Table of Contents UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549FORM 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, 2018OR ☐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, Argentina, C1430CRG(Address of registrant’s principal executive offices) (Zip Code)(+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 shareNasdaq Global Select 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 every Interactive Data File required to be submitted pursuant to Rule 405of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submitsuch 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: Large Accelerated Filer ☒ Accelerated Filer ☐Non-Accelerated Filer ☐ 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, 2018, 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 Select Market on June 30, 2018) wasapproximately $10,449,108,613. Shares of the registrant’s Common Stock held by each executive officer and director and by each entity or personthat, to the registrant’s knowledge, owned 10% or more of the registrant’s outstanding common stock as of June 30, 2018 have been excluded fromthis number because these persons may be deemed affiliates of the registrant. This determination of affiliate status is not necessarily a conclusivedetermination for other purposes.As of February 22, 2019, there were 45,202,859 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 2019 Annual Meeting of Stockholders, to be filed with the Securities andExchange Commission by no later than April 30, 2019, 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, 2018 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS 4 PART IITEM 1. BUSINESS 5 ITEM 1A. RISK FACTORS 15 ITEM 1B. UNRESOLVED STAFF COMMENTS 32 ITEM 2. PROPERTIES 32 ITEM 3. LEGAL PROCEEDINGS 32 ITEM 4. MINE SAFETY DISCLOSURES 32 PART II ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDERMATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES 33 ITEM 6. SELECTED FINANCIAL DATA 35 ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS 38 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 67 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 70 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING ANDFINANCIAL DISCLOSURES 70 ITEM 9A. CONTROLS AND PROCEDURES 70 ITEM 9B. OTHER INFORMATION 71 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 71 ITEM 11. EXECUTIVE COMPENSATION 71 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENTAND RELATED STOCKHOLDERS MATTERS 72 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTORINDEPENDENCE 73 ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES 73 PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES 74 INDEX TO FINANCIAL STATEMENTS 74 EXHIBIT INDEX 74 SIGNATURES 76 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 and·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 the largest online commerce ecosystem in LatinAmerica based on unique visitors and page views, and is present in 18 countries: Brazil, Argentina, Mexico, Chile, Colombia, Peru, Uruguay,Venezuela, Bolivia, Costa Rica, Dominican Republic, Ecuador, Guatemala, Honduras, Nicaragua, Panama, Paraguay and El Salvador. Our platform isdesigned to provide users with a complete portfolio of services to facilitate commercial transactions.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 644 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 MercadoPago FinTech platform,the MercadoEnvios logistics service, the MercadoLibre Classifieds service, the MercadoLibre advertising solution and the MercadoShops onlinewebstores solution.The MercadoLibre Marketplace is a fully-automated, topically-arranged and user-friendly online commerce platform, which can be accessedthrough our website and mobile app. This platform enables both businesses and individuals to list merchandise and conduct sales andpurchases online.MercadoPago is our financial technology (FinTech) solution, designed to facilitate transactions both on and off our marketplaces by providinga mechanism that allows our users to securely, easily and promptly send and receive payments online. Outside of our marketplaces, MercadoPagoallows merchants to process transactions via their websites and mobile apps, as well as in their brick-and-mortar stores through QR and mobile pointsof sale (“MPOS”). It also enables users to easily transfer money to each other. Through MercadoFondo, our asset management product, our users areable to invest the stored balance from their MercadoPago account at competitive rates and in a simple way. MercadoCredito, our lending solution,allows us to finance merchants’ working capital needs and consumers’ purchases.Through MercadoEnvios logistics solution we offer sellers on our platform technological and operational integration with third-party carriersand other logistics services providers, as well as fulfillment and warehousing services. Sellers that opt into the solution are able to offer a uniformand seamlessly integrated shipping experience to their buyers at competitive prices.Through MercadoLibre Classifieds, our online classified listing service, our users can also list and purchase motor vehicles, real estate andservices in the countries where we operate. Classifieds listings differ from Marketplace listings as they only charge optional placement fees and notfinal value fees. Our classifieds pages are also a major source of traffic to our platform, benefitting both the Enhanced Marketplace and non-Marketplace businesses.Our advertising platform enables businesses to promote their products and services on the Internet. Through this platform, advertisers and oursellers are able to display ads on our webpages.Additionally, through MercadoShops, our online store solution, users can set up, manage and promote their own online stores. These stores arehosted by MercadoLibre and offer integration with the rest of our ecosystem, namely our marketplaces and payment services. Users can selectbetween a free model and a subscription-based model for enhanced functionalities and services on their store webpage.5 Table of Contents History of MercadoLibreIn March 1999, Marcos Galperin, our co-founder and Chief Executive Officer, wrote MercadoLibre’s business plan while working towards hismaster’s degree in business administration at Stanford Business School. Shortly thereafter, he began to assemble a team of professionals toimplement it. We were incorporated in Delaware in October 1999 and commenced operations in Argentina in August 1999.Since our inception, we have grown both organically and through strategic acquisitions. The following table shows the services currentlyavailable in each country:Country Marketplace MercadoPago MercadoEnviosArgentina ✓ ✓ ✓Brazil ✓ ✓ ✓Mexico ✓ ✓ ✓Uruguay ✓ ✓ ✓Colombia ✓ ✓ ✓Chile ✓ ✓ ✓Peru ✓ ✓ Venezuela, Ecuador, Costa Rica, Dominican Republic, Panama,Bolivia, Guatemala, Parauay, Nicaragua, Honduras, El Salvador ✓ In addition to our organic growth, from 2001 to 2006, we had a strategic alliance with eBay, Inc “eBay”, one of our former stockholders. Thisalliance provided us with access to certain know-how and experience, which accelerated aspects of our development. On October 13, 2016, eBaysold all of its shares in our company. Following the termination of this alliance, there are no contractual restrictions preventing eBay from becomingone of our competitors. See “Risk Factors—Risks related to our business—We operate in a highly competitive and evolving market, and thereforeface potential reductions in the use of our service.”We completed our initial public offering in August 2007 and our common stock is traded on the Nasdaq Global Select Market (“NASDAQ”).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., an Argentina software developmentcompany. The objective of this acquisition was to enhance 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. The objective of this acquisition was to enhance our software development capabilities on TransportationManagement System and contribute to our shipping business performance.More recently, in December 2017 and October 2018, we acquired E-Commet Software Ltda., a Brazilian software development company,Kaitzen S.A. and Kinexo S.A. (K&K), Argentina software development companies, respectively, to enhance our software development capabilities.In addition, we acquired Machinalis S.R.L., an Argentine company that develops machine-learning tools, in September 2018 to enhance ourmachine-learning tools capabilities.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 644 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, building a verticalized experience in keycategories, driving increased usage of our payments and shipping solutions to deliver a more efficient and safe shopping experience andproviding our users with the help of a dedicated customer support department. We will continue to focus on increasing purchasefrequency and transaction volumes from our existing users, including the development of our MercadoPuntos loyalty program forfrequent buyers.·Continue to grow our business and maintain market leadership. We focus on growing our business, achieving as many scale-relatedcompetitive advantages and strengthening our position as a preferred commerce and payments platform in each of the markets in whichwe operate. We also intend to grow our business and maintain our leadership by taking advantage of the expanding potential user basethat has resulted from the growth of Internet penetration rates in Latin America. We intend to achieve these goals through organic growth,by introducing our business in new countries and entering new category segments, by launching new transactional business lines, andthrough potential strategic acquisitions of key businesses and assets.·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) maximize the value and usage of account money through investments in MercadoFondo ,(e)maximizingutilization of MercadoEnvios, (f) expanding our MercadoCredito service, (g) offering enterprise software solutions to our onlinecommerce business clients and (h) expanding our advertising offerings. We believe that a significant portion of our growth will bederived from these new or expanded product and service launches in the future.·Increase monetization of our transactions. We focus on improving the revenue generation capacity of our business by implementinginitiatives designed to maximize the revenues we generate from transactions on our platform. Some of these initiatives include increasingour fee structure, selling advertising on our platform, offering other e-commerce services and expanding our fee-based features.·Take advantage of the natural synergies that exist between our services. We strive to leverage our various services and ourMercadoPuntos loyalty program, to promote greater cross-usage and synergies, thereby creating a fully integrated ecosystem of e-commerce offerings. Consequently, we will continue to promote the adoption of our MercadoEnvios logistics solution, our advertisingsolution, and our MercadoPago payments solution on our Marketplace.7 Table of Contents Enhanced MarketplaceEnhanced Marketplace is comprised of MercadoLibre Marketplace Service and MercadoEnvios Service:MercadoLibre Marketplace ServiceThe 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.Additionally, we launched a loyalty program called “Mercado Puntos” in Brazil, Argentina, Mexico, Colombia and Chile. This program allowsbuyers to accumulate points for each purchase made on our platform, and grants access to certain benefits (i.e. free shipping services) as buyersadvance through levels. MercadoEnvios Shipping ServiceMercadoEnvios is a shipping service for marketplace users, available in Brazil, Argentina, Mexico, Colombia, Chile and Uruguay. ThroughMercadoEnvios, we offer a cost-efficient integration with third-party logistics and shipping carriers to sellers on our platform as well as fulfillmentand warehousing services. This program offers a uniform and seamlessly integrated shipping experience to buyers at competitive prices. Non-Marketplace ServicesNon-Marketplace Services are comprised of our MercadoPago Service, MercadoLibre Classifieds Service, MercadoLibre Advertising Service, MercadoShops Webstores Service and other anciliarry businesses:MercadoPagoPayments ServiceTo complement the MercadoLibre Marketplace and also to enhance the user experience for our buyers and sellers, we developed MercadoPagoin 2004, MercadoPago, an integrated online payments solution, was initially designed to facilitate transactions on MercadoLibre’s Marketplaces byproviding a mechanism that allowed our users to securely, easily and promptly send and receive payments. Our payments solution enables anyMercadoLibre registered user to securely and easily send and receive payments online and also to pay for purchases made on MercadoLibre’sMarketplaces. Currently, MercadoPago processes and settles all transactions on our Marketplaces in Brazil, Argentina, Mexico, Chile, andColombia, and is also available for our buyers and sellers in Perú and Uruguay.Beyond facilitating Marketplace transactions over the years we have been expanding our array of MercadoPago services to third partiesoutside of MercadoLibre’s Marketplaces. We began by satisfying the growing demand for online-based payment solutions in Latin America throughour merchant service usiness, providing the necessary digital payment infrastructure for e-commerce to flourish in Latin America. MercadoPago’smerchant service business allows merchants to facilitate checkout and payment processes on their websites through a branded or white label solutionor software development kits, while also enabling users to simply transfer money to each other either through the website or using the MercadoPagoapp. Through MercadoPago we brought trust to the merchant-customer relationship, allowing online consumers to shop easily and safely, whilegiving them the confidence to share sensitive personal and financial data with us.As we deployed our online-based payments solutions, we also observed that individuals, micro merchants and small and medium-sizedenterprises’ (“SMEs”) in the physical world were being underserved or overlooked by incumbent payment providers and financial institutions inLatin America and that a very large number of retail transactions were settled in cash throughout the region. Consequently, we are now alsoaggressively deepening our payments offering by growing our online-to-offline (“O2O”) products and services. We envision MercadoPago as apowerful disruptive provider of inclusive end-to-end financial technology solutions that will generate financial inclusion to segments of thepopulation that have been historically underserved and operate in the informal economy. Therefore, we currently offer in our main locationssolutions for:·In-store physical payments by selling MPOS and quick response (“QR”) payment codes.8 Table of Contents ·Digital payment solutions for utilities, mobile phone top up, peer-to-peer payments and more through our mobile wallet.·Pre-paid cards for users to spend and withdraw their account balances from their MercadoPago wallet, as well as co-branded creditcards in Argentina.·Merchant credits on and off the MercadoLibre Marketplace and Consumer Credits on the MercadoLibre Marketplace.