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, 2017OR ☐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, a smaller reporting company, oran emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growthcompany” 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 ☐Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying withany new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐ 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, 2017, 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, 2017)was approximately $8,522,234,542. 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, 2017 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, 2018, 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 2018 Annual Meeting of Stockholders, to be filed with the Securities andExchange Commission by no later than April 30, 2018, 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, 2017 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 43 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 85 EXHIBIT INDEX 83 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;·our ability to attract new customers, retain existing customers and increase revenues;·the impact of government and central bank and other regulations on our business;·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;·seasonal fluctuations;·political, social and economic conditions in Latin America.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 formanagement to 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 anyfactor, or combination 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 ecosystem 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 635 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, Chile, Uruguay andPerú. MercadoPago allows merchants to facilitate checkout and payment processes on their websites and also enables users to simply transfer moneyto each other either through the website or using the MercadoPago App, available on iOS and Android. Additionally, we launched MercadoCredito,which is designed to extend loans to specific merchants and consumers. Our MercadoCredito solution allows us to deepen our engagement with ourmerchants, in Argentina, Brazil and Mexico and consumers in Argentina, by offering them additional services and is currently available.To further enhance our suite of e-commerce services, we launched the MercadoEnvios shipping program in Brazil, Argentina, Mexico,Colombia and Chile. Through MercadoEnvios, we arrange for third-party shipping providers to fulfill their sales. Sellers opting into the program areable to offer a uniform and seamlessly integrated shipping experience to their buyers at competitive prices. As of December 31, 2017 we also offerfree shipping to buyers in Brazil, Mexico, Chile and Colombia.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 develops and sells enterprise software solutions to e-commerce business clients in Brazil.As further described in Note 2 to our audited consolidated financial statements, effective as of December 1, 2017, we determined that we nolonger meet the accounting criteria for control of our subsidiaries in Venezuela as a result of Venezuela’s recent selective default determination,restrictive exchange controls, suspension of foreign exchange market and the worsening in Venezuela macroeconomic environment that havesignificantly impacted the Company’s ability to make key financial decisions with respect to our Venezuelan subsidiaries. As a result, wedeconsolidated our Venezuelan subsidiaries effective as of December 1, 2017, recorded an impairment of its investments in Venezuela, including netassets, intercompany balances and intangible assets and began reporting the results under the cost method of accounting. As of December 1, 2017,the Company no longer includes the balances, results of operations and cash flows of the Venezuelan subsidiaries in its consolidated financialstatements. 5 Table of Contents 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.We commenced operations in Argentina in August 1999 and subsequently began operations in other countries as well. Since our inception, wehave 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.”We completed our initial public offering in August 2007, resulting in net proceeds to us of approximately $49.6 million.We have grown in part through certain acquisitions since our inception, including of certain operations of DeRemate.com in 2005 and, morerecently, Inmobiliaria Web, Business Vision S.A., KPL Soluções Ltda and Metros Cúbicos, S.A. de C.V.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.In June 2016, we acquired 100% of the issued and outstanding shares of capital stock of Axado, a company that develops logistic software forthe e-commerce industry in Brazil, for the purchase price of $5.5 million. The objective of this acquisition was to enhance our software developmentcapabilities on Transportation Management System and contribute to our shipping business performance.In December 2017, we acquired 100% of the issued and outstanding shares of capital stock of E-Commet Software Ltda., a Brazilian softwaredevelopment company, for the purchase price of $8.7 million. The objective of this acquisition was to enhance our software developmentcapabailities. 6 Table of Contents Our strategyOur main focus is to serve people in Latin America by enabling wide access to retail and payments e-commerce services, providing compellingtechnology based solutions that democratize commerce and money, thus contributing to the development of a large and growing digital economy ina region with a population of over 635 million people and one of the fastest-growing Internet penetration rates in the world.We serve our buyers by giving them access to a broad and affordable variety of products and services, a selection we believe to be larger thanotherwise available to them via other online and offline sources serving our Latin American markets. We believe we serve our sellers by giving themaccess to a larger and more geographically diverse user base at a lower overall cost and investment than offline venues serving our Latin Americanmarkets. Additionally, we provide payment settlement services to facilitate such transactions, and advertising solutions to promote them. We alsoserve our users by making capital more accessible through different credit products, fostering entrepreneurship and social mobility, with the goal ofcreating significant value for our stakeholders.More broadly, we strive to make inefficient markets more efficient through technology and in that process generate value for our stockholders.To achieve these objectives, we intend to pursue the following strategies:·Continue to improve shopping experience for our users. We intend to continually enhance our e-commerce ecosystem in order to betterserve individuals, brands, retailers and other businesses that want to buy or sell goods and services online in a convenient, simple andsafe way. We are committed to continue investing to develop new tools and technologies that facilitate web and mobile commerce on ourplatform. Within our constant focus on innovation, a key component of user experience is the vertical solutions we offer across keycategories. We will continue to focus on improving the functionality of our websites and apps, driving increased usage of our paymentsand shipping solutions to deliver a more efficient and safe shopping experience and providing our users with the help of a dedicatedcustomer support department. We will continue to focus on increasing purchase frequency and transaction volumes from our existingusers, including the development of our MercadoLider loyalty program for high-volume sellers, and our MercadoPuntos loyalty programfor frequent buyers.·Continue to grow our business and maintain market leadership. We have focused and intend to continue to focus on growing ourbusiness and achieving as many scale related competitive advantages by focusing on top line growth and strengthening our position as apreferred commerce and payments platform in each of the markets in which we operate. We also intend to grow our business and maintainour leadership by taking advantage of the expanding potential user base that has resulted from the growth of Internet penetration rates inLatin America. We intend to achieve these goals through organic growth, by introducing our business in new countries and entering newcategory segments, by launching new transactional business lines, and through potential strategic acquisitions of key businesses andassets.·Expand into additional transactional service offerings. Our strategic focus is to enable online transactions of multiple types of goodsand services throughout Latin America. Consequently, we strive, and will continue to strive, to launch online transactional offerings innew product and service categories where we believe business opportunities exist. These new transactional offerings include, but are notlimited to, efforts involving: (a) offering additional product categories in our marketplace, (b) expanding our presence in vehicle, realestate and services classifieds, (c) maximizing utilization of MercadoPago on our platform and expanding off-platform in online andoffline transactions, (d) maximizing utilization of MercadoEnvios, (e) expanding our MercadoCrédito service, (f) offering enterprisesoftware solutions to our online commerce business clients and (g) expanding our advertising offerings. We believe that a significantportion of our growth will be derived from these new or expanded product and service launches in the future.·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 promotegreater cross-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 ourmarketplace, payments and shops solutions, and encourage users of any of our services to experiment with the other solutions we offer. 7 Table of Contents 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 2017, visitors to our website were able to browse over 114.2 million Marketplace listings daily, organized by country, in over 1,461different product categories. We believe that we have achieved a critical mass of active buyers, sellers and product listings in most of the countrieswhere we operate and that our business can be readily scaled to handle increases in our user base and transaction volume. At December 31, 2017, wehad over 211.9 million confirmed registered MercadoLibre Marketplace users, up from 174.2 million and 144.6 million at December 31, 2016 and2015, respectively. During 2017, in our Marketplace, we had 10.1 million unique sellers, 33.7 million unique buyers and 270.1 million SuccessfulItems sold as compared to i) 7.6 million unique sellers, 27.7 million unique buyers and 181.2 million successful items sold during 2016 and ii) 6.2million unique sellers, 23.6 million unique buyers and 128.4 million successful items sold during 2015. Finally, our Marketplace gross merchandisevolume (“GMV”) was $11.7 billion in 2017, as compared to $8.0 billion in 2016 and $7.2 billion in 2015. See Item 6 of Part II, “Selected FinancialData-Other data” for details on the measures described in this paragraph.Additionally, during 2017, we launched a loyalty program called “Mercado Puntos” in Brazil, Mexico, Colombia and Chile. This programallows buyers to accumulate points for each purchase made on our platform, and grants access to certain benefits as buyers advance through levels.Currently, the benefit consists of free shipping services for future purchases. 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 2017, MercadoLibre visitors were able to browse an average of 4.0 million classifieds listings daily, including 3.1 million in Real Estate, 0.8million in motors, and 0.1 million in services per day. During 2017, we had a total of 4.7 million unique sellers and 28.9 million paid listingsthrough the MercadoLibre Classifieds Service, as compared to i) 2.9 million unique sellers and 27.2 million paid listings during 2016 and ii)2.4 million unique sellers and 15.2 million paid listings during 2015.MercadoPago 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 iOS, 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”. 8 Table of Contents 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 that 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 Mexico and Argentina in 2016.During the year ended December 31, 2017, our on-platform users spent $9,628 million using MercadoPago, which represented 81.9% of ourgross merchandise volume for that year. During the year ended December 31, 2016, our on-platform users spent $5,627 million using MercadoPago,which represented 69.9% of our gross merchandise volume for the year. During the year ended December 31, 2015, our on-platform users spentapproximately $3,765 million using MercadoPago, which represented 52.6% 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, 2017, approximately 99.8% of the MercadoLibre Marketplace listings accepted MercadoPago forpayments and 93.2% of our total GMV in these countries was processed 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 merchantsand consumers. During 2017, MercadoCredito also launched in Brazil and Mexico. Our MercadoCredito solution allows us to deepen ourengagement with our merchants, in Argentina, Brazil and Mexico and consumers in Argentina, by offering them additional services. As of December31, 2017, we extended approximately $127.5 million in credit to merchants and consumers, of which $73.4 million were outstanding.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 third-party 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 Mercado Libre 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 $175.2 million during 2017, $72.0 million during 2016 and $58.5 million during 2015.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: Mercado Libre 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 views, and clicks from our intended target audience.·Display: Mercado Libre is an active participant in the main display-ad networks across the region. These networks include, but are notlimited to Google Display Network and Facebook. Our company uses the display networks to run branding, prospecting and retargetingstrategies. 9 Table of Contents ·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: When appropriate, we promote key selling events on radio and TV. In addition, we organize public relation events to promoteour brand and reputation where we see opportunities.During 2017, we continued to showcase our regional brand campaign “Never Stop Searching”. As part of these efforts, we continued to displayour 8 best-performing video spots produced in 2016 that were designed for and released in digital media. We consider digital media as an importantchannel to reach millennials, our target market, and find it more cost-effective than TV. As a result of this branding strategy, we continue to seesignificant growth in direct traffic.In addition to our branding videos, we also ran video advertisements in Mexico, Colombia and Chile designed to improve awareness of someof the functional attributes of our product such as free shipping (for qualifying purchases), and our buyer protection program. This campaign ranmainly across digital media, but did air on TV and radio in some locations.Product developmentAt December 31, 2017, we had 1,655 employees on our information technology and product development staff, an increase from 429employees at December 31, 2016, due to new hires and as a consequence of improvements in our ecosystem products such as MercadoCredito, ourloyalty pogram and MercadoEnvios, which increased our information technology and product development staff. We incurred product developmentexpenses (including salaries) in the amount of $127.2 million in 2017, $98.5 million in 2016 and $76.4 million in 2015. We also incurredinformation technology capital expenditures, including software licenses, amounting to $51.4 million in 2017, $33.1 million in 2016 and $25.8million in 2015.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.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, we have had a development center in Buenos Aires where weconcentrate 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 and Chile.From 2014 to 2017, we have acquired various software development companies in Argentina and Brazil that have enhanced our softwaredevelopment 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. 10 Table of Contents 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 Amazon and Rakuten in Brazil and Amazon in México. We alsocompete with businesses that offer business-to-consumer online e-commerce services such as pure play Internet retailer Submarino (a website ofB2W Inc.), Cnova, Aliexpress or others with a focus on specific vertical categories, such as Netshoes, which focuses on sports & apparel and Dafiti,which focuses on fashion.There are also a growing number of brick and mortar retailers that have launched online 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.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 a variety ofonline services, and have the potential to introduce e-commerce to their large user populations. Other large companies with strong brand recognitionand 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 all of itsshares.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 PayU in Argentina, Chile, Colombia, Peru, Brazil and Mexico, Bcash,PagSeguro and MOIP in Brazil, and Conecta in Mexico, money remitters such as Western Union, the use of cash, which is often preferred in LatinAmerica, and offline funding alternatives such as cash deposit, money transfer services, person-to-person payment services and mobile card readerssuch as Todo Pago in Argentina, PagSeguro, Payleven SumUp and Izettle in Brazil and Clip, Sr. Pago, Billpocket and Izettle in Mexico. Some ofthese services may operate at lower commission rates than MercadoPago’s current rates. 11 Table of Contents 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”, “MercadoEnvios”, “MercadoShops”and “MercadoCrédito” as well as our handshake logo, and other names and logos in each country where we operate. As part of our acquisition ofcertain subsidiaries of DeRemate.com Inc. (or “DeRemate”) and Classified Media Group, Inc. (or “CMG”), we acquired the trademarks of DeRemateand CMG, respectively, throughout the countries where they operated 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 Metros Cúbicosbrand. Additionally, during 2015, we acquired Metros Cúbicos (merged into MercadoLibre, S. de R.L. de C.V. since December 2016), companydedicated to the sale of real estate in Mexico, and KPL Soluções Ltda. (merged into Ebazar since August 2015), a company that develops ERPsoftware for the e-commerce industry in Brazil, owners of Metros Cubicos and KPL trademarks, respectively. During 2016, we acquired Axado, acompany that develops logistic software for the e-commerce industry in Brazil, owner of Axado trademark. Finally, in 2017 we acquired EcommetSoftware Ltda., owner of the trademarks “Ecommet” and “Becommerce”, which is a company that develops e-commerce related software andprovides consulting services related thereto in Brazil.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, Juniper Networks, Amazon Web Services, Cisco Systems Inc., Arista Networks, Imperva, F5 Networks, Palo Alto Networks and Net App,the suppliers of 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.EmployeesThe following table shows the number of our employees by country at December 31, 2017: Country Number of EmployeesArgentina2,305 Brazil1,746 Uruguay815 Colombia377 Mexico136 Chile131 Venezuela72 Total5,582 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. 12 Table of Contents 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 obligations in Brazil imposed on certain payment processing functions carried out by non-financial institutions.During November 2014, we submitted our application to become an authorized payment institution in Brazil. As of the date of this report, we havenot received such authorization, this is consistent with information provided by the Central Bank of Brazil indicating that the vast majority ofapplications submitted to date have not yet been processed. We are permitted to continue carrying out the payment processing functions subject tothe authorization until such authorization is received or denied. Further, we have not received any indication that our application will not beauthorized at some point.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.Uruguay and Peru also 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 Uruguayan 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.During 2017, Chile enacted regulations regarding the operation of prepaid cards which could affect MercadoPago’s operations, includingauthorization to operate, anti-money laundering obligations, capital and reserve fund requirements, among others.In 2017, Mexico’s anti-competition regulatory commission began to investigate potential monopolistic practices across the e-commerceindustry in an effort to ensure compliance with the Mexican anti-competition statute. As a market leader in the e-commerce industry in Mexico, weare complying fully with any inquries from the commission. MercadoLibre has not been named or implicated individually in any way.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. 13 Table of Contents 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 approved our main Argentina subsidiary as beneficiary of the Argentine Regime to promote the softwareindustry. Benefits of receiving this status include a relief of 60% of total income tax related to software development activities and a 70% relief inpayroll taxes related to software development activities. See Item 8 of Part II, “Financial Statements and Supplementary Data-Note 2-Summary ofsignificant 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 in the City of Buenos Aires up to the amounts disbursed for the building. These deferredpayments will be extinguished (i.e. as tax reliefs) upon receiving definitive approval from the City of Buenos Aires government within that 2-yearperiod.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 874 Walker Road, Suite C, Dover,Delaware. Our principal executive offices are located at Arias 3751, 7th Floor, Buenos Aires, Argentina, C1430CRG.Available InformationOur Internet address is www.mercadolibre.com. Our investor relations website is investor.mercadolibre.com. We make available free of chargethrough our website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reportsfiled or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such materialwith, or furnish it to the SEC. Our Corporate Governance Guidelines, Code of Business Conduct and Ethics, and the charters of the Audit Committee,the Compensation 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 manner.We 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.In the near future, our business may be subject to certain newly enacted regulations in Mexico and other countries. If it is determined that anyof our operations are subject to these future regulations, we may have to implement certain changes to our operations and systems which will requireus to incur greater expenses.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. 16 Table of Contents 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 governmentalagencies 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. Changes in tax laws in various jurisdictions, including recent changes to U.S. federal income tax laws in the United States, could adversely affectour results of operations and financial condition.On December 22, 2017, the U.S. government enacted comprehensive tax legislation that makes broad and complex changes to the U.S. taxcode (the “Tax Act”) including, but not limited to: (1) a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries, (2) fullexpensing of qualified property, (3) a reduction of the U.S. federal corporate income tax rate to 21 percent (4) elimination of U.S. federal incometaxes on dividends from certain foreign subsidiaries, (5) a new tax on certain income earned by controlled foreign corporations (GILTI), (6) a newlimitation on deductible interest expense, (7) limitations on the use of foreign tax credits to offset U.S. federal income taxes and (8) a limitation onthe use of net operating losses (NOLs) generated after December 31, 2017 to 80 percent of taxable income. Some of these provisions may adverselyimpact our effective tax rate and subject the Company to increased taxes in the United States compared to prior years.Currently, for the year ended December 31, 2017, the Company has recorded a $0.8 million income tax gain related to the reduction of deferredtax assets and liabilities of $ 1.6 million and $ 2.4 million, respectively, as a result of changes under the Tax Act. Although the company historicallyhas mitigated its exposure to U.S. federal income taxes through the use of foreign tax credits and managing the timing of distributions from itsforeign subsidiaries, it may become subject to U.S. federal income taxes on certain foreign income in the future as a result of the new GILTI rulesirrespective of whether and when it receives distributions from its foreign subsidiaries. Please refer to Note 14 of our Consolidated FinancialStatements for additional detail.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. 17 Table of Contents 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.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 our terms of use clearly prohibit the sale of counterfeit items on our platform and we have implemented solutions to excludepotentially counterfeit goods and services, we are not able to detect and remove 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. Additionally,we provide intellectual property rights owners with recourse through our Intellectual Property Protection Program (or “IPPP”), to enforce their rightsagainst potentially counterfeit items. Despite all these measures some rights owners have expressed that our efforts are insufficient. Content ownersand other intellectual property rights owners have been active in asserting their purported rights against online companies. Allegations ofinfringement of intellectual property rights could result in threats of 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. 18 Table of Contents 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 growth inour 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.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 other thirdparties necessary to our business. The increased complexity of managing multiple commercial relationships could lead to execution problems thatcan 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. Our business involves the collection, storage, processing and transmission of customers’ personal data,including financial information. We rely on encryption and authentication necessary to provide the security and authentication technology totransmit confidential information securely, including customer credit card numbers and other account information. Advances in computercapabilities, new discoveries in the field of cryptography, or other events or developments may result in a compromise or breach of the technologythat we use to protect customer transaction data. 19 Table of Contents The techniques used to obtain unauthorized, improper or illegal access to our systems, our data or our customers’ data, to disable or degradeservice, or to sabotage systems are constantly evolving, may be difficult to detect quickly, and often are not recognized until launched against atarget. Unauthorized parties may attempt to gain access to our systems or facilities through various means, including, among others, hacking into oursystems or those of our customers, partners or vendors, or attempting to fraudulently induce our employees, customers, partners, vendors or otherusers of our systems into disclosing user names, passwords, payment card information or other sensitive information, which may in turn be used toaccess our information technology systems. Although we have developed systems and processes that are designed to protect our data and customerdata and to prevent data loss and other security breaches, these security measures cannot provide absolute security. Our information technology andinfrastructure may be vulnerable to cyberattacks or security breaches, and third parties may be able to access our customers’ personal or proprietaryinformation and card data that are stored on or accessible through those systems. Our security measures may also be breached due to human error,malfeasance, system errors or vulnerabilities, or other irregularities.Actual or perceived vulnerabilities or data breaches may lead to claims against us. We also expect to spend significant additional resources toprotect against security or privacy breaches, and may be required to address problems caused by breaches. Additionally, while we maintaininsurance policies, we do not maintain insurance policies specifically for cyber-attacks and our current insurance policies may not be adequate toreimburse us for losses caused by security breaches, and we may not be able to collect fully, if at all, under these insurance policies. A significantsecurity breach could have a material adverse effect on our reputation. We cannot assure you that our security measures will prevent securitybreaches or that failure to prevent them will not have a material adverse effect on our business, results of operations and financial condition. Inaddition, any breaches of network or data security at our customers, partners or vendors could have similar negative effects.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. 20 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, Perú, Colombia and Venezuela to operate MercadoPago inthose countries with MercadoPago’s current agency-based structure. If our operation of MercadoPago were found to be in violation of moneyservices laws or regulations or any tax or anti-money laundering regulations, or engaged in an unauthorized banking or financial 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 afinancial entity. Any change to our MercadoPago 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 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. If we are unable to obtain the authorization, it could cause us to (i) shut down our MercadoPago business in Brazil foran indefinite period of time, which would be costly and time consuming, (ii) pay penalties for non-compliance or face other penalties such as thedismantling of MercadoPago or (iii) limit the services we offer through MercadoPago in Brazil or change our business practices, any of which couldmaterially adversely affect our business and results of operations.Our MercadoPago business also may be subject to enacted regulations in Colombia which require certain institutions to request authorizationto operate. If it is determined that the Colombian operation of MercadoPago is subject to these regulations, we will have to request authorization for,and implement certain changes to, our operations and systems which will require us to incur greater expenses. If we are unable to obtain the requisiteauthorization, it could cause us to (i) shut down our MercadoPago business in Colombia for an indefinite period of time, which would be costly andtime consuming, (ii) pay penalties for non-compliance or face other penalties such as the dismantling of MercadoPago or (iii) limit the services weoffer through MercadoPago in Colombia or change our business practices, any of which could materially adversely affect our business and results ofoperations.Our MercadoPago business also may be subject to recently enacted regulations in Chile. The regulations require certain institutions to requestauthorization to operate. If it is determined that the Chilean operation of MercadoPago is subject to these regulations, we will have to requestauthorization for, and may have to implement certain changes to, our operations and systems which would require us to incur more expenses. If weare unable to obtain the requisite authorization, it could cause us to (i) shut down our MercadoPago business in Chile 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 Chile or change our business practices, any of which could materiallyadversely affect our business and results of operations 21 Table of Contents In the near future, our MercadoPago business also may be subject to certain regulations to be enacted in Mexico. The regulation may requirecertain institutions to request authorization to operate. If it is determined that the Mexican operation of MercadoPago is subject to these futureregulations, we may have to request authorization for, and implement certain changes to, our operations and systems which would require us to incurgreater expenses. If we are unable to obtain such authorization, it could cause us to (i) shut down our MercadoPago business in Mexico for anindefinite period of time, which would be costly and time consuming, (ii) pay penalties for non-compliance or face other penalties such as thedismantling of MercadoPago or (iii) limit the services we offer through MercadoPago in Mexico or change our business practices, any of whichcould materially adversely 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 illicit sales,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 card associations, couldraise our MercadoPago costs significantly and reduce the attractiveness of MercadoPago. Failure to comply with money laundering laws could resultin 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 faces competition from other payment methods, and competitors may adversely affect MercadoPago’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, Peru, Brazil, Chile, Colombia and Mexico, and Bcash,PagSeguro and MOIP in Brazil and Conecta in Mexico; money remitters such as Western Union; the use of cash, which is often preferred in LatinAmerica; and offline funding alternatives such as cash deposit and money transfer services, person-to-person payment services and mobile cardreaders such as Todo Pago in Argentina, PagSeguro, Payleven SumUp and Izettle in Brazil and Clip Sr, Pago, Billpocket and Ixettle inMexico. Some of these services may operate at lower commission rates than MercadoPago’s current rates and, accordingly, we are subject to marketpressures with respect to the commissions we charge for MercadoPago services.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. 