those applicable to the conversion rate of the Notes, and have a cap price of$155.78 per common share. Therefore, as a result of executing the Capped Call Transactions, the Company will reduce its exposure topotential dilution once the market price of its common shares exceeds the strike price of $126.02 and up to a cap price of $155.78 per commonshare. The Capped Call Transactions allows the Company to receive shares of the common stock and/or cash related to the excess conversionvalue that the Company would pay to the holders of the Notes upon conversion, up to the above mentioned cap price.For more detailed information in relation to the account of the Notes and the Capped Call transactions, see Note 2 to these consolidatedfinancial statements. 18.Related Party TransactionsIndemnification agreementsThe Company has entered into indemnification agreements with each of the directors and executive officers of its local subsidiaries. Theseagreements require the Company to indemnify such individuals, to the fullest extent permitted by the laws of the jurisdiction where thesesubsidiaries operate, for certain liabilities to which they may become subject by reason of the fact that such individuals are or were directors orexecutive officers of the local subsidiaries of the Company. 51 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 19.Valuation and qualifying accountsThe following table summarizes valuation and qualifying accounts activity during the years ended December 31, 2016, 2015 and 2014: ChargesUtilized /Balance atbeginning ofCharged/ creditedto Netincome /Currency translationadjustments /Balance atend ofyear(loss)Write-offsyear(In thousands)Allowance for doubtful accountsYear ended December 31, 201418,995 20,864 (23,694)16,165 Year ended December 31, 201516,165 15,194 (20,073)11,286 Year ended December 31, 201611,286 12,952 (13,802)10,436 Credit cards receivable allowance for chargebacksYear ended December 31, 20141,009 669 (1,149)529 Year ended December 31, 2015529 1,719 (1,014)1,234 Year ended December 31, 20161,234 1,294 (17)2,511 Tax valuation allowanceYear ended December 31, 20143,089 1,608 (166)4,531 Year ended December 31, 20154,531 16 (568)3,979 Year ended December 31, 20163,979 8,535 (3,543)8,971 ContingenciesYear ended December 31, 20143,330 3,651 (3,972)3,009 Year ended December 31, 20153,009 5,100 (3,723)4,386 Year ended December 31, 20164,386 4,752 (3,551)5,587 52 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 20.Quarterly Financial Data (unaudited)The following tables present certain consolidated quarterly financial information for each of the last twelve quarters for the years endedDecember 31, 2016, 2015 and 2014:Quarter EndedMarch 31,June 30,September 30,December 31,(In thousands, except for share data)2016Net Revenues$ 157,630$ 199,644$ 230,847$ 256,275Gross profit102,182 126,298 145,648 162,730 Net Income30,247 15,858 38,912 51,349 Net Income per share-basic0.68 0.36 0.88 1.16 Net Income per share-diluted0.68 0.36 0.88 1.16 Weighted average sharesBasic44,156,961 44,157,341 44,157,341 44,157,355 Diluted44,156,961 44,157,341 44,157,341 44,157,355 2015Net Revenues$ 148,103$ 154,314$ 168,641$ 180,732Gross profit103,395 104,003 111,828 117,570 Net Income1,721 19,463 45,640 38,965 Net Income per share-basic0.04 0.44 1.03 0.88 Net Income per share-diluted0.04 0.44 1.03 0.88 Weighted average sharesBasic44,154,796 44,155,271 44,155,830 44,156,800 Diluted44,154,796 44,155,271 44,155,830 44,156,800 2014Net Revenues$ 115,382$ 131,849$ 147,935$ 161,370Gross profit83,843 95,478 104,533 113,704 Net Income (loss)30,328 (25,588)33,752 34,161 Net Income (loss) per share-basic0.69 (0.58)0.76 0.76 Net Income (loss) per share-diluted0.69 (0.58)0.76 0.76 Weighted average sharesBasic44,153,818 44,153,892 44,153,892 44,154,412 Diluted44,153,818 44,182,668 44,153,892 44,154,412 21.Cash Dividend DistributionDuring the fiscal year ended December 31, 2016, the Company approved cash dividends for a total amount of $26,495 thousands or $0.6 pershare, which had all been paid as of the year- end, except for the one approved in October 2016, consisting of $6,624 thousands (or $0.15 pershare, which was paid on January 16, 2017) to stockholders of record as of the close of business on December 31, 2016.During the fiscal year ended December 31, 2015, the Company approved cash dividends for a total amount of $18,192 thousands or $0.412 pershare, which had all been paid as of the year-end, except for the one approved in October 2015, consisting of $4,548 thousands (or $0.103 pershare, which was paid on January 15, 2016) to stockholders of record as of the close of business on December 31, 2015.During the fiscal year ended December 31, 2014, the Company approved cash dividends for a total amount of $29,318 thousands or $0.664 pershare, which had all been paid as of the year-end, except for the one approved in October 2014, consisting of $7,330 thousands (or $0.166 pershare, which was paid on January 15, 2015) to stockholders of record as of the close of business on December 31, 2014. 