·A money market fund to invest balances on MercadoPago accounts, which we market under the name MercadoFondo.In July 2015 we began to expand our O2O payments offering by launching our MPOS initiative in Brazil, MercadoPago Point, which allowslong-tail merchants, SMEs, and individuals not only to receive in-person payments, but most importantly to enable them to offer installments on theproducts and services they historically sold only in cash. Our MPOS solution allows merchants and individuals to process physical credit and debitcards, either by reading the chip and entering a personal identification number (PIN) or by swiping it. Our MPOS device was designed specifically tofit the needs of underserved or overlooked individuals and SMEs, as we do not require a rental fee for the device and offer a competitive transactionfee structure that gives them the flexibility to advance their sales. It also gives these users access to our full suite of FinTech solutions by integratingwith the MercadoPago app and pre-paid card, without the needing a bank account. We subsequently launched our physical point-of-sale solution inArgentina and Mexico during 2016. The results of our MPOS business not only have been encouraging, but also has given us greater confidence that we are well positioned tocapitalize on a large opportunity in payments and FinTech in the region. Since its launch, MercadoPago Point has already grown to represent almost50% of our off-platform payment volume on a consolidated basis and, in Brazil total payment volume coming from MPOS devices has already twicesurpassed the volume of our online merchant service business.MercadoCreditoWe launched MercadoCredito, our credit solution, during the fourth quarter of 2016 in Argentina and during 2017 in Brazil and Mexico.MercadoCredito leverages our user base, which is not only loyal and engaged, but also has been historically underserved or overlooked by financialinstitutions and suffers from a lack of access to needed credit. Facilitating credit is a key service overlay that enables us to further strengthen theengagement and lock-in rate of our users, while also generating additional touchpoints and incentives to use MercadoPago as an end-to-endfinancial solution. Initially, we began offering credit to our merchants given the distribution capabilities and in-depth understanding of their saleson the MercadoLibre Marketplace. This has also allowed us to develop our own proprietary credit risk models with unique data that differentiate ourscoring from traditional financial institutions, as we are able to leverage machine learning and artificial intelligence algorithms that we historicallyused for fraud prevention. Additionally, because our merchants’ business flows through MercadoPago, we are able to collect capital and interestpayments from their existing sales on MercadoLibre’s Marketplaces, meaningfully reducing the risk of uncollectability on the loans we originate toour merchants.Having identified a similar opportunity to fill a gap in terms of demand for credit, we have begun to originate working capital loans tomerchants who adopt our MPOS solution. Merchant credit to MPOS merchants was launched in Argentina and Brazil during the second half of 2018.Because a significant segment of the population in Latin America does not have access to credit cards, and given that the access to credit is aprohibitive factor for consumers when purchasing high-ticket items, we have also identified a significant opportunity for consumer lending. As such,we have begun to extend consumer credit to our buyers as well, leveraging their existing data on MercadoLibre’s Marketplaces and the distributionfrom our marketplace to proactively offer loans to them. Consumer credits were introduced in Argentina in 2017 and Brazil in 2018.MercadoFondoDuring the second half of 2018, we launched our asset management product for individuals in Argentina and for individuals and businesses inBrazil. This product is a critical pillar to building our alternative two-sided network vision. It incentivizes our users to begin to fund their digitalwallets with cash as opposed to credit or debit cards given that the return our product offers is greater than that of traditional checking accounts.With a seamless onboarding, this product allows users to withdraw and use the value stored in their digital wallets at any given time throughQR code in-store payments, pre-paid cards, or cash withdrawn from an ATM, without requiring that their funds be trapped in a money market fund ora certificate of deposit to obtain an equivalent return.This product is another way in which we continue to innovate, leveraging the rising trust in third-party e-commerce platforms and low levels offormal sector financial inclusion, which generate a unique opportunity for investment products aimed at users in Latin America who are unbanked orunderbanked.9 Table of Contents MercadoLibre Classifieds ServiceThe MercadoLibre Classifieds Service enables users to list their offerings related to motor vehicles, vessels, aircraft, real estate and servicesoutside the Marketplace platform. Classifieds listings differ from Marketplace listings, as they only charge optional placement fees instead of finalvalue fees. Our classifieds pages are also a major source of traffic to our website, benefitting both Marketplace and non-Marketplace businesses.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 solutions. Advertisers place product ads, display or banner advertisements in order topromote their brands and offerings on our webpages and our associated sites in the region. Advertisers can purchase improved search standing and/orspecific categories, on a cost-per-click basis or per-impression basis. Our integrated advertising solutions allow brands to create the completeconsumer discovery experience on our platform. 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 and payment serviceswe offer. Users can choose from a basic, free webstore or pay monthly subscriptions for enhanced functionality and added services on theirwebstores.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 and push notification marketing, onsite marketing and presence inoffline events. During 2018, we also carried out a complete coverage of promotional campaigns on commercial dates such as child’s day, mother’sday, father’s day, Christmas and dates specific to the e-commerce industry such as Hot Sale, Cybermonday and Black Friday. We also ran videoadvertisements in Mexico, Colombia and Chile designed to improve awareness of some of the functional attributes of our products such as freeshipping (for qualifying purchases) and our buyer protection program. Our expenditures in marketing activities were $249.6 million during 2018,$175.2 million during 2017 and $72.0 million during 2016.Product development and TechnologyAt December 31, 2018, we had 2,409 employees on our information technology and product development staff, an increase from 754employees at December 31, 2017, due to new hires and as a consequence of improvements in our ecosystem products such as MercadoCredito, ourloyalty pogram MercadoPuntos and MercadoEnvios, which increased our information technology and product development staff. We incurredproduct development expenses (including salaries) in the amount of $146.3 million in 2018, $127.2 million in 2017 and $98.5 million in 2016.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. We have a development center in Buenos Aires where we concentrate the majority ofour development efforts and a center in the province of San Luis in Argentina, which is a collaborative effort with the Technological University ofLa Punta. In this effort, the University offers us access to dedicated development facilities and a recruiting base for potential employees. We alsoopened a development center in Aguada Park, Montevideo, Uruguay, that is dedicated to software development activities and developmentcenters in the Provinces of Córdoba, Mendoza, Entre Rios and Santa Fe in Argentina. We also have other research and/or development centers inBrazil, Chile and Uruguay.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 into 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. We also rely on certain technologies that we license from third parties, suppliers of key database technology, operating system and specifichardware components for our services.10 Table of Contents Since 2010, we have been continuously working on a deep technology overhaul to switch from a closed and monolithic system to an open anddecoupled one. We are splitting MercadoLibre into many small “cells”. A cell is a functional unit with its own team, hardware, data and source code.Cells interact with each other using Application Programming Interfaces, or API’s. All the Front-Ends are also being rewritten on top of these APIs.This effort has consumed a large amount of capital, people and management’s focus, and we intend to keep investing in this area. In October 2012,we opened our platform to the developer community during a launch event in Sao Paulo, Brazil. We seek to further open our platform to developersin the other locations in which we operate, with the objective of continuing to enhance our ecosystem.We anticipate that we will continue to devote significant resources to product development in the future as we add new features andfunctionality to our services. The market in which we compete is characterized by rapidly changing and disruptive technologies, evolving industryand regulatory standards, frequent new service and product announcements, introductions and enhancements and changing customer demands.Accordingly, we believe the cornerstone of our future success will depend on our ability to adapt to rapidly changing technologies, to adapt ourservices to evolving industry and regulatory standards and to continually improve the performance, features, user experience and reliability of ourservices in response to competitive product and service offerings and evolving demands of the marketplace.SeasonalityLike most retail businesses, we experience the effects of seasonality in all our operating territories throughout the calendar year. Althoughmuch of our seasonality is due to the Christmas holiday season, the geographic diversity of our operations helps mitigate the seasonality attributedto summer vacation time (i.e. southern and northern hemispheres) and national holidays.Typically, the fourth quarter of the year is the strongest in every country where we operate due to the significant increase in transactions beforethe Christmas season (see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Seasonality” for more detail).The first quarter of the year is generally our slowest period. The months of January, February and March correspond to summer vacation time inArgentina, Brazil, Chile, Peru and Uruguay. Additionally, the Easter holiday falls in March or April, and Brazil celebrates Carnival for one week inFebruary or March. This first quarter seasonality is partially mitigated by our operations in the countries located in the northern hemisphere, such asColombia and Mexico, the slowest months for which are the summer months of July, August and September. Lastly, commercial campaigns likeBlack Friday and Cyber Monday generate an increase in transactions.CompetitionThe online commerce market is rapidly evolving and is highly competitive. We expect competition to intensify even further in the future.Barriers-to-entry for large, well-established Internet companies are relatively low, and current and new competitors can launch new sites at arelatively low cost using commercially available software. While we are currently a market leader in a number of the markets in which we operate, wecurrently or potentially could compete with marketplace operators, businesses that offer business-to-consumer online e-commerce services or otherswith a focus on specific vertical categories, as well as a growing number of brick and mortar retailers that have launched online offerings. Over thepast few years, we have seen competition intensify not only as local players such as B2W or Magazine Luiza grow their ecommerce businesses, butalso from international players such as Amazon which has been operating in Mexico since 2015 and more recently launched and expanded itsonline retailing business in Brazil. In the classifieds advertising market, we compete with regional and local players with general or verticalized focus. In addition, we facecompetition from a number of large online communities and services that have expertise in developing e-commerce, facilitating online interaction,or both. Other large companies with strong brand recognition and experience in e-commerce, such as large newspaper or media companies, alsocompete in the online listing market in Latin America.MercadoPago competes with existing online and offline payment methods, including banks and other providers of traditional paymentmethods. MercadoPago also competes in the rapidly evolving FinTech space with local and strong global players that are becoming increasinglyinterested in Latin America.Intellectual Property RightsWe 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 in which we operate, in the United States, in the EuropeanUnion, in China and in certain other Latin American countries. Generally, we pursue registration of the names and logos of “MercadoLibre,”“MercadoLivre,” “MercadoPago”, “MercadoEnvios”, “MercadoShops”, “MercadoCrédito” and “MercadoFondo”, and the names and logos specificto the country in which we are operating.11 Table of Contents As part of our acquisition of certain subsidiaries of DeRemate.com Inc. (or “DeRemate”) and Classified Media Group, Inc. (or “CMG”), weacquired the trademarks of DeRemate and CMG, respectively, throughout the countries where they operated as well as certain other jurisdictions. Wealso own trademarks of Autoplaza.com.mx and Homeshop.com.mx in Mexico. Additionally, we operate online classified advertisements platformsdedicated to the sale of real estate in Chile through the Portal Inmobiliario brand and in Mexico through the Metros Cúbicos brand. In 2015, weacquired Metros Cúbicos (merged into MercadoLibre, S. de R.L. de C.V. since December 2016), company dedicated to the sale of real estate inMexico, and KPL Soluções Ltda. (merged into Ebazar since August 2015), a company that develops ERP software for the e-commerce industry inBrazil, owners of Metros Cubicos and KPL trademarks, respectively. During 2016, we acquired Axado, a company that develops logistic software forthe e-commerce industry in Brazil, owner of Axado trademark. Finally, in 2017 we acquired Ecommet Software Ltda., owner of the trademarks“Ecommet” and “Becommerce”, which is a company that develops e-commerce related software and provides consulting services related thereto inBrazil.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 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, 2018: Country Number of EmployeesArgentina 3,315 Brazil 2,113 Uruguay 883 Colombia 561 Mexico 167 Chile 162 Venezuela 30 Peru 8 Total 7,239 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 that employeesbe represented. We consider our relations with our employees to be good and we implement a variety of human resources practices, programs andpolicies that are designed to hire, develop, compensate and retain our employees.We are very proud of our employees and believe that our team is one of the most important assets of our Company. We believe that ouremployees are among the most knowledgeable in the Latin American high tech 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.Similarly, our future success will depend on our ability to continue to attract, develop and retain capable professionals. See “Item 1A. Risk Factors—Risks related to our business— We depend on key personnel, the loss of which could have a material adverse 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 payments, privacy, data protection, taxation (including value added taxes (“VAT”), or sales taxcollection obligations), obligations to provide information to certain authorities about transactions occurring on our platform or about our users,anti money laundering regulations and other legislation which also applies to other companies conducting business in general. It is not clear howexisting laws governing issues such as general commercial activities, property ownership, copyrights and other intellectual property issues, taxation,libel and defamation, obscenity, consumer protection, digital signatures and personal privacy apply to online businesses. Some of these laws wereadopted before the Internet was available and, as a result, do not contemplate or address the unique issues of the Internet. Due to these areas of legaluncertainty, and the increasing popularity and use of the Internet and other online services, it is possible that new laws and regulations will beadopted 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, electronic or mobilepayments, freedom of expression, pricing, content and quality of products and services, taxation (including VAT or sales tax collection obligations,obligation to provide certain information about transactions that occurred through our platform, or about our users), advertising, intellectualproperty rights, consumer protection and information security.12 Table of Contents Our MercadoPago service is subject to regulation in the countries in which we operate, as described below:Since 2013, we are subject to obligations in Brazil imposed on certain payment processing functions carried out by non-financial institutions.On November 1, 2018 we obtained the approval from the Central Bank of Brazil to operate as authorized payment institution, pursuant to itsregulations and controls. The approval confirmed our ability to continue carrying out the payment processing functions.With the Authorization Mercado Pago in Brazil will be subject to the supervision of the Central Bank of Brazil and must fully comply with allthe obligations established in the current regulation, under penalty of (i) formal warning establishing a deadline for the remediation of non-compliance activity, (ii) pay penalties for non-compliance, or (iii) shut down our MercadoPago business in Brazil for an indefinite period of time,which would be costly.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. In 2018 Colombia enacted further regulations requiring payment processors such asMercadoPago to comply with certain security, privacy and anti-money laundering standards. Uruguay and Peru have also enacted regulations that cover a wide variety of issues related to electronic payments or e-money, including,among other 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 and 2018, Chile enacted regulations regarding the issue and operation of paycards, which could affect MercadoPago’s operations,including authorization to operate, anti-money laundering obligations, capital and reserve fund requirements, operational and security safeguardsamong others. It is very likely that we will have to apply to obtain a license during 2019 to act as both payment card operator and issuer pursuant tothe provisions of the above mentioned regulations.