22 Table of Contents We are currently in the process of rolling out MercadoPago in some countries in order to provide a better experience to our users. For the samereason we are also charging a single final value fee for the right to use MercadoLibre and MercadoPago in those transactions. This change may resultin our experiencing a lower combined take rate. We consider MercadoPago’s direct payment product to be in early release and have identifiedseveral opportunities to improve upon the product. In addition, the transition to the new system may not be a smooth one. The occurrence of any ofthese events could adversely affect our business.We continue to expand MercadoPago’s services internationally. We have no experience with MercadoPago in Bolivia, Costa Rica, theDominican Republic, Ecuador, Guatemala, Honduras, Panama, Paraguay, Nicaragua, Portugal or Salvador. The introduction of MercadoPago incertain new markets may require a close commercial relationship with one or more local banks. These or other factors may prevent, delay or limit ourintroduction of MercadoPago in other countries, 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 other creditcard companies could adopt new operating rules or re-interpret existing rules that we or MercadoPago’s processors might find difficult or evenimpossible 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. Dueto the nature of our MercadoPago business, we generate high account receivable balances that we typically sell to financial institutions,and accordingly, lack of access to credit, or bank liquidations could cause us to experience severe difficulties in paying our sellers; and 23 Table of Contents ·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, Mexico, Colombia, Chile and Peru we offer users the ability to pay for goods purchased in installments usingMercadoPago. In 2017, 2016 and 2015, installment payments represented 52.6%, 55.7% and 58.5%, respectively, of MercadoPago’s total paymentvolume. To facilitate the offer of the installment payment feature, we pay interest to credit card processors and issuer banks in Mexico and Argentinaand we pay interest to discount credit card coupons in Brazil. In all of these cases, if interest rates increase, we may have to raise the installment feeswe charge to users which 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 customers fund payment transactions using certain credit cards, PagoMisCuentas andPago Fácil, 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 74.3%, 77.2% and 79.3% of MercadoPago’spayment volume using credit cards during 2017, 2016 and 2015, respectively (either in a single payment or in installments), and MercadoPago’sfinancial success will remain highly sensitive to changes in the rate at which its senders fund payments using credit cards. Customers may prefercredit card funding rather than bank account transfers for a number of reasons, including the ability to pay in installments in Brazil, Mexico andArgentina, the ability to dispute and reverse charges if merchandise is not delivered or is not as described, the ability to earn frequent flyer miles orother 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 resulting in lowerrevenues to us.Changes in MercadoPago’s ticket mix could adversely affect MercadoPago’s results.The transaction fees MercadoPago pays in connection with certain payment methods 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. In 2013, a legislation in Brazil relating to certain payment processing functions carried out by non-financial institutions was approved andrequires among other things, our MercadoPago operations to secure authorization from the Brazilian Central Bank to continue its operationsand may limit our services, 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 November 2014, 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.The Brazilian Central Bank has recently extended the deadline to comply with Ruling 3,842 to September 2018. Our Brazilian operation isworking with the main Brands (Visa, Mastercard) to finalize agreements which would allow our transactions to be exempt from theserequirements, regardless of our status as an authorized payment institution. If we cannot finalize these agreements prior to the deadline, we will needto reevaluate our payment processing mechanisms and may need to alter our settlement process in Brazil.Our MercadoCredito solution expose us to additional risks.Our MercadoCredito solution is offered to certain merchants and consumers, and the financial success of this product depends on the effectivemanagement of the credit related risk. To assess a merchant seeking a loan under the MercadoCredito solution, we use, among other indicators, arisk model internally developed, as a credit quality indicator to help predict the merchant's ability to repay the principal balance and interest relatedto the credit. This risk model may not accurately predict the creditworthiness of a merchant due to inaccurate assumptions about the particularmerchant or the economic environment or limited product history, among other factors. The accuracy of the risk model and our ability to managecredit risk related to our MercadoCredito solution may also be affected by legal or regulatory changes (e.g., bankruptcy laws and minimum paymentregulations), competitors’ actions, changes in consumer behavior, obtain funding resources, changes in the economic environment and other factors. Like other businesses with significant exposure to credit losses, we face the risk that MercadoCredito merchants and consumers will default ontheir payment obligations, making the receivables uncollectible and creating the risk of potential charge-offs. 24 Table of Contents 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 directlyfor their shipping costs, then depending on the country policy we decide how much of those costs we transfer to our customers. If shipping costsincrease, we may have to raise the shipping fees we charge to users which may 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 not availableto us because of contractual or commercial terms it may have a material adverse effect on our shipping service, operating results, and financialcondition. As a result, we could lose our ability to provide shipping services to our customers.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.Even though we have business insurance coverage to face a disruption of our services, it may be inadequate to compensate for our losses. Anybusiness disruption, litigation, system failure or natural disaster may cause us to incur substantial costs and divert resources, which could have amaterial 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 intellectual property rights as critical to our future success and rely on a combination of copyright, trademarkand trade secret laws and contractual restrictions to establish and protect our proprietary rights in our products and services. We have entered intoconfidentiality and invention assignment agreements with our employees and certain contractors, and non-disclosure agreements with ouremployees and certain suppliers and strategic partners in order to limit access to and disclosure of our proprietary information. We cannot assure youthat these contractual arrangements or the other steps that we have taken or will take in the future to protect our intellectual property will provesufficient to prevent misappropriation of our technology or to deter independent third-parties from developing similar or competing technologies.We pursue the registration of our intangible assets in each country where we operate, in the United States and in certain other countriesworldwide. Effective intellectual property protection may not be available or granted to us by the appropriate regulatory authority in every countryin 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 weredenied . We cannot assure you that we will succeed in obtaining these trademarks. If we are not successful, MercadoLibre’s ability to protect itsbrand in Brazil against third-party infringers would be compromised and we could face claims by any future trademark owners. Any past or futureclaims relating to these issues, whether meritorious or not, could cause us to enter into costly royalty and/or licensing agreements. If any of theseclaims against us are successful we may also have to modify our brand name in certain countries. Any of these circumstances could adversely affectour business, results of operations and financial condition. 25 Table of Contents 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.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, JuniperNetworks, Micosoft Azure, Cisco Systems Inc., F5 Networks, Palo Alto Networks and NetApp, the suppliers of key database technology, operatingsystem and specific hardware components for our services. We cannot assure you that these third-party technology licenses will continue to beavailable to us on commercially reasonable terms. If we were not able to make use of this technology, we would need to obtain substitute technologythat may be of lower quality or performance standards or at greater cost, which could materially adversely affect our business, results of operationsand financial condition. Although we generally have been able to renew or extend the terms of contractual arrangements with these third partyservice providers on acceptable 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. 26 Table of Contents 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, AxadoInformação e Tecnologia S.A. and Ecommet Software Ltda., as appropriate opportunities arise. We may not, however, be able to identify, negotiateor finance such future acquisitions successfully or at favorable valuations, or to effectively integrate these acquisitions with our current business.The process of integrating an acquired business, technology, service or product into our business may result in unforeseen operating difficulties andexpenditures. 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.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 Amazon, Facebook, Alamaula.com,OLX.com and a number of other small services, including those that serve specialty markets. We also compete with business-to-consumer onlinecommerce services, such as pure play Internet retailer Submarino (a website of B2W Inc), and a growing number of brick and mortar retailers whohave launched on line offerings such as Americanas (a website of B2W Inc), Casas Bahia and Falabella, OLX, QueBarato and with shoppingcomparison sites located throughout Latin America such as Buscape and Bondfaro, located throughout Latin America. In addition, we compete withonline communities that specialize in classified advertisements. Although no regional competitor exists in the classified market, local players suchas Webmotors, VivaStreet and 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 PayU in Argentina, Chile,Colombia, Peru, Brazil and Mexico, and Bcash, PagSeguro and MOIP in Brazil; and money remitters such as Western Union. Any or all of thesecompanies could create competitive pressures, which could have a material adverse effect on our business, results of operations and financialcondition.In addition, if certain websites stop linking to or containing links on their domains 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. 27 Table of Contents 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 to decrease.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 liability for these activities. In addition, users mayperform frauds o potential illegal activities when using MercadoPago, MercadoEnvios, MercadoShops or any other platform we operate which mayaffect our financial performance. Although we have not experienced any material business or reputational harm as a result of fraudulent or potentialillegal activities of our users in the past, we cannot rule out the possibility that any of the foregoing may occur causing harm to our business orreputation in the future. If any of the foregoing were to occur, our results of operations and financial conditions could be materially and adverselyaffected.Risks related to doing business in Latin AmericaPolitical and economic conditions in Venezuela may have an adverse impact on our operations.We conduct operations in Venezuela, offering both our MercadoLibre Marketplace and MercadoPago online payments solution, through ourVenezuelan subsidiaries. As of and for the year ended December 31, 2017, 3.9% of our consolidated net revenues were derived from our Venezuelansubsidiaries. Effective as of December 1, 2017, due to evolving conditions in Venezuela, the Company has determined that we no longer meet theaccounting criteria for control over our Venezuelan subsidiaries and we have deconsolidated our Venezuelan operations. Accordingly, we haverecorded an impairment of our investment in Venezuela of $ 85.8 million, and will no longer include the results of our Venezuelan operations in ourconsolidated financial statements for future reporting periods. Please refer to note 2 of our audited consolidated financial statements for additionaldetail. 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.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. These foreign exchangecontrols have significantly increased our costs and limited our ability to convert local currency into U.S. dollars and transfer funds out of Venezuela.As a result, the foreign exchange and price controls enacted by the Venezuelan government, and any future actions in this regard, could have amaterial adverse effect on our Venezuelan customers and our business. Moreover, we cannot predict the long-term effects of exchange controls onour ability to process payments from Venezuelan customers or on the Venezuelan economy in general. 28 Table of Contents 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 country alonewill not adversely affect our business or the market value of, or market for, our common stock.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 95.2%,94.8% and 94.6% of our net revenues for 2017, 2016 and 2015, 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. 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. Venezuela hasmodified its exchange control regulations. These modified regulations have further impaired our ability to convert local currency into U.S. dollars,see “Risk related to doing business in Latin America—Political and economic conditions in Venezuela may have an adverse impact on ouroperations” above. 29 Table of Contents 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, 2017, 59.5% of our net revenues were denominated in Brazilian Reais, 25.7% inArgentine Pesos, 6.2% in Mexican Pesos and 3.9% in Venezuelan Bolivares. The foreign currency exchange rates for the full year 2017 relative to2016 resulted in higher net revenues of $138.3 million and an increase in aggregate cost of net revenues and operating expenses of $53.2 million.The foreign currency exchange rates for the full year 2016 relative to 2015 resulted in lower net revenues of $265.6 million and a decrease inaggregate cost of net revenues and operating expenses of $202.4 million. The abovementioned foreign currency exchange rate effect includes theVenezuelan translation effect discussed in “Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates—Foreign Currency Translation”. While we have in the past entered into transactions to hedge portionsof our foreign currency translation exposure, these transactions are expensive, and it is very difficult to perfectly predict or completely eliminate theeffects of this exposure. If the U.S. dollar strengthens relative to the foreign currencies 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 ofthe Delaware 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 2017, 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.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.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. 32 Table of Contents 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 can decide tosettle a portion or all of our conversion obligation through the payment of cash, which could adversely affect our liquidity. In addition, even ifholders do not elect to convert their Notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstandingprincipal 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 City of Buenos Aires and the provincesof Buenos Aires, Córdoba and San Luis, Argentina; Brasilia, Florianópolis, São Paulo and Osasco, Brazil; Caracas and Valencia, Venezuela; MexicoCity, Mexico; Aguada Park and Montevideo, Uruguay; Bogotá and Medellín, Colombia; Lima, Perú and Santiago de Chile, Chile. Currently, all ofour offices are occupied under lease agreements, except for our Argentine and Venezuelan offices. The leases for our facilities provide for renewaloptions. After expiration of these leases, we can renegotiate the leases with our current landlords, or move to another location. From time to time weconsider various alternatives related to our long-term facility needs. While we believe our existing facilities are adequate to meet our immediateneeds, it may become necessary to lease or acquire additional or alternative space to 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 476 square meters. As of December 31, 2017, our owned and leased facilities (excluding data centers) provided us with square metersas follows: Argentina Brazil México Venezuela Others Total (sq mt) (sq mt) (sq mt) (sq mt) (sq mt) (sq mt)Owned facilities 14,432 - - 4,651 - 19,083 Leased facilities 17,840 33,890 4,228 - 11,346 67,304 Total facilities 32,272 33,890 4,228 4,651 11,346 86,387 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, 2017, our total reserves for proceeding-related contingencies were $5.9 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, 2017, there were 61 lawsuits pending against the Argentine subsidiary in the Argentine ordinary courts and 2,002 pendingclaims in the Argentine Consumer Protection Agencies, where a lawyer is not required to file or pursue a claim.As of December 31, 2017, there were 8 claims pending against the Mexican subsidiaries in the Mexican ordinary courts and 187 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, 2017, there were 726 lawsuits pending against our Brazilian subsidiaries in the Brazilian ordinary courts. In addition, as ofDecember 31, 2017, there were 4,378 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.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. 34 Table of Contents LitigationIn 2007 São Paulo tax authorities assessed 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 $ 4.4 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$ 14.7 million or $ 4.5 million, according to the exchange rate at December 31, 2017, 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 assessed 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$ 55.1 million or $ 16.6 million, according to the exchange rate at December 31, 2017. On January 28, 2014 SãoPaulo Municipal Council was summoned and on April 8, 2014 the São Paulo Municipal Council presented its defense. On April 24, 2014 wepresented our response to the mentioned defense. As of December 31, 2017, 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 assessed taxes and fines against our Brazilian subsidiary relating to the income taxfor the 2006 period in an approximate amount of R$ 5.2 million or $ 1.6 million according to the exchange rate in effect as of December 31, 2017.On September 30, 2011, the Company presented administrative defenses against the authorities’ claim. On August 24, 2012, the Company presentedits appeal 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$ 2.2 million or $ 665 thousands according to the exchange rate atDecember 31, 2017. 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. The Superior Administrative Court of Tax Appeals ruled against the Brazilian subsidiary maintaining claimedtaxes and fines. On July 28, 2017, the Company filed an annulment action against the Brazilian Federal tax authority and presented a letter ofguarantee issued for an indefinite period for the suspension of the enforceability of the tax credit. The Company´s management, based on theexternal legal counsel opinion, believes that the tax position adopted is more likely than not, based on the technical merits of the tax position. Forthat reason, the Company has not recorded any expense or liability fot 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 we are waiting for the second instance decision. As a result, we startedmaking deposits in court for the controversial amounts. As of December 31, 2017, we recorded in the balance sheet deposits in court for R$60.3million or $18.2 million, according to the exchange rate at December 31, 2017 under the caption non-current other assets. Our management, basedon the external legal counsel opinion, believe that the tax position adopted is more likely than not, based on the technical merits of the tax positionand the existence of favorable decisions of the Federal Regional Courts. For that reason, we have not recorded any expense or liability for thecontroversial amounts. 35 Table of Contents On November 9, 2016, São Paulo tax authorities assessed taxes and fines against our Brazilian subsidiary Ebazar, relating to the entitlement ofPIS and COFINS credits from 2012 in an approximate amount of R$3.4 million or $1.0 million, according to the exchange rate as of December 31,2017. We presented administrative defenses against the authorities’ claim. As of the date of this report, we are still waiting for a decision. Theopinion of our management, based on the external 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 assessed taxes and fines against our Brazilian subsidiary MercadoPago.com RepresentaçõesLtda., relating to the entitlement of PIS and COFINS credits from 2012 in an approximate amount of R$13 million or $3.9 million according to theexchange rate as of December 31, 2017. We presented administrative defenses against the authorities’ claim. On October 9, a judgment was handeddown recognizing that expenses with credit card companies are essential for payment institutions. The same understanding was applied to softwareexpenses (gateway). The only remaining point concerns past claims. The tax assessment notice was reduced by 60% of its value. We filed anadministrative appeal and the chances of success is considered possible based on the external legal counsel opinion.On July 12, 2017, São Paulo tax authorities assessed taxes and fines against our Brazilian subsidiary (IBazar) relating to “ICMS Publicidade”for the period from July 2012 to December 2013 in an amount of R$ 12.2 million or $3.7 million according to the exchange rate as of December 31,2017. The Company presented administrative defense against the authorities’ claim, but the São Paulo tax authorities ruled against the Braziliansubsidiary maintaining claimed taxes and fines. On October 30, 2017 we filed an appeal to the Tribunal de Impostos e Taxas de São Paulo.Theopinion of our management, 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”.Buyer Protection ProgramThe Company provides consumers with a buyer protection program (“BPP”) for all transactions completed through the Company’s onlinepayment solution (“MercadoPago”). This program is designed to protect buyers in the Marketplace from losses due primarily to fraud orcounterparty non-performance. The Company’s BPP provides protection to consumers by reimbursing them for the total value of theunfulfilled transaction, if a purchased item does not arrive or does not match the seller’s description. The Company is entitled to recover fromthe third-party carrier companies performing the shipping service certain amounts paid under the BPP. Furthermore, in some specificcircumstances (i.e. Black Friday, Hot Sale), the Company enters into insurance contracts with third party insurance companies in order to covercontingencies that may arise from the BPP.The maximum potential exposure under this program is estimated to be the volume of payments on the Marketplace, for which claims may bemade under the Company’s existing user agreements. Based on historical losses to date, the Company does not believe that the maximumpotential exposure is representative of the actual potential exposure. The Company records a liability with respect to losses under this programwhen they are probable and the amount can be reasonably estimated.As of December 31, 2017, management's estimate of the maximum potential exposure related to the Company’s buyer protection program is$925,690 thousands, for which the Company recorded an allowance of $1,087 thousands as of that date. 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, 2017, the closing price of our common stock was $314.66 per share. As of February 21, 2018, we had 14holders of record of our common stock. This figure does not reflect the beneficial ownership of shares held in nominee name. The following tablesets forth, for the indicated periods, the high and low per share sale prices for our common stock on the Nasdaq Global Market:HighLow20171st quarter$216.29 $161.02 2nd quarter$297.22 $215.28 3rd quarter$292.38 $232.64 4th quarter$329.28 $221.51 20161st quarter$118.28 $85.82 2nd quarter$140.67 $117.13 3rd quarter$191.25 $139.68 4th quarter$189.83 $151.30 Recent Sales of Unregistered SecuritiesThere were no sales of unregistered securities by us during the three-month period ending December 31, 2017.Dividend PolicyIn 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, respectively.On March 2, 2017, the Board of Directors approved a new dividend policy to provide a fixed quarterly dividend payment in 2017 of $0.150per share ($0.600 per share annually). The new dividend policy took effect following the payment of the $0.150 per share dividend declared by theBoard of Directors of the Company, which was paid on April 17, 2017 to shareholders of record as of the close of business on March 31, 2017.Regarding this new policy, Board of Directors declared quarterly dividends of $ 6.6 million on May, July and October. These dividends were paidon July 15, 2017, October 16, 2017 and January 12, 2018 to stockholders of record as of the close business on March 31, June 30, September 30 andDecember 31, 2017, respectively.After reviewing the Company's capital allocation process the Board of Directors has concluded that it has multiple investment opportunitiesthat can generate greater return to shareholders through investing capital into the business over a dividend policy. Consequently, the decision hasbeen made to suspend the payment of dividend to shareholders as of the first quarter of 2018.Equity Compensation Plan InformationInformation regarding securities authorized for issuance under the Company’s equity compensation plan as of December 31, 2017 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 $100 on December 31, 2007 through December 31, 2017 for (i) ourcommon stock; (ii) The Nasdaq Composite Index; (iii) The S&P 500 Index; and (iv) the Dow Jones Ecommerce Index. The Dow Jones EcommerceIndex is a weighted index of stocks of companies in the e-commerce industry. Stock price performance shown in the graph below is not indicative offuture stock price performance: We cannot assure you that our share performance will continue into the future with the same or similar trends depicted in the graph above. Wewill not make or endorse any predictions as to our future stock performance.The foregoing graph and chart shall not be deemed incorporated by reference by any general statement incorporating by reference thisAnnual Report on Form 10-K into any filing under the Securities Act of 1933, as amended, or under the Securities Exchange Act of 1934, asamended, except to the extent we specifically incorporate this information by reference, and shall not otherwise be deemed filed under those acts. 38 Table of Contents ITEM 6.SELECTED FINANCIAL DATAThe following summary financial data is qualified by reference to and should be read in conjunction with “Management’s Discussion andAnalysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes thereto included elsewherein this report. Year Ended December, 31(in millions)2017 (*)2016 (*)2015 (*)2014 (*)2013 (*)Statement of income data: Net revenues$ 1,398.1 $ 844.4 $ 651.8 $ 556.5 $ 472.6 Cost of net revenues(678.5)(307.5)(215.0)(159.0)(130.1)Gross profit719.6 536.9 436.8 397.6 342.5 Operating expenses: Product and technology development(127.2)(98.5)(76.4)(53.6)(40.9)Sales and marketing(325.4)(156.3)(128.6)(111.6)(90.5)General and administrative(122.2)(87.3)(76.3)(62.4)(57.6)Impairment of Long-Lived Assets(2.8)(13.7)(16.2)(49.5) —Loss on Deconsolidation of Venezuelan Subsidiaries (**)(85.8) — — — —Total operating expenses(663.3)(355.8)(297.6)(277.1)(189.0)Income from operations56.3 181.1 139.2 120.5 153.5 Other income (expenses): Interest income and other financial gains45.9 35.4 20.6 15.3 10.7 Interest expense and other financial charges(26.5)(25.6)(20.4)(11.7)(2.4)Foreign currency (losses) / gains(21.6)(5.6)11.1 (2.4)1.3 Net income before income tax expense54.1 185.3 150.5 121.8 163.1 Income tax expense(40.3)(49.0)(44.7)(49.1)(45.6) Net income13.8 136.4 105.8 72.7 117.5 Less: Net Income attributable to Noncontrolling — — —0.1 —Net income available to common shareholders13.8 136.4 105.8 72.6 117.5 (*) The table above may not total due to rounding.(**) Results for 2017 include an impairment of $85.8 million on the Loss on Deconsolidation of Venezuelan subsidiaries effective as of December 1, 2017. Pleaserefer to note 2 from our audited consolidated financial statements for additional detail. At December 31,(in millions, except for per share data)201720162015 2014 2013 Balance sheet data: Total assets$1,673.2 $1,367.4 $1,003.6 $966.8 $592.4 Long term debt 312.1 301.9 294.3 282.2 2.5 Total liabilities 1,347.4 938.6 664.1 611.1 244.9 Net assets 325.8 428.9 339.5 355.8 347.5 Redeemable Noncontrolling Interest — — — — 4.0 Common stock 0.04 0.04 0.04 0.04 0.04 Equity 325.8 428.9 339.5 355.8 343.5 Cash dividend declared per common share$0.600 $0.600 $0.412 $0.664 $0.572 39 Table of Contents Year Ended December 31, 2017 2016 2015 2014 2013Earnings per share data: Basic net income available to common stockholders per common share $0.31 $3.09 $2.40 $1.63 $2.66 Diluted net income per common share $0.31 $3.09 $2.40 $1.63 $2.66 Weighted average shares(1): Basic 44,157,364 44,157,251 44,155,680 44,153,884 44,152,600 Diluted 44,157,364 44,157,251 44,155,680 44,153,884 44,152,600 (1) Shares outstanding at December 31, 2017 were 44,157,364. Year ended December 31,(in millions) 2017 (11) 2016 2015 20142013Other data: Number of confirmed registered users at end of period (1) 211.9 174.2 144.6 120.9 99.5 Number of confirmed new registered users during period (2) 37.7 29.5 23.7 21.5 18.0 Gross merchandise volume (3) $11,749.3 $8,048.1 $7,150.8 $7,081.9 $7,305.3 Number of successful items sold (4) 270.1 181.2 128.4 101.3 83.0 Number of successful items shipped (5) 150.7 86.5 45.2 17.8 1.8 Total payment volume (6) $13,731.7 $7,753.7 $5,184.1 $3,523.2 $2,497.7 Total volume of payments on marketplace (7) $9,627.6 $5,627.4 $3,764.7 $2,581.8 $1,701.2 Total payment transactions (8) 231.4 138.7 80.4 46.3 31.5 Unique buyers (9) 33.7 27.7 23.6 22.0 20.2 Unique sellers (10) 10.1 9.4 7.8 7.1 7.0 Capital expenditures $83.5 $84.7 $109.3 $76.1 $117.6 Depreciation and amortization $40.9 $29.0 $23.2 $16.9 $11.9 (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(11)Data for 2017 includes Venezuelan metrics up to November 30, 2017 due to deconsolidation, please refer to Note 2 of our audited consolidatedfinancial statements for additional detail. 40 Table of Contents Non-GAAP Measures of Financial PerformanceTo supplement our consolidated financial statements presented in accordance with U.S. GAAP, we use foreign exchange (“FX”) neutralmeasures as a non-GAAP measure.This non-GAAP measure 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, this non-GAAP measure is 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. This non-GAAP financial measure should only be used to evaluate ourresults of operations in conjunction with the most comparable U.S. GAAP financial measures.Reconciliation of this non-GAAP financial measure to the most comparable U.S. GAAP financial measures can be found in the tables includedin this annual report.Non-GAAP financial measures are provided to enhance investors’ overall understanding of our current financial performance. Specifically, webelieve that reconciliation of FX neutral measures to the most directly comparable GAAP measure provides investors an overall understanding of ourcurrent financial performance and its prospects for the future. Specifically, we believe these non-GAAP measures provide useful information to bothmanagement and investors by excluding the foreign currency exchange rate impact that may not be indicative of our core operating results andbusiness outlook.The FX neutral measures were calculated by using the average monthly exchange rates for each month during 2016 and applying them to thecorresponding months in 2017, so as to calculate what our results would have been had exchange rates remained stable from one year to the next.The comparative FX neutral measures were calculated by using the average monthly exchange rates for each month during 2015 and applying themto the corresponding months in 2016, so as to calculate what our results would have been had exchange rates remained stable from one year to thenext. The table below excludes intercompany allocation FX effects. Finally, these measures do not include any other macroeconomic effect such aslocal currency inflation effects, the impact on impairment calculations or any price adjustment to compensate local currency inflation ordevaluations. 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, 2017, 2016and 2015: Year Ended December 31, (*) As reported FX Neutral Measures(In millions, exceptpercentages) 2017 2016 PercentageChange 2017 2016 PercentageChangeNet revenues $ 1,398.1 $ 844.4 65.6% 1,536.4 $ 844.4 82.0% Cost of net revenues (678.5) (307.5) 120.6% (695.2) (307.5) 126.1% Gross profit 719.6 536.9 34.0% 841.2 536.9 56.7% Operating expenses (574.7) (342.1) 68.0% (611.2) (342.1) 78.7% Impairment of Long-LivedAssets (2.8) (13.7) -79.3% (2.8) (13.7) -79.3%Loss on Deconsolidationof VenezuelanSubsidiaries (85.8) — 100.0% (85.8) — 100.0% Total operating expenses (663.3) (355.8) 86.4% (699.7) (355.8) 96.7% Income from operations 56.3 181.1 -68.9% 141.4 181.1 -21.9%(*) The table above may not total due to rounding. Year Ended December 31, (*) As reported FX Neutral Measures(In millions, except percentages) 2016 2015 PercentageChange 2016 2015 PercentageChangeNet revenues $ 844.4 $ 651.8 29.6% 1,110.0 $ 651.8 70.3% Cost of net revenues (307.5) (215.0) 43.0% (393.2) (215.0) 82.9% Gross profit 536.9 436.8 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 operations 181.1 139.2 30.1% 244.2 139.2 75.5% (*) The table above may not total due to rounding. 