53 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 22. Law of “Costs, Earnings, and Fair Profits”In November 2013 the Venezuelan Congress approved an “enabling law” granting the president of Venezuela the authority to enact laws andregulations in certain policy areas by decree. This authority includes the ability to restrict profit margins and impose greater controls onforeign exchange and the production, import, and distribution of certain goods. Among other actions, the president has used this decree powerto pass the Law of Costs, Earnings, and Fair Profits, which became effective in January 2014 and, among other provisions, authorizes theVenezuelan government to set “fair prices” and maximum profit margins in the private sector. On October 26, 2015, the decree number 2,074was published in the Official Gazette of Venezuela, establishing certain definitions related to the determination of prices in that country.Despite the Company does not expect that this law together with the decree issued by the Venezuelan Government will have a material adverseimpact on the Company´s financial condition or results of operations, considering the current difficult macroeconomic environment inVenezuela, the final potential effects remains uncertain. The effects of such potential effects, if any, would be recognized in the financialstatements once the mentioned uncertainty is resolved. 54 Exhibit 21.01MercadoLibre Inc.LIST OF SUBSIDIARIESParent company:MercadoLibre, Inc.Delaware, USADate of Incorporation: October 15, 1999Subsidiaries:MercadoLibre S.R.L. (Argentina)Date of Incorporation: July 29, 1999MercadoLibre S. de R.L. de C.V. (Mexico)Date of Incorporation: October 6, 1999MercadoLivre.Com Atividades de Internet Ltda. (Brazil)Date of Incorporation: August 16, 1999MercadoLibre Chile Ltda. (Chile)Date of Incorporation: January 7, 2000MercadoLibre Colombia, Ltda. (Colombia)Date of Incorporation: February 7, 2000MercadoLibre Venezuela S.R.L. (Venezuela)Date of Incorporation: March 1, 2000Ibazar.com Atividades de Internet Ltda. (Brazil)Date of Incorporation: September 16, 1999MercadoLibre S.A. (Uruguay)Date of Incorporation: March 23, 2004Former name: MercadoLibre Zonaamerica S.A.MercadoLibre Ecuador Cia. Ltda. (Ecuador)Date of Incorporation: July 12, 2006MercadoLibre Perú S.R.L. (Peru)Date of Incorporation: January 26, 2000Former name: Deremate.com del Peru S.A.Hammer.com, LLCDelaware, USADate of Incorporation: November 1, 2005 MercadoPago, LLCDelaware, USADate of Incorporation: April 10, 2006ListaPop, LLCDelaware, USADate of Incorporation: April 20, 2007Deremate.com de Mexico S. de R.L. de C.V. (Mexico)Date of Incorporation: November 9, 1999Deremate.com de Uruguay S.A. (Uruguay)Date of Incorporation: June 14, 1999eBazar.com.br Ltda. (Brazil)Date of Incorporation: February 11, 1999MercadoPago.com Representações Ltda. (Brazil)Date of Incorporation: December 2, 2008MercadoPago Colombia S.A. (Colombia)Date of Incorporation: October 25, 2006MercadoPago S.A. (Chile)Date of Incorporation: April 7, 2006Servicios Administrativos y Comerciales, LLCDelaware, USADate of Incorporation: October 11, 2007PSGAC Prestadora de Servicios Gerenciales, Administrativos y Comerciales, S de R.L. de C.V (Mexico)Date of Incorporation: November 12, 2007Classifieds LLCDelaware, USADate of Incorporation in Delaware: June 30, 2008Former name: CMG Classified Media Group, Inc.Former jurisdiction: PanamaGrupo Veneclasificados C.A. (Venezuela)Date of Incorporation: March 11, 2003DeRemate.com de Argentina S.A. (Argentina)Date of Incorporation: August 19, 1999Former name: Etaskforce S.A.DeRemate.com Chile S.A. (Chile)Date of Incorporation: January 14, 2000MercadoLibre Costa Rica S.R.L. (Costa Rica)Date of Incorporation: January 4, 2010Meli Participaciones S.L. (Spain)Date of Incorporation: October 21, 2010Autopark, LLCDelaware, USADate of incorporation: August 9, 2011Autopark Classifieds, LLCDelaware, USADate of incorporation: August 17, 2011 Meli Uruguay S.R.L. (Uruguay)Date of incorporation: May 30, 2011Marketplace Investments, LLCDelaware, USADate of incorporation: October 11, 2011Meli Technology, Inc.California, USADate of incorporation: July 1, 2011Neosur S.A.Ciudad de Cordoba, ArgentinaDate of incorporation: September 22, 2006Meli Inversiones