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. We have not been named or implicated individually in any way.In March 2018, Mexico enacted a law ruling FinTech institutions that applies to certain entities involved in online payments business and setsforth the obligations to request authorization to operate and to implement several changes to operations and systems. It is foreseeable that ourMercadoPago business in Mexico will undergo regulatory proceedings during 2019 in order to become an authorized payment institution.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 payments and/or anti-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 relating to prepaid card.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 foreign exchangerestrictions. See “Item 1A. Risk factors—Risks related to doing business in Latin America—Local currencies used in the conduct of our business aresubject to depreciation, volatility and exchange controls” for more information.We are also the beneficiary of certain tax regulations in various jurisdictions in which we operate.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.”We are also subject to significant data protection and privacy-related regulations in many of the jurisdictions in which we operate. Further,some jurisdictions in which we operate are considering imposing additional restrictions or regulations.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, we obtained a preliminary approval that allows us to 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 deferred payments will beextinguished (i.e. as tax reliefs) upon receiving definitive approval from the City of Buenos Aires government within that 2-year period, which isnow tolling.13 Table of Contents In November 2018, MercadoLibre, Inc., in accordance with to Resolution n° 4.222, issued by the National Monetary Council ("CMN"), andCirculars 3.649 and 3.317, issued by the Central Bank of Brazil, filed with the Central Bank an application for authorization to set up a financialinstitution in the modality of Savings and Loan Associations (“Sociedade de Crédito Financiamento e Investimento – SCFI”), to be controlled byMercadoLibre, Inc. The purpose of this new company (which will be a financial institution in Brazil) will be to absorb the activities related to the granting ofMercadoCredito loans in a more efficient and profitable way. The current lending structure in Brazil is carried out via a correspondent bankingagreement with partner financial institutions, since the activity of lending money directly is exclusive to a financial institution.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 audited consolidated financial statementsincluded elsewhere 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 still a developing market in Latin America. Our future revenues depend substantially on Latin Americanconsumers’ widespread acceptance and continued use of the Internet as a way to conduct commerce. The use of and interest in the Internet(particularly as a way to conduct commerce) has grown rapidly since our inception and we cannot assure you that this acceptance, interest and usewill continue or continue to grow. For us to grow our user base successfully, more consumers must accept and use new ways of conducting businessand exchanging information. The price of personal computers and/or mobile devices and Internet access may limit our potential growth in certainareas or countries with low levels of Internet penetration and/or high levels of poverty. The infrastructure for the Internet in LatinAmericamay not be able to support continued growth in the number of Internet users, their frequency of use or their bandwidthrequirements.In addition, the Internet could lose its viability due to delays in telecommunications technological developments, or due to increasedgovernment regulation. Availability, transaction speeds, acceptance, interest and use of the Internet are all critical to our growth and services and theoccurrence of any one or more the above challenges to Internet usage could have a material adverse effect on our business.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 operating or upgrading our existing information technology infrastructure could cause a disruption in our businessand adversely impact 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 and our cloud providers. We have been and are susceptible to hacking into our systems or other security breaches by unauthorizedthird parties. We are also susceptible to errors in connection with any systems upgrade or migration to a different hardware or software system, errorsor incidents of our cloud providers, and any such errors or interruptions could impede or delay our ability to process transactions on our site, whichcould reduce our revenue from activity on our site and adversely affect our reputation with, or result in the loss of users.Substantially all of our computer hardware for operating the MercadoLibre Marketplace and MercadoPago services is currently located at thefacilities of the Savvis Datacenter in Sterling, Virginia, with a backup database in Atlanta, Georgia. These systems and operations are vulnerable todamage or interruption from earthquakes, tornadoes, floods, fires and other natural disasters, power loss, computer viruses, telecommunicationfailures, physical or electronic break-ins, sabotage, intentional acts of vandalism, terrorism, and similar events.The providers could also determine to close the facilities. We also have no formal disaster recovery plan or alternative providers of hostingservices. In addition, we may have inadequate insurance coverage to compensate for any related losses. 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.Internet regulation in the countries where we operate is scarce, and several legal issues related to the Internet are uncertain.Many 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, by us our third-party users of our services, illegal activities, third-party users of our services or otheractivity conducted over our platforms.15 Table of Contents Existing laws, decrees and regulations in some of the countries where we operate related to e-commerce, electronic or mobile payments,information requirements for Internet providers, data collection, data protection, privacy, anti-money laundering, taxation (including VAT or salestax witholdings), obligations to provide certain information to certain authorities about transactions which are processed through our platforms orabout our users and those regulations applicable to consumer protection and businesses in general also may not specifically address how they are tobe applied to our type of Internet-based operations.This legal uncertainty could negatively affect our clients’ perception and use of our services andcould result in significant expense should we have to defend cases in an unclear legal environment. It is also possible that new laws and regulationswill be adopted with respect to the Internet or other online services that could have a material adverse effect on our business, results of operation andfinancial condition.Countries may enact laws or regulations that could adversely affect how we operate one or more of our businesses in those jurisdictions.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.Because our services are accessible worldwide and we facilitate sales of goods to users worldwide, certain foreign jurisdictions may claim thatwe are 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.We are subject to significant privacy-related regulations in many of the jurisdictions in which we operate and we expect the number of thoseregulations applicable to us to increase.We are subject to laws relating to the collection, use, storage and transfer of personally identifiable information about our users, especiallyfinancial information. Several jurisdictions already have regulations in this area, others are considering imposing additional restrictions orregulations. If we violate these laws, which in many cases apply not only to third-party transactions but also to transfers of information amongourselves, our subsidiaries, and other parties with which we have commercial relations, we could be subject to significant penalties and negativepublicity, which would adversely affect us.We are subject to regulations and potential 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. 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 items and services on our platform. We depend on the commercial activity that ourusers generate. We do not choose which items will be listed, nor do we make pricing or other decisions relating to the products and services boughtand 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.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.16 Table of Contents 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.Users of our services could file complaints, which could result in harm to our reputation, inquiries from regulators or actions against us.Government and consumer protection agencies have in the past received a substantial number of complaints about both the MercadoLibreMarketplace and MercadoPago. These complaints are small as a percentage of our total transactions, but they could become large in aggregatenumbers over time. From time to time, we are involved in disputes or regulatory inquiries that arise in the ordinary course of business. The numberand significance of these disputes and inquiries have increased as our business has expanded and our Company has grown larger. We are likely toreceive new inquiries from regulatory agencies in the future, which may lead to actions against us. We have responded to inquiries from regulatoryagencies and described our services and operating procedures and have provided requested information. If one or more of these agencies is notsatisfied with our response to current or future inquiries, we could be subject to enforcement actions, injunctions, fines or penalties, or forced tochange our operating practices in ways that could harm our business, or if during these inquiries any of our processes are found to violate laws onconsumer protection, or to constitute unfair business practices, we could be subject to civil damages, enforcement actions, fines or penalties. Suchactions or fines could require us to restructure our business processes in ways that would harm our business and cause us to incur substantial costs.We may be liable for or experience reputational damage from the failure of users of our Marketplace to deliver merchandise or make requiredpayments.Our success depends largely upon sellers accurately representing and reliably delivering the listed goods and buyers paying the agreedpurchase 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 force 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, we may be liable in Brazilunder applicable regulation for fraud committed by sellers and losses incurred by buyers when purchasing items through our platform in Brazil. Wehave expanded the coverage of our Buyer’s Protection Program and this coverage expansion may impact the number and amount of reimbursementswe are required to make. Effective customer service requires significant personnel expense and investment in developing programs and technologyinfrastructure to help customer service representatives carry out their functions. These expenses, if not managed properly, could significantly impactour profitability. Failure to manage or train our customer service representatives properly could compromise our ability to handle customercomplaints effectively. If we do not handle customer complaints effectively, our reputation may suffer and we may lose our customers’ confidence.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.Our users may be the target of “phishing” emails or other intrusions that could subject us to investigations or liability.Our users have been and will continue to be targeted by parties using fraudulent “spoof” and “phishing” emails that appear to be legitimateemails sent by MercadoLibre or MercadoPago or by a user of one of our businesses, but direct recipients to fake websites operated by the sender ofthe email or misstates that certain payment was credited in MercadoPago and request that the recipient send the product sold or send a password orother confidential information. Despite our efforts to mitigate “spoof” and “phishing” emails, those activities could damage our reputation anddiminish the value of our brands or discourage use of our websites and increase our costs.We have received in the past, and anticipate that we will receive in the future, claims from users who received spoof emails and sent theproduct and did not receive the purchase price.17 Table of Contents 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 or any items infringing upon third parties’ intellectual propertyrights on our platform and we have implemented solutions to exclude goods and services that have been determined to violate our term of use, weare not able to detect and remove every item that may infringe on the intellectual property rights of third parties. As a result, we have received in thepast, and anticipate that we will receive in the future, complaints alleging that certain items listed and/or sold through the MercadoLibreMarketplace or MercadoShops and/or using MercadoPago infringe third-party copyrights, trademarks or other intellectual property rights. Contentowners and other intellectual property rights owners have been active in defending their rights against online companies, including us. We havetaken steps to work in coordination and cooperation with the intellectual property rights owners to seek to eliminate allegedly infringing itemslisted in the MercadoLibre Marketplace. Our user policy prohibits the sale of goods which may infringe third-party intellectual property rights, andwe may suspend the account of any user who infringes third-party intellectual property rights. Additionally, we provide intellectual property rightsowners with resources through our Intellectual Property Protection Program (or “IPPP”), to enforce their rights against cuestionable listings. Despiteall these measures some rights owners have expressed that our efforts are insufficient. Content owners and other intellectual property rights ownershave been active in asserting their purported rights against online companies. We have received in the past, and anticipate that we will continue toreceive legal claims from intellectual property owners alleging violations of their rights.While we have been largely successful to date in settling existing claims, the current absence of regulation related to the Internet in some of thecountries where we operate results in great uncertainty as to the outcome of any future claims. Other companies providing similar services have alsobeen subject to these types of claims in the United States and other countries. We cannot assure you that we will not be subject to similar suits,which could result in substantial monetary awards or penalties and costly injunctions against us.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.We have strategic plans in place that we expect will increase costs in the future, and which we currently estimate will adversely affect our resultsof operations and financial condition and delay our return to profitability.We continue to invest in two recent initiatives that complement the suite of products and services we offer buyers and sellers on ourMarketplace. The first initiative consists of a cross-docking and fulfillment service that will permit us to engage third-party carriers to pick up soldproducts from seller locations, transport those products to a centralized warehouse leased by us for packaging, and coordinate subsequent delivery tothe buyer’s selected location via third-party shipping services. We expect to incur increased shipping and warehousing costs in connection withthese cross-docking and fulfillment services.Our mobile wallet payments network is an offline payments network based on “quick response” (or QR) code technology, through which wefacilitate efficient, cashless transactions for buyers on our marketplace. In order to develop this network, we are providing financial incentives toencourage buyers to use it. We may do incur increased costs in connection with the implementation of a mobile wallet payments network in the formof incremental advertising expenses, QR kit distribution costs and other marketing expenditures, among others. The implementation of the shippinginitiatives and the mobile wallet payments network resulted in increased costs and will continue to result in increased costs in the near future. Wecurrently estimate these increased costs to have an adverse effect on our results of operations and financial condition and further delay our return toprofitability.18 Table of Contents 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, the majority 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.