42 Table of Contents 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, 2015, 2016, and 2017;·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 contractualobligations; 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 ecosystem inLatin America.We were incorporated in Delaware in October 1999 and introduced websites in Argentina, Brazil, Mexico, Colombia, Chile, Uruguay andVenezuela by April 2000.We completed our initial public offering in August 2007, resulting in net proceeds to us of $49.6 million.Our platform is designed to provide users with a complete portfolio of services to facilitate commercial transactions. We are a market leader ine-commerce in each of Argentina, Brazil, Chile, Colombia, Costa Rica, Ecuador, Mexico, Peru, Uruguay and Venezuela, based on number of uniquevisitors 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 635 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, we launchedMercadoCredito in Argentina, Brazil and Mexico, which is designed to extend loans to specific merchants. Our MercadoCredito solution allows usto deepen our engagement with our merchants, in Argentina, Brazil and Mexico and consumers, in Argentina, by offering them additional servicesand is currently available. To further enhance our suite of e-commerce services, we launched the MercadoEnvios shipping program in Brazil, Argentina, Mexico,Colombia and Chile. Through MercadoEnvios, we offer our sellers a cost-efficient way to utilize our existing distribution chain to fulfill their sales.Sellers opting into the program are able to offer a uniform and seamlessly integrated shipping experience to their buyers at competitive prices. 43 Table of Contents 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 develops and sells enterprise software solutions to e-commerce business clients in Brazil.We have grown in part through certain acquisitions since our inception, including of certain operations of DeRemate.com in 2005 and, morerecently, Inmobiliaria Web, Business Vision S.A., KPL Soluções Ltda and Metros Cúbicos, S.A. de C.V. 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. Finally, in December 2017, we acquired 100% of the issued and outstanding shares of capital stock of E-Commet Software Ltda., a Braziliansoftware development company, for the purchase price of $8.7 million. The objective of this acquisition was to enhance our software developmentcapabilities. Reporting Segments and Geographic InformationOur segment reporting is based on geography, which is the criterion our management uses to organize segments for making operating decisionsassigning resources and assessing performance. Our geographic segments are Brazil, Argentina, Mexico, Venezuela and Other Countries (whichincludes Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, Panama, Peru, Portugal, Guatemala, Honduras, Nicaragua, El Salvador,Bolivia, Paraguay, Uruguay and the United States of America). Although we discuss long-term trends in our business, it is our policy not to provideearnings guidance in the traditional sense. We believe that uncertain conditions make the forecasting of near-term results difficult. Further, we seekto make decisions focused primarily on the long-term welfare of our Company and believe focusing on short term earnings does not best serve theinterests of our stockholders. We believe that execution of key strategic initiatives as well as our expectations for long-term growth in our marketswill best create stockholder value. We, therefore, encourage potential investors to consider this strategy before making an investment in our commonstock. A long-term focus may make it more difficult for industry analysts and the market to evaluate the value of our Company, which could reducethe value of our common stock or permit 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, 2017, 2016 and2015: Years ended December 31,(% of total consolidated net revenues) (*) 2017 2016 2015 Brazil 59.5 % 53.9 %44.6 %Argentina 25.7 31.1 37.6 Mexico 6.2 5.5 6.2 Venezuela (**) 3.9 4.4 6.2 Other Countries 4.8 5.2 5.4 (*)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.(**)Venezuelan revenues have been consolidated up to November 30, 2017 due to deconsolidation of the Venezuelan operations. Please refer to Note 2 of our auditedconsolidated financial statements for additional detail. 44 Table of Contents The following table summarizes the changes in our net revenues by segment for the years ended December 31, 2017, 2016 and 2015: Year ended Change from 2016 Year ended Change from 2015December 31,to 2017 (*) December 31,to 2016 (*)2017 2016 in Dollars in % 2016 2015 in Dollars in % (in millions, except percentages) (in millions, except percentages) Net Revenues: Brazil$ 831.4 $ 455.0 $ 376.4 82.7 % $ 455.0 $ 290.6 $ 164.4 56.6 %Argentina359.4 262.3 97.1 37.0 262.3 245.0 17.2 7.0 Mexico86.5 46.3 40.2 86.7 46.3 40.3 6.0 14.9 Venezuela (**)54.3 37.2 17.1 46.1 37.2 40.5 (3.3) (8.1) Other Countries66.5 43.6 22.9 52.5 43.6 35.4 8.2 23.3 Total Net Revenues$ 1,398.1 $ 844.4 $ 553.7 65.6 % $ 844.4 $ 651.8 $ 192.6 29.6 % (*)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.(**)Venezuelan revenues have been consolidiated up to November 30, 2017 due to deconsolidation. Please refer to Note 2 of our Consolidated Financial Statements foradditional detail.Recent DevelopmentsDeconsolidation of Venezuelan results As further described in Note 2 to our audited consolidated financial statements, effective as of December 1, 2017, we determined that we no longermeet the accounting criteria for control of our subsidiaries in Venezuela as a result of Venezuela’s recent selective default determination, restrictiveexchange controls, suspension of foreign exchange market and the worsening in Venezuela macroeconomic environment that have significantlyimpacted the Company’s ability to make key financial decisions with respect to our Venezuelan subsidiaries. As a result, we deconsolidated ourVenezuelan subsidiaries effective as of December 1, 2017, recorded an impairment of its investments in Venezuela, including net assets,intercompany balances and intangible assets and began reporting the results under the cost method of accounting. As of December 1, 2017, theCompany no longer includes the balances, results of operations and cash flows of the Venezuelan subsidiaries in its consolidated financialstatements.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, Honduras, Nicaragua, El Salvador, 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 ad sales, classified fees, payment fees, shipping fees and other ancillary businesses.The following table summarizes our consolidated net revenues by revenue stream for the years ended December 31, 2017, 2016 and 2015: Years ended December 31, (*)Consolidated net revenues by revenue stream (****) 2017 2016 2015 (in millions) Marketplace $839.1 $491.6 $393.0 Non-Marketplace (**) (***) 559.0 352.8 258.8 Total $1,398.1 $844.4 $651.8 (*)The table above may not total due to rounding.(**)Includes, among other things, ad Sales, classified fees, payment fees, shipping fees and other ancillary services. (***)Includes an amount of $356.4 million, $202.0 million and $146.6 million of Payment Fees for the year ended December 31, 2017, 2016 and 2015,respectively.(****)Revenues from Venezuela have been consolidated up to November 30, 2017. 45 Table of Contents 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:·payment fees;·classifieds fees;·ad sales 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;·commissions from additional fees we charge when a buyer elects to pay in installments through our MercadoPago platform, fortransactions that occur either on or off our Marketplace platform; ·commissions from additional fees we charge when our sellers elect to withdraw cash;·interest, cash advances and fees from merchant and customers credits granted under our MercadoCredito 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 vehicles, real estate and services, we generate revenues from up-front fees. These fees are charged tosellers who 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 estimated sellingprices.We have a highly fragmented customer revenue base given the large numbers of sellers and buyers who use our platforms. For the years endedDecember 31, 2017, 2016 and 2015, 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 8 countries (Argentina, Brazil,Chile, Peru, Colombia, Mexico, Uruguay and Venezuela). Additionally, MercadoEnvios is available in 5 countries (Argentina, Brazil, Mexico,Colombia and Chile). The functional currency for each country’s operations is the country’s local currency, except for Venezuela where thefunctional currency was the U.S. dollar due to Venezuela’s status as a highly inflationary economy. See—“Critical accounting policies and estimates—Foreign Currency Translation” included below and Note 2 to our consolidated financial statements for deconsolidation of Venezuela. Therefore,our net revenues are generated in multiple foreign currencies and then translated into U.S. dollars at the average 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 7.7%, 9.0% and 8.1% of net revenues for the years ended December 31, 2017, 2016 and 2015, respectively. 46 Table of Contents 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, free shipping costs, certain taxes on revenues, certain taxes on bank transactions, compensation for customer supportpersonnel, fraud prevention fees, ISP connectivity charges, depreciation and amortization, hosting and site operation fees, cost of mobile point ofsale products sold and other operation costs. 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, chargebacksrelated to our MercadoPago operations, bad debt charges public relations costs, marketing activities for our users and depreciation and amortizationcosts.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, impairment of Long-Lived assets, expenses for legal, audit and other professional services,insurance expenses, office space rental expenses, travel and business expenses, as well as depreciation and amortization costs. Our general andadministrative expenses include the costs of the following areas: general management, finance, administration, accounting, legal and humanresources.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 the 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 $ 2.8 million, $13.7 million and $16.2 million on June 30, 2017, June 30, 2016 andMarch 31, 2015, respectively, by using the market approach and considering prices for similar assets.Loss on deconsolidation of Venezuelan subsidiariesAs further described in Note 2 to our audited consolidated financial statements, effective as of December 1, 2017, we determined that we nolonger meet the accounting criteria for control of our subsidiaries in Venezuela as a result of Venezuela’s recent selective default determination,restrictive exchange controls, suspension of foreign exchange market and the worsening in Venezuela macroeconomic environment that havesignificantly impacted the Company’s ability to make key financial decisions with respect to our Venezuelan subsidiaries. As a result, wedeconsolidated our Venezuelan subsidiaries effective as of December 1, 2017, recorded an impairment of its investments in Venezuela, including netassets, intercompany balances and intangible assets and began reporting the results under the cost method of accounting. As of December 1, 2017,we no longer includes the balances, results of operations and cash flows of the Venezuelan subsidiaries in its consolidated financial statements. Other income (expenses), netOther income (expenses) consists primarily of interest income derived from our investments and cash equivalents, interest expense related tofinancial liabilities and foreign currency gains or losses. 47 Table of Contents Income taxWe are subject to taxes in the multiple jurisdictions where we operate. Our tax obligations consist of current and deferred income taxes incurredin these jurisdictions. We account for income taxes following the liability method of accounting. Therefore, our income tax expense consists oftaxes currently payable, if any (given that in certain jurisdictions we still have net operating loss carry-forwards), during each period.The following table summarizes the composition of our income taxes for the years ended December 31, 2017, 2016 and 2015: Year ended December 31,(In millons) 2017 (*) 2016 (*) 2015 (*) Current: U.S. 0.0 0.0 0.1 Non U.S. 64.8 55.1 45.9 64.9 55.2 45.9 Deferred: U.S. 1.8 1.3 0.0 Non U.S. (26.4) (7.5) (1.2) (24.6) (6.2) (1.2)Income tax expense 40.3 49.0 44.7 (*)The table above may not total due to rounding. No asset tax expense was recorded for the years ended December 31, 2017, 2016 and 2015. 48 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, (*)2017 Net Revenues $ 273.9 $ 316.5 $ 370.7 $ 437.0Gross profit 168.9 171.6 175.8 203.4 Net Income (Loss) 48.5 5.3 27.7 (67.7)Net Income (Loss) per share-basic 1.10 0.12 0.63 (1.53)Net Income (Loss) per share-diluted 1.10 0.12 0.63 (1.53)Weighted average shares Basic 44,157,364 44,157,364 44,157,364 44,157,364 Diluted 44,157,364 44,157,364 44,157,364 44,157,364 2016 Net Revenues $ 157.6 $ 199.6 $ 230.8 $ 256.3Gross profit 102.2 126.3 145.6 162.7 Net Income 30.2 15.9 38.9 51.3 Net Income per share-basic 0.68 0.36 0.88 1.16 Net Income per share-diluted 0.68 0.36 0.88 1.16 Weighted average shares Basic 44,156,961 44,157,341 44,157,341 44,157,355 Diluted 44,156,961 44,157,341 44,157,341 44,157,355 2015 Net Revenues $ 148.1 $ 154.3 $ 168.6 $ 180.7Gross profit 103.4 104.0 111.8 117.6 Net Income 1.7 19.5 45.6 39.0 Net Income per share-basic 0.04 0.44 1.03 0.88 Net Income per share-diluted 0.04 0.44 1.03 0.88 Weighted average shares Basic 44,154,796 44,155,271 44,155,830 44,156,800 Diluted 44,154,796 44,155,271 44,155,830 44,156,800 (*) The quarter ended December 31, 2017 includes special items charges regarding the deconsolidation of our Venezuelan subsidiaries. Effective as of December 1,2017, the Company no longer presents the results of its Venezuelan subsidiaries in its consolidated financial statements. Please refer to note 2 of our auditedconsolidated financial statements for additional detail.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 thataffect the 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. 49 Table of Contents 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 financialstatements. 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.For an analysis of our Critical Accounting Policies and Estimates please refer to Note 2 “Summary of significant accounting policies” to ourconsolidated financial statements included elsewhere in this report. Foreign Currency TranslationAll of our foreign operations (other than Venezuela since January 1, 2010 as described below) use the local currency as their functionalcurrency. Accordingly, these foreign subsidiaries translate assets and liabilities from their local currencies to U.S. dollars using year-end exchangerates while income and expense accounts are translated at the monthly average exchange rates in effect during the year. The resulting translationadjustment is recorded as part of other comprehensive income (losses), a component of equity. Gains and losses resulting from transactionsdenominated in non-functional currencies are recognized in earnings. Net foreign currency exchange losses or gains are included in the consolidatedfinancial statements of income under the caption “Foreign currency losses / gains”.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.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 Bs 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 sectors;expenses relating to health treatments, sports, culture, scientific research, and other urgent matters defined by the exchange regulations. All foreigncurrency 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”).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. On May 19, 2017, the BCV issued the Exchange Agreement No.38, which established a new foreign exchange mechanism under DICOM,replacing SIMADI. The new mechanism consists of auctions, administered by an auction committee, where sellers and buyers from the private sectormay offer foreign currency under certain limits determined by the BCV. 50 Table of Contents In light of the disappearance of SIMADI (which closed at 728.0 per U.S. dollar), and the Company’s inability to gain access to U.S. dollarsunder SIMADI, it started requesting U.S. dollars through DICOM. As a result, the Company expects to settle its transactions through DICOM goingforward and concluded that the DICOM exchange rate should be used as from June 1, 2017 to measure its bolivar-denominated monetary assets andliabilities and to measure the revenues and expenses of the Venezuelan subsidiaries. Therefore, as of June 30, 2017, monetary assets and liabilities inBolivares (“Bs”) were re-measured to the U.S. dollar using the DICOM closing exchange rate of 2640.0 Bs per U.S. dollar. As a consequence of thelocal currency devaluation, the Company recorded a foreign exchange loss of $22.0 million during the second quarter of 2017.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, 2017 would not be fully recoverable.As a result, on June 30, 2017, the Company recorded an impairment of offices and commercial property under construction included within non-current other assets of $2.8 million. The carrying amount of offices and commercial property under construction was adjusted to its estimated fairvalue, by using the market approach and considering prices for similar assets.Effective December 1, 2017, the Company determined that deteriorating conditions in Venezuela had led the Company to no longer meet theaccounting criteria for control over its Venezuelan subsidiaries. The recent Venezuela’s selective default determination, the restrictive exchangecontrols in Venezuela, the lack of access to U.S. dollars through official currency exchange mechanisms resulted in other-than-temporary lack ofexchangeability between the Venezuela bolivar and the U.S. dollar, and restricted the Company’s operating decision, the Company’s ability to paydividends and satisfy other obligations denominated in U.S. dollars. Therefore, in accordance to the applicable accounting standards, as ofDecember 1, 2017, the Company deconsolidated the financial statements of its subsidiaries in Venezuela and began reporting the results under thecost method of accounting.As a result of the deconsolidation, the Company recorded an impairment of $85,8 million on December 1, 2017. Beginning December 1, 2017, the Company no longer includes the balances, results of operations and cash flows of the Venezuelansubsidiaries in its consolidated financial statements. Please refer to note 2 of our audited consolidated financial statements for additional detail.Argentine currency statusDuring 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, werecognized a foreign exchange gain of $18.2 million (as a result of having a net asset position in U.S. dollars) and the reported Other ComprehensiveLoss increased by $22.8 million (as a result of having a net asset position in Argentine pesos).During 2016, there were no significant changes in the exchange rate. As of December 31, 2016 the Argentine Peso exchange rate against theU.S. dollar was 15.89.During December 2017 the Argentine peso exchange rate increased by 17% against the U.S. dollar to 18.65 Argentine pesos per U.S. dollar asof December 31, 2017. Due to such increase in the Argentine peso exchange rate against the U.S. dollar, we recognized a foreign exchange gainof $4.4 million (as a result of having a net asset position in U.S. dollars) and the reported Other Comprehensive Loss increased by $37.6 million (as aresult of having a net asset position in Argentine pesos).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 currency againstthe U.S. dollar, we recognized a foreign exchange gain of $14.6 million during the year 2015. In addition, the reported Other Comprehensive Loss ofour Brazilian segment increased by $9.0 million during the current year. During 2017 and 2016, there were no significant changes in the exchangerates. As of December 31, 2017 and 2016 the Brazilian Reais exchange rate against the U.S. dollar was 3.31 and 3.26, respectively. 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. 51 Table of Contents We recorded an impairment of long-lived assets of $16.2 million on March 31, 2015, of $13.7 million on June 30, 2016 million and of $2.8million on June 30, 2017 relating to certain real estate investments in Venezuela. The carrying amount was adjusted to its estimated fair value byusing the market approach and considering prices for similar assets. For a complete discussion on such impairment, see “Foreign CurrencyTranslation—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, 2017, 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 Company uses discountrates to each reporting unit in the range of 13.4% to 18.3%. The average discount rate used for 2017 was 15.0%. That rate reflected the Company’sreal weighted average cost of capital. Key drivers in the analysis include Confirmed Registered Users (“CRUs”), Gross Merchandise Volume(“GMV”), Total Payment Volume (“TPV”), Average Selling Price (“ASP”), Successful Items sold (“SI”), Take Rate and operating margins. See Item 6of Part II, “Selected Financial Data-Other data” for details on the measures described in this paragraph. In addition, the benchmark in our analysisincludes a business to e-commerce rate, which represents the growth of e-commerce as a percentage of GDP, Internet penetration rates as well astrends in the Company’s market share.As of December 1, 2017, we deconsolidated our Venezuelan operations and began reporting the results under the cost method of accounting.As a result of the deconsolidation, the Company recorded an impairment of $85,8 million on December 1, 2017. The pretax charge includesthe fully write-off of the Company’s net assets in Venezuela, foreign currency translation previously included in Accumulated other comprehensiveloss for $14,1 million and all inter-company balances for $ 9,1 million. As a result of the above mentioned write-off, as of December 31, 2017 theCompany ’s investment in Venezuela equals zero.Beginning December 1, 2017, we no longer include the results of our Venezuelan subsidiaries in our consolidated financial statementsFor the year ended December 31, 2017, based on quantitative assessments, the Company has determined that the fair value of all the reportingunits and the intangible assets with indefinite useful lives, except the Venezuelan reporting unit and its intangible assets which has been impairedon December 1, 2017, are greater than their respective carrying amounts.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. Except for Venezuelan impairment described above, no impairments were recognized during the reporting periods included in thefinancial statements set forth in Item 8 as management’s assessment 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, for chargebacks and credit losses.We 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. 52 Table of Contents 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 and $67.3 million (including transaction expenses) in June 2014 andSeptember 2017, respectively, to enter into capped call transactions with respect to shares of our common stock (the “Capped Call Transactions”),with certain financial institutions. The Capped Call Transactions are expected generally to reduce the potential dilution upon conversion of theConvertible Notes in the event that the market price of our common stock is greater than the strike price of the Capped Call Transactions. The cost ofthe capped call transactions is included as a net reduction to additional paid-in capital in the stockholders’ equity section of our consolidatedbalance sheets.For more detailed information in relation to the Notes and the Capped Call transactions, see “—Results of operations for the years endedDecember 31, 2017 and 2016 — 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. 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, 2017, we had a valuation allowance oncertain foreign net operating losses and foreign tax credit based on our assessment that it is more likely than not that the deferred tax asset will notbe realized. To the extent we establish a valuation allowance or change the allowance in a period, we reflect the change with a correspondingincrease 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, 2016 and 2017 long-term retention plans (the “2009, 2010,2011, 2012, 2013, 2014, 2015, 2016 and 2017 LTRPs”, respectively). See “Item 7A. Quantitative and Qualitative Disclosures About Market Risk —Equity Price Risk” for details on the LTRPs.All our LTRPs have performance and/or eligibility conditions to be achieved at each year-end and also require the employee to be stillemployed by the Company at the payment date.The variable awards compensation cost of all our LTRPs are recognized in accordance with the graded-vesting attribution method and areaccrued up to each payment date. All our LTRPs fixed awards are recognized in straight line bases using the equal annual accrual method.For an analysis of our LTRP compensation plan, please refer to Note 16 “Long term retencion plan” to our consolidated financial statements. 53 Table of Contents 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.For an analysis of our Outside Director’s compensation plan, please refer to Note 11 “Compensation plan for outside directors” to ourconsolidated financial statementsNo stock options were granted during the period from January 1, 2007 to December 31, 2017 and there were no stock-based compensationexpenses related to stock options for the years ended December 31, 2017, 2016 and 2015. There is no stock option award outstanding under the“2009 Equity Compensation Plan”, (the “2009 Plan”). As of December 31, 2017, there were 232,825 shares of common stock available foradditional awards under the 2009 Plan. Recent accounting pronouncementsSee Item 8 of Part II, “Financial Statements and Supplementary Data-Note 2-Summary of significant accounting policies-Recently issuedaccounting pronuncements.” 54 Table of Contents Results of operationsThe following table sets forth, for the year ended presented, certain data from our consolidated statements of income. This information shouldbe read in conjunction with our audited consolidated financial statements and the notes to those statements included elsewhere in this report. Statement of income data Year Ended December 31,(In millions) 2017 (*)(***) 2016 (*) 2015 (*) Net revenues $1,398.1 $844.4 $651.8 Cost of net revenues (678.5) (307.5) (215.0)Gross profit 719.6 536.9 436.8 Operating expenses: Product and technology development (127.2) (98.5) (76.4)Sales and marketing (325.4) (156.3) (128.6)General and administrative (122.2) (87.3) (76.3)Impairment of Long-Lived Assets (2.8) (13.7) (16.2)Loss on deconsolidation of Venezuelan subsidiaries (**) (85.8) - -Total operating expenses (663.3) (355.8) (297.6)Income from operations 56.3 181.1 139.2 Other income (expenses): Interest income and other financial gains 45.9 35.4 20.6 Interest expense and other financial charges (26.5) (25.6) (20.4)Foreign currency (losses) gains (21.6) (5.6) 11.1 Net income before income tax expense 54.1 185.3 150.5 Income tax expense (40.3) (49.0) (44.7)Net income $13.8 $136.4 $105.8 (*)The table above may not total due to rounding(**)Loss on deconsolidation of Venezuelan subsidiaries effective as of December 1, 2017. Please refer to note 2 from our consolidated financial statements foradditional detail.(***)Excludes results for Venezuela for the month of December 2017. Please refer to Note 2 of our audited consolidated financial statements for additional detail. 55 Table of Contents Year Ended December 31,(% of net revenues) 2017 (*)(**) 2016 (*) 2015 (*) Net revenues 100% 100% 100% Cost of net revenues (48.5) (36.4) (33.0)Gross profit 51.5 63.6 67.0 Operating expenses: Product and technology development (9.1) (11.7) (11.7)Sales and marketing (23.3) (18.5) (19.7)General and administrative (8.7) (10.3) (11.7)Impairment of Long-Lived Assets (0.2) (1.6) (2.5)Loss on Desconsolidation of Venezuelan Subsidiaries (6.1) - -Total operating expenses (47.4) (42.1) (45.7)Income from operations 4.0 21.4 21.4 Other income (expenses): Interest income and other financial gains 3.3 4.2 3.2 Interest expense and other financial charges (1.9) (3.0) (3.1)Foreign currency (losses) / gains (1.5) (0.7) 1.7 Net income before income tax expense 3.9 21.9 23.1 Income tax expense (2.9) (5.8) (6.9)Net income 1.0% 16.1% 16.2% (*)Percentages have been calculated using the whole figures instead of rounding figures. The table above may not total due to rounding.(**)Excludes results for Venezuela for the month of December 2017. Please refer to Note 2 of our audited consolidated financial statements for additional detail. 56 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 revenue streams, driven bythe strong growth of our key operational metrics. Our growth in net revenues was 65.6% from 2016 to 2017 and 29.6% from 2015 to 2016. From2016 to 2017, our Successful Items sold increased by 49.1%, our Gross Merchandise Volume or “GMV” (excluding motor vehicles, vessels, aircraftand real estate) increased by 46.0% and MercadoPago total payment volume increased by 77.1%. Our number of confirmed registered users was21.7% higher as of December 31, 2017 than as of December 31, 2016. From 2015 to 2016, our Successful Items sold increased by 41.0%, our GrossMerchandise Volume or “GMV” (excluding motor vehicles, vessels, aircraft and real estate) increased by 12.5% and MercadoPago total paymentvolume increased by 49.6%. Our number of confirmed registered users was 20.4% higher as of December 31, 2016 than as of December 31, 2015. SeeItem 6 of Part II, “Selected Financial Data-Other data” for details on the measures described in this paragraph. We believe that our growth in netrevenues 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 deconsolidation and highinterest rates in those countries, could cause a decline in year-over-year net 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 51.5%, 63.6% and 67.0% for the years ended December 31, 2017, 2016 and 2015, respectively. The decrease inour gross profit margins resulted primarily from:(i) Increased costs from providing free shipping, mainly in Brazil and Mexico, which totaled $181.6 million for the year ended December 31,2017.(ii) Higher penetration of our payment and shipping services into our Argentine, Brazilian and Mexican marketplaces. For the year endedDecember 31, 2017, total volume of payments on marketplace represented 81.9% of our total GMV; as compared to 69.9% and 52.6% for the yearsended December 31, 2016 and 2015, respectively. Additionally, for the year ended December 31, 2017, the total number of items shipped throughour shipping solution represented 55.8% of our total number of successful items sold, as compared to 47.8% and 35.2% for the years endedDecember 31, 2016 and 2015, 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, 2017, free shipping costs,collection fees and sales taxes increased $181.6 million, $91.0 million and $31.4 million, respectively, as compared to the year ended December 31,2016. For the year ended December 31, 2016, collection fees and sales taxes increased $40.3 million and $23.1 million, respectively, as compared tothe year ended December 31, 2015.(iii) Increased customer support costs of $20.6 million from 2016 to 2017, as compared to $14.8 million from 2015 to 2016; mainly as aconsequence of salaries and wages. The number of customer support employees was 2,552, 1,788 and 1,395 as of December 31, 2017, 2016 and2015, respectively.(iv) Increased hosting costs of $14.3 million for the year ended December 31, 2017, as compared with the same periods in 2016, respectivelyIn the future, gross profit margins could decline if we continue offering free shipping and the penetration of our payment solution and shippinggrows faster than our marketplace.Operating income marginsOperating income margin decreased from 21.4% to 4.0% for the year ended December 31, 2017 as compared to the same period in 2016,mainly as a consequence of increases in costs of net revenues (driven mainly by free shipping costs and collection fees), as described under “Grossprofit margins” above, and increases in sales and marketing expenses (driven mainly by on-line and offline marketing expenses mainly in Brazil andMexico), the charge related to the deconsolidation of our Venezuelan subsidiaries (please refer to note 2 from our audited consolidated financialstatements for additional detail). For 2016 as compared to 2015, our operating income margin remained stable. We anticipate that as we continue to invest in product development, sales and marketing and human resources in order to promote our servicesand capture the long-term business opportunity offered by the Internet in Latin America, it is increasingly difficult to sustain growth in operatingincome margins, and we could experience further decreases in operating income margins. 57 Table of Contents Net revenues For the years ended Change from 2016 For the years ended Change from 2015December 31, to 2017 (*) December 31, to 2016 (*)2017 2016 in Dollars in % 2016 2015 in Dollars in %(in millions, except percentages)(in millions, except percentages)Total Net Revenues (**)$ 1,398.1 $ 844.4 $ 553.7 65.6% $ 844.4 $ 651.8 $ 192.6 29.6% 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 torounding.(**) Venezuelan revenues have been consolidated up to November 30, 2017 due to deconsolidation. Please refer to Note 2 of our audited consolidated financialstatements for additional detail. Years ended Change from 2016 Years ended Change from 2015 December 31, to 2017 (**) December 31, to 2016 (**)Consolidated Net Revenues by revenue stream 2017 2016 in Dollars in % 2016 2015 in Dollars in % (in millions, except percentages) (in millions, except percentages)Brazil Marketplace $ 489.3 $ 254.3 $ 235.0 92.4% $ 254.3 $ 159.9 $ 94.4 59.1% Non-Marketplace 342.1 200.7 141.4 70.5% 200.7 130.7 70.0 53.5% 831.4 455.0 376.4 82.7% 455.0 290.6 164.4 56.6% Argentina Marketplace $ 207.4 $ 156.2 $ 51.2 32.8% $ 156.2 $ 155.9 $ 0.4 0.2% Non-Marketplace 151.9 106.0 45.9 43.3% 106.0 89.1 16.9 18.9% 359.4 262.3 97.1 37.0% 262.3 245.0 17.2 7.0% Mexico Marketplace $ 62.5 $ 29.0 $ 33.4 115.1% $ 29.0 $ 23.6 $ 5.5 23.2% Non-Marketplace 24.0 17.3 6.7 38.9% 17.3 16.8 0.5 3.1% 86.5 46.3 40.2 86.7% 46.3 40.3 6.0 14.9% Venezuela (***) Marketplace $ 50.6 $ 33.7 $ 16.9 50.1% $ 33.7 $ 36.9 $ (3.2) -8.6%Non-Marketplace 3.7 3.5 0.3 7.4% 3.5 3.6 (0.1) -3.0% 54.3 37.2 17.1 46.1% 37.2 40.5 (3.3) -8.1%Other countries Marketplace $ 29.3 $ 18.3 $ 11.0 60.0% $ 18.3 $ 16.8 $ 1.5 9.1% Non-Marketplace 37.2 25.3 11.9 47.2% 25.3 18.6 6.7 36.1% 66.5 43.6 22.9 52.5% 43.6 35.4 8.2 23.3% Marketplace 839.1 491.6 347.5 70.7% 491.6 393.0 98.6 25.1% Non-Marketplace (*) 559.0 352.8 206.2 58.5% 352.8 258.8 94.0 36.3% Total $ 1,398.1 $ 844.4 $ 553.7 65.6% $ 844.4 $ 651.8 $ 192.6 29.6% (*) Includes, among other things, ad sales, classified fees, 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.