SpASantiago, ChileDate of incorporation: December 23, 2013Tikleral S.A.Montevideo, UruguayDate of incorporation: January 25, 2013Brick.com, LLCDelaware, USADate of incorporation: February 6, 2013Meli Clasificados MLV S.R.L. (Venezuela)Date of incorporation: February 2, 2012Business Vision S.A.Ciudad de Buenos Aires, ArgentinaDate of incorporation: Septembre 9, 2002Inmobiliaria Web Chile S. de R.L de C.VDate of incorporation: December 16, 2009MercadoEnvios Servicos de Logística Ltda.Date of incorporation: March 25, 2014Dabee Brasil Serviços de Intermediação e Facilitação de Negócios Ltda.Date of incorporation: June 20, 2011Dabee Technology India Private LimitedDate of incorporation: January 3, 2013Monits S.A.Date of incorporation: February 12, 2016Axado Informação e Tecnologia S.A.Date of incorporation: June 1, 2016Mercado Créditos S.R.L.Date of incorporation: June 3, 2016 Exhibit 23.01CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe hereby consent to the incorporation by reference in the Registration Statements No. 333-151063 and No. 333-159891 on Form S-8 of MercadoLibre, Inc. of our report dated February 21, 2017 relating to the consolidatedfinancial statements of MercadoLibre Inc. and the effectiveness of MercadoLibre Inc.´s internal control overfinancial reporting, appearing in this Annual Report on Form 10-K of MercadoLibre Inc. for the year endedDecember 31, 2016.Buenos Aires, ArgentinaBuenos Aires, ArgentinaFebruary 21, 2017Deloitte & Co S.A./s/ Diego O. de VivoPartner Exhibit 23.02CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe hereby consent to the incorporation by reference in the Registration Statement No. 333-214078 on Form S-3 ofour report dated February 21, 2017, relating to the consolidated financial statements of MercadoLibre Inc. and theeffectiveness of MercadoLibre Inc.´s internal control over financial reporting, appearing in this Annual Report onForm 10-K of MercadoLibre Inc. for the year ended December 31, 2016.Buenos Aires, ArgentinaBuenos Aires, ArgentinaFebruary 21, 2017Deloitte & Co S.A./s/ Diego O. de VivoPartner Exhibit 31.01CERTIFICATION PURSUANT TORULE 13a 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934,AS ADOPTED PURSUANT TOSECTION 302 OF THE SARBANES-OXLEY ACT OF 2002I, Marcos Galperin, certify that: 1.I have reviewed this Annual Report on Form 10-K for the fiscal year ended December 31, 2016 of MercadoLibre, Inc. (the“registrant”);2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a materialfact necessary to make the statements made, in light of the circumstances under which such statements were made, notmisleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly presentin all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, theperiods presented in this report;4.The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (asdefined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to bedesigned under our supervision, to ensure that material information relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others within those entities, particularly during the period inwhich this report is being prepared;(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting tobe designed under our supervision, to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordance with generally acceptedaccounting principles;(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report ourconclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period coveredby this report based on such evaluation; and(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurredduring the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annualreport) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal controlover financial reporting; and5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control overfinancial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or personsperforming the equivalent function): (a)All significant deficiencies and material weaknesses in the design or operation of internal control over financialreporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize andreport financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role inthe registrant’s internal control over financial reporting. 