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 have and may continue to attempt to gain access to our systems or facilities through various means, including, amongothers, hacking into our systems or those of our customers, partners or vendors, or attempting to fraudulently induce our employees, customers,partners, vendors or other users of our systems into disclosing user names, passwords, payment card information or other sensitive information, whichmay in turn be used to access our information technology systems. Although we have developed systems and processes that are designed to protectour data and customer data and to prevent data loss and other security breaches, these security measures cannot provide absolute security. Ourinformation technology and infrastructure have and may continue to be vulnerable to cyberattacks or security breaches, and third parties may beable to access our customers’ personal or proprietary information and card data that are stored on or accessible through those systems. Our securitymeasures 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, our current insurance policies may not be adequate to reimburse us for losses caused by security breaches, and we may not beable to collect fully, if at all, under these insurance policies. Some of our systems have experienced past security breaches and, although they did nothave a material adverse effect on our operating results or reputation, there can be no assurance of a similar result in the future. We cannot assure youthat our security measures will prevent security breaches or that failure to prevent them will not have a material adverse effect on our business,results of operations, financial condition and reputation. In addition, any breaches of network or data security at our customers, partners or vendorscould 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.19 Table of Contents 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 such revenues maydecrease 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 sellersupon selling their items and services or for listing products for sale. Our platform depends upon providing access to a large market at a lower costthan other comparable alternatives. If market conditions force us to substantially lower our 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.Our future revenues depend on continued demand for the types of goods that users list on the MercadoLibre Marketplace or pay withMercadoPago on or off the 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, andtrends of consumers and society in general. A decline in the demand for or popularity of certain items sold through the MercadoLibre Marketplacewithout an increase in demand 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.Manufacturers may limit distribution of their products by dealers, or prevent dealers from selling 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. Increased competition or anti-Internetdistribution policies could result in reduced operating margins, loss of market share and diminished value of our brand. In order to respond tochanges in the competitive environment, we may, from time to time, make pricing, service or marketing decisions or acquisitions that may becontroversial with and lead to dissatisfaction among some of our sellers, which could reduce activity on our websites and harm our profitability.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.20 Table of Contents 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 and Colombia to operate MercadoPago in thosecountries with MercadoPago’s current agency-based structure. If our operation of MercadoPago were found to be in violation of money services lawsor regulations or any tax or anti-money laundering regulations, or engaged in an unauthorized banking or financial business, we could be subject toliability, forced to cease doing business with residents of certain countries, or forced to change our business practices or to become a financial entity.Any change to our MercadoPago business practices that makes the service less attractive to customers or prohibits its use by residents of a particularjurisdiction could decrease the speed of trade on the MercadoLibre Marketplace, which would further harm our business. Even if we are not forced tochange our MercadoPago business practices, we could be required to obtain licenses or regulatory approvals that could be very expensive and timeconsuming, and we cannot assure that we would be able to obtain these licenses in a timely manner or at all.We are already subject to regulation in Brazil, and could be subject in the short term to new regulations in Mexico, Colombia and Chile, whichwould require us to obtain regulatory authorizations to operate MercadoPago. The failure to obtain any such authorization, or the loss of theexisting authorizations could cause us to (i) shut down our MercadoPago business in the relevant jurisdiction for an indefinite period of time, whichwould be costly and time consuming, (ii) pay penalties for non-compliance or face other penalties such as the dismantling of MercadoPago and/or(iii) limit the services we offer through MercadoPago in the relevant jurisdiction or change our business practices, any of which could materiallyadversely affect our business and results of operations.MercadoPago is susceptible to illegal uses, and we could potentially face liability for any illegal use of MercadoPago.MercadoPago is susceptible to potentially illegal or improper uses, including, fraudulent and illicit sales, money laundering, bank fraud andonline securities fraud. In addition, MercadoPago’s service could be subject to unauthorized credit card use, identity theft, break-ins to withdrawaccount balances, employee fraud or other internal security breaches, and we may be required to reimburse customers for any funds stolen as a resultof such breaches. Merchants could also request reimbursement, or stop using MercadoPago, if they are affected by buyer fraud.We incur losses from claims of customers who did not authorize a purchase, from buyer fraud and from erroneous transmissions. In addition tothe direct costs of such losses, if they are related to credit card transactions and become excessive, they could result in MercadoPago losing the rightto accept 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.Compliance with anti-money laundering regulations could be costly for us and failure to comply could affect our results of operations.MercadoPago is or may be subject to anti-money laundering laws and regulations that prohibit, among other things, its involvement intransferring the proceeds of criminal activities or impose taxes collection obligations or obligations to provide certain information abouttransactions that have occurred in our platforms, or about our users. Because laws and regulations differ in each of the jurisdictions where we operate,as we roll-out and adapt MercadoPago in other countries, additional verification and reporting requirements could apply. These regulations couldimpose significant costs on us and make it more difficult for new customers to join the MercadoPago network. Future regulation, may require us tolearn 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.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. 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.21 Table of Contents 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 financialservices, particularly credit and debit 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; the use of cash, which is often preferred in Latin America; and offline funding alternativessuch as cash deposit and money transfer services, person-to-person payment services and mobile card readers such as Todo Pago in Argentina,PagSeguro, Payleven SumUp and Izettle in Brazil and Clip Sr, Pago, Billpocket and iZettle in Mexico. Some of these services may operate at lowercommission rates than MercadoPago’s current rates and, accordingly, we are subject to market pressures with respect to the commissions we chargefor 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.We are also charging a single final value fee for the right to use MercadoLibre Marketplace services and MercadoPago Payment services,jointly. This may result in a lower combined take rate, which 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 or Salvador. The introduction of MercadoPago in certain newmarkets may require a close commercial relationship with one or more local banks or other intermediaries. These or other factors may prevent, delayor limit our introduction 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 and debit card associations, such as Visa and MasterCard. Asa result, we must rely on banks or payment processors to process the funding of MercadoPago transactions and MercadoLibre Marketplacecollections, and must pay a fee for this service. From time to time, card associations may increase the interchange fees they charge for eachtransaction using one of their cards. The 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 card association operating rules. The card associations and their member banks set andinterpret the card rules. Some of those member banks compete with MercadoPago. Visa, MasterCard, American Express or other card companiescould adopt new operating rules or re-interpret existing rules that we or MercadoPago’s processors might find difficult or even impossible to follow.As a result, we could lose our ability to provide MercadoPago customers the option of using debit or credit cards to fund their payments andMercadoLibre users the option to pay their fees using a debit or credit card. If MercadoPago were unable to accept credit cards, our MercadoPagobusiness 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 continually working to prevent “high risk”merchants from using MercadoPago. Additionally, we may be unable to access financing in the credit and capital markets at reasonable rates to fundour MercadoPago 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 and this decline, if prolonged, may have a materially adverse impact on economic conditions within certain countries inLatin America that rely heavily on the export of oil and gas, such as Brazil, Venezuela and Mexico, as well as their trading partners in the region. Ifthe current weakness in the global economy persists or worsens, or the present global economic uncertainties continue to persist, many of our users,may delay or reduce their purchases of goods on the MercadoLibre Marketplace, which would reduce our revenues and have a material adverseimpact on our business. Furthermore, future changes in trends could result in a material impact to our future consolidated statements of income andcash flows.22 Table of Contents 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 deteriorates again 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·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 2018, 2017 and 2016, installment payments represented 66.5%, 52.6% and 55.7%, respectively, of MercadoPago’s total paymentvolume. To facilitate the offer of the installment payment feature, we pay interest to discount credit card coupons. In all of these cases, if interestrates increase, we may have to raise the installment fees we charge to users which would likely have a negative effect on MercadoPago’s totalpayment 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 72.8%, 74.3% and 77.2% of MercadoPago’spayment volume using credit cards during 2018, 2017 and 2016, 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. Our MercadoCredito solution exposes 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 the credit risk of a merchant and/or consumer seeking a loan under the MercadoCredito solution, weuse, among other indicators, a risk model internally developed, as a credit quality indicator to help predict the merchants and/or consumer’s abilityto repay the principal balance and interest related to the credit. This risk model may not accurately predict the creditworthiness of a merchant and/orconsumer due to inaccurate assumptions about the particular merchant and/or consumer or the economic environment or limited product history,among other factors. The accuracy of the risk model and our ability to manage credit risk related to our MercadoCredito solution may also beaffected by legal or regulatory changes (e.g., bankruptcy laws and minimum payment regulations), competitors’ actions, changes in consumerbehavior, obtain funding resources, changes in the economic environment and other factors.23 Table of Contents 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.In addition, the funding and growth of our MercadoCredito business is directly related to interest rates; a rise in interest rates may negativelyaffect our MercadoCredito business and results of operations.A rise in our shipping costs may negatively affect our MercadoEnvios shipping transaction volume.In Brazil, Argentina, Mexico, Colombia, Uruguay and Chile, we offer users our MercadoEnvios shipping service through integration with localcarriers. To achieve economies of scale, drive down shipping costs and eliminate friction for buyers and sellers, we generally pay local carriersdirectly for their shipping costs, and then we decide how much of those costs we transfer to our customers. If shipping costs increase, we may have toraise the shipping fees we charge to users which may have a negative effect on MercadoEnvios’s shipping volume.If we cannot transfer these increased fees to our customers, the resulting increase in operating costs of MercadoEnvios could generate net lossesin our Enhanced Marketplace operations.We rely on local carriers to develop our shipping service and changes to their rules or practices may adversely affect our business.In addition, if these services are not available to us because of unfavorable contractual or commercial terms or for any other reason, we couldlose our ability to provide shipping services to our customers, which could in turn have a material adverse effect on our shipping service, operatingresults, and financial condition.In May 2018, there was a nationwide truckers’ strike in Brazil in which truck drivers, dissatisfied by the increase in fuel prices, blocked roadsthroughout the country, preventing the delivery of goods and gasoline to Brazilian businesses. The strike resulted in a general slowdown incommercial transactions, including those performed by users of our platforms during the strike.Future strikes or similar event in Brazil or in any other country in which where MercadoEnvios operates may create political and economicuncertainty, which could have a material adverse effect on our business.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, Colombia, Uruguay and Chile to operate MercadoEnvios with its current structure.If MercadoEnvios 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.If we do not successfully operate our fulfillment network our business may be negatively affected.Through MercadoEnvios logistics solution, we offer sellers on our platform fulfillment and warehousing services. If we do not adequatelyestimate customer demand to operate our fulfillment network successfully, it could result in excess or insufficient fulfillment capacity. Further, as aresult of our fulfillment network service, we maintain the inventory of third parties that sell products through our platform, which increases thecomplexity of tracking inventory and operating our fulfillment network. Our failure to accurately forecast customer demand and properly handleinventory could result in unexpected costs and materially adversaly affect our reputation or results of operations.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.24 Table of Contents 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. We cannot assure you that we will always succeed in obtaining the intellectual property pretectionwe need. If we are not successful, MercadoLibre’s ability to protect its brands in against third-party infringers would be compromised and we couldface claims by any future trademark owners. Any claims relating to these issues, whether meritorious or not, could cause us to enter into costlyroyalty and/or licensing agreements. If any of these claims against us are successful we may also have to modify our brand name in certain countries.Any of these circumstances could adversely affect our business, results of operations and financial condition.We have licensed in the past, and expect that we may license in the future, certain of our proprietary rights, such as trademarks or copyrightedmaterial, to third parties. While we attempt to ensure that our licensees maintain the quality of the MercadoLibre brand, our licensees may takeactions that could affect the value of our proprietary rights or reputation, which could have a material adverse effect on our business, results ofoperations and financial condition.To date, we have not been notified that our technology infringes on the proprietary rights of third parties, but third parties may claiminfringement on our part with respect to past, current or future technologies or features of our services. We expect that participants in our marketswill be increasingly subject to infringement claims as the number of services and competitors in the e-commerce segment grows. Any of these claimscould be expensive and time consuming to litigate or settle and could have a material adverse effect upon our business, results of operations andfinancial condition.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 who supply of key database technology, operating system and specifichardware components for our services. We cannot assure you that these third-party technology licenses will continue to be available to us oncommercially reasonable terms. If we were not able to make use of this technology, we would need to obtain substitute technology that may be oflower quality or performance standards or at greater cost, which could materially adversely affect our business, results of operations and financialcondition. Although we generally have been able to renew or extend the terms of contractual arrangements with these third party service providerson 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.