(***) Venezuelan revenues have been consolidated up to November 30, 2017 due to deconsolidation. Please refer to Note 2 of our audited consolidated financialstatements for additional detail.On a segment basis, our net revenues for the years ended December 31, 2017 and 2016, increased across all geographic segments, except for theVenezuelan segment in 2016 as compared to 2015.BrazilMarketplace revenue in Brazil grew 92.4% in the year ended December 31, 2017 as compared to the same period in 2016. The growth wasprimarily a consequence of an increase in: i) a 57.2% increase in our local currency volume, ii) a 12.0% increase in our take rate (equal to netrevenues as a percentage of gross merchandise volume), and iii) a 9.3% appreciation of local currency. Non-Marketplace revenue grew 70.5%, a$141.4 million increase, during the same period, mainly driven by: i) a 91.7% increase in the volume of payments transactions; ii) a 67.2% increasein the volume of shipped items and iii) a 58.2% increase in ad sales volume.Marketplace 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 an increase in our take rate (equal to net revenues as a percentage ofgross merchandise volume) of 6.4%. Those increases were partially offset by a local currency devaluation of 4.4%. Non-Marketplace revenue grew53.5%, 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. 58 Table of Contents ArgentinaMarketplace revenue in Argentina increased 32.8% for the year ended December 31, 2017 as compared to the same period in 2016, mainly dueto a 32.8% increase in local currency volume and an 11.8% increase in our take rate, which was substantially offset by a 10.6% devaluation of theArgentine peso. Non-Marketplace revenue grew 43.3%, a $45.9 million increase, during the same period mainly driven by: i) a 47.3% increase in thevolume of off platform payments transactions and ii) a 32.5% increase in the volume of shipped items.Marketplace revenue in Argentina 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.MexicoMarketplace revenue in Mexico grew 115.1% during the year ended December 31, 2017 as compared to the same period of 2016. The increasein our Mexican marketplace revenues primarily reflects an increase in a local currency volume of 64.6% and a 32.3% increase in our take rate,partially offset by a 1.2% devaluation of the local currency. Non-Marketplace revenue grew 38.9%, a $6.7 million increase, mainly driven byincreases in the volume of financing transactions offered to our users and shipping transactions.Marketplace 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.VenezuelaMarketplace revenue in Venezuela increased 50.1% during the year ended December 31, 2017 when compared to the same period in 2016,mainly due to a 536.1% increase in local currency volume, partially offset by a 76.3% local currency devaluation (see “Foreign CurrencyTranslation — Venezuelan currency status”) and the deconsolidation on December 1, 2017 which implies that 2017’s revenues does not includeVenezuelan revenues from December 2017. Non-Marketplace revenue increased 7.4%, or $0.3 million during the same period, mainly due to anincrease in the volume of transactions. Marketplace 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 “Foreign Currency Translation — Venezuelan currency status”), partially offset by a 161.1%increase in local currency volume and a 6.3% increase in our take rate. Non-Marketplace revenue decreased 3.0%, or $0.1 million during the sameperiod, mainly due to the devaluation mentioned above, which was partially offset by an increase in the volume of transactions.The following table sets forth our total net revenues and the sequential quarterly growth of these net revenues for the periods described below: Quarter EndedMarch 31,June 30,September 30,December 31,(in millions, except percentages)(*)2017 Net revenues (**)$ 273.9$ 316.5$ 370.7$ 437.0Percent change from prior quarter7% 16% 17% 18% 2016 Net revenues$ 157.6$ 199.6$ 230.8$ 256.3Percent change from prior quarter-13%27% 16% 11% 2015 Net revenues$ 148.1$ 154.3$ 168.6$ 180.7Percent change from prior quarter-8%4% 9% 7% (*)Calculated using whole-dollar amounts rather than rounded amounts that appear in the table.(**)Venezuelan revenues have been consolidated up to November 30, 2017 due to deconsolidation. Please refer to Note 2 of our audited consolidated financialstatements for additional detail. 59 Table of Contents The following table set forth the growth in net revenues in local currencies for the years ended December 31, 2017 and 2016:Changes from (*)(% of revenue growth in Local Currency)2016 to 20172015 to 2016Brazil70.1% 61.3% Argentina53.8% 70.6% Mexico87.1% 35.3% Venezuela (**)521.6% 188.6% Other Countries38.8% 44.7% Total Consolidated81.7% 70.3% (*)The local currency revenue growth was calculated by using the average monthly exchange rates for each month during 2016 and applying them to thecorresponding months in 2017, so as to calculate what our financial results would have been had exchange rates remained stable from one year to the next.The local currency revenue growth was 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 financial results would have been had exchange rates remained stable from one year to the next(**)Venezuelan revenues have been consolidated up to November 30, 2017 due to deconsolidation. Please refer to Note 2 of our audited consolidated financialstatements for additional detail.In Venezuela, the increase in our net revenues is mainly due to higher average selling prices posted by sellers during the year ended December31, 2017, which we do not control. The increase in average selling prices in Venezuela is a consequence of: (i) the high inflation rate; (ii) a shortageof products and (iii) changes in the mix of categories of the items sold in our Venezuelan marketplace. Venezuelan revenues have been consolidatedup to November 30, 2017. Please refer to Note 2 of our audited consolidated financial statements for additional detail.In Brazil, the increase in local currency growth is a consequence of an increase of our Brazilian Marketplace transactions volume, increasesin our MercadoPago transactions and shipped items volume and appreciation of local currency.In Mexico, the increase in our local currency growth is a consequence of an increase of our Mexican Marketplace transactions volume,increases in our MercadoPago transactions, shipped items volume.In Argentina, the increase in our net revenues is mainly due to an increase in the Argentine successful items volume, higher average sellingprices, shipped items volume and increases in our MercadoPago transactions.For more explanation of the revenue growth in Venezuela, see above mentioned disclosures in this section. See also “Critical AccountingPolicies and Estimates – Foreign Currency Translation”. Cost of net revenues Years ended Change from 2016 Years ended Change from 2015December 31, to 2017 (*) December 31, to 2016 (*)2017 (**) 2016 in Dollars in % 2016 2015 in Dollars in %(in millions, except percentages) (in millions, except percentages)Total cost of net revenues $ 678.5 $ 307.5 $ 371.0 120.6% $ 307.5 $ 215.0 $ 92.5 43.0% As a percentage of net revenues (*)48.5% 36.4% 36.4% 33.0% (*)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.(**)Venezuelan cost of net revenues for 2017 have been consolidated up to November 30, 2017 due to deconsolidation. Please refer to Note 2 of our auditedconsolidated financial Statements for additional detail.For the year ended December 31, 2017 as compared to the year ended December 31, 2016, the increase of $371.0 million in cost of net revenueswas primarily attributable to: i) an increase in free shipping costs amounting to $181.6 million, related to our Brazilian and Mexican free shippinginitiative; ii) a 59.2% increase in collection fees amounting to $91.0 million, which was mainly attributable to our Argentine and Brazilianoperations as a result of the higher transaction volume of Mercado Pago in those countries. For the year ended December 31, 2017, total volume ofpayments on marketplace represented 81.9% of our total GMV as compared to 69.9% for year ended December 31, 2016; iii) an increase in sales taxamounting to $31.4 million, mainly in Argentina and Brazil, iv) a $20.6 million increase in customer support costs mainly as a consequence ofhigher salaries and wages due to new hirings and v) a $ 14.3 million increase in hosting expenses.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) a 35.4% increase in collection fees amounting to $40.3 million, which was mainly attributable to our Argentine andBrazilian operations as a result of the higher penetration of Mercado Pago in those countries. For the year ended December 31, 2016, total volumeof payments on marketplace represented 69.9% of our total GMV as compared to 52.6% for year ended December 31, 2015; ii) an increase in salestax amounting to $23.1 million, mainly in Argentina and Brazil, iii) a $14.8 million increase in customer support costs mainly as a consequence ofhigher salaries and wages due to new hirings and increased temporary services, iv) a $4.7 million increase in hosting costs, and v) a $4.3 millionincrease in mobile points of sale costs. 60 Table of Contents Product and technology development Years ended Change from 2016 Years ended Change from 2015December 31, to 2017 (*) December 31, to 2016 (*)2017 (**) 2016 in Dollars in % 2016 2015 in Dollarsin %(in millions, except percentages) (in millions, except percentages)Product and technology development$ 127.2 $ 98.5 $ 28.7 29.1% $ 98.5 $ 76.4 $ 22.128.9% As a percentage of net revenues (*)9.1% 11.7% 11.7% 11.7% (*) 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.(**)Venezuelan product and technology development expenses expenses have been consolidated up to November 30, 2017 due to deconsolidation. Please refer toNote 2 of our audited consolidated financial Statements for additional detail.For the year ended December 31, 2017 as compared to the year ended December 31, 2016, the 29.1% increase in product and technologydevelopment expenses amounted to $28.7 million and was primarily attributable to; i) an increase of $13.7 million in salaries and wages due mainlyto new hirings in 2017, ii) an increase in depreciation and amortization expenses of $8.5 million and iii) an increase in other product and technologydevelopment expenses of $4.8 million.For the year ended December 31, 2016 as compared to the year ended December 31, 2015, the 28.9% increase in product and technologydevelopment expenses amounted to $22.1 million and was primarily attributable to; i) an increase of $8.8 million in salaries and wages due mainlyto new hirings in 2016, ii) an increase in maintenance expenses of $3.1 million; iii) an increase in depreciation and amortization expenses of $4.3million; and iv) an increase in other product and technology development expenses of $5.8 million.We believe product development is one of our key competitive advantages and intend to continue to invest in adding engineers to meet theincreasingly sophisticated product expectations of our customer base.Sales and marketing Years ended Change from 2016 Years ended Change from 2015December 31, to 2017 (*) December 31, to 2016 (*)2017 (**) 2016 in Dollars in % 2016 2015 in Dollarsin %(in millions, except percentages) (in millions, except percentages)Sales and marketing$ 325.4 $ 156.3 $ 169.1 108.2% $ 156.3 $ 128.6 $ 27.721.5% As a percentage of net revenues (*)23.3% 18.5% 18.5% 19.7% (*)Percentages have been calculated using whole-dollar amounts rather than rounded amounts that appear in the table. The table above may not total due to rounding.(**)Venezuelan sales and marketing expenses have been consolidated up to November 30, 2017 due to deconsolidation. Please refer to Note 2 of our auditedconsolidated financial statements for additional detail.For the year ended December 31, 2017, the $169.1 million increase in sales and marketing expenses when compared to the year endedDecember 31, 2016 was primarily attributable to: i) an increase of $109.4 million in marketing expenses mainly in Brazil and Mexico; ii) a $18.9million increase in chargebacks from credit cards due to the increase in our MercadoPago transactions volume; iii) a $16.5 million increase insalaries and wages; iv) a $ 14.5 million increase in our buyer protection program expenses and v) an increase in our bad debt expenses of $ 4.4millionFor 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 $2.2million decrease in bad debt expenses due to a higher penetration of MercadoPago and improvements in recoveries process, which represented 1.5%of our net revenues for the year ended December 31, 2016 as compared to bad debt expenses equal to 2.3% for the year ended December 31, 2015. 61 Table of Contents General and administrative Years ended Change from 2015 Years ended Change from 2015December 31, to 2016 (*) December 31, to 2016 (*)2017(**) 2016 in Dollars in % 2016 2015 in Dollars in %(in millions, except percentages) (in millions, except percentages)General and administrative$ 122.2 $ 87.3 $ 34.9 40.0% $ 87.3 $ 76.3 $ 11.0 14.4% As a percentage of net revenues (*)8.7% 10.3% 10.3% 11.7% (*)Percentages have been calculated using whole-dollar amounts rather than rounded amounts that appear in the table. The table above may not total due to rounding.(**)Venezuelan general and administrative expenses have been consolidated up to November 30, 2017 due to deconsolidation. Please refer to Note 2 of our auditedonsolidated financial statements for additional detail.For the year ended December 31, 2017, the $34.9 million increase in general and administrative expenses when compared to the same period in2016 was primarily attributable to a i) $24.1 million increase in salaries and wages mainly as a consequence of increases in our long-term retentionprogram expenses; ii) a $2.7 million increase in legal and audit fees; iii) a $ 2.5 million increase in temporary services hired, mainly associated totemporary administrative employees; iv) a $1.6 million increase in tax and other fees and v) a $1.1 million increase in depreciation and amortizationexpenses.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 $0.7 million decrease in depreciation and amortization expenses. Impairment of Long-Lived Assets Years ended Change from 2016 Years ended Change from 2015December 31, to 2017 (*) December 31, to 2016 (*)2017 2016 in Dollars in % 2016 2015 in Dollars in %(in millions, except percentages) (in millions, except percentages)Impairment of Long-Lived Assets$ 2.8 $ 13.7 $ (10.9) -79.3% $ 13.7 $ 16.2 $ (2.5) -15.5%As a percentage of net revenues (*)0.2% 1.6% 1.6% 2.5% (*)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 $2.8 million, $13.7 million and $16.2 millionduring the second quarter of 2017, the second quarter of 2016 and the first quarter of 2015, respectively. For further information, see “ForeignCurrency Translation— Venezuelan currency status.” Loss on deconsolidation of Venezuelan subsidiaries Years ended Change from 2016 Years ended Change from 2015December 31, to 2017 (*) December 31, to 2016 (*)2017 2016 in Dollars in % 2016 2015 in Dollars in %(in millions, except percentages) (in millions, except percentages)Loss on deconsolidation of VenezuelanSubsidiaries$ 85.8 $ - $ 85.8 100.0% $ - $ - $ - 0.0% As a percentage of net revenues (*)6.1% 0.0% 0.0% 0.0% (*)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.We deconsolidated our Venezuelan operations effective as from December 1, 2017. As a consequence, we recorded an impairment of $85.8million, including net assets, intercompany balances, accumulated translation differences and intangible assets. Please refer to Note 2 of our auditedconsolidated financial statements for additional detail. 62 Table of Contents Other income, net Years ended Change from 2016 Years ended Change from 2015December 31, to 2017 (*) December 31, to 2016 (*)2017 (**) 2016 in Dollars in % 2016 2015 in Dollarsin %(in millions, except percentages) (in millions, except percentages)Other (expense) income, net$ (2.2) $ 4.3 $ (6.5) -151.6% $ 4.3 $ 11.3 $ (7.0)-62.2%As a percentage of net revenues (*)-0.2% 0.5% 0.5% 1.7% (*)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.(**)Venezuelan other (expenses) income, net have been consolidated up to November 30, 2017 due to deconsolidation. Please refer to Note 2 of our auditedconsolidated financial statements for additional detail.For the year ended December 31, 2017, the $6.5 million increase in other expenses compared to the gain in the same period in 2016was primarily attributable to a $16.1 million increase in foreign exchange loss mainly attributable to higher foreign exchange loss in Venezuela andBrazil of $ 17.8 million and $ 2.2 million, respectively, and lower foreign exchange gain in Argentina of $3.4 million, partially offset by a higherforeign exchange gain in Mexico of $7.5 million. This foreign exchange loss was partially offset by a $10.5 million increase in interest incomearising from higher financial investments, mainly in Brazil and Argentina.For the year ended December 31, 2016, the $7.0 million decrease in other income, net when compared to the same period in 2015 wasprimarily 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 $15.0 million increase in interest income arising fromour financial investments in Brazil and Argentina Income and asset tax Years ended Change from 2016 Years ended Change from 2015December 31, to 2017 (*) December 31, to 2016 (*)2017 (**) 2016 in Dollars in % 2016 2015 in Dollars in %(in millions, except percentages) (in millions, except percentages)Income tax$ 40.3 $ 49.0 $ (8.7) -17.7% $ 49.0 $ 44.7 $ 4.3 9.5% As a percentage of net revenues (*)2.9% 5.8% 5.8% 6.9% (*)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.(**)Venezuelan tax expense has been consolidated up to November 30, 2017 due to deconsolidation. Please refer to Note 2 of our audited consolidated financialstatements for additional detail.During the year ended December 31, 2017 as compared to the same period in 2016, income tax expense decreased by $8.7 million mainly as aconsequence of higher pre-tax losses recorded in Mexico (mainly attributable to an increase in our operating costs), partially offset by an increase inour pre-tax gains mainly in Argentina.On December 27, 2017, the Argentine Senate approved a comprehensive income tax reform effective as from January 1, 2018. As aconsequence of the Argentine tax reform, we have recorded an income tax expense of $1.8 million in the year ended December 31, 2017, due to thereduction of our deferred tax assets position generated by the reduction of the Argentine income tax rate. Please refer to Note 14 of our consolidatedfinancial statements for additional detail.On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the“Tax Act”). The Tax Act establishes a reduction of the U.S. federal corporate tax rate to 21 percent, effective January 1, 2018. Consequently, for theyear ended December 31, 2017, we have recorded a $0.8 million income tax gain related to the reduction of deferred tax assets and liabilities of $ 1.6million and $ 2.4 million, respectively. Please refer to Note 14 of our consolidated financial statements for additional detail.On September 17, 2015, the Argentine Industry Secretary issued Resolution 1041/2015 approving our application for eligibility under the newsoftware development law for our Argentine subsidiary, Mercadolibre S.R.L. As a result, our Argentine subsidiary have been granted a tax holidayretroactive from September 18, 2014. A portion of the benefits obtained as beneficiaries of the new law is a relief of 60% of total income tax relatedto software development activities and a 70% relief in payroll taxes related 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 $22.9 million and $22.6 millionduring 2017 and 2016, respectively. Furthermore, the Company recorded a labor cost benefit of $7.6 million and $5.5 million during 2017 and2016. Additionally, $2.1 million and $2.0 million were accrued to pay software development law audit fees during 2017 and 2016,respectively. Aggregate per share effect of the Argentine tax holiday amounted to $0.52 million and $0.51 for the years ended December, 31 2017and 2016, respectively. Please refer to Note 14 to our consolidated financial statements for additional detail. 63 Table of Contents 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. Our blended tax rate is defined as income expense as a percentage of income before income. Our effective income tax rate is defined as theprovision for income taxes (net of charges related to dividend distributions from foreign subsidiaries that are offset with U.S. foreign tax credits) as apercentage of income before income. The effective income tax rate excludes the effects of the deferred income tax, and the assets and complementaryincome tax.The following table summarizes the changes in our blended and effective tax rate for the years ended December 31, 2017, 2016 and 2015:Years endedDecember 31,201720162015Blended tax rate74.5%26.4%29.7%Effective tax rate118.5%30.0%30.5%Our blended tax rate for the year ended December 31, 2017 as compared to the same period in 2016 increased mainly due to the one-time lossrecorded in our Venezuelan subsidiaries during the fourth quarter of 2017 related to the deconsolidation of Venezuelan subsidiaries (which is notdeductible for tax purposes). Please refer to Note 2 of our audited consolidated financial statements for additional detail.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 Bs 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.The following table sets forth our effective income tax rate related to our main locations for the years ended December 31, 2017, 2016 and2015: Years endedDecember 31,201720162015Effective tax rate by countryArgentina19.5% 19.3% 15.5% Brazil32.2% 26.6% 29.9% Venezuela-2.3%-1.0%-16.4%Mexico-0.2%-7.0%-18.2%Our effective income tax rate for our Argentine subsidiaries remained stable during the year ended December 31, 2017 as compared to the sameperiod in 2016.The increase in the effective income tax rate for 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. In August 2011, the Argentine government issued a new software development law. In September 17, 2015, the Argentine Industry Secretaryapproved our application for eligibility under the new software development law for our Argentinean subsidiary, Mercadolibre S.R.L. Furthermore,on September 18, 2016, the Argentine Industry Secretary approved our application for eligibility under the new software development law for ourArgentinean subsidiaries, Neosur S.RL. and Business Vision S.A. As a result, our Argentine subsidiaries were granted a tax holiday retroactive toSeptember 18, 2014. A portion of the benefits obtained as beneficiaries of the new law is a relief of 60% of the total income tax related to softwaredevelopment activities and a 70% relief in payroll taxes related to software development activities and continue to apply to us.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. Our Argentine operation will have to achieve certain required ratios annuallyunder the new software development law to continue to benefit from the tax holiday. The increase in our Brazilian effective income tax rate for the year ended December 31, 2017 as compared to the same period in 2016, wasmainly related to lower temporary differences deducted in the current period. The decrease in our Brazilian effective income tax rate for the yearended December 31, 2016 as compared to the same period in 2015, was mainly related to temporary differences deducted in 2016. 64 Table of Contents For the years ended December 31, 2017, 2016 and 2015, our Mexican negative effective income tax rate was driven by losses recorded in ourMexican subsidiaries related to increases in our operating costs, mainly related to free shipping and other marketing initiatives launched in Mexico.For the years ended December 31, 2017, 2016 and 2015, our Venezuelan effective income tax rate was driven by losses recorded for ourVenezuelan subsidiaries related to the impairment of long-lived assets and foreign exchange losses, which generated a net loss before income tax.The impairment of long-lived assets charge is non-deductible for tax purposes. Our management considers any excess of the amount for financial reporting over the tax basis of the investments in the non-U.S. subsidiaries tobe indefinitely reinvested, and for that reason has not recorded a deferred tax liability. However, if the distributions of those earnings do not implywithholdings, exchange rate differences or state income taxes, we expects repatriations to the US parent.Deferred Income TaxThe following table summarizes the composition of our deferred tax assets for the years ended December 31, 2017 and 2016: Year Ended Year Ended December 31, December 31, Deferred tax assets2017 in % 2016 in %(in millions, except percentages) (in millions, except percentages) Brazilian operations$10.1 13.8 % $5.5 10.2 %U.S. tax credits & others U.S. deferred tax assets 13.1 18.0 15.3 28.3 Operations in other countries 6.6 9.1 4.6 8.5 Mexican operations 29.0 39.9 8.6 16.0 Chilean operations 3.4 4.6 1.3 2.3 Venezuelan operations — — 7.3 13.5 Argentine operations 10.6 14.6 11.4 21.2 Total$72.7 100.0 % $53.9 100.0 %At December 31, 2017, our deferred tax assets were comprised mainly of foreign exchange effects, allowance for doubtful accounts, payroll andsocial security payable and provisions, representing 12.1%, 8.7%, 8.1% and 6.5%, respectively of our total deferred tax assets. At December 31,2016, our deferred tax assets were comprised mainly of foreign exchange effects, payroll and social security payable, allowance for doubtfulaccounts and provisions, representing 25.1%, 17.8%, 15.4% and 7.4%, 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, 2017 and2016: Year Ended Year EndedDecember 31, December 31,Loss carryforwards2017 in % 2016 in %(in millions, except percentages) (in millions, except percentages) Brazilian operations$2.7 7.7 % $0.2 1.3 %Mexican operations 26.7 75.7 6.2 45.1 U.S. loss carry forwards 0.2 0.6 0.4 2.9 Chilean operations 2.3 6.6 0.5 3.4 Venezuelan operations — — 4.5 32.6 Operations in other countries 3.3 9.4 2.0 14.7 Total$35.2 100.0 % $13.8 100.0 %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, 2017 and 2016, our valuation allowance amounted to $15.4 million and $9.0 million, respectively. 65 Table of Contents The following table summarizes the composition of our valuation allowance for the years ended December 31, 2017 and 2016: Year Ended Year EndedDecember 31, December 31,Valuation Allowance2017 in % 2016 in %(in millions, except percentages) (in millions, except percentages)U.S. foreign tax credits$12.1 78.4 — 0.0 %Mexican operations 0.0 0.1 % $1.8 20.0 Argentine operations 3.3 21.5 3.2 36.1 Venezuelan Operations — 0.0 3.9 43.9 Total$15.4 100.0 % $9.0 100.0 %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 $3.3 million and $3.2 million of valuation allowances in Argentina as of December 31, 2017 and 2016, respectively, are a consequence ofmore restrictive requirements to compute doubtful accounts as an income tax deduction.The $12.1 million of valuation allowances in the United States as of December 31, 2017 are a consequence of the impossibility to offsetforeign tax credits with future taxable income.Historically, these provisions have adequately provided for our actual income tax liabilities. Our future effective tax rates could be adverselyaffected by earnings being lower than anticipated in countries where we have lower statutory rates and higher than anticipated in countries where wehave higher statutory rates, by changes in the valuations of our deferred tax assets or liabilities, or by changes or interpretations in tax laws,regulations or accounting principles. Segment informationSee Note 7 to our consolidated financial statements for detailed description about our reporting segments. (In millions, except for percentages)Year ended December 31, 2017 (*) (**) Brazil Argentina Mexico Venezuela Other Countries TotalNet revenues$ 831.4 $ 359.4 $ 86.5 $ 54.3 $ 66.5 $ 1,398.1 Direct costs(612.2) (215.8) (142.6) (22.1) (59.0) $ (1,051.7)Impairment of Long-lived Assets — — — (2.8) — $ (2.8)Loss on Deconsolidation of Venezuelan Subsidiaries — — — (76.6) — $ (76.6)Direct contribution219.2 143.5 (56.1) (47.2) 7.5 $ 267.0 Margin26.4% 39.9% -64.8% -86.9% 11.3% 19.1% Year ended December 31, 2016 (*) Brazil Argentina Mexico Venezuela Other Countries TotalNet 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% 66 Table of Contents Change from the year ended December 31, 2017 to December 31, 2016 (*) Brazil Argentina Mexico Venezuela Other Countries TotalNet revenues in Dollars$ 376.4 $ 97.1 $ 40.2 $ 17.1 $ 22.9 $ 553.7 in %82.7% 37.0% 86.7% 46.1% 52.5% 65.6% Direct costs in Dollars$ (341.3) $ (63.7) $ (101.6) $ (4.4) $ (27.5) $ (538.3)in %126.0% 41.9% 248.1% 24.6% 87.0% 104.9% Impairment of Long-Lived Assets in Dollars$ — $ — $ — $ 10.9 $ — $ 10.9 in %0.0% 0.0% 0.0% -79.3% 0.0% -79.3%Loss on Deconsolidation of Venezuelan Subsidiaries in Dollars$ — $ — $ — $ (76.6) $ — $ (76.6)in %0.0% 100.0% 0.0% 100.0% 100.0% 100.0% Direct contribution in Dollars$ 35.1 $ 33.4 $ (61.5) $ (53.0) $ (4.5) $ (50.5)in %19.1% 30.3% -1142.1% -923.4% -37.7% -15.9% (In millions, except for percentages)Year ended December 31, 2016 (*) Brazil Argentina Mexico Venezuela Other Countries TotalNet 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, 2015 (*) Brazil Argentina Mexico Venezuela Other Countries TotalNet 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% Change from the year ended December 31, 2016 to December 31, 2015(*) Brazil Argentina Mexico Venezuela Other Countries TotalNet revenues in 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 costs in 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 Assets in Dollars$ — $ — $ — $ 2.5 $ — $ 2.5 in %0.0% 0.0% 0.0% -15.5% 0.0% -15.5%Direct contribution in 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% (*)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.(**)Exclude results of operations for Venezuela for the month of December 2017. Please refer to Note 2 of our audited consolidated financial statements foradditional detail.Net revenuesNet revenues for the year ended December 31, 2017, 2016 and 2015 are described above in “Item 7 – Management’s Discussion and Analysisof Financial Condition and Results of Operations – Net revenues”. 67 Table of Contents Direct costs, Impairment of Long-Lived Assets and Loss on Deconsolidation of Venezuelan SubsidiariesBrazilFor the year ended December 31, 2017 as compared to the same period in 2016, direct costs increased by 126.0%, mainly driven by: i) a165.9% increase in cost of net revenues, mainly attributable to an increase in shipping costs as a consequence of our free shipping strategy,collection fees as a consequence of higher transactions volume of our MercadoPago business, sales tax, cost of product sold as a consequence ofhigher volumes of mobile points of sales devices sold and salaries and wages; ii) a 105.2% increase in sales and marketing expenses, mainly due toan increase in online marketing expenses, chargebacks from credit cards due to the increase in our MercadoPago volume, salaries and wages, andbuyer protection program expenses; iii) a 37.0% increase in product and technology development expenses, mainly due to an increase indepreciation and amortizacion expenses and other product and technology development expenses; and iv) a 23.7% increase in general andadministrative expenses, mainly attributable to increases in salaries and wages and legal fees.For 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 transaction volume 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% increasein general and administrative expenses, mainly attributable to increases in salaries and wagesArgentinaFor the year ended December 31, 2017 as compared to the same period in 2016, direct costs increased by 41.9%, mainly driven by: i) a 74.5%increase in sales and marketing expenses, mainly due to an increase in online marketing expenses, chargebacks from credit cards due to the increasein our MercadoPago transactions volume, buyer protection program expenses and salaries and wages; ii) a 70.6% increase in product andtechnology development expenses, mainly due to higher depreciation and amortization expenses; iii) a 34.4% increase in cost of netrevenues, mainly attributable to an increase in collection fees as a consequence of a higher transaction volume of our MercadoPago business,customer support, sales taxes costs and cost of product sold as a consequence of higher volumes of mobile points of sales devices sold; and iv) a14.1% increase in general and administrative expenses.For 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.MexicoFor the year ended December 31, 2017 as compared to the same period in 2016, direct costs increased by 248.1%, mainly driven by: i) a370.3% increase in cost of net revenues, mainly attributable to an increase in shipping costs as a consequence of our free shipping strategy, anincrease in collection fees due to higher MercadoPago transaction volume and customer support costs; ii) a 266.0% increase in sales and marketingexpenses, mainly due to increases in online marketing expenses; and iii) a 16.0% increase in general and administrative expenses, mainlyattributable to an increase in depreciation and amortization. These increases were partially offset by a 7.9% decrease in product and technologydevelopment expenses, mainly due to lower salaries and wages.For 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.VenezuelaWe deconsolidated our Venezuelan’s operations effective as from December 1, 2017 and recorded an impairment of $ 85.8 million, of which $76.6 million are included as direct costs and relates to the company’s investment in Venezuela, including net assets, intangibles accumulatedtranslation differences and $ 9.1 million are related to intercompany balances. Please refer to note 2 from our audited consolidated financialstatements for additional detail.During the second quarter of 2017, 2016 and the first quarter of 2015, we recorded impairments of long-lived and other non-current assets of$2.8 million, $13.7 million and $16.2 million, respectively, in our Venezuelan subsidiaries. 