4 February 24, 2017 By: /s/ Marcos Galperin Marcos Galperin President and Chief Executive Officer(Principal Executive Officer) Exhibit 31.02CERTIFICATION PURSUANT TORULE 13a 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934,AS ADOPTED PURSUANT TOSECTION 302 OF THE SARBANES-OXLEY ACT OF 2002I, Pedro Arnt, certify that: 1.I have reviewed this Annual Report on Form 10-K for the fiscal year ended December 31, 2016 of MercadoLibre, Inc. (the“registrant”);2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a materialfact necessary to make the statements made, in light of the circumstances under which such statements were made, notmisleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly presentin all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, theperiods presented in this report;4.The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (asdefined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to bedesigned under our supervision, to ensure that material information relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others within those entities, particularly during the period inwhich this report is being prepared;(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting tobe designed under our supervision, to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordance with generally acceptedaccounting principles;(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report ourconclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period coveredby this report based on such evaluation; and(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurredduring the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annualreport) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal controlover financial reporting; and5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control overfinancial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or personsperforming the equivalent function):(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financialreporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize andreport financial information; and (b)Any fraud, whether or not material, that involves management or other employees who have a significant role inthe registrant’s internal control over financial reporting. February 24, 2017 By: /s/ Pedro Arnt Pedro Arnt Executive Vice President andChief Financial Officer(Principal Financial Officer) Exhibit 32.01CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with the Annual Report on Form 10-K of MercadoLibre, Inc. (the “Company”) for the year endedDecember 31, 2016, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I,Marcos Galperin, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adoptedpursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1)the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as amended; and (2)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations ofthe Company. /s/ Marcos GalperinMarcos GalperinPresident and Chief Executive Officer(Principal Executive Officer)February 24, 2017The foregoing certification is being furnished solely to accompany this report pursuant to 18 U.S.C. 1350, andis not being filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and is not to beincorporated by reference into any filing of the Company whether made before or after the date hereof, regardless ofany general incorporation language in such filing. A signed original of this written statement required bySection 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears intyped form within the electronic version of this written statement required by Section 906, has been provided to theCompany and will be retained by the Company and furnished to the Securities and Exchange Commission or its staffupon request. Exhibit 32.02CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with the Annual Report on Form 10-K of MercadoLibre, Inc. (the “Company”) for the yearended December 31, 2016, as filed with the Securities and Exchange Commission on the date hereof (the “Report”),I, Pedro Arnt, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adoptedpursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1)the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations ofthe Company. /s/ Pedro ArntPedro ArntExecutive Vice President and ChiefFinancial Officer(Principal Financial Officer)February 24, 2017The foregoing certification is being furnished solely to accompany this report pursuant to 18 U.S.C. 1350, andis not being filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and is not tobe incorporated by reference into any filing of the Company whether made before or after the date hereof, regardlessof any general incorporation language in such filing. A signed original of this written statement required bySection 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears intyped form within the electronic version of this written statement required by Section 906, has been provided to theCompany and will be retained by the Company and furnished to the Securities and Exchange Commission or itsstaff upon request.
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