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 appropriate opportunities arise. We may not, however, beable to identify, negotiate or finance such future acquisitions successfully or at favorable valuations, or to effectively integrate these acquisitionswith our current business. The process of integrating an acquired business, technology, service or product into our business may result in unforeseenoperating difficulties and expenditures. Moreover, future acquisitions may also generate unforeseen pressures and/or strains on our organizationalculture.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.25 Table of Contents 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, OLX.com and a numberof other small services, including those that serve specialty markets. We also compete with business-to-consumer online commerce services, such aspure play Internet retailer Submarino (a website of B2W Inc), and a growing number of brick and mortar retailers who have launched on lineofferings such as Americanas (a website of B2W Inc), Casas Bahia and Falabella, OLX, QueBarato and with shopping comparison sites locatedthroughout Latin America such as Buscape and Bondfaro. In addition, we compete with online communities that specialize in classifiedadvertisements. Although no regional competitor exists in the classified market, local players such as Webmotors, VivaStreet and Zap maintainimportant 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.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.26 Table of Contents 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. Although we have implemented measures to detect and reducethe occurrence of fraudulent activities, combat bad buyer experiences and increase buyer satisfaction, there can be no assurance that these measureswill be sufficient to accurately detect, prevent or deter fraud. As our marketplace sales grow, the cost of remediating for fraudulent activity, includingcustomer reimbursements, may materially increase and could negatively affect our operating results. In addition, users may perform frauds orpotential illegal activities when using any platform we operate which could expose us to civil or criminal liability and could affect our financialperformance. Although we have not experienced any material business or reputational harm as a result of fraudulent or potential illegal activities ofour users in the past, we cannot rule out the possibility that any of the foregoing may occur causing harm to our business or reputation in the future.If any of the foregoing were to occur, our results of operations and financial conditions could be materially and adversely affected.Risks related to doing business in Latin AmericaWe 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 and Uruguay are currently representedby a labor union and employees in other Latin American countries may eventually become unionized. We may incur increased payroll costs andreduced flexibility 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 lower commodity prices and demand forcommodities, many of the economies of Latin American countries have slowed their rates of growth, and some have entered recessions. The durationand 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 and Mexico, which together accounted for 93.9%, 95.2% and94.8% of our net revenues for 2018, 2017 and 2016, 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 American countries,including countries which account, or are expected to account, for a significant portion of our revenues. The depreciation of local currencies createsinflationary pressures that may have an adverse effect on us and generally restricts access to the international capital markets. For example, thedevaluation of the Argentine Peso has had a negative impact on the ability of Argentine businesses to honor their foreign currency denominateddebt, led to high inflation, significantly reduced real wages, had a negative impact on businesses whose success is dependent on domestic marketdemand, and adversely affected the government’s ability to honor its foreign debt obligations. On the other hand, the appreciation of localcurrencies against the U.S. dollar may lead to the deterioration of public accounts and the balance of payments of the countries where we operate,and may reduce export growth in those countries.27 Table of Contents 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.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 and Mexico, have historically experienced significant devaluations. The results of operations inthe countries where we operate are exposed to foreign exchange rate fluctuations as the financial results of the applicable subsidiaries are translatedfrom the local currency into U.S. dollars upon consolidation. If the U.S. dollar weakens against foreign currencies, as has occurred in previous years,the translation of these foreign-currency-denominated transactions will result in increased net revenues, operating expenses, and net income.Similarly, our net revenues, operating expenses, and net income will decrease if the U.S. dollar strengthens against the foreign currencies of countriesin which we operate. For the year ended December 31, 2018, 60.2% of our net revenues were denominated in Brazilian Reais, 26.2% in ArgentinePesos and 7.6% in Mexican Pesos.Our business, results of operations and financial condition are particularly sensitive to fluctuations in the currency exchange rate between theU.S. dollar and the Argentine Peso.Our results of operations and financial condition are particularly sensitive to changes in the Argentine Peso/U.S. dollar exchange rate. Asignificant part of our operations are conducted in Argentina, where our costs are incurred, for the most part, in Argentine Pesos, while our auditedconsolidated financial statements are presented in U.S. dollars. Consequently, appreciation of the U.S. dollar relative to the Argentine Peso, to theextent not offset by inflation in Argentina, could result in unfavorable variations in our operating results and, conversely, depreciation of the U.S.dollar relative to the Argentine Peso could impact our operating results in a positive manner.In recent years, the Argentine Peso has suffered significant devaluations against the U.S. dollar and has continued to devaluate against the U.S.dollar. As a result of this economic instability, Argentina’s foreign debt rating has been downgraded on multiple occasions based upon concernsregarding economic conditions and rising fears of increased inflationary pressures. This uncertainty may also adversely impact Argentina’s ability toattract capital.The increasing level of inflation in Argentina has generated pressure for further depreciation of the Argentine Peso. After several years ofrelatively moderate variations in the nominal exchange rate, the Argentine Peso depreciated against the U.S. dollar by 32.6% in 2013, 31.2% in2014, 52.1% in 2015, 21.9% in 2016, 18.4% in 2017 and 100.3% in 2018, based on the official exchange rates published by the Argentine CentralBank.The current Argentine government has set goals to reduce the primary fiscal deficit as a percentage of GDP over time, reduce the Argentinegovernment’s reliance on Central Bank financing and has requested financial assistance from International Monetary Fund. If in spite of thesemeasures the current Argentine government is unable to address Argentina’s structural inflationary imbalances, the prevailing high rates of inflationmay continue, which would have an adverse effect on Argentina’s economy.Inflation in Argentina could increase our costs of operations and impact our financial condition and results of operations. Inflation rates maycontinue to increase in the future, and the effects and effectiveness of government measures to control inflation, adopted presently or in the future,remains uncertain.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 Argentina, which was determined to be highly inflationary, we may not beable to adjust the price of our services sufficiently to offset the effects of inflation on our cost structures. A return to a high inflation environmentwould also have negative effects on the level of economic activity and employment and adversely affect our business and results of operations.28 Table of Contents 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.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.29 Table of Contents 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.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.30 Table of Contents Our stockholders may not receive dividends or dividends may not grow over time.After reviewing the Company’s capital allocation process, the Board of Directors concluded that it has multiple investment opportunities thatshould generate greater return to shareholders through investing capital into the business as compared to a dividend policy. Consequently, thedecision was made to suspend the payment of dividend to shareholders as of the first quarter of 2018. Our ability to pay dividends in the future maybe adversely affected by a number of factors, including the risk factors described herein. All dividends will be declared at the discretion of our Boardof Directors and will depend on our earnings, financial condition and other factors as our Board of Directors may deem relevant from time to time.Our Board of Directors is under no obligation or requirement to declare a dividend. We cannot assure you that we will achieve results that will allowus 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 (the “2019 Notes”) in an aggregate principal amount of $330 million. On August 24,2018, the Company repurchased or exchanged and retired $263.7 million principal amount of the 2019 Notes. On August 24, 2018 and on August31, 2018, we issued convertible notes due 2028 (the “2028 Notes” and together with the 2019 Notes, the “Notes”), in an aggregate principal amountof $880 million. At maturity, we will have to pay the holders of the Notes the full aggregate principal amount of the Notes then outstanding.There can be no assurance that we will be able to repay this indebtedness when due, or that we will be able to refinance this indebtedness onacceptable terms or at all. In addition, this indebtedness could, among other things:·make it difficult for us to pay other obligations;·make it difficult to obtain favorable terms for any necessary future financing for working capital, capital expenditures, debt servicerequirements or other purposes;·require us to dedicate a substantial portion of our cash flow from operations to service the indebtedness, reducing the amount of cash flowavailable for other purposes; and·limit our flexibility in planning for and reacting to changes in our business.We may not have the ability to raise the funds necessary to settle conversions of the Notes or to repurchase the Notes upon a fundamental change,and our future debt may contain limitations on our ability to pay cash upon conversion or repurchase of the Notes.Holders of the Notes will have the right to require us to repurchase their Notes upon the occurrence of a fundamental change at a fundamentalchange repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest, if any. In addition,upon conversion of the Notes, and even though our current intention is to deliver shares of our common stock to settle such conversion (other thanpaying cash in lieu of delivering any fractional share), we may be required to make cash payments in respect of the notes being converted. However,we may not have enough available cash or be able to obtain financing at the time we are required to make repurchases of Notes surrendered thereforor Notes being converted. In addition, our ability to repurchase the Notes or to pay cash upon conversions of the Notes may be limited by law, byregulatory authority or by agreements governing our future indebtedness. Our failure to repurchase Notes at a time when the repurchase is requiredby the indenture or to pay any cash payable on future conversions of the Notes as required by the indenture would constitute a default under theindenture. A default under the indenture or the fundamental change itself could also lead to a default under agreements governing our futureindebtedness. If the repayment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not havesufficient funds to repay the indebtedness and repurchase the Notes or make cash payments upon conversions thereof.31 Table of Contents 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.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, Mendoza, Entre Rios, Santa Fe and San Luis, Argentina; Brasilia, Florianópolis, São Paulo and Osasco, Brazil; 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 office. The leases for our facilities provide for renewal options. Afterexpiration of these leases, we can renegotiate the leases with our current landlords, or move to another location. From time to time we considervarious alternatives related to our long-term facility needs. While we believe our existing facilities are adequate to meet our immediate needs, it maybecome necessary to lease or acquire additional or alternative space to accommodate any future growth.Our fulfillment centers for MercadoEnvios are located in Axotlán, Municipio de Cuautitlán Izcalli, Mexico State, Mexico and in Louveira, SãoPaulo State, Brazil. Our crossdocking centers for MercadoEnvios in Brazil are located in Campinas, Barueri and São Paulo, all of them in São PauloState. All of the centers are occupied under lease agreements.Our headquarters are located in Buenos Aires, Argentina. Our data centers are located in Virginia, United States, and occupy approximately418 square meters. As of December 31, 2018, our owned and leased facilities (excluding data centers) provided us with square meters as follows:ArgentinaBrazilMéxicoOthersTotal(sq mt)(sq mt)(sq mt)(sq mt)(sq mt)Owned facilities14,547 -- - 14,547 Leased facilities44,268 76,909 32,397 10,439 164,013 Total facilities58,815 76,909 32,397 10,439 178,560 ITEM 3.LEGAL PROCEEDINGSPlease refer to Item 8 of Part II, “Financial Statements and Supplementary Data”—Note 15 Commitments and Contingencies—Litigation andOther Legal Matters. ITEM 4.MINE SAFETY DISCLOSURESNot applicable.32 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 Select Market (“NASDAQ”) underthe symbol “MELI.” As of December 31, 2018, the closing price of our common stock was $292.85 per share. As of February 22, 2019, we had 12holders 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 Select Market:HighLow20181st quarter$413.94 $322.58 2nd quarter$355.48 $285.35 3rd quarter$384.39 $295.70 4th quarter$369.51 $257.52 20171st quarter$216.29 $161.02 2nd quarter$297.22 $215.28 3rd quarter$292.38 $232.64 4th quarter$329.28 $221.51 Recent Sales of Unregistered SecuritiesThere were no sales of unregistered securities by us during the three-month period ending December 31, 2018.Dividend PolicyAfter 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, 2018 is set forthin “Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters.”33 Table of Contents Performance GraphThe graph below shows the total stockholder return of an investment of $100 on December 31, 2007 through December 31, 2018 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.34 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 audited consolidated financial statements and related notes thereto includedelsewhere in this report. Year Ended December, 31(in millions)2018 (*)2017 (*)2016 (*)2015 (*)2014 (*)Statement of income data: Net revenues (**)1,439.7 1,216.5 844.4 651.8 556.5 Cost of net revenues(742.6)(496.9)(307.5)(215.0)(159.0)Gross profit697.0 719.6 536.9 436.8 397.6 Operating expenses: Product and technology development(146.3)(127.2)(98.5)(76.4)(53.6)Sales and marketing(482.4)(325.4)(156.3)(128.6)(111.6)General and administrative(137.8)(122.2)(87.3)(76.3)(62.4)Impairment of Long-Lived Assets —(2.8)(13.7)(16.2)(49.5)Loss on Deconsolidation of Venezuelan Subsidiaries (***) —(85.8) — — —Total operating expenses(766.5)(663.3)(355.8)(297.6)(277.1)(Loss)/Income from operations(69.5)56.3 181.1 139.2 120.5 Other income (expenses): Interest income and other financial gains42.0 45.9 35.4 20.6 15.3 Interest expense and other financial charges(56.2)(26.5)(25.6)(20.4)(11.7)Foreign currency gains/(loss)18.2 (21.6)(5.6)11.1 (2.4)Net (loss)/income before income tax gain/(expense)(65.5)54.1 185.3 150.5 121.8 Income tax gain/(expense)28.9 (40.3)(49.0)(44.7)(49.1) Net (Loss)/income(36.6)13.8 136.4 105.8 72.7 Less: Net Income attributable to Noncontrolling — — — —0.1 Net (Loss)/income available to common shareholders(36.6)13.8 136.4 105.8 72.6 (*)The table above may not total due to rounding.(**)The amount incurred in shipping subsidies, which under ASC 606 are netted from revenues when we act as an agent, were $424.8 million and $181.6 million forthe year ended ended December 31, 2018 and 2017, respectively. No shipping subsidies were provided in 2016. Please refer to Note 2 of our audited consolidatedfinancial statements for additional detail.