68 Table of Contents Additionally, direct costs increased by $4.4 million during the year ended December 31, 2017 as compared to the same period in 2016,primarily due to: i) a 35.6% increase in cost of net revenues that was mainly attributable to an increase in collection fees due to higher MercadoPagopenetration and customer support costs; ii) a 33.2% increase in product and technology development expenses attributable to an increase indepreciation and amortization expenses; iii) a 7.7% increase in general and administrative expenses, mainly due to an increase in salaries and wagesand iv) a 6.6% increase in sales and marketing expenses that was mainly attributable to an increase in bad debt expenses and salaries and wages.Direct costs increased by $2.4 million during the year ended December 31, 2016 as compared to the same period in 2015, primarily due to: i) a21.3% increase in sales and marketing expenses that was mainly attributable to an increase in bad debt expenses, chargeback expenses anddepreciation and amortization expenses; ii) a 11.2% increase in cost of net revenues that was mainly attributable to an increase in customer supportcosts and certain new taxes on payment business; and iii) a 261.2% increase in product and technology development expenses attributable to anincrease in depreciation and amortization expenses. These increases were partially offset by a 9.8% decrease in general and administrative expenses,mainly due to decreases in depreciation and amortization expenses. Liquidity and Capital ResourcesOur main cash requirement historically has been working capital to fund MercadoPago financing operations in Brazil. We also require cash formarketing initiatives, free shipping, MercadoCredito operations, capital expenditures relating to technology infrastructure, software applications,office space, business acquisitions, to fund our credit business, to fund the payment of quarterly cash dividends on shares of our common stock andto fund the interest payments on our issued Convertible Notes.In our early years, we funded our operations primarily through contributions received from our stockholders during the first two years ofoperations, from funds raised from our initial public offering, and from cash generated from our operations. As discussed above under “CriticalAccounting Policies and Estimates”, on June 30, 2014, we issued $330 million principal balance of Convertible Notes for net proceeds to us of$321.7 million.As of December 31, 2017, our main source of liquidity, amounting to $597.7 million of cash and cash equivalents and short-term investmentsand $34.7 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. We have funded MercadoPago by discounting credit card receivables, withloans backed with credit card receivables and through cash advances derived from our business. We have funded loan receivables with domesticcash resources.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 of December 31, 2017, cash and investments of our non-U.S. subsidiaries amounted to 81.1% of our consolidated cash and investments, or$513.0 million, and our non-U.S. dollar-denominated cash and investments amounted to 70.4% of our consolidated cash and investments. Our non-U.S. dollar-denominated cash and investments are located primarily in Brazil and Argentina.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, constitution of trusts or obtaining loans from financial institutions and receiving cash advances fromour business.The following table presents our cash flows from operating activities, investing activities and financing activities for the years endedDecember 31, 2017, 2016 and 2015: Years ended December 31, (*)(In millions) 2017 2016 2015Net cash provided by (used in): Operating activities $ 269.0 $ 190.3 $ 221.4Investing activities (22.6) (84.2) (183.5)Financing activities (50.9) (19.7) (27.7)Effect of exchange rates on cash and cash equivalents (41.3) (19.1) (66.4)Net increase (decrease) in cash and cash equivalents $ 154.1 $ 67.3 $ (56.3)(*)Percentages have been calculated using whole-dollar amounts rather than rounded amounts that appear in the table. 69 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 ended Change from December 31, 2016 to 2017 (*) 2017 2016 in Dollars in % (in millions, except percentages)Net Cash provided by: Operating activities $ 269.0 $ 190.3 $ 78.8 41.4% The $78.8 million increase in net cash provided by operating activities during the year ended December 31, 2017, as compared to the sameperiod in 2016, was primarily driven by a $ 102.2 increase in accounts payable and accrued expenses and a $78.0 million increase in funds payableto customers of MercadoPago in credit card receivables. This increase was partially offset by a $ 77.0 million decrease in credit card receivables anda $30.4 million decrease in other assets. Years ended Change from December 31, 2015 to 2016 (*) 2016 2015 in Dollars in % (in millions, except percentages)Net Cash 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.Net cash used in investing activities Years ended Change from December 31, 2016 to 2017 (*) 2017 2016 in Dollars in % (in millions, except percentages)Net Cash provided by (used in): Investing activities $ (22.6) $ (84.2) $ 61.6 -73.1%(*)Percentages have been calculated using whole-dollar amounts rather than rounded amounts that appear in the table.Net cash provided by in investing activities in the year ended December 31, 2017 resulted mainly from proceeds from the sale and maturity ofinvestments of $4,713.9 million partially offset by purchases of investments of $4,553.6 million, as part of our financial strategy. We used $72.2million in principal loans receivable granted to merchants under our MercadoCredito solution; $55.2 million in the purchase of property, plant andequipment (mainly in our Argentine and Brazilian offices and in information technology in Argentina and Brazil); $19.7 million in advances forproperty and equipment (mainly offices in Argentina), $8.6 million to fund the acquisitions of Ecommet Software Ltda. (see note 6 to ourconsolidated financial statements). Years ended Change from December 31, 2015 to 2016 (*) 2016 2015 in Dollars in % (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. 70 Table of Contents 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 solutionNet cash used in financing activities Years ended Change from December 31, 2016 to 2017 (*) 2017 2016 in Dollars in % (in millions, except percentages)Net Cash used in: Financing activities $ (50.9) $ (19.7) $ (31.2) 158.8% (*)Percentages have been calculated using whole-dollar amounts rather than rounded amounts that appear in the table.For the year ended December 31, 2017, our primary use of cash was to fund $67.3 million for the 2017 Capped Call Transactions (describedbelow) and $26.5 million in cash dividends. In addition, we generated $42.9 million proceeds from our loans payable and other financial liabilities(net of payments on loans payable and other financing). Years ended Change from December 31, 2015 to 2016 (*) 2016 2015 in Dollars in % (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 in proceeds from our loans payable and other financial liabilities.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 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 matureon July 1, 2019 unless earlier repurchased or converted in accordance with their terms prior to such date. The Notes may be converted, under specificconditions, based on an initial conversion rate of 7.9353 shares of common stock per $1,000 principal amount of Notes (equivalent to an initialconversion 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 the Company’s common stock and the conversion rate on each such trading day; or (3) upon the occurrence of specified corporate events.On or after January 1, 2019 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders mayconvert their notes at any time, regardless of the foregoing circumstances. During the year ended December 31, 2016, 12 Notes were converted for a total amount of $12 thousands. During year ended through December31, 2017, 19 Notes were converted for a total amount of $19 thousands. Additionally, during the fourth quarter of 2017, the conversion thresholdwas met again and the Notes became convertible at the holders’ option beginning on January 1, 2018 and ending on March 31, 2018. Thedetermination of whether or not the Notes are convertible must continue to be performed on a quarterly basis. Upon conversion, the Company willpay or deliver, as the case may be, cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s commonstock, at the Company’s election. The intention of the Company is to share-settle the total amount due upon conversion of the Notes. 71 Table of Contents From January 1, 2018 to the date of issuance of these consolidated financial statements, no additional conversion requests were made.The total estimated fair value of the Notes was $829.0 million and $458.8 million as of December 31, 2017 and 2016, respectively. The fairvalue was determined based on the closing trading price as of the last day of trading for each period. Based on the $314.7 closing price of theCompany’s common stock on December 31, 2017, the if-converted value of the Notes exceeded their principal amount by $493.9 million.Capped call transactionsThe net proceeds from the Notes were $321.7 million after considering $8.3 million of transaction costs. In connection with the issuance of theNotes, we paid $19.7 million in June 2014 to enter into privately negotiated capped call transactions with respect to our common stock with certainfinancial institutions (the “2014 Capped Call Transactions”). In September 2017, we paid $67.3 million (including transaction expenses) to enterinto additional privately negotiated capped call transactions with certain financial institutions (the “2017 Capped Call Transactions”; and togetherwith the 2014 Capped Call Transactions, the “Capped Call Transactions”). The 2017 Capped Call Transactions are in addition to the 2014 CappedCall Transactions and have a higher strike price and cap price. The 2014 Capped Call Transactions have a cap price of $155.78 per common shareand the 2017 Capped Call Transactions have a cap price of $366.06 per common share. The Capped Call Transactions are expected generally toreduce the potential dilution upon conversion of the Convertible Notes in the event that the market price of our common stock is greater than thestrike price of the Capped Call Transactions. The strike price of the 2014 Capped Call Transactions was initially set at $126.02 per common share,which corresponds to the initial conversion price of the Notes. The strike price of the 2017 Capped Call Transactions was initially set at $295.67 percommon share. The Capped Call Transactions are subject to anti-dilution adjustments substantially similar to those applicable to the conversion rateof the Notes. The Capped Call Transactions allow us to receive shares of our common stock and/or cash related to the excess conversion value thatwe would pay to the holders of the Notes upon conversion, up to the applicable 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.After reviewing our capital allocation process the Board of Directors has concluded that the Company has multiple investment opportunitiesthat should generate greater returns to shareholders through investing capital into the business than issuing a dividend. Consequently, the decisionhas been made to suspend the payment of dividends to shareholders as of the first quarter of 2018, as it will free up capital for investment in multipleprojects in our various platforms. Any future determination as to the declaration of dividends on our common stock will be made at the discretion ofour board of directors and will depend on our earnings, operating and financial condition, capital requirements and other factors deemed relevant byour board of directors, including the applicable requirements of the Delaware General Corporation Law. Capital expendituresOur capital expenditures (comprised by our payments for property and equipment, intangible assets and acquired businesses) for the year endedDecember 31, 2017 and 2016 amounted to $83.5 million and $84.7 million respectively.We invested $6.0 million across our Argentine, Brazilian and Uruguayan offices and $30.9 million across our Brazilian, Colombian andArgentine offices during the year ended December 31, 2017 and 2016, respectively. We also invested $46.0 million and $28.1 million, respectively,in Information Technology, which was concentrated across Brazil, Argentina, Mexico and the United States.On December 1, 2017, through our subsidiary Ebazar.com.br Ltda., we acquired 100% of the issued and outstanding shares of capital stock ofEcommet Software Ltda., a Brazilian software development company, for the purchase price of $8.7 million measured at its fair value. We believethis acquisition will allow us to enhance our software development capabilities.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.In 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. According to the purchase agreements, the commercial properties will be deliveredin December 2018.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. 72 Table of Contents 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 properties are delivered bythe seller. According to the purchase agreement, 2,224 square meters will be delivered in September 2017 and 3,833 square meters will be deliveredin September 2018. In connection with this acquisition, in February 2017, we obtained a preliminary approval that allows us to defer during a 2-yearperiod payments of sales tax up to the amounts disbursed for the building. These deferred payments will be extinguished (i.e. as tax reliefs) uponreceiving definitive approval from the City of Buenos Aires government within that 2-year period.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, 2017, 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, 2017 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)$405.9 $68.4 $337.5 $—$ —Operating lease obligations (2)94.5 10.7 30.8 23.2 29.8 Purchase obligations201.1 66.7 71.8 62.5 —Total$681.9 $126.2 $440.1 $85.7 $29.8 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 last quarter of 2017, the Company through its Argentine subsidiary obtained a line of credit from Citibank, denominated in Argentinepesos, to be applied to working capital needs. The line of credit bear interest fixed rate of 25.00% per annum and the last maturity date isin 6 months. As of December 31, 2017, the amount outstanding under this line of credit is $19.3 million.During last quarter of 2017, 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, 2017, the amount outstanding under this line of credit is$15.9 million, bears an interest fixed rate of 4.44% per annumAdditionally, includes minor financial debts of previous mentioned and other locations. See Note 15 to our Consolidated FinancialStatements.(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, and ouranticipated future obligations. Given the significance of performance requirements within our advertising and other arrangements, actual paymentscould 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. 73 Table of Contents Foreign currenciesAs of December 31, 2017, 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. As of December 31, 2017, the total cash and cash equivalents denominated in foreigncurrencies totaled $238.3 million, short-term investments denominated in foreign currencies totaled $202.8 million and accounts receivable, creditcards receivables and loans receivables in foreign currencies totaled $622.6 million. As of December 31, 2017, we had no long-term investmentsdenominated in foreign currencies. To manage exchange rate risk, our treasury policy is to transfer most cash and cash equivalents in excess ofworking capital requirements into U.S. dollar-denominated accounts in the United States. As of December 31, 2017, our U.S. dollar-denominatedcash and cash equivalents and short-term investments totaled $156.6 million and our U.S. dollar-denominated long-term investments totaled$34.7 million. For the year ended December 31, 2017, we had a consolidated loss on foreign currency of $21.6 million mainly as a consequence of a$25.5 million loss on foreign exchange in our Venezuelan subsidiaries, partially offset by a $4.4 million gain on forex exchange in our Argentinesubsidiaries (See “Management’s Discussion and Analysis of Financial 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, 2017, 2016 and 2015: Years ended December 31,(% of total consolidated net revenues) (*) 2017 2016 2015 Brazil 59.5 % 53.9 %44.6 %Argentina 25.7 31.1 37.6 Mexico 6.2 5.5 6.2 Venezuela (**) 3.9 4.4 6.2 Other Countries 4.8 5.2 5.4 (*)Percentages have been calculated using whole-dollar amounts rather than rounded amounts that appear in the table. The table above may nottotal due to rounding.(**)Venezuelan revenues have been consolidiated up to November 30, 2017 due to deconsolidation. Please refer to Note 2 of our auditedconsolidated financial statements for additional detail. 74 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, 2017 and for the year then ended: Foreign Currency Sensitivity Analysis (*)(In millions) -10%Actual+10% (1) (2)Net revenues $ 1,553.3$ 1,398.1$ 1,271.1Expenses (1,488.6)(1,341.8)(1,221.8)Income from operations 64.8 56.3 49.3 Other expenses and income tax related to P&L items (21.7)(20.9)(20.3) Foreign Currency impact related to the remeasurement of our Net Assetposition (23.9)(21.6)(19.8)Net income 19.1 13.8 9.3 Total Shareholders' Equity $ 381.8$ 325.8$ 283.4(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, 2017 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. The following table sets forth the net revenues for the years ended December 31, 2017, 2016 and 2015: Year ended December 31, 2017 (*) 2016 2015Venezuelan operations (In millions)Net Revenues $ 54.3 $ 37.2 $ 40.5(*)We deconsolidated our Venezuelan operations effective December 1, 2017. Please refer to Note 2 of our audited consolidated financial statements for additionaldetail.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.Argentine SegmentHad a hypothetical devaluation of 10% of the Argentine Peso against the U.S. dollar occurred on December 31, 2017, the reported net assets inour Argentine subsidiaries would have decreased by $15.4 million with the related impact in Other Comprehensive Income. Additionally, we wouldhave recorded a foreign exchange gain amounting to $1.7 million in our Argentine subsidiaries. Brazilian SegmentHad a hypothetical increase in the Brazilian Reais exchange rate against the U.S. dollar of 10% occurred on December 31, 2017, the reportednet assets in our Brazilian subsidiaries would have decreased by $23.6 million with the related impact in Other Comprehensive Income.Additionally, we would have recorded a foreign exchange loss amounting to $1.6 million in our Brazilian subsidiaries. 75 Table of Contents 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, 2017, MercadoPago’s funds receivablefrom credit cards totaled $521.1 million. Interest rate fluctuations could also impact interest earned through our MercadoCredito solution. As ofDecember 31, 2017, loans granted under our MercadoCredito solution totaled $73.4 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 31,2017, 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 0.6%. 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, 2017 could decrease (increase) by $1.0 million.As of December 31, 2017, our short-term investments amounted to $209.4 million and our long-term investments amounted to $34.7 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. Equity Price RiskOur board of directors adopted the 2010, 2011 and 2012 long-term retention plans (the “2010, 2011 and 2012 LTRPs), under whichcertain employees are eligible to receive cash 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 2010, 2011, and/or 2012 LTRP,respectively, once a year for a period of eight years. The 2010 LTRP awards began paying out starting in 2011, the 2011 LTRP Awardsstarting in 2012, the 2012 LTRP Awards starting in 2013(the “2010, 2011 or 2012 Annual Fixed Payment”, respectively); and·on each date we pay the respective 2010, 2011 and/or 2012 Annual Fixed Payment to an eligible employee, he or she will also receive apayment (the “2010, 2011 or 2012 Variable Payment”, respectively) equal to the product of (i) 6.25% of the applicable 2010, 2011and/or 2012 LTRP Award and (ii) the quotient of (a) divided by (b), where (a), the numerator, equals the Applicable Year Stock Price (asdefined below) and (b), the denominator, equals the 2009 (with respect to the 2010 LTRP), 2010 (with respect to the 2011 LTRP) and2011 (with respect to the 2012 LTRP) Stock Price, ($45.75, $65.41 and $77.77 for the 2010, 2011 and 2012 LTRP, respectively, whichwas the average closing price of the Company’s common stock on the NASDAQ Global Market during the final 60 trading days of 2009,2010 and 2011, respectively). The “Applicable Year Stock Price” equals the average closing price of the Company’s common stock onthe NASDAQ Global Market during the final 60 trading days of the year preceding the applicable payment date.The 2010, 2011 and 2012 LTRPs are filed as Exhibits 10.02, 10.03 and 10.04, 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 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 respective 2013, 2014, 2015 and/or 2016 Annual Fixed Payment to an eligible employee, he or she will alsoreceive a payment (the “2013, 2014 or 2015 Variable Payment”, respectively) equal to the product of (i) 8.333% of the applicable 2013,2014 and/or 2015 LTRP 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 the 2012 (with respect to the 2013 LTRP), 2013 (with respect to the 2014 LTRP) and2014 (with respect to the 2015 LTRP) Stock Price, defined as $79.57, $118.48 and $127.29 for the 2013, 2014 and 2015 LTRP,respectively, which was the average closing price of our common stock on the NASDAQ Global Market during the final 60 trading daysof 2012, 2013, 2014 and 2015 respectively. The “Applicable Year Stock Price” shall equal the average closing price of our commonstock on the NASDAQ Global Market during the final 60 trading days of the year preceding the applicable payment date. 76 Table of Contents 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:·the eligible employee will receive a fixed payment equal to 16.66% of his or her 2016 LTRP Fixed Award once a year for a periodof six years starting in March 2017 (the “Annual Fixed Payment”); and·on each date we pay the Annual Fixed Payment under the 2016 LTRP 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.The 2016 LTRP is filed as Exhibit 10.08 to our Quarterly Report on Form 10-Q filed with the SEC on August 5, 2016, and the description ofthe 2016 LTRP above is qualified in its entirety by reference to such exhibit.On April 3, 2017, the Board of Directors, upon the recommendation of the Compensation Committee, adopted the 2017 LTRP which providesfor the grant to eligible employees of a fixed award (the 2017 LTRP Fixed Award) and a variable award (the 2017 LTRP Variable Award). In order toreceive awards under the 2017 LTRP, each eligible employee must satisfy the performance conditions established by the Board of Directors for suchemployee, which generally are expected to be based on pre-set goals for the Company’s financial and operational performance. If these conditionsare satisfied, the eligible employee will, subject to his or her continued employment as of each applicable payment date, receive the full amount ofhis or her 2017 LTRP award, payable as follows:·the eligible employee will receive a fixed payment equal to 16.66% of his or her 2017 LTRP Fixed Award once a year for a periodof six years starting in March 2018 (the “Annual Fixed Payment”); and·on each date we pay the Annual Fixed Payment under the 2017 LTRP Fixed Award to the eligible employee, he or she will also receivethe 2017 LTRP Variable Award payment equal to the product of (i) 16.66% of the applicable 2017 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 2016 Stock Price (as defined below). For purposes of the 2017 LTRP, the “2016 Stock Price” shallequal $164.17 (the average closing price of the Company´s common stock on the NASDAQ Global Market during the final 60 -tradingdays of 2016) 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. 77 Table of Contents As of December 31, 2017, the total contractual obligation fair value of our LTRP Variable Award payment obligations amounted to$68.3 million. As of December 31, 2017, the accrued liability related to all our LTRP Variable Award payments included in salaries and socialsecurity payable in our consolidated balance sheet amounted to $43.2 million. The following table shows a sensitivity analysis of the risk associatedwith our total contractual obligation fair value related to all our LTRP Variable Award payments if our common stock price per share were toexperience increases or decreases by up to 40%: As of December 31, 2017 MercadoLibre, Inc 2010, 2011, 2012, 2013, 2014, 2015, 2016 and 2017 Equity Price LTRP Variable Award contractual obligation(In thousands, except equity price) Change in equity price in percentage 40% 379.18 95,566 30% 352.10 88,740 20% 325.01 81,914 10% 297.93 75,088 Static(*)270.84 68,262 -10% 243.76 61,435 -20% 216.68 54,609 -30% 189.59 47,783 -40% 162.51 40,957 (*)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. 78 Table of Contents 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 SponsoringOrganizations of the Treadway Commission in 2013. Management’s assessment included evaluation of elements such as the design and operatingeffectiveness of key financial reporting controls, process documentation, accounting policies, and our overall control environment. Based on itsevaluation under the framework in Internal Control—Integrated Framework (2013), our management concluded that our internal control overfinancial reporting was effective as of December 31, 2017 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, 2017 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 GOVERNANCEThe information required by this Item will be provided in accordance with Instruction G(3) to Form 10-K no later than April 30, 2018. ITEM 11.EXECUTIVE COMPENSATIONThe information required by this Item will be provided in accordance with Instruction G(3) to Form 10-K no later than April 30, 2018. 79 Table of Contents ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATEDSTOCKHOLDERS MATTERSExcept for the information regarding shares authorized for issuance under equity compensation plans (which is set forth below), the informationrequired by this Item will be provided in accordance with Instruction G(3) to Form 10-K no later than April 30, 2018.The following table represents information as of December 31, 2017 with respect to equity compensation plans under which shares of theCompany’s common stock are authorized for issuance: Equity Compensation Plan Information Plan Category 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 by securityholders (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 2009 Equity Compensation PlanOur 2009 Plan was adopted by our board of directors on June 10, 2009. The 2009 Plan provides for the grant of incentive stock options, withinthe meaning of Section 422 of the Internal Revenue Code of 1986, as amended, to our employees, and non-qualified stock options and restrictedstock to our employees, directors, officers, managers, agents, advisors, independent consultants and contractors. Incentive stock options and non-qualified stock options are referred to as “stock options,” and together with restricted stock are referred to as “awards”. As of December 31, 2017,there were no outstanding options to purchase shares of common stock under the 2009 Plan.Number of shares of common stock available under the stock option plan. The maximum number of Common Stock reserved and available fordelivery in connection with Awards under the Plan shall be the sum of (i) 294,529 (shares available to be delivered at the inception of 2009 EquityCompensation Plan), plus (ii) the number of shares of Common Stock with respect to Awards previously granted under the Plan that terminatewithout being exercised, expire, are forfeited or canceled. The shares of Common Stock issuable pursuant to any Award granted under the Plan shallbe (i) authorized but unissued shares, (ii) shares of Common Stock held in the Corporation’s treasury, (iii) shares acquired by the Corporation on anystock exchange in which such shares are traded, or (iv) a combination of the foregoing.Administration of the stock option plan. The 2009 Plan is administered by our board of directors or a committee appointed by the board ofdirectors (the body in charge of administering the 2009 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 Rule 16b-3 under the Exchange Act regarding “non-employee directors.” The administrator determines therecipients of awards, times at which awards are granted, number of shares subject to each type of award, the time for vesting of each award and theduration 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 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 officer, manager, employee or director as a result of a termination without cause, and after10 days of termination in the case of a termination for cause. Cause includes the conviction of a crime involving fraud, theft, dishonesty or moralturpitude, the participant’s continuous disregard of or willful misconduct in carrying lawful instructions of superiors, continued use of alcohol ordrugs that interfered with the performance of the participant’s duties, the conviction of participant for committing a felony or similar foreign crime,and any other cause for termination set forth in a participant’s employment agreement. An option terminates 10 days after a participant ceases to bean independent consultant, contractor or advisor to us or agent of ours for any reason. It also terminates three months after the death or permanentdisability of a participant, or, if the participant is a party to an employment agreement, the disability of such participant as defined in theemployment 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.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 81 Table of Contents determined by the administrator, 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 2009 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 2018 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 2018 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, 2017 and 2016 4 Consolidated statements of income for the years ended December 31, 2017, 2016 and 2015 5 Consolidated statements of comprehensive income for the years ended December 31, 2017, 2016 and 2015 6 Consolidated statements of equity for the years ended December 31, 2017, 2016 and 2015 7 Consolidated statements of cash flows for the years ended December 31, 2017, 2016 and 2015 8 Notes to consolidated financial statements10 (b)Exhibits. The exhibits required by Item 601 of Regulation S-K are set forth under “Index to Exhibits” and is incorporated herein byreference. ITEM 16. FORM 10-K SUMMARYNone.EXHIBIT INDEX ExhibitNumber Exhibit Title3.01 Registrant’s Amended and Restated Certificate of Incorporation. (1)3.02 Registrant’s Amended and Restated Bylaws. (1)4.01 Form of Specimen Certificate for the Registrant’s Common Stock (3)4.02 Second Amended and Restated Registration Rights Agreement, dated September 24, 2001, by and among the Registrant and theinvestors named therein. (1)4.03 Indenture with respect to the Registrant’s 2.25% Convertible Senior Notes due 2019, dated as of June 30, 2014, between theRegistrant and Wilmington Trust, National Association, as trustee. (6)10.01 Form of Indemnity Agreement entered into by the Registrant with each of its directors and executive officers. (2)10.02 Management Incentive Bonus Plan of the Registrant. (2)10.03 Form of Employment Agreements with Officers. (2)10.04 Employment Agreement with Osvaldo Gimenez, dated as of March 26, 2008 (3)10.05 Free Trade Zone Direct User Agreement Aguada Park (Item 5.A.), as amended, dated August 29, 2011, between MELI Uruguay S.R.L.and ITSEN S.A. dated May 21, 2012 and May 22, 2012 (4)10.06 Preliminary sales contract, as of May 8, 2013, by and among Mercadolibre S.R.L., Ribera Desarrollos S.A., Inc. S.A., SociedadAnónima La Nación and Desarrolladora Urbana S.A. (5)10.07 Base Call Option Transaction Confirmation, dated as of June 24, 2014, between MercadoLibre and JPMorgan Chase Bank, NationalAssociation, London Branch (7)10.08 Base Call Option Transaction Confirmation, dated as of June 24, 2014, between MercadoLibre and Bank of America, N.A. (8)10.09 Base Call Option Transaction Confirmation, dated as of June 24, 2014, between MercadoLibre and Citibank N.A. (9)10.10 Base Call Option Transaction Confirmation, dated as of June 24, 2014, between MercadoLibre and Deutsche Bank AG, LondonBranch (10)10.11 Additional Call Option Transaction Confirmation, dated as of June 27, 2014, between MercadoLibre and JPMorgan Chase Bank,National Association, London Branch (11)10.12 Additional Call Option Transaction Confirmation, dated as of June 27, 2014, between MercadoLibre and Bank of America, N.A. (12)10.13 Additional Call Option Transaction Confirmation, dated as of June 27, 2014, between MercadoLibre and Citibank N.A. (13)10.14 Additional Call Option Transaction Confirmation, dated as of June 27, 2014, between MercadoLibre and Deutsche Bank AG, LondonBranch (14)10.15 Purchase Agreement, dated as of June 24, 2014, by and among the Company, and Goldman, Sachs & Co., Deutsche Bank SecuritiesInc. and J.P. Morgan Securities LLC, as representatives of the several initial purchasers named therein (15) 83 Table of Contents 10.16 Amended and Restated 2009 Long-Term Retention Plan (16)10.17 Amended and Restated 2010 Long-Term Retention Plan (16)10.18 Amended and Restated 2011 Long-Term Retention Plan (16)10.19 Amended and Restated 2012 Long-Term Retention Plan (16)10.20 Amended and Restated 2013 Long-Term Retention Plan (16)10.21 Amended and Restated 2014 Long-Term Retention Plan (16)10.22 Amended and Restated 2015 Long-Term Retention Plan (16)10.23 2016 Long-Term Retention Plan (16)10.24 2017 Long-Term Retention Plan (17)10.25 MercadoLibre Inc. 2016 Director Compensation Program (16)21.01 List of Subsidiaries*23.01 Consent of Deloitte & Co. S.A., Independent Registered Public Accounting Firm on Form S-8*23.02 Consent of Deloitte & Co. S.A., Independent Registered Public Accounting Firm on Form S-3*31.01 Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14, as adopted pursuant to Section 302 of theSarbanes-Oxley Act of 2002. *31.02 Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14, as adopted pursuant to Section 302 of theSarbanes-Oxley Act of 2002. *32.01 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. **32.02 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-OxleyAct of 2002. **101.INS XBRL Instance Document*101.SCH XBRL Taxonomy Extension Schema Document*101.CAL XBRL Taxonomy Extension Calculation Linkbase Document*101.LAB XBRL Taxonomy Extension Label Linkbase Document*101.PRE XBRL Taxonomy Extension Presentation Linkbase Document*101.DEF XBRL 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, 2008 filed on February 27,2009(4) Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012 filed on August 3,2012(5) Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2013 filed on August 7,2013(6) Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on June 30, 2014(7) Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 30, 2014(8) Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on June 30, 2014(9) Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on June 30, 2014(10) Incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on June 30, 2014(11) Incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on June 30, 2014(12) Incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed on June 30, 2014(13) Incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K filed on June 30, 2014(14) Incorporated by reference to Exhibit 10.8 to the Company’s Current Report on Form 8-K filed on June 30, 2014(15) Incorporated by reference to Exhibit 1.1 to the Company’s Current Report on Form 8-K filed on June 30, 2014(16) Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2016 filed on August 5,2016(17) Incorporated by reference to the Company’s Current Report on Form 8-K filed on April 7, 2017 84 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 23, 2018Pursuant 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 23, 2018 /s/ Pedro ArntPedro Arnt Chief Financial Officer (Principal Financial Officer and PrincipalAccounting Officer) February 23, 2018 /s/ Mario VazquezMario Vazquez Director February 23, 2018 /s/ Susan SegalSusan Segal Director February 23, 2018 /s/ Nicolás AguzinNicolás Aguzin Director February 23, 2018 /s/ Nicolás GalperinNicolás Galperin Director February 23, 2018 /s/ Emiliano CalemzukEmiliano Calemzuk Director February 23, 2018 /s/ Meyer MalkaMeyer Malka Director February 23, 2018 /s/ Javier OlivanJavier Olivan Director February 23, 2018/s/ Roberto Balls SalloutiRoberto Balls Sallouti Director February 23, 2018 85 Table of Contents MercadoLibre, Inc.Consolidated Financial Statementsas of December 31, 2017 and 2016and for the three years in the periodended December 31, 2017 1 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the shareholders and the Board of Directors of MercadoLibre, Inc.Opinions on the Financial Statements and Internal Control over Financial ReportingWe have audited the accompanying consolidated balance sheets of MercadoLibre Inc. and its subsidiaries (the "Company") as of December 31, 2017and 2016, the related consolidated statements of income, comprehensive income, equity, and cash flows, for each of the three years in the periodended December 31, 2017, and the related notes (collectively referred to as the "financial statements"). We also have audited the Company’s internalcontrol over financial reporting as of December 31, 2017, based on criteria established in Internal Control — Integrated Framework (2013) issued bythe Committee of Sponsoring Organizations of the Treadway Commission (COSO).In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as ofDecember 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017,in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in allmaterial respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control —Integrated Framework (2013) issued by COSO.Basis for OpinionsThe Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and forits assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on InternalControl over Financial Reporting (Item 9A). Our responsibility is to express an opinion on these financial statements and an opinion on theCompany’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public CompanyAccounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtainreasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effectiveinternal control over financial reporting was maintained in all material respects.Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements,whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidenceregarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used andsignificant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal controlover financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weaknessexists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also includedperforming such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for ouropinions.Definition and Limitations of Internal Control over Financial ReportingA company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Acompany’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, inreasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance thattransactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, andthat receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’sassets that could have a material effect on the financial statements. 2 Table of Contents Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of anyevaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or thatthe degree of compliance with the policies or procedures may deteriorate./s/ DELOITTE & Co. S.A.Buenos Aires, ArgentinaFebruary 23, 2018We have served as the Company's auditor since 2010. 3 Table of Contents MercadoLibre, Inc.Consolidated Balance SheetsAs of December 31, 2017 and 2016(In thousands of U.S. dollars, except par value)December 31,December 31,20172016AssetsCurrent assets:Cash and cash equivalents$ 388,260$ 234,140Short-term investments209,432 253,321 Accounts receivable, net28,168 25,435 Credit cards receivable, net521,130 307,904 Loans receivable, net73,409 6,283 Prepaid expenses5,864 15,060 Inventory2,549 1,103 Other assets58,107 26,215 Total current assets1,286,919 869,461 Non-current assets:Long-term investments34,720 153,803 Property and equipment, net114,837 124,261 Goodwill92,279 91,797 Intangible assets, net23,174 26,277 Deferred tax assets57,324 45,017 Other assets63,934 56,819 Total non-current assets386,268 497,974 Total assets$ 1,673,187$ 1,367,435Liabilities and EquityCurrent liabilities:Accounts payable and accrued expenses$ 221,095$ 105,106Funds payable to customers583,107 370,693 Salaries and social security payable65,053 48,898 Taxes payable32,150 27,338 Loans payable and other financial liabilities56,325 11,583 Other liabilities3,678 6,359 Dividends payable6,624 6,624 Total current liabilities968,032 576,601 Non-current liabilities:Salaries and social security payable25,002 16,173 Loans payable and other financial liabilities312,089 301,940 Deferred tax liabilities23,819 34,059 Other liabilities18,466 9,808 Total non-current liabilities379,376 361,980 Total liabilities$ 1,347,408$ 938,581Equity:Common stock, $0.001 par value, 110,000,000 shares authorized,44,157,364 shares issued and outstanding at December 31,2017 and December 31, 2016$ 44$ 44Additional paid-in capital70,661 137,982 Retained earnings537,925 550,641 Accumulated other comprehensive loss(282,851)(259,813)Total Equity325,779 428,854 Total Liabilities and Equity$ 1,673,187$ 1,367,435The accompanying notes are an integral part of these consolidated financial statements. 4 Table of Contents MercadoLibre, Inc.Consolidated Statements of IncomeFor the years ended December 31, 2017, 2016 and 2015(In thousands of U.S. dollars, except for share data) Year Ended December 31,201720162015Net revenues$ 1,398,095$ 844,396$ 651,790Cost of net revenues(678,495)(307,538)(214,994)Gross profit719,600 536,858 436,796 Operating expenses:Product and technology development(127,160)(98,479)(76,423)Sales and marketing(325,375)(156,296)(128,609)General and administrative(122,194)(87,310)(76,342)Impairment of Long-Lived Assets(2,837)(13,717)(16,226)Loss on deconsolidation of Venezuelan subsidiaries(85,761) — —Total operating expenses(663,327)(355,802)(297,600)Income from operations56,273 181,056 139,196 Other income (expenses):Interest income and other financial gains45,901 35,442 20,561 Interest expense and other financial losses(26,469)(25,605)(20,391)Foreign currency (losses) gains(21,635)(5,565)11,125 Net income before income tax expense54,070 185,328 150,491 Income tax expense(40,290)(48,962)(44,702)Net income attributable to MercadoLibre, Inc. shareholders$ 13,780$ 136,366$ 105,789 Year Ended December 31,201720162015Basic EPSBasic net incomeAvailable to shareholders per common share$ 0.31$ 3.09$ 2.40Weighted average of outstanding common shares44,157,364 44,157,251 44,155,680 Diluted EPSDiluted net incomeAvailable to shareholders per common share$ 0.31$ 3.09$ 2.40Weighted average of outstanding common shares44,157,364 44,157,251 44,155,680 Cash Dividends declared (per share)0.600 0.600 0.412 The accompanying notes are an integral part of these consolidated financial statements. 5 Table of Contents MercadoLibre, Inc.Consolidated Statements of Comprehensive IncomeFor the years ended December 31, 2017, 2016 and 2015(In thousands of U.S. dollars)Year Ended December 31,201720162015Net income$ 13,780$ 136,366$ 105,789Other comprehensive loss, net of income tax:Currency translation adjustment(41,731)(20,619)(103,912)Reclassification of currency translation adjustment due to deconsolidation ofVenezuelan subsidiaries 17,310 — —Unrealized net gains (losses) on available for sale investments796 (587)(672)Less: Reclassification adjustment for losses on available for sale investments(587)(672)(379)Net change in accumulated other comprehensive loss, net of income tax(23,038)(20,534)(104,205)Total Comprehensive (loss) income$ (9,258)$ 115,832$ 1,584The 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, 2017, 2016 and 2015(In thousands of U.S. dollars) AccumulatedAdditionalotherCommon stockpaid-inRetainedcomprehensiveTotalSharesAmountcapitalEarningslossEquityBalance 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 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 Exercise of Convertible Notes — —(13) — —(13)Dividend distribution — — —(26,496) —(26,496)Capped Call — —(67,308) — —(67,308)Net income — — —13,780 —13,780 Other comprehensive loss — — — —(23,038)(23,038)Balance as of December 31, 201744,157 $ 44 $ 70,661 $ 537,925 $ (282,851)$ 325,779 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, 2017, 2016 and 2015(In thousands of U.S. dollars) Year Ended December 31,201720162015Cash flows from operations:Net income attributable to MercadoLibre, Inc. Shareholders$ 13,780$ 136,366$ 105,789Adjustments to reconcile net income to net cash provided by operatingactivities: Unrealized Devaluation Loss, net28,463 4,967 14,717 Impairment of Long-Lived Assets2,837 13,717 16,226 Loss on deconsolidation of Venezuelan subsidiaries85,761 — —Depreciation and amortization40,921 29,022 23,209 Accrued interest(20,192)(17,794)(12,783)Non cash interest and convertible bonds amortization of debt discount andamortization of debt issuance costs 10,855 9,837 17,272 LTRP accrued compensation35,719 22,983 10,213 Deferred income taxes(24,575)(6,188)4,354 Changes in assets and liabilities:Accounts receivable (21,817)(15,428)(36,476)Credit cards receivable(257,563)(180,592)(109,139)Prepaid expenses8,670 (9,133)(3,907)Inventory(1,549)(787)(237)Other assets(54,780)(24,425)(2,340)Accounts payable and accrued expenses150,215 47,980 63,668 Funds payable to customers242,037 164,060 119,353 Other liabilities7,680 (45)1,765 Interest received from investments22,548 15,719 9,686 Net cash provided by operating activities269,010 190,259 221,370 Cash flows from investing activities:Purchase of investments(4,553,649)(3,501,283)(1,949,769)Proceeds from sale and maturity of investments4,713,934 3,508,293 1,875,516 Payment for acquired businesses, net of cash acquired(8,568)(7,284)(45,009)Reduction of cash due to Venezuela deconsolidation(27,230) — —Purchases of intangible assets(33)(431)(1,746)Changes in principal loans receivable, net(72,244)(6,599) —Advance for property and equipment(19,695)(8,412)(23,380)Purchases of property and equipment(55,156)(68,527)(39,150)Net cash used in investing activities(22,641)(84,243)(183,538)Cash flows from financing activities:Proceeds from loans payable and other financial liabilities47,905 11,435 5,033 Payments on loans payable and other financing(5,004)(6,684)(9,059)Dividends paid(26,496)(24,419)(20,974)Purchase of convertible note capped call(67,308) — —Repurchase of Common Stock — —(2,714)Net cash used in financing activities(50,903)(19,668)(27,714)Effect of exchange rate changes on cash and cash equivalents(41,346)(19,089)(66,381)Net increase (decrease) in cash and cash equivalents154,120 67,259 (56,263)Cash and cash equivalents, beginning of the year234,140 166,881 223,144 Cash and cash equivalents, end of the year$388,260 $234,140 $166,881 The accompanying notes are an integral part of these consolidated financial statements. 8 Table of Contents MercadoLibre, Inc.Consolidated Statement of Cash FlowsFor the years ended December 31, 2017, 2016 and 2015(In thousands of U.S. dollars) Year Ended December 31,201720162015Supplemental cash flow information:Cash paid for interest$ 7,734$ 8,059$ 7,977Cash paid for income tax$ 110,913$ 74,008$ 65,550Non-cash financing activities:Stock based compensation$ —$ 56$ 279LTRP shares issued$ —$ —$ 2,713Exercise of convertible notes$ —$ 3$ —Non-cash investing activities:Contingent considerations and escrows from acquired business$ —$1,215 $ 6,841Acquisition of business2017 (1)2016 (2)2015Cash and cash equivalents$ 165$ 93$ 752Accounts receivable471 609 1,039 Tax credits —21 179 Other current assets18 224 50 Fixed Assets1 71 238 Total assets acquired655 1,018 2,258 Accounts payable and accrued expenses26 434 381 Other liabilities429 389 727 Total liabilities assumed455 823 1,108 Net assets acquired200 195 1,150 Goodwill, Identifiable Intangible Assets and deferred tax liabilities5,966 6,874 34,297 Trademarks328 251 4,568 Customer lists1,280 676 7,062 Software709 282 4,791 Non Solicitation Agreement250 314 734 Total purchase price8,733 8,592 52,602 Cash and cash equivalents acquired165 93 752 Payment for acquired businesses, net of cash acquired$ 8,568$ 8,499$ 51,850(1) Related to the acquisition of software development companies in Brazil – See Note 6.(2) Related to the acquisition of software development companies in Brazil and in Argentina – 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 one of the largest online commerce ecosystem in Latin America, serving as an integrated regional platform and as anenabler of the necessary online and technology tools to allow businesses and individuals to trade products and services in the region. TheCompany enables commerce through its marketplace platform (including online classifieds for motor vehicles, vessels, aircraft, services andreal estate), which allows 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; through MercadoShops, MercadoLibre facilitates usersto set-up, manage, and promote their own on-line web-stores under a subscription-based business model and through MercadoCredits extendsloans to specific merchants and consumers. In addition, MercadoLibre develops and sells software enterprise solutions to e-commerce businessclients in Brazil.As of December 31, 2017, 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. These consolidated financialstatements are stated in U.S. dollars, except for amounts otherwise indicated. Intercompany transactions and balances have been eliminated forconsolidation purposes.The Company has determined that, effective December 1, 2017, evolving conditions in Venezuela have caused the Company to no longermeet the accounting criteria for control over its Venezuelan subsidiaries. The Venezuela’s recent selective default determination, restrictiveexchange controls and suspension of foreign exchange market that severely incremented the lack of access to U.S. dollars through officialcurrency exchange mechanisms, plus the worsening in Venezuela macroeconomic environment, has resulted in other-than-temporary lack ofexchangeability between the Venezuelan bolivar and the U.S. dollar, and restricted the Company’s ability to pay dividends and satisfy otherobligations denominated in U.S. dollars. The currency controls in Venezuela have significantly limited the Company’s ability to realize thebenefits from earnings and to access to resulting liquidity of those operations. For accounting purposes, this lack of exchangeability hasresulted in lack of control over Venezuelan subsidiaries. Therefore, in accordance to the applicable accounting standards, as of December 1,2017, the Company deconsolidated the financial statements of its subsidiaries in Venezuela and began reporting the results under the costmethod of accounting. Accordingly, the Company will no longer include the results of its Venezuelan operations in future reporting periods.As a result of the deconsolidation, the Company recorded an impairment of $85,761 thousands as of December 31, 2017. The pretax chargeincludes the fully write-off of the Company’s net assets in Venezuela, foreign currency translation previously included in Accumulated othercomprehensive loss for $17,310 thousands and all inter-company balances for $9,144 thousands. As a result of the above mentioned write-off,as of December 31, 2017 the Company ’s investment in Venezuela equals zero.Under the cost method of accounting, if cash were to be received from the Venezuela entity in future periods from its operations, dividends orroyalties, income would be recognized. The Company does not anticipate dividend or royalty payments being made in the foreseeable futureand has no outstanding receivables or payables with the Venezuelan entity. The factors that led to the Company’s conclusion to deconsolidateits Venezuelan subsidiaries as of December 1, 2017 continued to exist through the date of this report. Despite the Venezuelan macroeconomiccontext, we will continue our operation in Venezuela for the foreseeable future. Further, in the future periods the Company will only recognizerevenue from intercompany service allocations to Venezuelan subsidiaries to the extent we collect the respective receivables. 10 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 2.Summary of significant accounting policies (continued)Principles of consolidation (continued)Substantially all net revenues, cost of net revenues and operating expenses, are generated in the Company’s foreign operations, amountingto 99.4%, 99.9% and 99.8% of the consolidated amounts during 2017, 2016 and 2015, respectively. Long-lived assets, intangible assets andGoodwill located in the foreign operations totaled $223,134 thousands and $232,314 thousands as of December 31, 2017 and 2016,respectively.Cash and cash equivalents, short-term and long-term investments, amounted to $632,412 thousands and $641,264 thousands as ofDecember 31, 2017 and 2016, respectively. As of December 31, 2017, those assets are located 30% in the United States of America and 70% inforeign locations, mainly in Brazil and Argentina. As of December 31, 2016, those assets were located 56% in the United States of America and44% 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, allowance for loans receivables, recoverability of goodwill and intangible assetswith indefinite useful lives, impairment of short-term and long-term investments, impairment of long-lived assets, compensation costs relatingto the Company’s long term retention plan, fair value of convertible debt, fair value of investments, recognition of income taxes andcontingencies. Actual results could differ 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.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 2017, 2016 or 2015.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. 11 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 2.Summary of significant accounting policies (continued)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, 2017 and 2016, 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 withdraw is requested by the customer.Loans receivable, netLoans receivable represents loans granted to certain merchants and consumers through the Company’s MercadoCredito solution, which waslaunched in Argentina in the fourth quarter of 2016, in Brazil in the second quarter of 2017 and in Mexico in the third quarter of 2017. Duringthe year ended December 31, 2017, the Company extended $114,954 thousands in credit to merchants and $12,515 thousands to consumers, ofwhich $73,409 thousands were outstanding.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, 2017 and 2016, the allowance for uncollectible accounts amounted to $4,730 thousandsand $110 thousands, respectively.Through the Company’s MercadoCredito solution, merchants can borrow a certain percentage of their monthly sales volume and are chargedwith a fixed interest rate based on the overall credit assessment of the merchant. Merchant and consumers credits are repaid in a period rangingbetween 3 and 12 months.The Company closely monitors credit quality for all loans receivable on a recurring basis. To assess a merchant and consumers seeking a loanunder the MercadoCredito solution, the Company uses, among other indicators, a risk model internally developed, as a credit quality indicatorto help predict 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. As of December 31, 2017, the Company’s MercadoCredito solution was granted only to the most loyal merchants with the bestreputation on the site and certain loyalty buyers in Argentina.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, 2017 and 2016, there is no continuing involvement with transferred financial assets. Additionaly, 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 $185,469 thousands, $119,779thousands and $96,345 thousands, for the years ended December 31, 2017, 2016 and 2015, respectively. 12 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 2.Summary of significant accounting policies (continued)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 and certain loyalty buyers. The Company maintains an allowance for doubtful accounts receivable, loans receivable andcredit cards receivables based upon its historical experience and current aging of customers. Historically, such charges have been withinmanagement expectations. However, unexpected or significant future changes in trends could result in a material impact to future statements ofincome or cash flows. Due to the relatively small dollar amount of individual accounts receivable and loans receivable, the Company generallydoes not require collateral on these balances. The allowance for doubtful accounts is recorded as a charge to sales and marketing expense.During the years ended December 31, 2017, 2016 and 2015, no single customer accounted for more than 5% of net revenues. As ofDecember 31, 2017 and 2016, no single customer, except for high credit quality credit card processing companies, accounted for more than 5%of accounts receivables and loans receivable.Allowances for doubtful accountsThe Company maintains allowances for doubtful accounts and loans receivable, for management’s estimate of probable losses that may resultif customers do not make the required payments. Allowances are based upon several factors including, but not limited to, historical experienceand the current aging of customers. The Company writes-off accounts receivable and loans 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 Mobile points of sale (“MPOS”) devices available for sale, are accounted for using the first-in first-out (“FIFO”)method, and are valued 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 2017 and 2016, the Company capitalized $35,560 thousands and $20,738 thousands, respectively.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. 13 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 2.Summary of significant accounting policies (continued)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 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.Before deconsolidating the Subsidiaries in Venezuela, as explained in section “Principles of consolidating” and considering the changes infacts and circumstances in the exchange markets in Venezuela and the lower U.S. dollar-equivalent cash flows expected from the Venezuelanbusiness, and long-lived assets expected use, the Company compared the carrying amount of the long-lived assets with the expectedundiscounted future net cash flows and concluded that certain office spaces held in Caracas, Venezuela, should be impaired. As a consequence,the Company estimated the fair value of the impaired long-lived assets and recorded impairment losses of $2.8 million, $13.7 million and$16.2 million on June 30, 2017, June 30, 2016 and March 31, 2015, respectively, by using the market approach and considering prices forsimilar 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, 2017 and 2016, the Company elected to perform the quantitative impairment test for both goodwill and intangible assetswith indefinite useful life.For the year ended December 31, 2017, 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 Company uses discount rates to each reporting unit in the range of 13.4%to 18.3%. The average discount rate used for 2017 was 15.0 %. That rate reflected the Company’s estimated weighted average cost of capital.Key drivers in the analysis include Confirmed Registered Users (“CRUs”), Gross Merchandise Volume (“GMV”),Total Payment Volume (“TPV”), Average Selling Price (“ASP”), Successful Item sold (“SI”), Take Rate defined as marketplace revenues as apercentage of gross merchandise volume and operating margins. In addition, the analysis include a business to e-commerce rate, whichrepresents growth of e-commerce as a percentage of Gross Domestic Product (“GDP”), internet penetration rates as well as trends in theCompany’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, 2017, 2016 and 2015 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, 2017, 2016 and 2015. 14 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 2.Summary of significant accounting policies (continued)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 fees arerecognized 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, as wellas classified advertising services, are recorded as revenue ratably during the listing period. Those fees are charged at the time the listing isuploaded onto the Company’s platform and is not subject to successful sale of the items listed.·Advertising revenues such as the sale of banners are recognized on accrual basis during the average advertising period, and remainingadvertising services such as sponsorship of sites and improved search standing are recognized based on “per-click” (which are generatedeach time users on our websites click through our text-based advertisements to an advertiser’s designated website) values and as the“impressions” (i.e., the number of times that an advertisement appears in pages viewed by users of our websites) are delivered.·Revenues from shipping services are generated when a buyer elects to receive the item through our shipping service and the service isrendered to the client. Revenues are disclosed net of third party provider’s cost.·Revenues from commissions we charge to sellers for transactions off-platform derived from the use of the Company’s on-line paymentssolution, are recognized once the transaction is considered completed, when the payment is processed by the Company. The Companyalso earns revenues as a result of offering financing to its MercadoPago users, either when the Company finances the transactions directlyor when the Company sells the corresponding financial assets to financial institutions. When the Company finances the transactionsdirectly, it recognizes financing revenue ratably over the period of the financing. When the Company sells the corresponding financialassets to financial institutions, financing revenues are accounted for net of financing costs at the time of transfer of the financial assets.·Revenues from interest earned on loans and advances granted to merchants are recognized over the period of the loan and are based oneffective interest rates, net of any required reserves.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). 15 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 2.Summary of significant accounting policies (continued)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 $106,980 thousands, $75,618 thousands and $52,477 thousands for the years ended December 31, 2017, 2016 and 2015,respectively.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 $147,805 thousands, $55,310 thousands and $46,862 thousands for the years endedDecember 31, 2017, 2016 and 2015, 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 andunrealized gains and losses on investments classified as available-for-sale. Total comprehensive (losses) income attributable to MercadoLibre,Inc. shareholders’ for the years ended December 31, 2017, 2016 and 2015 amounted to $(9,258) thousands, $115,832 thousands and $1,584thousands 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, wich functional currency was the U.S. dollar until its deconsolidation; as described below. Accordingly, these foreignsubsidiaries translate assets and liabilities from their local currencies into U.S. dollars by using year-end exchange rates while income andexpense accounts are translated at the average monthly rates in effect during the year, unless exchange rates fluctuate significantly during theperiod, in which case the exchange rates at the date of the transaction are used. The resulting translation adjustment is recorded as a componentof other comprehensive loss. Gains and losses resulting from transactions denominated in non-functional currencies are recognized in earnings.Net foreign currency transaction results are included in the consolidated financial statements of income under the caption “Foreign currency(losses) gain” and amounted to ($21,635) thousands, ($5,565) thousands and 11,125 thousands for the years ended December 31, 2017, 2016and 2015, 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.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 Bs per U.S. dollar. The SICADauction process remains available only to obtain foreign currency to pay for a limited list of goods considered to be of high priority by theVenezuelan government, which does not include those relating to the Company’s business. In the same decree the Venezuelan governmentcreated the “Sistema Marginal de Divisas” (“SIMADI”), a new foreign exchange system that is separate from SICAD, which publishes a foreignexchange rate from the Central 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 SIMADIand 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 the Venezuelan subsidiaries effective as of March 31, 2015. In connection with this re-measurement, werecorded a foreign exchange loss of $20.4 million during the first quarter of 2015, with no significant foreign exchange losses recorded duringthe second, third and fourth quarter of 2015. 16 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 2.Summary of significant accounting policies (continued)Venezuelan currency status (continued)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 thatthe carrying value of certain real estate investments in Venezuela as of March 31, 2015 would not be fully recoverable. As a result, we haverecorded an impairment of long-lived assets of $ 16.2 million on March 31, 2015. The carrying amount has been adjusted to its estimated fairvalue as of March 31, 2015, by using the market approach, and considering prices for similar assetsOn 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”).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.On May 19, 2017, the BCV issued the Exchange Agreement No.38, which established a new foreign exchange mechanism under DICOM,replacing SIMADI. The new mechanism consists of auctions, administered by an auction committee, where sellers and buyers from the privatesector may offer foreign currency under certain limits determined by the BCV.In light of the disappearance of SIMADI (which closed at 728.0 per U.S. dollar), and the Company’s inability to gain access to U.S. dollarsunder SIMADI, it started requesting U.S. dollars through DICOM. As a result, the Company expected to settle its transactions through DICOMgoing forward and concluded that the DICOM exchange rate should be used as from June 1, 2017 to measure its bolivar-denominated monetaryassets and liabilities and to measure the revenues and expenses of the Venezuelan subsidiaries. Therefore, as of June 30, 2017, monetary assetsand liabilities in Bolivares (“Bs”) were re-measured to the U.S. dollar using the DICOM closing exchange rate of 2640.0 Bs per U.S. dollar. As aconsequence of the local currency devaluation, the Company recorded a foreign exchange loss of $22.0 million during the second quarter of2017.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, 2017 would not be fullyrecoverable. As a result, on June 30, 2017, the Company recorded an impairment of offices and commercial property under constructionincluded within non-current other assets of $2.8 million. The carrying amount of offices and commercial property under construction wasadjusted to its estimated fair value by using the market approach and considering prices for similar assets.Effective December 1, 2017, the Company determined that deteriorating conditions in Venezuela had led the Company to no longer meet theaccounting criteria for control over its Venezuelan subsidiaries. The Venezuela’s recent selective default determination, restrictive exchangecontrols and suspension of foreign exchange market in Venezuela, the lack of access to U.S. dollars through official currency exchangemechanisms plus the worsening in Venezuela macroeconomic environment resulted in other-than-temporary lack of exchangeability betweenthe Venezuela bolivar and the U.S. dollar, and restricted the Company’s ability to pay dividends and satisfy other obligations denominated inU.S. dollars. Therefore, in accordance to the applicable accounting standards, as of December 1, 2017, the Company deconsolidated thefinancial statements of its subsidiaries in Venezuela and began reporting the results under the cost method of accounting.As a result of the deconsolidation, the Company recorded an impairment of $85,8 million on December 1, 2017. Beginning December 1, 2017, the Company no longer includes the results of the Venezuelan subsidiaries in its consolidated financialstatements. Please refer to note 2 of our audited consolidated financial statements for additional detail. 17 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 2.Summary of significant accounting policies (continued)Argentine currency statusDuring 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).During 2016, there were no significant changes in the exchange rate. As of December 31, 2016 the Argentine Peso exchange rate against theU.S. dollar was 15.89.During December 2017 the Argentine peso exchange rate increased by 17% against the U.S. dollar to 18.65 Argentine pesos per U.S. dollar asof December 31, 2017. Due to such increase in the Argentine peso exchange rate against the U.S. dollar, the Company recognized a foreignexchange gain of $4.4 million (as a result of having a net asset position in U.S. dollars) and the reported Other Comprehensive Loss increasedby $37.6 million (as a result of having a net asset position in Argentine pesos). 