(***) Venezuelan result have been deconsolidated since December 1, 2017, therefore, our 2018 results do not include Venezuelan segment results. Please refer to note2 from our audited consolidated financial statements for additional detail.At December 31,(in millions, except for per share data)201820172016 2015 2014Balance sheet data: Total assets$2,239.5 $1,673.2 $1,367.4 $1,003.6 $966.8 Long term debt602.2 312.1 301.9 294.3 282.2 Total liabilities1,902.8 1,347.4 938.6 664.1 611.1 Net assets336.7 325.8 428.9 339.5 355.8 Common stock0.05 0.04 0.04 0.04 0.04 Equity336.7 325.8 428.9 339.5 355.8 Cash dividend declared per common share$ —$0.600 $0.600 $0.412 $0.664 35 Table of Contents Year Ended December 31, 2018 2017 2016 2015 2014(Loss)/Earnings per share data: Basic net (loss)/income available to common stockholders per common share $(0.82) $0.31 $3.09 $1.63 $2.66 Diluted net (loss)/income per common share $(0.82) $0.31 $3.09 $1.63 $2.66 Weighted average shares(1): Basic 44,529,614 44,157,364 44,157,251 44,153,884 44,152,600 Diluted 44,529,614 44,157,364 44,157,251 44,153,884 44,152,600 (1) Shares outstanding at December 31, 2018 were 45,202,859. Year ended December 31,(in millions) 2018(11) 2017 (11) 2016 20152014Other data: Number of confirmed registered users at end of period (1) 267.4 211.9 174.2 144.6 120.9 Number of confirmed new registered users during period (2) 55.5 37.7 29.5 23.7 21.5 Gross merchandise volume (3) $12,504.9 $11,749.3 $8,048.1 $7,150.8 $7,081.9 Number of successful items sold (4) 334.7 270.1 181.2 128.4 101.3 Number of successful items shipped (5) 221.7 150.7 86.5 45.2 17.8 Total payment volume (6) $18,455.9 $13,731.7 $7,753.7 $5,184.1 $3,523.2 Total volume of payments on marketplace (7) $11,274.5 $9,627.6 $5,627.4 $3,764.7 $2,581.8 Total payment transactions (8) 389.3 231.4 138.7 80.4 46.3 Unique buyers (9) 37.4 33.7 27.7 23.6 22.0 Unique sellers (10) 10.8 10.1 9.4 7.8 7.1 Capital expenditures $102.0 $83.5 $84.7 $109.3 $76.1 Depreciation and amortization $45.8 $40.9 $29.0 $23.2 $16.9 (1)Measure of the cumulative number of users who have registered on the MercadoLibre Marketplace and confirmed their registration, excluding Classifieds users.(2)Measure of the number of new users who have registered on the MercadoLibre Marketplace and confirmed their registration, excluding Classifieds users.(3)Measure of the total U.S. dollar sum of all transactions completed through the MercadoLibre Marketplace, excluding Classifieds transactions.(4)Measure of the number of items that were sold/purchased through the MercadoLibre Marketplace, excluding Classifieds items.(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, including Classifieds users.(10)New or existing users with at least one new listing in the period, including Classifieds users.(11)Data for 2017 includes Venezuelan metrics up to November 30, 2017 due to deconsolidation. Please refer to Note 2 of our audited consolidated financial statements foradditional detail. Data for 2018 excludes Venezuelan metrics.Non-GAAP Measures of Financial PerformanceTo supplement our audited 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.36 Table of Contents The FX neutral measures were calculated by using the average monthly exchange rates for each month during 2017 and applying them to thecorresponding months in 2018, 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 2016 and applying themto the corresponding months in 2017, 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.The following table sets forth the FX neutral measures related to our reported results of the operations for years ended December 31, 2018, 2017and 2016: Year Ended December 31, (*) As reported FX Neutral Measures(In millions, exceptpercentages) 2018 2017 PercentageChange 2018 2017 PercentageChange Net revenues $ 1,439.7 $ 1,216.5 18.3% $ 1,820.7 $ 1,216.5 49.7% Cost of net revenues (742.6) (496.9) 49.4% (943.2) (496.9) 89.8% Gross profit 697.0 719.6 -3.1% 877.6 719.6 22.0% Operating expenses (766.5) (574.7) 33.4% (984.0) (574.7) 71.2% Impairment of Long-Lived Assets — (2.8) -100.0% — (2.8) -100.0%Loss on Deconsolidationof VenezuelanSubsidiaries — (85.8) -100.0% — (85.8) -100.0%Total operating expenses (766.5) (663.3) 15.6% (984.0) (663.3) 48.3% (Loss) / Income fromoperations (69.5) 56.3 -223.5% (106.5) 56.3 -289.2%(*) The table above may not total due to rounding. Year Ended December 31, (*) As reported FX Neutral Measures(In millions, except percentages) 2017 2016 PercentageChange 2017 2016 PercentageChangeNet revenues $ 1,216.5 $ 844.4 44.1% 1,359.3 $ 844.4 61.0% Cost of net revenues (496.9) (307.5) 61.6% (518.1) (307.5) 68.5% 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 Desconsolidationof 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. 37 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, 2018, 2017, and 2016;·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 the largest online commerce ecosystem in LatinAmerica based on unique visitors and page views. 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 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 and Paraguay.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 644 million people and with one of the fastest-growing Internet penetration rates in the world.We believe that we offer technological and commercial solutions that address the distinctive cultural and geographic challenges of operating anonline commerce platform in Latin America.We offer our users an ecosystem of six integrated e-commerce services: the MercadoLibre Marketplace, the MercadoLibre Classifieds service,the MercadoEnvios logistics service, the MercadoPago FinTech solution, the MercadoLibre advertising solution and the MercadoShops onlinewebstores solution. The MercadoLibre Marketplace is a fully-automated, topically-arranged and user-friendly online commerce platform, which can be accessedthrough our website and mobile app. This platform enables both businesses and individuals to list merchandise and conduct sales andpurchases online in a fixed-price format.Through our MercadoEnvios logistics solution, we offer sellers on our platform technological and operational integration with third partycarriers and other logistics service providers, as well as fulfillment and warehousing services. Sellers using our the solution are able to offer a uniformand seamlessly integrated shipping experience to their buyers at competitive prices.Through our MercadoLibre Classifieds, our online classifieds listing service, our users can also list and purchase motor vehicles, real estate andservices in all countries in which we operate. Classifieds listings differ from Marketplace listings as they only charge optional placement fees andnever final value fees. Our classifieds pages are also a major source of traffic to our website, benefitting both the Enhanced Marketplace and non-Marketplace businesses.Our MercadoLibre advertising platform enables businesses to promote their products and services on the Internet. Through this platform,MercadoLibre’s sellers and large advertisers are able to display ads on our webpages.38 Table of Contents MercadoPago is our FinTech solution, designed to facilitate transactions both on and off our marketplaces by providing a mechanism thatallows our users to securely, easily and promptly send and receive payments online. Away from our marketplaces, MercadoPago allows merchants toprocess payments on their websites and mobile apps as well as in their stores through QR and MPOS devices. It also enables users to transfer moneyin a simple way to each other. Through MercadoFondo, our users are able to invest the stored balance in their MercadoPago accounts at competitiverates and in a simple way. MercadoCredito, our lending solution, allows us to finance merchants’ working capital needs and consumers’ purchases.Additionally, through MercadoShops, our online store solution, users can set-up, manage and promote their own online stores. These stores arehosted by MercadoLibre and offer integration with the rest of the ecosystem, namely our marketplaces and payment services. Users can selectbetween a free model and a subscription-based model for enhanced functionalities and value added services on their store.MercadoLibre also develops and sells enterprise software solutions to e-commerce business clients in Brazil. Reporting Segments and Geographic InformationOur segment reporting is based on geography, which is the criterion our Management uses to evaluate our segment performance. Ourgeographic segments are Brazil, Argentina, Mexico and Other Countries (which includes Chile, Colombia, Costa Rica, Dominican Republic,Ecuador, Panama, Peru, Bolivia, Honduras, Nicaragua, El Salvador, Guatemala, Paraguay, Uruguay and the United States of America (through realestate classifieds in the State of Florida, only)). Venezuela was one of our geographic segments until we deconsolidated our Venezuelan operations,effective as of December 1, 2017. Although we discuss long-term trends in our business, it is our policy not to provide earnings guidance in thetraditional sense. We believe that uncertain conditions make the forecasting of near-term results difficult. Further, we seek to make decisions focusedprimarily on the long-term welfare of our company and believe focusing on short-term earnings does not best serve the interests of our stockholders.We believe that execution of key strategic initiatives as well as our expectations for long-term growth in our markets will best create stockholdervalue.The following table sets forth the percentage of our consolidated net revenues by segment for the years ended December 31, 2018, 2017 and2016: Years ended December 31,(% of total consolidated net revenues) (*)(**) 2018 2017 2016 Brazil 60.2 % 56.8 %53.9 %Argentina 26.2 29.5 31.1 Mexico 7.6 4.2 5.5 Venezuela (***) — 4.5 4.4 Other Countries 6.1 5.0 5.2 (*)Percentages have been calculated using whole-dollar amounts rather than the rounded amounts that appear in the table. The table above may not total due torounding.(**)The amount incurred in shipping subsidies, which under ASC 606 are netted from revenues, when we act as an agent, were $424.8 million and $181.6 million forthe year ended December 31, 2018 and 2017, respectively. No shipping subsidies were provided in 2016. Please refer to Note 2 of our audited consolidatedfinancial statements for additional detail.(***)Venezuelan revenues have been deconsolidated since December 1, 2017. Please refer to Note 2 of our audited consolidated financial statements for additional detail.39 Table of Contents The following table summarizes the changes in our net revenues by segment for the years ended December 31, 2018, 2017 and 2016: Year ended Change from 2017 Year ended Change from 2016December 31,to 2018 (*)(**) December 31,to 2017 (*)2018 2017 in Dollars in % 2017 2016 in Dollars in % (in millions, except percentages) (in millions, except percentages) Net Revenues: Brazil$ 866.2 $ 690.8 $ 175.4 25.4 % $ 690.8 $ 455.0 $ 235.8 51.8 %Argentina376.6 359.4 17.2 4.8 359.4 262.3 97.1 37.0 Mexico109.1 51.3 57.8 112.5 51.3 46.3 5.0 10.8 Venezuela (***) — 54.3 (54.3) (100.0) 54.3 37.2 17.1 46.1 Other Countries87.8 60.7 27.1 44.6 60.7 43.6 17.1 39.2 Total Net Revenues$ 1,439.7 $ 1,216.5 $ 223.1 18.3 % $ 1,216.5 $ 844.4 $ 372.1 44.1 % (*)Percentages have been calculated using whole-dollar amounts rather than the rounded amounts that appear in the table. The table above may not total due torounding.(**)The amount incurred in shipping subsidies, which under ASC 606 are netted from revenues, when we act as an agent, were $424.8 million and $181.6 million for theyear ended December 31, 2018 and 2017, respectively. No shipping subsidies were provided in 2016. Please refer to Note 2 of our audited consolidated financialstatements for additional detail.(***)Venezuelan revenues have been deconsolidated since December 1, 2017. Please refer to Note 2 of our audited interim condensed consolidated financial statementsfor additional detail.Recent DevelopmentsCapped call transactions related to the 2.00% Convertible Senior Notes Due 2028On August 24, 2018, we issued $800 million of 2.00% Convertible Senior Notes due 2028 and issued an additional $80 million of notes onAugust 31, 2018 pursuant to the partial exercise of the initial purchasers’ option to purchase such additional notes, for an aggregate principalamount of $880 million of 2.00% Convertible Senior Notes due 2028 (collectively, the “2028 Notes”).In connection with the issuance of the 2028 Notes, we paid $11.5 million (including transaction expenses) in November 2018, to enter into the2028 Notes Capped Call Transactions with certain financial institutions. The 2028 Notes Capped Call Transactions are expected generally to reducethe potential dilution upon conversion of the 2028 Notes in the event that the market price of our common stock is greater than the strike price ofthe 2028 Notes Capped Call Transactions. Please see note 17 to our audited consolidated financial statements for further detail on Capped Calltransactions.Unwind of 2.25% Convertible Senior Notes Due 2019 Capped CallIn connection with the termination of existing 2019 Capped Call Transactions and the related unwinding of the existing hedge position, wereceived from certain financial institutions the amount of $14.4 million during November 2018. Please see Note 17 to our audited consolidatedfinancial statements for further details on this unwinding.Acquisition of software development companies in ArgentinaIn October 2018, we, through our subsidiaries Meli Participaciones S.L. and Marketplace Investment LLC, completed the acquisition of 100%of the equity interest of Kinexo S.A and Kaitzen S.A., which are software development companies located and organized under the laws ofArgentina, for an amount of $4.0 million. Please see Note 6 of our audited consolidated financial statements for further detail on businessacquisitions.Approval from the Central Bank of Brazil to operate as authorized payment institutionDuring November 2014, we submitted our application to become an authorized payment institution in Brazil through our Brazilian subsidiaryMercadoPago.com Representações Ltda. On November 1, 2018 our Brazilian subsidiary obtained the approval from the Central Bank of Brazil tooperate as authorized payment institution. The mentioned approval confirmed our ability to continue carrying out the payment processingfunctions.40 Table of Contents Description of line itemsNet revenuesEffective January 1, 2018, we adopted ASC 606 – Revenue from Contracts with Customers related to revenue recognition (“ASC 606”) issuedby the Financial Accounting Standards Board (“FASB”) in 2014. ASC 606 provides a unified model to determine when and how revenue isrecognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in anamount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. We adopted ASC 606using the full retrospective transition method and recast the prior reporting period accordingly.Under the full retrospective method, we retrospectively applied ASC 606 to year ended December 31, 2017. For the year ended December 31,2018 and 2017, we incurred $424.8 million and $181.6 million, respectively, of subsidized shipping costs, when we act as an agent, that have beenincluded as a reduction of revenues. The total impact of the change in presentation of shipping subsidies was a decrease in each of net revenues andcost of net revenues of $181.6 million in the audited consolidated statement of income for the year ended December 31, 2017. No shipping subsidieswere provided in 2016. Please refer to Note 2 of our audited consolidated financial statements for additional detail.We recognize revenues in each of our four geographical reporting segments. Within each of our segments, the services we provide generallyfall into two distinct revenue streams: “Enhanced Marketplace” and “Non-Marketplace”.The following table summarizes our consolidated net revenues by revenue stream for the years ended December 31, 2018, 2017 and 2016: Years ended December 31, (*)Consolidated net revenues by revenue stream 2018 2017 2016 (in millions) Enhanced Marketplace (**) $702.4 $737.5 $548.1 Non-Marketplace (***) (****) 737.3 479.1 296.3 Total $1,439.7 $1,216.5 $844.4 (*)The table above may not total due to rounding.