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, the Company recognized a foreign exchange gain of $14.6 million during the year 2015. In addition, the reportedOther Comprehensive Loss of the Brazilian segment increased by $9.0 million during the current year. During 2017 and 2016, there were nosignificant changes in the exchange rates. As of December 31, 2017 and 2016 the Brazilian Reais exchange rate against the U.S. dollar was3.31 and 3.26, respectively.Income 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.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.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 Argentine 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 Argentine subsidiaries, Neosur S.RL. and Business Vision S.A. As a result, the Company’sArgentine subsidiaries have been granted a tax holiday retroactive from September 18, 2014. A portion of the benefits obtained as beneficiariesof the new law is a relief of 60% of total income tax related to software development activities and a 70% relief in payroll taxes related tosoftware development activities. 18 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 2.Summary of significant accounting policies (continued)Income taxes (continued)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 $22.9 million and$22.6 million during 2017 and 2016, respectively. Furthermore, the Company recorded a labor cost benefit of $7.6 million and $5.5 millionduring 2017 and 2016. Additionally, $2.1 million and $2.0 million were accrued to pay software development law audit fees during 2017 and2016, respectively. Aggregate per share effect of the Argentine tax holiday amounted to $0.52 million and $0.51 for the years ended December,31 2017 and 2016, respectively. As of December 31, 2017 and 2016, 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 $12,097 thousands and $13,515 thousands, respectively. AsDecember 31, 2017, the Company recorded an increase in valuation allowance of $12,097 thousands to fully impair the outstanding foreigntax credits. Please refer to Note 14 of these consolidated financial statements for additional detail.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 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.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 and 67,308 thousands (including transaction expenses) in June 2014 and September 2017,respectively, to enter into capped call transactions with respect to its common shares (the “Capped Call Transactions”), with certain financialinstitutions. For more detailed information in relation to the Notes and the Capped Call transactions, see Note 17 to these consolidatedfinancial 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. 19 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 2.Summary of significant accounting policies (continued)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 as from January 1, 2018. The newrevenue recognition guidance provides a unified model to determine when and how revenue is recognized. The core principle is that acompany should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects theconsideration for which the entity expects to be entitled in exchange for those goods or services. In 2016, the FASB issued several amendmentsto the standard, including principal versus agent considerations when another party is involved in providing goods or services to a customerand the application of identifying performance obligations. The Company has completed its assessment on the adoption of this standard andhas concluded that this standard is not expected to have material measurement impact on the Company´s financial statements. However, theCompany continues assessing if certain shipping incentives can be presented as an expense consistent with current guidance or should bepresented netting from revenues. If such expenses were to be netted from revenues, the adoption of this ASU on January 1, 2018, would causenet revenues from the year ended December 31, 2017 to decrease by approximately $181,553 thousands and cost of net revenues also todecrease by the same amount. There would be no effects of that potential presentation change in Gross profit, Income from operations or Netincome. The adoption of this standard will also require the Company to expand and include certain additional disclosures.On February 25, 2016 the FASB issued ASU 2016-02. The amendments in this update create Topic 842, Leases, which supersedes Topic 840,Leases. The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases. Previous GAAP did notrequire lease assets and lease liabilities to be recognized for most leases. A lessee should recognize in the statement of financial position aliability to make lease payments (the lease liability) and a right-of-use asset representing its right 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 accounting policy election by class of underlying asset not torecognize lease assets and lease liabilities. Topic 842 retains a distinction between finance leases and operating leases. The classificationcriteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishingbetween capital leases and operating leases in the previous leases guidance. The result of retaining a distinction between finance leases andoperating leases is that under the lessee accounting model in Topic 842, the effect of leases in the statement of comprehensive income and thestatement of cash flows is largely unchanged from previous GAAP. Based on existing leases currently classified as operating leases, theCompany expects to recognize on the statements of financial position right-of-use assets and lease liabilities. The amendments in this updateare effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is assessingthe effects that the adoption of this accounting pronouncement may have on the Company’s 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 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 adoption of this standard is not expected to have a material impact on the Company´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 January 5, 2017 the FASB issued “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 of whether transactionsshould be accounted for as acquisitions (or disposals) of businesses. The amendments in this update provide a criteria to determine when a setof assets and activities is a business. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning afterDecember 15, 2017. The adoption of this standard is not expected to have a material impact on the Company´s financial statements. On February 22, 2017 the FASB issued “ASU 2017-05—Other Income—Gains and losses from the derecognition of nonfinancial assets(Subtopic 610-20): Clarifying the scope of asset derecognition guidance and accounting for partial sales of nonfinancial assets”. Theamendments in this update clarify that a financial asset is within the scope of Subtopic 610-20 if it meets the definition of an “in substancenonfinancial asset” which can include financial assets. Also, this update eliminates several accounting differences between transactionsinvolving assets and transactions involving businesses. The new standard is effective for fiscal years, and interim periods within those fiscalyears, beginning after December 15, 2017. The adoption of this standard is not expected to have a material impact on the Company´s financialstatements. On May 10, 2017 the FASB issued “ASU 2017-09—Compensation—Stock compensation (Topic 718): Scope of modification accounting”.The amendments in the update provide guidance about types of changes to the terms or conditions of share-based payment awards would berequired to apply modification accounting under Topic 718. The new standard is effective for annual, and interim periods within those annualperiods, beginning after December 15, 2017 with early adoption permitted. The adoption of this standard is not expected to have a materialimpact on the Company´s financial statements.On September 29, 2017 the FASB issued “ASU 2017-13—Revenue recognition (Topic 605), Revenue from contracts with customers (Topic606), Leases (Topic 840), and Leases (Topic 842)”. This update addresses Transition Related to Accounting Standards Updates No. 2014-09, Revenue from Contracts with Customers (Topic 606), and No. 2016-02, Leases (Topic 842). This Update also supersedes SEC paragraphspursuant the rescission of SEC Staff Announcement, “Accounting for Management Fees Based on a Formula”, effective upon the initialadoption of Topic 606, Revenue from Contracts with Customers, and SEC Staff Announcement, “Lessor Consideration of Third-Party ValueGuarantees,” effective upon the initial adoption of Topic 842, Leases. The adoption of this standard is not expected to have a material impacton the Company´s financial statements. On November 22, 2017 the FASB issued “ASU 2017-14 — Income Statement—Reporting Comprehensive Income (Topic 220), RevenueRecognition (Topic 605), and Revenue from Contracts with Customers (Topic 606)”. This update amends SEC paragraphs pursuant to the SECStaff Accounting Bulletin No. 116 and SEC Release No. 33-10403, which bring existing guidance into conformity with Topic 606, Revenuefrom Contracts with Customers. The adoption of this standard is not expected to have a material impact on the Company´s financialstatements. 21 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 2.Summary of significant accounting policies (continued)Recently issued accounting pronouncements (continued)On February 14, 2018 the FASB issued “ASU 2018-02— Income Statement—Reporting Comprehensive Income (Topic 220): Reclassificationof Certain Tax Effects from Accumulated Other Comprehensive Income”. This update allows a reclassification from accumulated othercomprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Job Acts. Because the amendments onlyrelate to the reclassification of the income tax effects of the Tax Cuts and Jobs Act, the underlying guidance that requires that the effect ofa change in tax laws or rates be included in income from continuing operations is not affected. The adoption of this standard is not expected tohave a material impact on the Company´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 by the weighted 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, 2017, 2016 and 2015 does not include any effect fromthe 2014 and 2017 Capped Call Transactions (as defined below) because it would be antidilutive. In the event of conversion of any or all ofthe Notes, the shares that would be delivered to the Company under The Capped Call Trasactions are designed to partially neutralize thedilutive effect of the shares that the Company would issue under the Notes. For the years ended December 31, 2017, 2016 and 2015, the effects on diluted earnings per share were antidilutive and, as a consequence, theywere not computed for diluted earnings per share.Net income per share of common stock is as follows for the years ended December 31, 2017, 2016 and 2015: Year Ended December 31, 2017 2016 2015 (In thousands) Basic Diluted Basic Diluted Basic DilutedNet income per common share $ 0.31 $ 0.31 $ 3.09 $ 3.09 $ 2.40 $ 2.40 Numerator: Net income $ 13,780 $ 13,780 $ 136,366 $ 136,366 $ 105,789 $ 105,789 Denominator: Weighted average of commonstock outstanding for Basicearnings per share 44,157,364 44,157,251 44,155,680 Adjusted weighted average ofcommon stock outstanding forDiluted earnings per share 44,157,364 44,157,251 44,155,680 22 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 4.Short-term and long-term investmentsThe composition of short-term and long-term investments is as follows: December 31,December 31,20172016(In thousands)Short-term investmentsTime Deposits$ 202,820$ 113,414Sovereign Debt Securities2,225 2,166 Corporate Debt Securities4,387 102,367 Certificates of deposits —35,374 Total$ 209,432$ 253,321Long-term investmentsSovereign Debt Securities$ 13,671$ 48,537Corporate Debt Securities19,926 105,266 Others Investments1,123 —Total$ 34,720$ 153,803Unrealized gains (losses) of available-for-sale securities, net of tax, were $796 thousands, $(587) thousands and $(672) thousands for the yearsended December 31, 2017, 2016 and 2015, respectively.As of December 31, 2017 and 2016, 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, 2017 2016 (In thousands)Accounts receivable, net: Users $ 25,615 $ 25,535Advertising 6,868 5,047 Others debtors 5,506 5,289 37,989 35,871 Allowance for doubtful accounts (9,821) (10,436) $ 28,168 $ 25,435 December 31, December 31, 2017 2016 (In thousands)Credit card receivables Credit cards and other means of payments $ 526,314 $310,415 Allowance for chargebacks (5,184) (2,511) $ 521,130 $307,904 December 31, December 31, 2017 2016 (In thousands)Loans receivables, net Loans receivables $78,139 $6,393 Allowance for uncollectible accounts (4,730) (110) $ 73,409 $ 6,283 December 31, December 31, 2017 2016 (In thousands)Current other assets: VAT credits $ 15,819 $ 4,660Income tax credits 24,902 10,259 Sales tax 10,002 4,804 Other 7,384 6,492 $ 58,107 $ 26,215 December 31, December 31, 2017 2016 (In thousands)Non current other assets: Advances for fixed assets $ 21,612 $ 24,134Judicial deposits 39,325 27,981 Other 2,997 4,704 $ 63,934 $ 56,819 24 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 5.Balance sheet components (continued) Estimated useful life December 31, December 31, (years) 2017 2016 (In thousands)Property and equipment, net: Equipment 3-5 $ 62,218 $ 56,571Land & Building 50 (1) (2) 41,347 49,665 Furniture and fixtures 3-5 16,292 22,690 Software 3 97,871 71,602 Cars 3 14 323 217,742 200,851 Accumulated depreciation (102,905) (76,590) $ 114,837 $ 124,261(1)Estimated useful life attributable to “Buildings”.(2)For 2016, after impairment test. See Note 2, “Impairment of Long-lived Assets”. Year Ended December 31, 2017 2016 2015 (In thousands)Depreciation and amortization: Cost of net revenues $ 3,737 $ 1,965 $ 830Product and technology development 29,092 20,581 16,260 Sales and marketing 2,071 1,599 548 General and administrative 6,021 4,877 5,571 $ 40,921 $ 29,022 $ 23,209 December 31, December 31, 2017 2016 (In thousands)Accounts payable and accrued expenses: Accounts payable $ 199,498 $ 95,145Accrued expenses Advertising 16,575 4,227 Professional fees 1,146 1,615 Other expense provisions 3,785 4,098 Other current liabilities 91 21 $ 221,095 $ 105,106 December 31, December 31, 2017 2016 (In thousands)Current loans payable and other financial liabilities: Loans payable $ 36,876 $ —Unsecured lines of credit 19,449 11,583 $ 56,325 $ 11,583 25 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 5.Balance sheet components (continued) December 31, December 31, 2017 2016 (In thousands)Non current loans payable and other financial liabilities: Convertible notes $ 311,994 $ 300,935Unsecured lines of credit 95 1,005 $ 312,089 $ 301,940 December 31, December 31, 2017 2016 (In thousands)Current other liabilities: Contingent considerations and escrows from acquisitions $ 611 $ 6,014Other 3,067 345 $ 3,678 $ 6,359 December 31, December 31, 2017 2016 (In thousands)Non current other liabilities: Provisions and contingencies (*) $ 16,791 $ 5,587Contingent considerations and escrows from acquisitions 1,161 2,558 Other 514 1,663 $ 18,466 $ 9,808 December 31, December 31, December 31, 2017 2016 2015 (In thousands)Accumulated other comprehensive loss: Foreign currency translation $ (283,647) $ (259,226) $ (238,607)Unrealized gains (losses) on investments 1,211 (909) (1,023)Estimated tax loss (gain) on unrealized gains on investments (415) 322 351 $ (282,851) $ (259,813) $ (239,279)(*)Includes $10,889 thousands as of December 31, 2017 corresponding to deferred payments in relation to sales taxes up to the amountsdisbursed for the building acquisitions in the City of Buenos Aires, as explained in Note 2.The following table summarizes the changes in accumulated balances of other comprehensive income for the year December 31, 2017: Unrealized Foreign Estimated tax Gains on Currency (expense) Investments Translation benefit Total 2017 Total 2016 (In thousands)Balances as of December 31, 2016 $ (909) $ (259,226) $ 322 $ (259,813) $ (239,279)Other comprehensive income before reclassificationsadjustments for (losses) gains on available for saleinvestments 1,211 (41,731) (415) (40,935) (21,206)Amount of gain (loss) reclassified from accumulatedother comprehensive income 909 — (322) 587 672 Reclassification of currency translation adjustmentdue to deconsolidation of Venezuelan subsidiaries — 17,310 — 17,310 Net current period other comprehensive (loss)income 2,120 (24,421) (737) (23,038) (20,534)Ending balance $ 1,211 $ (283,647) $ (415) $ (282,851) $ (259,813) 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 31,2017: Amount of Gain(Loss) Reclassified from Details about Accumulated Accumulated Other Other Comprehensive Income Comprehensive Affected Line ItemComponents Income in the Statement of Income (In thousands) Unrealized losses on investments $ (909) Interest expense and other financial lossesEstimated tax gain on unrealized losses on investments 322 Income / tax gainCurrency translation adjustment due to deconsolidation of Venezuelansubsidiaries 17,310 Loss of deconsolidation ofVenezuelan subsidiaries Total reclassifications for the year $ 16,723 Total, net of income taxes 6.Business combinations, goodwill and intangible assetsBusiness combinationsAcquisition of a software development company in Brazil On December 1, 2017, through its subsidiary Ebazar.com.br.Ltda, the Company acquired 100% of the issued and outstanding shares of capitalstock of Ecommet Software Ltda. (“Ecommet”), a software development company located in Brazil.The aggregate purchase price for the acquisition of the 100% of the acquired business was $8,733 thousands, measured at its fair value, whichincluded: (i) the total cash payment of $5,546 thousands at closing day, (ii) an escrow of $3,187 thousands.The Company´s consolidated statement of income includes the results of operations of the acquired business as from December 1, 2017. Thenet revenues and net income of the acquiree included in the Company´s statement of income since the acquisition amounted to 251 thousandsand 41 thousands, respectively.In addition, the Company incurred in cetain direct costs of the business combination, which were expensed as incurred.The following table summarizes the purchase price allocation for the acquisition: Ecommet Software Ltda. In thousands of U.S. dollarsCash and cash equivalents $165 Other net tangible assets 35 Total net tangible assets acquired 200 Customer lists 1,280 Trademark 328 Software 709 Non-solicitation and Non-compete agreements 250 Goodwill 5,966 Purchase Price $8,733 The purchase price was allocated based on the provisional measurement of the fair value of assets acquired and liabilities assumed consideringthe information available as of the date of these consolidated financial statements. The valuation of identifiable intangible assets acquiredreflects management’s estimates based on the use of established valuation methods. Such assets consist of trademark, customer lists, softwareand non-compete and non-solicitation agreements for a total amount of $2,566 thousands. Management of the Company estimates thatcustomer lists and non-compete agreements will be amortized over a five-year period, while software will be amortized over a three-year period. 27 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 6.Business combinations, goodwill and intangible assets (continued)Business combinations (continued)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.Supplemental pro forma financial information required by U.S. GAAP for the acquisition, was not material to the consolidated financialstatements of income of the Company and, accordingly, such information has not been presented.Acquisition 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, 2017, the contingent consideration was fully paid.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 assets 25 Total net tangible assets acquired 28 Non solicitation agreement 196 Goodwill 2,832 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. 28 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 e Tecnologia 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. 29 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, 2017 2016 (In thousands)Goodwill $ 92,279 $ 91,797Intangible assets with indefinite lives - Trademarks 11,587 12,490 Amortizable intangible assets - Licenses and others 6,175 8,738 - Non-compete agreement 2,689 1,787 - Customer list 16,584 14,580 - Trademarks 1,772 993 Total intangible assets $ 38,807 $ 38,588Accumulated amortization (15,633) (12,311)Total intangible assets, net $ 23,174 $ 26,277GoodwillThe changes in the carrying amount of goodwill for the years ended December 31, 2017 and 2016 are as follows: Year ended December 31, 2017 Brazil Argentina Chile Mexico Venezuela Colombia Other Countries Total (In thousands)Balance,beginning ofthe year $ 27,660 $ 6,587 $ 17,388 $ 29,342 $ 5,989 $ 3,643 $ 1,188 $ 91,797 - Businessacquisition 5,966 — — — — — — 5,966 - Effect ofexchange rateschanges (1,134) (826) 1,417 1,054 — (11) 5 505 -Deconsolidationof Venezuelansubsidiaries — — — — (5,989) — — (5,989)Balance, end ofthe year $ 32,492 $ 5,761 $ 18,805 $ 30,396 $ — $ 3,632 $ 1,193 $ 92,279 Year ended December 31, 2016 Brazil Argentina Chile Mexico Venezuela Colombia Other Countries Total (In thousands)Balance,beginningof year $ 18,526 $ 7,430 $ 16,438 $ 33,834 $ 5,729 $ 3,437 $ 1,151 $ 86,545 - Businessacquisition 5,635 700 — 190 260 57 32 6,874 - Effect ofexchangerateschanges 3,499 (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 30 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 $4,402 thousands, $4,030 thousands and $3,147 thousands for the years ended December 31, 2017, 2016 and 2015, respectively.The following table summarizes the remaining amortization of intangible assets with definite useful life as of December 31, 2017:For year ended 12/31/2018$ 4,787For year ended 12/31/2019$ 2,695For year ended 12/31/2020$ 1,508For year ended 12/31/2021$ 996Thereafter$ 1,601$ 11,587 7.SegmentsReporting segments are based upon the Company’s internal organizational structure, the manner in which the Company’s operations aremanaged, resources are assigned, the criteria used by management to evaluate the Company’s performance, the availability of separatefinancial information, and overall 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 includes any impairment of long lived assets and theimpact of deconsolidation of Venezuela (excluding intercompany balances write-down). Direct costs include specific costs of net revenues,product and technology development expenses, sales and marketing expenses, and general and administrative expenses over which segmentmanagers have direct discretionary control, such as advertising and marketing programs, customer support expenses, allowances for doubtfulaccounts, 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. 31 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, 2017 Brazil Argentina Mexico Venezuela (*) Other Countries Total (In thousands)Net revenues $ 831,416 $ 359,357 $ 86,486 $ 54,327 $ 66,509 $ 1,398,095 Direct costs (612,196) (215,831) (142,559) (22,101) (58,995) (1,051,682)Impairment of Long-lived Assets - - - (2,837) - (2,837)Loss on deconsolidation of Venezuelan subsidiary - - - (76,617) - (76,617)Direct contribution 219,220 143,526 (56,073) (47,228) 7,514 266,959 Operating expenses and indirect costs of net revenues (201,542)Loss on Deconsolidation of Venezuelan's Intercompanybalances (9,144)Income from operations 56,273 Other income (expenses): Interest income and other financial gains 45,901 Interest expense and other financial losses (26,469)Foreign currency losses (21,635)Net income before income tax expense $ 54,070 (*)Excludes results of operations for Venezuela for the month of December 2017. Please refer to Note 2 of these audited consolidated financial statements for additionaldetail. Year Ended December 31, 2016 Brazil Argentina Mexico Venezuela Other Countries Total (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 contribution 184,102 110,149 5,381 5,736 12,054 317,422 Operating expenses and indirect costs of netrevenues (136,366)Income from operations 181,056 Other income (expenses): Interest income and other financial gains 35,442 Interest expense and other financial losses (25,605)Foreign currency losses (5,565)Net income before income tax expense $ 185,328 32 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 7.Segments (continued) Year Ended December 31, 2015 Brazil Argentina Mexico Venezuela Other Countries Total (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 contribution 110,208 110,261 9,056 8,962 10,759 249,246 Operating expenses and indirect costs of net revenues (110,050)Income from operations 139,196 Other income (expenses): Interest income and other financial gains 20,561 Interest expense and other financial losses (20,391)Foreign currency gains 11,125 Net income before income tax expense $ 150,491 The following table summarizes the allocation of the long-lived tangible assets based on geography: December 31, December 31, 2017 2016 (In thousands)US property and equipment, net $ 7,037 $ 9,771Other countries Argentina 26,028 25,071 Brazil 68,796 55,706 Mexico 3,570 2,307 Venezuela — 21,615 Other countries 9,406 9,791 $ 107,800 $ 114,490Total property and equipment, net $ 114,837 $ 124,261 33 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, 2017 2016 (In thousands)US intangible assets $ 119 $ 250Other countries goodwill and intangible assets Argentina 6,059 7,717 Brazil 36,462 31,170 Mexico 38,600 38,860 Chile 28,985 27,395 Venezuela — 7,366 Other countries 5,228 5,316 $ 115,334 $ 117,824Total goodwill and intangible assets $ 115,453 $ 118,074Consolidated net revenues by similar products and services for the years ended December 31, 2017, 2016 and 2015 were as follows: Consolidated Net Revenues 2017 2016 2015 (In thousands)Marketplace $ 839,117 $ 491,628 $ 393,014Non-marketplace (*)(**) $ 558,978 $ 352,768 $ 258,776Total $ 1,398,095 $ 844,396 $ 651,790(*) Includes, among other things, Ad Sales, Classified Fees, Payment Fees, Shipping Fees and other ancillary services.(**)Includes an amount of $356,417 thousands, $201,976 thousands and $146,635 thousands of Payment Fees for the year ended December 31,2017, 2016 and 2015, respectively. 34 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 31,2017 and 2016: Quoted Prices in Quoted Prices in Balances as of active markets for Significant other Unobservable Balances as of active markets for Significant other Unobservable December 31, identical Assets observable inputs inputs December 31, identical Assets observableinputs inputsDescription 2017 (Level 1) (Level 2) (Level 3) 2016 (Level 1) (Level 2) (Level 3) (In thousands)Assets Cash and CashEquivalents: MoneyMarket Funds $ 85,337 $ 85,337 $ — $ — $ 111,198 $ 111,198 $ — $ — Investments: SovereignDebtSecurities 15,896 15,896 — — 50,703 50,703 — — CorporateDebtSecurities 24,313 15,512 8,801 — 207,633 61,986 145,647 — Certificates ofdeposit — — — — 35,374 — 35,374 — Total FinancialAssets $ 125,546 $ 116,745 $ 8,801 $ — $ 404,908 $ 223,887 $ 181,021 $ — Liabilities: Contingentconsiderations $ — $ — $ — $ — $ 4,213 $ — $ — $ 4,213 Long-termretention plan 43,227 — 43,227 — 27,135 — 27,135 —Total FinancialLiabilities $ 43,227 $ — $ 43,227 $ — $ 31,348 $ — $ 27,135 $ 4,213 As of December 31, 2017 and 2016, 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, 2017 and 2016, 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, 2017, the Company recognized in earnings a gain of $3,164 thousands and a loss of$166 thousands within other comprehensive income, in relation with contingent considerations.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, 2017 and 2016, 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 and debt securities), short-term investments, accounts receivable, credit cards receivable, loans receivable,funds payable to customers, other assets, accounts payable, salaries and social security payable (excluding variable LTRP), taxes payable,provisions and other liabilities (excluding contingent consideration). The estimated fair value of the convertible senior notes (liabilitycomponent), which is based on Level 2 inputs, is $323,080 thousands and was determined based on market interest rates. The rest of the loanspayable and other financial liabilities approximate their fair value because the interest rates are not materially different from market interestrates. 35 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, 2017 and 2016: Balances as of Significant other Balances as of Significant other December 31, observable inputs December 31, observable inputs 2017 (Level 2) 2016 (Level 2) (In thousands)Assets Time Deposits $ 202,820 202,820 $ 113,414 $113,414 Accounts receivable, net 28,168 28,168 25,435 25,435 Credit Cards receivable, net 521,130 521,130 307,904 307,904 Loans receivable, net 73,409 73,409 6,283 6,283 Other assets and other investments 101,552 101,552 58,900 58,900 Total Assets $ 927,079 $ 927,079 $ 511,936 $ 511,936Liabilities Accounts payable and accrued expenses $ 221,095 $ 221,095 $ 105,106 $ 105,106Funds payable to customers 583,107 583,107 370,693 370,693 Salaries and social security payable 46,828 46,828 37,936 37,936 Taxes payable 32,150 32,150 27,338 27,338 Dividends payable 6,624 6,624 6,624 6,624 Loans payable and other financial liabilities (*) 368,414 379,500 313,523 313,523 Other liabilities 22,144 22,144 11,954 11,954 Total Liabilities $ 1,280,362 $ 1,291,448 $ 873,174 $ 873,174 (*) The fair value of the convertible senior notes including the equity component is disclosed in Note 17.As of December 31, 2017 and 2016, 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. 36 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 8.Fair value measurement of assets and liabilities (continued)As of December 31, 2017 and 2016, the fair value of money market funds, short and long-term investments classified as available for salesecurities are as follows: December 31, 2017 Cost Gross UnrealizedGains Gross UnrealizedLosses (1) Estimated Fair Value (In thousands)Cash and cash equivalents Money Market Funds $ 85,337 $ — $ — $ 85,337Total Cash and cash equivalents $ 85,337 $ — $ — $ 85,337 Short-term investments Sovereign Debt Securities $ 2,235 $ — $ (10) $ 2,225Corporate Debt Securities 4,396 — (9) 4,387 Total Short-term investments $ 6,631 $ — $ (19) $ 6,612 Long-term investments Sovereign Debt Securities $ 13,821 $ — $ (150) $ 13,671Corporate Debt Securities 20,054 — (128) 19,926 Total Long-term investments $ 33,875 $ — $ (278) $ 33,597 Total $ 125,843 $ — $ (297) $ 125,546 December 31, 2016Cost Gross Unrealized Gains Gross Unrealized Losses(1) Estimated FairValue (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 $ — $ — $ 2,166Corporate Debt Securities102,509 26 (168) 102,367 Certificates of deposit35,336 40 (2) 35,374 Total Short-term investments$ 140,011 $ 66 $ (170) $ 139,907 Long-term investments Sovereign Debt Securities$ 48,943 $ — $ (406) $ 48,537Corporate Debt Securities105,632 90 (456) 105,266 Total Long-term investments$ 154,575 $ 90 $ (862) $ 153,803 Total$ 405,784 $ 156 $ (1,032) $ 404,908(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, 2017 and 2016. 37 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, 2017, the estimated fair values of money market funds, short-term and long-term investments classified by its effectivematurities are as follows:One year or less91,949 One year to two years14,884 Two years to three years14,309 Three years to four years4,404 Total$ 125,546 9.Common stockAuthorized, issued and outstanding sharesAs of December 31, 2017 and 2016, 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, 2017 and 2016, there were 44,157,364 shares of common stock issued and outstanding with a par value of $0.001 pershare.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, 2017 and 2016, 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 as follows: 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, Nominating and Corporate Governance Committee and the lead independent director are entitled toreceive annual cash compensation in addition to existing director compensation in the amount of $22, $22, $7 and $15 thousands,respectively. 38 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 11.Compensation Plan for Outside Directors (continued)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, 2017, 2016 and 2015: Year ended December 31, 2017 2016 2015 (In thousands)Chairman Fee $ 66 $ 64 $ 61Adjustable Award 1,432 783 718 Non-adjustable Award 416 444 398 $ 1,914 $ 1,291 $ 1,177 12.Equity compensation plan and restricted sharesOn June 10, 2009, at the Annual Shareholders’ Meeting, the Company’s shareholders approved the adoption of the 2009 Equity CompensationPlan (the “2009 Plan”), which contains terms substantially similar to the terms of the “1999 Stock Option and Restricted Stock Plan” (the“1999 Plan”) that expired in November 2009. As of December 31, 2017, there are 232,825 shares available for grant under the 2009 Plan.Equity compensation awards granted under the 2009 Plan are at the discretion of the Company’s board of directors and may be in the form ofeither incentive or nonqualified stock options. As of December 31, 2017, there are no outstanding options granted under the 2009 Plan.There was no granting during the period from January 1, 2007 to December 31, 2017. 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.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, in the aggregate, i) a salebonus equal to 5.5% of the purchase price and ii) a stay bonus equal to 7.1% of the purchase price; provided, however, that in no eventshall the amount paid or payable by the purchaser considered for the Incentive Plan calculation exceed $78,335 thousands. EachParticipant shall be entitled to receive a portion of the sale bonus and stay bonus based on his or her Participation Percentage.·If the purchase price is less than $20,000 thousands, then Participants shall be entitled to receive, in the aggregate, a stay bonus equal to7.1% of the purchase price. Each Participant shall be entitled to receive a portion of stay bonus based on his or her ParticipationPercentage.As the consummation of a sale is not considered probable, no provision has been recognized as of December 31, 2017. 39 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 14.Income taxesThe components of pretax income in consolidated companies for the years ended December 31, 2017, 2016 and 2015 are as follows: Year Ended December 31, 2017 2016 2015 (In thousands)United States $ (29,895) $ (12,321) $ (17,049)Brazil 104,641 106,123 70,261 Argentina 132,913 115,032 116,652 Venezuela(*) (8,890) (15,202) (25,764)Mexico (78,778) (15,747) (4,743)Other Countries(**) (65,921) 7,443 11,134 $ 54,070 $ 185,328 $ 150,491(*) Corresponds to the pretax income for the eleven-month period until deconsolidation occurred (Note 1).