(**)Includes final value fees and shipping fees. The amount incurred in shipping subsidies, which under ASC 606 are netted from revenues, when we act as anagent, were $424.8 million and $181.6 million for the year ended ended December 31, 2018 and 2017, respectively. No shipping subsidies were provided in2016. Please refer to Note 2 of our audited consolidated financial statements for additional detail. (***)Includes, among other things, ad sales, classified fees, payment fees and other ancillary services. (****)Includes $601.0 million, $356.4 million and $202.0 million of Payment Fees for the year ended December 31, 2018, 2017 and 2016, respectively.Revenues from Enhanced Marketplace transactions are mainly generated from final value fees and shipping fees net of the third-party carriercosts.Final value fees represent a percentage of the sale value that is charged to the seller once an item is successfully sold. Shipping revenues aregenerated when a buyer elects to receive an item through our shipping service net of the third-party carrier costs.Revenues for Non-Marketplace services are generated from:·payment fees;·classifieds fees;·ad sales up-front fees; and·fees from other ancillary businesses.Non-Marketplace revenues also come from our MercadoPago FinTech solution, where we generate payment fees attributable to:·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 consumer credits granted under our MercadoCredito solution; and·revenues from the sale of MPOS devices.Through our classifieds offerings for motor vehicles, vessels, aircraft, real estate and services, we generate revenues from up-front fees for allclassifieds offerings. We charge additional fees to sellers who opt to give their listings greater exposure throughout our websites.Our Advertising revenues are generated by selling either display product and/or text link ads throughout our websites.41 Table of Contents When more than one service is included in one single arrangement with the same customer, we recognize revenue according to multipleelement arrangements accounting, distinguishing between each of the services provided and allocating revenues based on their respective estimatedselling prices.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, 2018, 2017 and 2016, no single customer accounted for more than 5.0% of our net revenues.Our MercadoLibre Marketplace is available in 18 countries (Argentina, Brazil, Chile, Colombia, Costa Rica, Dominican Republic, Ecuador,Mexico, Panama, Peru, Uruguay, Venezuela, Bolivia, Honduras, Nicaragua, El Salvador, Guatemala and Paraguay), and MercadoPago is available in8 countries (Argentina, Brazil, Chile, Peru, Colombia, Mexico, Uruguay and Venezuela). MercadoEnvios is available in 6 countries (Argentina,Brazil, Mexico, Colombia, Chile and Uruguay). The functional currency for each country’s operations is the country’s local currency, except for Argentina where the functional currency is theU.S. dollar due to Argentina’s status as highly inflationary economy. Before Venezuela’s deconsolidation, its functional currency was the U.S. dollaras a consequence of its highly inflationary economy. See—“Critical accounting policies and estimates—Foreign Currency Translation” includedbelow and Note 2 to our audited consolidated financial statements for highly inflationary economy details. Therefore, our net revenues are generatedin multiple foreign currencies and then translated into U.S. dollars at the average monthly exchange rate. Venezuelan revenues have beendeconsolidated since December 1, 2017. Please refer to Note 2 to our audited consolidated financial statements for Venezuela’ deconsolidationdetails. Cost of net revenuesCost of net revenues primarily includes bank and credit card processing charges for transactions and fees paid with credit cards and otherpayment methods, fraud prevention fees, certain taxes on revenues, certain taxes on bank transactions, cost of MPOS sale, hosting and site operationfees, compensation for customer support personnel, ISP connectivity charges, depreciation and amortization, shipping operating costs (includingwarehousing costs), and other operation costs.Our subsidiaries in Brazil, Argentina and Colombia are subject to certain taxes on revenues which are classified as a cost of net revenues. Thesetaxes represented 9.7%, 8.8% and 9.0% of net revenues for the years ended December 31, 2018, 2017 and 2016, respectively. 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 related to marketing our platforms through online and offline advertising andagreements with portals and search engines, charges related to our buyer protection programs, the salaries of employees involved in these activities,chargebacks related to our MercadoPago operations, bad debt charges, marketing activities on behalf of 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 of outsidedirectors, long term retention plan compensation expenses, expenses for legal, audit and other professional services, insurance expenses, office spacerental expenses, travel and business expenses, as well as depreciation and amortization costs. Our general and administrative expenses include thecosts of the following areas: general management, finance, administration, accounting, legal and human resources.Impairment of long-lived assetsWe review long-lived assets for impairments whenever events or changes in circumstances indicate that the carrying value of an asset may notbe recoverable.42 Table of Contents During 2017 and 2016, and as a result of the lower U.S. dollar-equivalent cash flows expected from the Venezuelan business, and long-livedassets expected use, we concluded that certain real estate investments held in Venezuela, should be impaired. As a consequence, we estimated thefair value of the impaired long-lived assets, and recorded impairment losses of $2.8 million, $13.7 million on June 30, 2017 and June 30, 2016,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. Since December 1, 2017,and as of December 31, 2018, we no longer include the balances, results of operations and cash flows of the Venezuelan subsidiaries in our auditedconsolidated 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. Income taxWe are subject to federal and state taxes in the United States, as well as foreign taxes in the multiple jurisdictions where we operate. Our taxobligations consist of current and deferred income taxes incurred in these jurisdictions. We account for income taxes following the liability methodof accounting. A valuation allowance is recorded when, based on the available evidence, it is more likely than not that all or a portion of ourdeferred tax assets will not be realized. Therefore, our income tax expense consists of taxes currently payable, if any (given that in certainjurisdictions we still have net operating loss carry-forwards), plus the change in our deferred tax assets and liabilities during each period.The following table summarizes the composition of our income taxes for the years ended December 31, 2018, 2017 and 2016: Year ended December 31,(In millons) 2018 (*) 2017 (*) 2016 (*) Current: U.S. (0.0) 0.0 0.0 Non U.S. 64.0 64.8 55.1 64.0 64.9 55.2 Deferred: U.S. (3.6) 1.8 1.3 Non U.S. (89.3) (26.4) (7.5) (92.9) (24.6) (6.2)Income tax (gain) expense (28.9) 40.3 49.0 (*) The table above may not total due to rounding. No asset tax expense was recorded for the years ended December 31, 2018, 2017 and 2016.43 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,(*)2018Net Revenues (**)$ 321.0$ 335.4$ 355.3$428.0 Gross profit162.8 159.7 169.7 204.8 Net (Loss)(12.9)(11.3)(10.1)(2.3)Net (Loss) per share-basic(0.29)(0.25)(0.23)(0.05)Net (Loss) per share-diluted(0.29)(0.25)(0.23)(0.05)Weighted average sharesBasic44,157,364 44,157,364 44,588,704 45,202,859 Diluted44,157,364 44,157,364 44,588,704 45,202,859 2017Net Revenues (**)$ 269.7$ 283.9$ 304.9$ 358.1Gross profit168.9 171.6 175.8 203.4 Net Income/(loss)48.5 5.3 27.7 (67.7)Net Income/(loss) per share-basic1.10 0.12 0.63 (1.53)Net Income/(loss) per share-diluted1.10 0.12 0.63 (1.53)Weighted average sharesBasic44,157,364 44,157,364 44,157,364 44,157,364 Diluted44,157,364 44,157,364 44,157,364 44,157,364 2016Net Revenues$ 157.6$ 199.6$ 230.8$ 256.3Gross profit102.2 126.3 145.6 162.7 Net Income30.2 15.9 38.9 51.3 Net Income per share-basic0.68 0.36 0.88 1.16 Net Income per share-diluted0.68 0.36 0.88 1.16 Weighted average sharesBasic44,156,961 44,157,341 44,157,341 44,157,355 Diluted44,156,961 44,157,341 44,157,341 44,157,355 (*) 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.(**)The amount incurred in shipping subsidies, which under ASC 606 are netted from revenues, when we act as an agent, were $424.8 million and $181.6 million forthe year ended ended December 31, 2018 and 2017, respectively. No shipping subsidies were provided in 2016. Please refer to Note 2 of our audited consolidatedfinancial 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 andMexico for which the slowest months are their summer months of July, August and September. Critical Accounting Policies and EstimatesThe preparation of our audited consolidated financial statements and related notes require us to make judgments, estimates and assumptionsthat affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We havebased our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the resultsof which form 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.44 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 audited consolidatedfinancial statements. You should read the following descriptions of critical accounting policies, judgments and estimates in conjunction with ouraudited consolidated 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 ouraudited consolidated financial statements included elsewhere in this report. Foreign Currency TranslationAll of our foreign consolidated operations use the local currency as their functional currency, except for Argentina where the functionalcurrency is the U.S. dollar due to Argentina’s status as highly inflationary economy. Before Venezuela’s deconsolidation, its functional currencywas the U.S. dollar as a consequence of its highly inflationary economy. Accordingly, these operating foreign subsidiaries translate assets andliabilities from their local currencies to U.S. dollars using period-end exchange rates while income and expense accounts are translated at theaverage exchange rates in effect during the period, unless exchange rates fluctuate significantly during the period, in which case the exchange ratesat the date of the transaction are used. The resulting translation adjustment is recorded as part of other comprehensive (loss) income, a component ofequity. Gains and losses resulting from transactions denominated in non-functional currencies are recognized in earnings. Net foreign currencyexchange losses or gains are included in the audited consolidated statements of income under the caption “Foreign currency gains/(losses)”. Pleasesee note 2 to our audited consolidated financial statements for a description of the current inflationary status of Argentina and the impacts of foreigncurrency translation on the Company’s operations in Argentina.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.We recorded an impairment of long-lived assets of $13.7 million on June 30, 2016 million and of $2.8 million on June 30, 2017 relating to certain real estate investments in Venezuela. The carrying amount was adjusted to its estimated fair value by using the market approach andconsidering prices for similar assets.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, 2018, 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. we use discount rates to eachreporting unit in the range of 16.1% to 18.9%. The average discount rate used for 2018 was 17.5%. That rate reflected our real weighted average costof 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 6 of Part II, “Selected FinancialData-Other data” for details on the measures described in this paragraph. In addition, the benchmark in our analysis includes a business to e-commerce rate, which represents the growth of e-commerce as a percentage of GDP, Internet penetration rates as well as trends in our market share.For the year ended December 31, 2018, based on quantitative assessments, the Company has determined that the fair value of all the reportingunits and the intangible assets with indefinite useful lives, are greater than their respective carrying amounts.Except for Venezuelan impairment described above, no impairments were recognized during the reporting periods included in the financialstatements 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. 45 Table of Contents Allowances for doubtful accounts, for chargebacks and credit losses.We are exposed to losses due to uncollectable accounts, chargebacks and credits to users. Allowances for these items represent our estimate offuture losses based on our historical experience. The allowances for doubtful accounts and for chargebacks are recorded as charges to sales andmarketing expenses. Historically, our actual losses have been consistent with our estimated charges. However, future adverse changes to ourhistorical experience for doubtful accounts, loan receivables and chargebacks could have a material impact on our future consolidated statements ofincome and cash flows.We believe that the accounting estimate related to allowances for doubtful accounts, loans receivable and for chargebacks is a criticalaccounting estimate because it requires Management to make assumptions about future collections and credit analysis. Our Management’sassumptions about future collections require significant judgment.Convertible Senior NotesOn June 30, 2014, we issued $330 million of 2.25% Convertible Senior Notes due 2019. The 2019 Notes are unsecured, unsubordinatedobligations of the Company, which pay interest in cash semi-annually, on January 1 and July 1 of each year, at a rate of 2.25% per annum. The 2019Notes will mature on July 1, 2019 unless earlier repurchased or converted in accordance with their terms prior to such date. The 2019 Notes may beconverted, under specific conditions, based on an initial conversion rate of 7.9353 shares of common stock per $1,000 principal amount of the 2019Notes (equivalent to an initial conversion price of $126.02 per share of common stock), subject to adjustment as described in the indenturegoverning the 2019 Notes.On August 24, 2018, we issued $800 million of 2.00% Convertible Senior Notes due 2028 and issued an additional $80 million of notes onAugust 31, 2018, pursuant to the partial exercise of the initial purchasers’ option to purchase such additional notes, for an aggregate principalamount of $880 million of 2.00% Convertible Senior Notes due 2028. The 2028 Notes are unsecured, unsubordinated obligations of us, which payinterest in cash semi-annually, on February 15 and August 15 of each year, at a rate of 2.00% per annum. The 2028 Notes will mature on August 15,2028 unless earlier repurchased or converted in accordance with their terms prior to such date. The 2028 Notes may be converted, under specificconditions, based on an initial conversion rate of 2.2553 shares of common stock per $1,000 principal amount of the 2028 Notes (equivalent to aninitial conversion price of $443.40 per share of common stock), subject to adjustment as described in the indenture governing the 2028 Notes.We used a portion of the net proceeds from the 2028 Notes to repurchase or exchange and retire $263.7 million principal amount of ouroutstanding 2019 Notes. The consideration paid included $348.1 million in cash and 1,044,298 shares of our common stock. Additionally, weentered into agreements with certain financial institutions who were counterparties to the existing 2019 Notes Capped Call Transactions enteredinto in June 2014 and September 2017 to terminate a portion of those transactions, in each case, in a notional amount corresponding to the amountof 2019 Notes repurchased or exchanged and retired. In connection with the termination of existing 2019 Capped Call Transactions and the relatedunwinding of the existing hedge position, we received from certain financial institutions the amount of $121.7 million.For more detailed information in relation to the Notes and the Capped Call transactions, see Note 17 to our audited consolidated financialstatements.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. 46 Table of Contents Income taxesWe are required to recognize a provision for income taxes based upon taxable income and temporary differences between the book and taxbases of our assets and liabilities for each of the tax jurisdictions in which we operate. This process requires a calculation of taxes payable undercurrently enacted tax laws in each jurisdiction and an analysis of temporary differences between the book and tax bases of our assets and liabilities,including various accruals, allowances, depreciation and amortization. The tax effect of these temporary differences and the estimated tax benefitfrom our tax net operating losses are reported as deferred tax assets and liabilities in our consolidated balance sheet. We also assess the likelihoodthat our net deferred tax assets will be realized from future taxable income. To the extent we believe that it is more likely than not that some portionor all of our deferred tax assets will not be realized, we establish a valuation allowance. At December 31, 2018, 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 tax expense” line in our consolidated statement of income. Please refer to note 2 and 14 for additionalinformation regarding income tax and tax reforms. Stock-based compensationOur board of directors adopted the 2011, 2012, 2013, 2014, 2015, 2016, 2017 and 2018 long-term retention plans (the “2011, 2012, 2013,2014, 2015, 2016, 2017 and 2018 LTRPs”, respectively). See “Item 7A. Quantitative and Qualitative Disclosures About Market Risk —Equity PriceRisk” 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 retention plan” to our audited consolidated financialstatements.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 audited consolidated financial statements for details on our 2016 Director Compensation Program. The 2016 Director Compensation Program isfiled as Exhibit 10.09 to our Quarterly Report on Form 10-Q filed with the SEC on August 5, 2016. Recent accounting pronouncementsSee Item 8 of Part II, “Financial Statements and Supplementary Data-Note 2-Summary of significant accounting policies-Recently AdoptedAccounting Standards and Accounting Pronouncements Not Yet Adopted”. 