(**) Includes $58,179 thousands of impairment from deconsolidation of Venezuelan subsidiaries reported by a holding subsidiary incorporated in Spain.Income tax is composed of the following: Year Ended December 31, 2017 2016 2015 (In thousands)Income Tax: Current: U.S. $ 22 $ 47 $ 55Non-U.S. 64,843 55,103 45,892 64,865 55,150 45,947 Deferred: U.S. 1,827 1,337 1 Non-U.S. (26,402) (7,525) (1,246) (24,575) (6,188) (1,245)Income tax expense 40,290 48,962 44,702 40 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 2017, 2016 and 2015 to income before taxes: Year Ended December 31,201720162015(In thousands)Net income before income tax$ 54,070$ 185,328$ 150,491Income tax rate35% 34% 33% Expected income tax expense$ 18,925$ 63,148$ 50,022Permanent differences:Federal and assets taxes14 31 33 Transfer pricing adjustments1,634 1,328 882 Non-deductible tax800 545 441 Non-deductible expenses5,704 599 1,911 Loss on deconsolidation of Venezuelan subsidiaries21,006 — —Dividend distributions5,342 5,860 5,861 Impairment of Venezuela property and equipment888 3,216 5,226 Non-taxable income (*)(27,602)(25,923)(27,385)Effect of rates different than statutory10,039 — —Currency translation(202)(8,245)6,443 Change in valuation allowance14,040 8,535 1,167 Reversal of outside basis dividends(12,097) — —Argentina Tax Reform1,828 — —U.S. Tax Reform(840) — —True up811 (132)101 Income tax expense$ 40,290$ 48,962$ 44,702(*)Includes Argentine Tax holiday described in Note 2 “Income and asset tax” 41 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, 2017 and 2016: December 31, December 31, 2017 2016 (In thousands)Deferred tax assets Allowance for doubtful accounts $ 8,655 $ 8,171Unrealized net gains on investments 133 —Property and equipment, net 1,217 3,159 Accounts payable and accrued expenses 230 888 Payroll and social security payable 8,098 9,568 Taxes payable 565 820 Provisions 6,505 4,093 Foreign tax credit 12,097 13,515 Tax loss carryforwards 35,246 13,774 Total deferred tax assets 72,746 53,988 Valuation allowance (15,422) (8,971)Total deferred tax assets, net 57,324 45,017 Deferred tax liabilities Property and equipment, net (15,269) (9,611)Customer lists (1,928) (2,127)Non compete agreement (16) (78)Outside basis dividends — (13,515)Trademarks (1,537) (2,241)Goodwill (3,211) (1,514)Convertible notes and Capped Call (1,846) (4,961)Foreign exchange effect (12) (12)Total deferred tax liabilities $(23,819) $(34,059)As of December 31, 2017, consolidated loss carryforwards for income tax purposes were $116,758 thousands. If not utilized, tax losscarryforwards will begin to expire as follows:2021$123 20255,284 202612,767 202770,847 Thereafter1,066 Without due dates26,671 Total$116,758 42 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 14.Income taxes (continued)Tax reformArgentinaOn December 27, 2017, the Argentine Senate approved a comprehensive income tax reform effective since January 1, 2018. Argentinean taxreform, among other things, reduces the current 35 percent income tax rate to 30 percent for 2018 and 2019, and to 25 percent as from 2020.The new regulation imposes a withholding income tax on dividends paid by an Argentine entity of 7 percent for 2018 and 2019, increasing to13 percent as from 2020. Also, repeals the current “equalization tax” (i.e., 35 percent withholding applicable to dividends distributed in excessof the accumulated taxable income) for income accrued from 1 January 2018.As a consequence of the Argentine tax reform, the Company has recorded an income tax expense of $1.8 million in the year ended December31, 2017, due to the reduction of the Company’s deferred tax assets position generated by the reduction of the Argentine income tax rate. USAOn December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the“Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code that will affect 2017, including, but not limited to, (1)requiring a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries that is payable over eight years and (2) bonusdepreciation that will allow for full expensing of qualified property.The Tax Act establishes a reduction of the U.S. federal corporate tax rate to 21 percent, effective January 1, 2018. Consequently, for the yearended December 31, 2017, the Company has recorded a $0.8 million income tax gain related to the reduction of deferred tax assets andliabilities of $ 1.6 million and $ 2.4 million, respectively.The Tax Act also establishes new tax laws that will be effective since January 1, 2018, including, but not limited to: (a) elimination of thecorporate alternative minimum tax (AMT); (b) the creation of the base erosion anti-abuse tax (BEAT), a new minimum tax; (c) a generalelimination of U.S. federal income taxes on dividends from foreign subsidiaries; (d) a new provision designed to tax global intangible low-taxed income (GILTI), which allows for the possibility of using foreign tax credits (FTCs) and a deduction of up to 50 percent to offset theincome tax liability (subject to some limitations); (e) a new limitation on deductible interest expense; (f) the repeal of the domestic productionactivity deduction; (g) limitations on the deductibility of certain executive compensation; (h) limitations on the use of FTCs to reduce the U.S.income tax liability; and (i) limitations on net operating losses (NOLs) generated after December 31, 2017, to 80 percent of taxable income.The Deemed Repatriation Transition Tax (Transition Tax) is a tax on previously untaxed accumulated and current earnings and profits (E&P)of certain of our foreign subsidiaries. To determine the amount of the Transition Tax, the Company must determine, in addition to other factors,the amount of post-1986 E&P of the relevant subsidiaries, as well as the amount of non-U.S. income taxes paid on such earnings. The companywas able to make a reasonable estimate of the Transition Tax and determine that no tax duty related to the Transition Tax is expected to be duebecause the estimated tax is expected to be offset with available foreign tax credits as of December 31, 2017. Accordingly, no adjustmentshave been made to income tax expense. The Transition Tax calculation will not be finalized until the Mercadolibre Inc. Federal Income Taxreturn is filed.The company assessed whether its valuation allowance analysis is affected by various aspects of the Tax Act (e.g., including the deemedrepatriation of deferred foreign income, GILTI inclusions, new categories of FTCs). As a consequence of such analysis the Company recordedan increase in valuation allowance of $12,097 thousands to fully reserve the outstanding foreign tax credits. The Tax Act creates a new requirement that certain income (i.e., GILTI) earned by controlled foreign corporations (CFCs) must be includedcurrently in the gross income of the CFCs’ U.S. shareholder. GILTI is the excess of the shareholder’s “net CFC tested income” over the netdeemed tangible income return, which is currently defined as the excess of (1) 10 percent of the aggregate of the U.S. shareholder’s pro ratashare of the qualified business asset investment of each CFC with respect to which it is a U.S. shareholder over (2) the amount of certain interestexpense taken into account in the determination of net CFC-tested income. 43 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 14.Income taxes (continued)Under U.S. GAAP, the Company is allowed to make an accounting policy choice of either (1) treating taxes due on future U.S. inclusions intaxable income related to GILTI as a current-period expense when incurred (the “period cost method”) or (2) factoring such amounts into acompany’s measurement of its deferred taxes (the “deferred method”). The Company selected the period cost method. Accordingly, theCompany is not required to record any impact in connection with the potential GILTI tax as of December 31, 2017.Management of the Company considers any excess of the amount for financial reporting over the tax basis of the investments in the foreignsubsidiaries to be indefinitely reinvested, and for that reason has not recorded a deferred tax liability. However, if the distributions of thoseearnings do not imply withholdings, exchange rate differences or state income taxes, the Company expects repatriations to the US parent.During the year ended December 31, 2017, the Company increased $12,097 thousands the valuation allowance in the United States as aconsequence of the impossibility to offset foreign tax credits with future taxable income. In addition, during the same year, the Companyincreased the valuation allowance relating to Argentine operation by 3,313 thousands, as a consequence of more restrictive requirements tocompute doubtful accounts as an income tax deduction.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 jurisdiction 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, 2017, the Company had established reserves for proceeding-related contingencies and other estimated contingencies of $5,902thousands 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 31,2017, 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 $6,394 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, 2017, there were 61 lawsuits pending against our Argentine subsidiary in the Argentine ordinary courts and 2,002 pendingclaims in the Argentine Consumer Protection Agencies, where a lawyer is not required to file or pursue a claim.As of December 31, 2017, 726 legal actions were pending in the Brazilian ordinary courts. In addition, as of December 31, 2017, there were4,378 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, 2017, there were 8 claims pending against our Mexican subsidiaries in the Mexican ordinary courts and 187 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)City of São Paulo Tax ClaimIn 2007 São Paulo tax authorities assessed 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 $ 4.4 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$ 14.7 million or $ 4.5 million,according to the exchange rate at December 31, 2017, 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 assessed 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 our Brazilian subsidiary and confirmed thefines. With this decision the administrative stage is finished. On November 13, 2013, the Company filed a lawsuit before the 9th TreasuryCourt of the City of São Paulo, State of São Paulo, Brazil, to contest the taxes and fines asserted by the Tax Authorities. On November 14,2013, the Company made a deposit in court related to the lawsuit filed, of R$ 55.1 million or $ 16.6 million, according to the exchange rate atDecember 31, 2017. On January 28, 2014 São Paulo Municipal Council was summoned and on April 8, 2014 the São Paulo Municipal Councilpresented its defense. On April 24, 2014, the Company presented our response to the mentioned defense. As of December 31, 2017, the lowercourt’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$ 5.2 million or $ 1.6 million according to the exchange rate in effect as of December31,2017. On September 30, 2011, the Company presented administrative defenses against the authorities’ claim. On August 24, 2012, theCompany presented its appeal 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 asdue part of the tax compensation made by the Company, decreasing the outstanding debit to R$ 2.2 million or $ 665 thousands according tothe exchange rate at December 31, 2017. On November 21, 2014, the Company appealed to the Superior Administrative Court of Tax Appeals.On September 8, 2016 our appeal was not accepted. Mercado Livre filed an appeal against such decision, aiming the appeal to be accepted andruled by Superior Administrative Court of Tax Appeals. The Superior Administrative Court of Tax Appeals ruled against the Braziliansubsidiary maintaining claimed taxes and fines. On July 28, 2017, the Company filed an annulment action against the Brazilian Federal taxauthority and presented letter of guarantee issued for an indefinite period for the suspension of the enforceability of the tax credit. TheCompany´s management, based on the external legal counsel opinion, believes that the tax position adopted is more likely than not, based onthe technical merits of the tax position. For that reason, the Company has not recorded any expense or liability fot the controversial amounts. 45 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 15.Commitments and Contingencies (continued)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, 2017, 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, 2017 the Company recorded in the balance sheet deposits in court for R$60.3 million or $18.2million, according to the exchange rate at December 31, 2017 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 assessed taxes and fines against its Brazilian subsidiary Ebazar, relating to the entitlement ofPIS and COFINS credits from 2012 in an approximate amount of R$3.4 million or $1.0 million, according to the exchange rate as of December31, 2017. The Company presented administrative defenses against the authorities’ claim. As of the date of these consolidated financialstatements, the Company is still waiting for a decision. The opinion of the Company´s management, based on the external legal counselopinion, is that the risk of losing the case is reasonably possible, but not probable.On December 27, 2016, São Paulo tax authorities assessed taxes and fines against its Brazilian subsidiary MercadoPago.com RepresentaçõesLtda., relating to the entitlement of PIS and COFINS credits from 2012 in an approximate amount of R$13.0 million or $3.9 million accordingto the exchange rate as of December 31, 2017. The Company presented administrative defenses against the authorities’ claim. On October 9,2017, a judgment was handed down recognizing that expenses with credit card companies are essential for payment institutions. The sameunderstanding was applied to software expenses (gateway). The only unapproved point concerns the utilization of claims from past. The taxassessment notice was reduced by approximately 60%. The opinion of the Company´s management, based on the external legal counselopinion, is that the risk of losing the case is reasonably possible, but not probable.On July 12, 2017, São Paulo tax authorities assessed taxes and fines against one of our Brazilian subsidiaries (iBazar) relating to “ICMSPublicidade” for the period from July 2012 to December 2013 in an amount of R$ 12.2 million or $ 3.7 million according to the exchange ratein effect at that time. The Company will present administrative defense against the authorities’ claim. The opinion of the Company´smanagement, based on the opinion of external legal counsel, is that the risk of losing the case is reasonably possible, but not probable.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. 46 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 15.Commitments and Contingencies (continued)Operating leasesThe Company has leases for office space in the various countries in which it operates. Total rental expense amounted to $7,771 thousands,$6,112 thousands and $4,396 thousands for the years ended December 31, 2017, 2016 and 2015, respectively.Minimum remaining annual commitments under the non-cancelable operating leases are as follows: For the year ended December 31, 2018$10,654 For the year ended December 31, 201916,557 For the year ended December 31, 202014,248 For the year ended December 31, 202111,754 For the year ended December 31, 202211,468 Thereafter29,828 $ 94,509Buyer protection programThe Company provides consumers with a buyer protection program (“BPP”) for all transactions completed through the Company’s onlinepayment solution (“MercadoPago”). This program is designed to protect buyers in the Marketplace from losses due primarily to fraud orcounterparty non-performance. The Company’s BPP provides protection to consumers by reimbursing them for the total value of theunfulfilled transaction, if a purchased item does not arrive or does not match the seller’s description. The Company is entitled to recover fromthe third-party carrier companies performing the shipping service certain amounts paid under the BPP. Furthermore, in some specificcircumstances (i.e. Black Friday, Hot Sale), the Company enters into insurance contracts with third party insurance companies in order to covercontingencies that may arise from the BPP.The maximum potential exposure under this program is estimated to be the volume of payments on the Marketplace, for which claims may bemade under the Company’s existing user agreements. Based on historical losses to date, the Company does not believe that the maximumpotential exposure is representative of the actual potential exposure. The Company records a liability with respect to losses under this programwhen they are probable and the amount can be reasonably estimated.As of December 31, 2017, management's estimate of the maximum potential exposure related to the Company’s buyer protection program is$925,690 thousands, for which the Company recorded an allowance of $1,087 thousands as of that date.Employment ContractsEach of the executive officers of the Company is a party to an individual employment agreement. The executive employment agreementsprovide for annual base salaries of approximately $1,821 thousands per year in the aggregate, a performance based estimated bonuses equal toapproximately $2,101 thousands per year, in the aggregate, and some fringe benefits. The executive employment agreements automaticallyrenew annually, if not terminated by either party. Each agreement includes clauses that provide that in the event of an executive officer’stermination of employment without cause, the Company must pay the executive 12 months of base salary.Additionally, the executive officers of the Company participate in the Long Term Retention Plans mentioned in note 16. Under the 2010 Planthe executive officers of the Company are eligible to receive approximately $1,509 thousands in a period of 3 months. Under the 2011 Plan theexecutive officers of the Company are eligible to receive approximately $2,866 thousands in a period of 1 year and 3 months. Under the 2012Plan the executive officers of the Company are eligible to receive approximately $4,334 thousands in a period of 2 years and 3 months. Underthe 2013 Plan the executive officers of the Company are eligible to receive approximately $7,653 thousands in a period of 1 years and 3months. Under the 2014 Plan the executive officers of the Company are eligible to receive approximately $8,565 thousands in a period of 2years and 3 months. Under the 2015 Plan the executive officers of the Company are eligible to receive approximately $11,267 thousands in aperiod of 3 years and 3 months. Under the 2016 Plan the executive officers of the Company are eligible to receive approximately $15,488thousands in a period of 4 years and 3 months. Under the 2017 Plan the executive officers of the Company are eligible to receiveapproximately $14,661 thousands in a period of 5 years and 3 months. In all cases, the estimated amount has been calculated considering theCompany’s closing stock price as of December 31, 2017. 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 2017, the Company through its Argentine subsidiary obtained a line of credit from Citibank, denominated in Argentinepesos, to be applied to working capital needs. As of December 31, 2017, the amount outstanding under this line of credit is $19,306 thousands,bears an interest fixed rate of 25% per annum.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, 2017, the amount outstanding under these lines of credit is $258 thousands.During last quarter of 2017, 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, 2017, the amount outstanding under this line of credit is $1,383thousands, bears an interest fixed rate of 9.294% per annum.During last quarter of 2017, 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, 2017, the amount outstanding under this line of credit is $15,929thousands, bears an interest fixed rate of 4.44% per annum.As of December 31, 2017, the Company, through its Chilean, Uruguayan and Argentine subsidiaries, obtained an unsecured line of credit foran amount of $19,544 thousands.See additionally Note 17 with the detail of the 2.25% Convertible Senior Note due 2019. 16.Long term retention planOn April 3, 2017, the Board of Directors, upon the recommendation of the Compensation Committee, adopted the 2017 Long-Term Retention Plan (“2017 LTRP”). In addition to the annual salary and bonus of each employee, certain employees (“Eligible Employees”)are eligible to participate in the 2017 LTRP, which provides for the grant to an Eligible Employee of a cash-settled fixed (a “2017 LTRP FixedAward”) and cash-settled variable award, (a “2017 LTRP Variable Award”, and together with any 2017 LTRP Fixed Award, the “2017 LTRPAwards”). In order to receive payment in respect of the 2017 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 2017 LTRP Awards, payable as follows:·2017 LTRP Fixed Award: the Eligible Employee will receive a fixed payment equal to 16.66% of his or her 2017 LTRP Fixed Awardonce a year for a period of six years starting in March 2018 (the “Annual Fixed Payment”); and·2017 LTRP Variable Award: on each date the Company pays the Annual Fixed payment to the Eligible Employee, he or she will alsoreceive the 2017 LTRP Variable Award payment equal to the product of (i) 16.66% of the applicable 2017 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), thedenominator, equals the 2016 Stock Price (as defined below). For purposes of the 2017 LTRP, the “2016 Stock Price” shallequal $164.17 (the average closing price of the Company´s common stock on the NASDAQ Global Market during the final 60 -tradingdays of 2016) 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, 2017, follows similar calculation method as explain above for 2017 LTRP. The 2009, 2010,2011, 2012, 2013, 2014, 2015, 2016 and 2017 LTRP have performance and/or eligibility conditions to be achieved at each year-end and alsorequire the employee remain employed by the Company as of each payment dateThe following tables summarize the 2009, 2010, 2011, 2012, 2013, 2014, 2015, 2016 and 2017 LTRP accrued compensation expense for theyears ended December 31, 2017, 2016 and 2015: December 31, 2017 December 31, 2016 December 31, 2015 Weighted-average Weighted-average Weighted-average Aggregate remaining Aggregate remaining Aggregate remaining Intrinsic contractual Intrinsic contractual Intrinsic contractual value life (years) value life (years) value life (years) (In thousands)Outstanding LTRP 2009 - - 1,312 0.25 1,862 0.75 Outstanding LTRP 2010 1,721 0.25 2,062 0.75 2,151 1.25 Outstanding LTRP 2011 3,023 0.75 2,713 1.25 2,505 1.75 Outstanding LTRP 2012 4,469 1.25 3,569 1.75 3,094 2.25 Outstanding LTRP 2013 7,524 0.75 6,796 1.25 6,255 1.75 Outstanding LTRP 2014 7,900 1.25 6,357 1.75 5,582 2.25 Outstanding LTRP 2015 11,022 1.75 8,361 2.25 6,982 2.75 Outstanding LTRP 2016 16,949 2.25 11,977 2.75 - -Outstanding LTRP 2017 15,652 2.75 - - - -The following tables summarize the LTRP accrued compensation expense for the years ended December 31, 2017, 2016 and 2015: Year ended December 31, 2017 2016 2015 (In thousands)LTRP 2009 29 692 16 LTRP 2010 1,050 1,122 339 LTRP 2011 1,668 1,420 465 LTRP 2012 2,300 1,749 641 LTRP 2013 4,554 3,897 2,205 LTRP 2014 4,591 3,653 2,763 LTRP 2015 5,766 4,641 3,784 LTRP 2016 8,350 5,809 -LTRP 2017 7,411 - - $ 35,719 $ 22,983 $ 10,213 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. 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. During the year ended December 31, 2016, 12 Notes were converted for a total amount of $12 thousands. During year ended through December31, 2017, 19 Notes were converted for a total amount of $19 thousands. Additionally, during the fourth quarter of 2017, the conversionthreshold was met again and the Notes became convertible at the holders’ option beginning on January 1, 2018 and ending on March 31,2018. The determination of whether or not the Notes are convertible must continue to be performed on a quarterly basis. Upon conversion, theCompany will pay or deliver, as the case may be, cash, shares of the Company’s common stock or a combination of cash and shares of theCompany’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.From January 1, 2018 to the date of issuance of these consolidated financial statements, no additional conversion requests were made.In connection with the issuance of the Notes, the Company paid $19.7 million and $67.3 million (including transaction expenses) in June2014 and September 2017, respectively, to enter into capped call transactions with respect to shares of the 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 the common stock is greater than the strike price of the Capped CallTransactions. The cost of the Capped Call Transactions is included as a net reduction to additional paid-in capital in the stockholders’ equitysection of the consolidated balance sheets.The total estimated fair value of the Notes was $829.0 million and $458.8 million as of December 31, 2017 and 2016, 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, 2017 and 2016 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 $314.7 closing price of the Company’s commonstock on December 31, 2017, the if-converted value of the Notes exceeded their principal amount by approximately $494 million.The following table presents the carrying amounts of the liability and equity components related to the 2.25% Convertible Senior Notes Due2019 as of December 31, 2017 and December 31, 2016:December 31, 2017December 31, 2016(In thousands)Amount of the equity component (1)$45,808 $45,808 2.25% convertible senior notes due 2019$329,972 $330,000 Unamortized debt discount (2)(15,469)(25,097)Unamortized transaction costs related to the debt component(2,509)(3,968)Contractual coupon interest accrual7,425 7,425 Contractual coupon interest payment(7,425)(7,425)Net carrying amount$311,994 $300,935 (1) Net of $1,177 thousands of transaction costs related to the equity component of the Notes.(2) As of December 31, 2017, the remaining period over which the unamortized debt discount will be amortized is 1.5 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, 2017 2016 2015(In thousands)Contractual coupon interest expense$7,425 $7,425 $7,425 Amortization of debt discount 9,628 9,117 8,630 Amortization of debt issuance costs 1,459 1,341 1,217 Total interest expense related to Notes$18,512 $17,883 $17,272 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.Transactions with Venezuelan related partiesSubsequent to Venezuelan's deconsolidation, the Company recorded allocation of expenses to the Venezuelan's subsidiaries accounting to$1,862, which were expensed as incurred. 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, 2017, 2016 and 2015: Charges Utilized / Balance atbeginning of Charged/ creditedto Netincome / Currencytranslationadjustments Balance atend of year (loss) Write-offs year (In thousands)Allowance for doubtful accounts Year ended December 31, 2015 16,165 15,194 (20,073) 11,286 Year ended December 31, 2016 11,286 12,952 (13,802) 10,436 Year ended December 31, 2017 10,436 12,264 (12,879) 9,821 Credit cards receivable allowance for chargebacks Year ended December 31, 2015 529 1,719 (1,014) 1,234 Year ended December 31, 2016 1,234 1,294 (17) 2,511 Year ended December 31, 2017 2,511 3,422 (749) 5,184 Loans receivable allowance for uncollectible accounts Year ended December 31, 2016 - 113 (3) 110 Year ended December 31, 2017 110 5,163 (543) 4,730 Tax valuation allowance Year ended December 31, 2015 4,531 16 (568) 3,979 Year ended December 31, 2016 3,979 8,535 (3,543) 8,971 Year ended December 31, 2017 8,971 12,173 (5,722) 15,422 Contingencies Year ended December 31, 2015 3,009 5,100 (3,723) 4,386 Year ended December 31, 2016 4,386 4,752 (3,551) 5,587 Year ended December 31, 2017 5,587 6,657 (6,342) 5,902 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, 2017, 2016 and 2015: Quarter Ended March 31, June 30, September 30, December 31, (In thousands, except for share data)2017 Net Revenues $ 273,926 $ 316,529 $ 370,661 $ 436,979Gross profit 168,856 171,554 175,827 203,363 Net Income (loss) 48,518 5,316 27,666 (67,720)Net Income (loss) per share-basic 1.10 0.12 0.63 (1.53)Net Income (loss) per share-diluted 1.10 0.12 0.63 (1.53)Weighted average shares Basic 44,157,364 44,157,364 44,157,364 44,157,364 Diluted 44,157,364 44,157,364 44,157,364 44,157,364 2016 Net Revenues $ 157,630 $ 199,644 $ 230,847 $ 256,275Gross profit 102,182 126,298 145,648 162,730 Net Income 30,247 15,858 38,912 51,349 Net Income per share-basic 0.68 0.36 0.88 1.16 Net Income per share-diluted 0.68 0.36 0.88 1.16 Weighted average shares Basic 44,156,961 44,157,341 44,157,341 44,157,355 Diluted 44,156,961 44,157,341 44,157,341 44,157,355 2015 Net Revenues $ 148,103 $ 154,314 $ 168,641 $ 180,732Gross profit 103,395 104,003 111,828 117,570 Net Income 1,721 19,463 45,640 38,965 Net Income per share-basic 0.04 0.44 1.03 0.88 Net Income per share-diluted 0.04 0.44 1.03 0.88 Weighted average shares Basic 44,154,796 44,155,271 44,155,830 44,156,800 Diluted 44,154,796 44,155,271 44,155,830 44,156,800 21.Cash Dividend DistributionDuring the fiscal year ended December 31, 2017, the Company approved cash dividends for a total amount of $26,496 thousands or $0.600 pershare, which had all been paid as of the year- end, except for the one approved in October 2017, consisting of $6,624 thousands (or $0.150 pershare, which was paid on January 12, 2018) to stockholders of record as of the close of business on December 31, 2017.After reviewing the Company's capital allocation process the Board of Directors has concluded that it has multiple investment opportunitiesthat can generate greater return to shareholders through investing capital into the business over a dividend policy. Consequently, the decisionhas been made to suspend the payment of dividend to shareholders as of the first quarter of 2018.During the fiscal year ended December 31, 2016, the Company approved cash dividends for a total amount of $26,495 thousands or $0.600 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 $0.150 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. 53 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, 1999DeRemate.com de Argentina S.A. (Argentina)Date of Incorporation: August 19, 1999Former name: Etaskforce S.A.Meli Log S.R.L. (Argentina)Date of incorporation: June 03, 2016Former name: Mercado Créditos S.R.L.Neosur S.A. (Argentina)Date of incorporation: September 22, 2006Ibazar.com Atividades de Internet Ltda. (Brazil)Date of Incorporation: September 16, 1999MercadoLivre.Com Atividades de Internet Ltda. (Brazil)Date of Incorporation: August 16, 1999MercadoPago.com Representações Ltda. (Brazil)Date of Incorporation: December 2, 2008eBazar.com.br Ltda. (Brazil)Date of Incorporation: February 11, 1999MercadoEnvios Servicos de Logística Ltda. (Brazil)Date of incorporation: March 25, 2014Dabee Brasil Serviços de Intermediação e Facilitação de Negócios Ltda. (Brazil)Date of incorporation: June 20, 2011Ecommet Software Ltda. (Brazil)Date of incorporation: December 1, 2017MercadoLibre Chile Ltda. (Chile)Date of Incorporation: January 7, 2000 MercadoPago S.A. (Chile)Date of Incorporation: April 7, 2006Meli Inversiones SpA (Chile)Date of incorporation: December 23, 2013MercadoLibre Colombia, Ltda. (Colombia)Date of Incorporation: February 7, 2000MercadoPago Colombia S.A. (Colombia)Date of Incorporation: October 25, 2006MercadoLibre Costa Rica S.R.L. (Costa Rica)Date of Incorporation: January 4, 2010MercadoLibre Ecuador Cia. Ltda. (Ecuador)Date of Incorporation: July 12, 2006Meli Participaciones S.L. (Spain)Date of Incorporation: October 21, 2010Dabee Technology India Private LimitedDate of incorporation: January 3, 2013MercadoLibre S. de R.L. de C.V. (Mexico)Date of Incorporation: October 6, 1999Deremate.com de Mexico S. de R.L. de C.V. (Mexico)Date of Incorporation: November 9, 1999PSGAC Prestadora de Servicios Gerenciales, Administrativos y Comerciales, S de R.L. de C.V (Mexico)Date of Incorporation: November 12, 2007Mercado Lending S.A. de C.V. (Mexico)Date of incorporation: February 16, 2017Inmobiliaria Web Chile S. de R.L de C.V (Mexico)Date of incorporation: December 16, 2009MercadoLibre Perú S.R.L. (Peru)Date of Incorporation: January 26, 2000Former name: Deremate.com del Peru S.A.Meli Uruguay S.R.L. (Uruguay)Date of incorporation: May 30, 2011 Tech Fund S.R.L (Uruguay)Date of incorporation: January 25, 2013Former name: Tikleral S.A.Deremate.com de Uruguay S.A. (Uruguay)Date of Incorporation: June 14, 1999Hammer.com, LLCDelaware, USADate of Incorporation: November 1, 2005ListaPop, LLCDelaware, USADate of Incorporation: April 20, 2007Servicios Administrativos y Comerciales, LLCDelaware, USADate of Incorporation: October 11, 2007MercadoPago, LLCDelaware, USADate of Incorporation: April 10, 2006Mercado Pago International, LLCDelaware, USADate of incorporation: April 25, 2017Autopark, LLCDelaware, USADate of incorporation: August 9, 2011Autopark Classifieds, LLCDelaware, USADate of incorporation: August 17, 2011Marketplace Investments, LLCDelaware, USADate of incorporation: October 11, 2011Meli Technology, Inc.California, USADate of incorporation: July 1, 2011Classifieds LLCDelaware, USADate of Incorporation in Delaware: June 30, 2008Former name: CMG Classified Media Group, Inc.Former jurisdiction: Panama Brick.com, LLCDelaware, USADate of incorporation: February 6, 2013MercadoLibre Venezuela S.R.L. (Venezuela)Date of Incorporation: March 1, 2000Meli Clasificados MLV S.R.L. (Venezuela)Date of incorporation: February 2, 2012Grupo Veneclasificados C.A. (Venezuela)Date of Incorporation: March 11, 2003 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 23, 2018 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, 2017./s/ DELOITTE & Co. S.A.Buenos Aires, ArgentinaFebruary 23, 2018 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 23, 2018, 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, 2017./s/ DELOITTE & Co. S.A.Buenos Aires, ArgentinaFebruary 23, 2018 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, 2017 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 23, 2018 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, 2017 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 23, 2018 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, 2017, 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 23, 2018The 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, 2017, 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 23, 2018The 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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