47 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) 2018 (*) 2017 (*) 2016 (*) Net revenues (***) $1,439.7 $1,216.5 $844.4 Cost of net revenues (742.6) (496.9) (307.5)Gross profit 697.0 719.6 536.9 Operating expenses: Product and technology development (146.3) (127.2) (98.5)Sales and marketing (482.4) (325.4) (156.3)General and administrative (137.8) (122.2) (87.3)Impairment of Long-Lived Assets - (2.8) (13.7)Loss on Desconsolidation of Venezuelan Subsidiaries - (85.8) -Total operating expenses (766.5) (663.3) (355.8)(Loss)/Income from operations (69.5) 56.3 181.1 Other income (expenses): Interest income and other financial gains 42.0 45.9 35.4 Interest expense and other financial charges (56.2) (26.5) (25.6)Foreign currency gains/(losses) 18.2 (21.6) (5.6)Net (loss)/income before income tax expense (65.5) 54.1 185.3 Income tax gain/(expense) 28.9 (40.3) (49.0)Net (loss)/income $(36.6) $13.8 $136.4 (*)The table above may not total due to rounding.(**)Venezuelan result have been deconsolidated since December 1, 2017, therefore, our 2018 results do not include Venezuelan segment results.(***)The amount incurred in shipping subsidies, which under ASC 606 are netted from revenues when, we act as an agent, were $424.8 million and $181.6 million forthe year ended ended December 31, 2018 and 2017, respectively. No shipping subsidies were provided in 2016. Please refer to Note 2 of our audited consolidatedfinancial statements for additional detail. 48 Table of Contents Year Ended December 31, (**)(% of net revenues) 2018 (*) 2017 (*) 2016 (*) Net revenues 100.0 100.0 100.0 Cost of net revenues (51.6) (40.8) (36.4)Gross profit 48.4 59.2 63.6 Operating expenses: Product and technology development (10.2) (10.5) (11.7)Sales and marketing (33.5) (26.7) (18.5)General and administrative (9.6) (10.0) (10.3)Impairment of Long-Lived Assets - (0.2) (1.6)Loss on Deconsolidation of Venezuelan Subsidiaries - (7.0) -Total operating expenses (53.2) (54.5) (42.1)(Loss)/Income from operations (4.8) 4.6 21.4 Other income (expenses): Interest income and other financial gains 2.9 3.8 4.2 Interest expense and other financial charges (3.9) (2.2) (3.0)Foreign currency gains/(losses) 1.3 (1.8) (0.7)Net (loss)/income before income tax expense (4.5) 4.4 21.9 Income tax gain/(expense) 2.0 (3.3) (5.8)Net (loss)/income (2.5) 1.1 16.1 (*)Percentages have been calculated using the whole figures instead of rounding figures. The table above may not total due to rounding.(**)Venezuelan result have been deconsolidated since December 1, 2017, therefore, our 2018 results do not include Venezuelan segment results. Principal trends in results of operationsGrowth in net revenuesSince our inception, we have consistently generated revenue growth from both our Enhanced Marketplace and Non-Marketplace revenuestreams, driven by the strong growth of our key operational metrics. Our net revenues grew 18.3% from 2017 to 2018 and 44.1% from 2016 to 2017.From 2017 to 2018, our total payment volume increased by 34.4%. Additionally, our number of confirmed registered users was 26.2% higheras of December 31, 2018 as compared to the number of confirmed registered users as of December 31, 2017. Furthermore, our Gross MerchandiseVolume (“GMV”) increased by 6.4%. Our net revenues growth rate was negatively affected by our implementation of ASC 606. Our shippingsubsidies are netted from net revenues when we subsidize the cost of shipping, and we act as an agent. Free shipping subsidies, which are shown netfrom net revenues, incurred in the year ended December 31, 2018 and 2017 amounted to $424.8 million and $181.6 million, respectively. For theyear ended December 31, 2017 our revenues include Venezuelan revenues of $54.3 million. As a result of the deconsolidation, since December 1,2017, our revenues for the year ended December 31, 2018 exclude the revenues of our Venezuelan subsidiaries. Further, our net revenues werenegatively affected by the devaluation of the Argentine Peso and Brazilian Reais of approximately 50.5% and 14.6% during 2018, respectively.From 2016 to 2017, our Gross Merchandise Volume (“GMV”) increased by 46.0% and our total payment volume increased by 77.1%.Additionally, our number of confirmed registered users was 21.7% higher as of December 31, 2017 as compared to the number of confirmedregistered users as of December 31, 2016. Furthermore, our growth in net revenues was negatively affected by our implementation of ASC 606. Ourshipping subsidies are netted from net revenues when we subsidize the cost of shipping. Free shipping subsidies incurred in the year endedDecember 31, 2017 and netted from net revenues amounted to $181.6 million, and in 2016 we did not provide shipping subsidies. We believe that our growth in net revenues should continue in the future. However, despite this positive historical trend, the current weakmacro-economic environment in certain countries in Latin America, coupled with devaluations of certain local currencies in those countries versusthe U.S. dollar and high interest rates in those countries, particularly as measured in U.S. dollars. Moreover, in the future, revenues could decline ifwe continue with our free shipping initiatives and our shipping service grows faster than our marketplace and non-marketplace sales.Gross profit marginsDuring the past three years, our business has experienced decreasing gross profit margins, as defined by total net revenues minus total cost ofnet revenues, as a percentage of net revenues.49 Table of Contents Our gross profit margins were 48.4%, 59.2% and 63.6% for the years ended December 31, 2018, 2017 and 2016, respectively. The decrease inour gross profit margins resulted primarily from:(i) Increased costs from providing shipping subsidies, mainly in Brazil, Mexico, Argentina, Chile and Colombia, of $243.3 million for the yearended December 31, 2018, a 34% increase, as compared with year ended December 31, 2017. For the year ended December 31, 2017, costs fromproviding free shipping increased $181.6 million, as compared to the year ended December 31, 2016, where we did not provide shipping subsidies.(ii) Higher penetration of our payment and shipping solution into our Argentine, Brazilian and Mexican marketplaces. For the year endedDecember 31, 2018, total volume of payments on marketplace represented 90.2% of our total GMV (excluding motor vehicles, vessels, aircraft, realestate and services), as compared to 81.9% and 69.9% for the years ended December 31, 2017 and 2016, respectively. Additionally, for the yearended December 31, 2018, the total number of items shipped through our shipping solution represented 66.3% of our total number of successfulitems sold, as compared to 55.8% and 47.8% for the years ended December 31, 2017 and 2016, respectively. Transactions that include such servicesintrinsically incur incremental costs such as collection fees, which result in lower gross profit margins as compared to other services we offer. Inaddition, our revenues are typically disclosed net of third party provider costs while sales taxes are paid on the gross amount of revenues, thus,decreasing our gross profit margins in terms of revenues. For the year ended December 31, 2018, collection fees and sales taxes increased $63.5million and $32.5 million, respectively, as compared to the year ended December 31, 2017. For the year ended December 31, 2017, collection feesand sales taxes increased $91.0 million and $31.4 million, respectively, as compared to the year ended December 31, 2016.(iii) Increased cost of products sold of $52.4 million for the years ended December 31, 2018, as compared with year ended December 31, 2017,related to a higher volumes of MPOS devices sold in Brazil, Argentina and Mexico. For the year ended December 31, 2017, cost of product soldincreased $19.3 million, as compared to the year ended December 31, 2016. This increase generated lower profit margins.(iv) Increased shipping operating costs of $39.6 million for the year ended December 31, 2018, as compared with the same period in 2017,mainly related to shipping operating costs, including warehousing expenses.(v) Increased hosting costs of $25.2 million for the year ended December 31, 2018, as compared with the same periods in 2017. For the yearended December 31, 2017, hosting costs increased $14.3 million, as compared to the year ended December 31, 2016.(vi) Increased customer support costs of $20.7 million from 2017 to 2018, as compared to $20.6 million from 2016 to 2017; mainly as aconsequence of salaries and wages. The number of customer support employees was 3,102, 2,552 and 1,788 as of December 31, 2018, 2017 and2016, respectively. In the future, gross profit margins could continue to decline if we continue to offer free shipping and the penetration of our payment solutionand our shipping service grows faster than our marketplace sales.Operating (loss)/income marginsFor the year ended December 31, 2018 as compared to year ended December 31, 2017, operating (loss)/income margin decreased from apositive margin of 4.6% to a negative margin of 4.8%. This decrease primarily corresponds to increases in certain components of cost of netrevenues, as described under “Gross profit margins” above, and increases in sales and marketing expenses (driven mainly by online and offlinemarketing expenses, buyer protection program expenses and bad debt expenses).For the year ended December 31, 2017 as compared to the same period in 2016, operating (loss)/income margin decreased from 21.4% to 4.6%.This decrease primarily corresponds to increases in certain components of cost of net revenues, as described under “Gross profit margins” above, andincreases in sales and marketing expenses (driven mainly by online and offline marketing expenses, buyer protection program expenses and baddebt expenses).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 will be increasingly difficult to improve our operatingmargins, and we could experience further decreases in operating margins. 50 Table of Contents Net revenuesFor the years endedChange from 2017For the years endedChange from 2016December 31,to 2018 (*)December 31,to 2017 (*)20182017in Dollarsin %20172016in Dollarsin %(in millions, except percentages)(in millions, except percentages)Total Net Revenues (**)$ 1,439.7$ 1,216.5$ 223.118.3% $ 1,216.5$ 844.4$ 372.144.1% As a percentage of net revenues (*)100.0% 100.0% 100.0% 100.0% (*)Percentages have been calculated using whole-dollar amounts rather than the rounded amounts that appear in the table. The table above may not total due torounding.(**)The amount incurred in shipping subsidies, which under ASC 606 are netted from revenues, when we act as an agent, were $424.8 million and $181.6 millionfor the year ended ended December 31, 2018 and 2017, respectively. No shipping subsidies were provided in 2016. Please refer to Note 2 of our auditedconsolidated financial statements for additional detail.Our net revenues grew 18.3% in year ended December 31, 2018 as compared to the same period in 2017. The increase in net revenues is mainlyattributable to the 53.9% increase in our Non-marketplace revenues from $479.1 million for the year ended December 31, 2017 compared to $737.3million for the year ended December 31, 2018 mainly generated by a 34.4% increase in our total payment volume.The mentioned growth of our net revenues was offset by:a)the higher amount incurred in shipping subsidies for the year ended December 31, 2018 by $243.3 million in compare with the year endedDecember 31, 2017. Shipping subsidies are netted from revenues when we act as an agent in accordance with ASC 606. No shippingsubsidies were provided in 2016.b)the negative impact of the devaluation of the Argentine Peso and Brazilian Reais by approximately 50.5% and 14.6%, respectively, during2018. c)the impact of the Venezuelan deconsolidation in the fourth quarter of 2017. For the year ended December 31, 2017 our revenues includeVenezuelan revenues of $54.3 million. As a result of the deconsolidation, as of December 1, 2017 our 2018 revenues exclude the revenuesof our Venezuelan subsidiaries.51 Table of Contents Years endedChange from 2017Years endedChange from 2016December 31,to 2018 (*)December 31,to 2017 (*)Net Revenues by segment and revenuestream20182017in Dollarsin %20172016in Dollarsin %(in millions, except percentages)(in millions, except percentages)BrazilEnhanced Marketplace$ 393.0 $ 404.8 $ (11.8)-2.9%$ 404.8 $ 300.5 $ 104.2 34.7% Non-Marketplace473.2 286.0 187.2 65.4% 286.0 154.6 131.5 85.1% 866.2 690.8 175.4 25.4% 690.8 455.0 235.8 51.8% ArgentinaEnhanced Marketplace$ 195.0 $ 227.6 $ (32.6)-14.3%$ 227.6 $ 166.1 $ 61.5 37.0% Non-Marketplace181.6 131.8 49.8 37.8% 131.8 96.1 35.6 37.0% 376.6 359.4 17.2 4.8% 359.4 262.3 97.1 37.0% MexicoEnhanced Marketplace$ 73.7 $ 29.9 $ 43.9 146.7% $ 29.9 $ 28.9 $ 1.0 3.3% Non-Marketplace35.3 21.4 13.9 64.8% 21.4 17.4 4.0 23.2% 109.1 51.3 57.8 112.5% 51.3 46.3 5.0 10.8% Venezuela (**)Enhanced Marketplace$ — $ 50.6 $ (50.6)-100.0%$ 50.6 $ 33.7 $ 16.9 50.1% Non-Marketplace —3.7 (3.7)-100.0%3.7 3.5 0.3 7.4% —54.3 (54.3)-100.0%54.3 37.2 17.1 46.1% Other countriesEnhanced Marketplace$ 40.6 $ 24.6 $ 16.1 65.4% $ 24.6 $ 18.9 $ 5.7 30.0% Non-Marketplace47.2 36.1 11.0 30.5% 36.1 24.7 11.4 46.4% 87.8 60.7 27.1 44.6% 60.7 43.6 17.1 39.2% ConsolidatedEnhanced Marketplace (***)702.4 737.5 (35.1)-4.8%737.5 548.1 189.3 34.5% Non-Marketplace (****)737.3 479.1 258.2 53.9% 479.2 296.3 182.8 61.7% Total$ 1,439.7 $ 1,216.5 $ 223.1 18.3% $ 1,216.5 $ 844.4 $ 372.1 44.1% (*) Percentages have been calculated using whole-dollar amounts rather than the rounded amounts that appear in the table. The table above may not total due torounding.(**)Venezuelan revenues have been deconsolidated since December 1, 2017. Please refer to Note 2 of our audited consolidated financial statements for additional detail.(***) The amount incurred in shipping subsidies, which under ASC 606 are netted from revenues, when we act as an agent, were $424.8 million and $181.6 million for theyear ended ended December 31, 2018 and 2017, respectively. No shipping subsidies were provided in 2016. Please refer to Note 2 of our audited consolidatedfinancial statements for additional detail.(****)Includes, among other things, payment fees, ad sales, classified fees and other ancillary services.On a segment basis, our net revenues for the years ended December 31, 2018 and 2017, increased across all geographic segments, except for theVenezuelan segment which was deconsolidated as of December 1, 2017.BrazilEnhanced Marketplace revenue in Brazil decreased 2.9% in the year ended December 31, 2018 as compared to the same period in 2017. Thedecrease was primarily a consequence of an increase of $207.1 million in shipping subsidies related to our free shipping initiative launched in thesecond quarter of 2017, which is presented netted from revenues, when we act as an agent, in accordance with ASC 606 and a 11.9% averagedevaluation of the Brazilian Reais. This decrease was partially offset by a 39.8% increase in local currency gross merchandise volume. Non-Marketplace revenue grew 65.4%, a $187.2 million increase, during the same period, mainly driven by a 70.2% increase in the volume of paymentstransactions.Enhanced Marketplace revenue in Brazil grew 34.7% in the year ended December 31, 2017 as compared to the same period in 2016. Thegrowth was primarily a consequence of an increase in: i) a 57.2% increase in our local currency volume and ii) a 9.3% average appreciation of localcurrency. This increase was partially offset by an increase of $140.6 million in shipping subsidies related to our free shipping initiative launched inthe second quarter of 2017, which is presented netted from revenues, when we act as an agent, in accordance with ASC 606. Non-Marketplacerevenue grew 85.1%, a $131.5 million increase, during the same period, mainly driven by: i) a 91.7% increase in the volume of paymentstransactions; and ii) a 58.2% increase in ad sales volume.52 Table of Contents ArgentinaEnhanced Marketplace revenue in Argentina decreased 14.3% in the year ended December 31, 2018 as compared to the same period in 2017.The decrease was primarily a consequence of a 41.1% average devaluation of the local currency and an increase of $25.5 million in shippingsubsidies related to our free shipping initiative launched in the first quarter of 2018, which is presented netted from revenues, when we act as anagent, in accordance with ASC 606. This decrease was partially offset by a 51.1% increase in local currency gross merchandise volume. Non-Marketplace revenue grew 37.8%, a $49.8 million increase, mainly driven by a 8.0% increase in the volume of payments transactions.Enhanced Marketplace revenue in Argentina increased 37.0% for the year ended December 31, 2017 as compared to the same period in 2016,mainly due to a 32.8% increase in local currency volume which was substantially offset by a 10.6% average devaluation of the Argentine peso. Non-Marketplace revenue grew 37.0%, a $35.6 million increase, during the same period mainly driven by a 47.3% increase in the volume of paymentstransactions.MexicoEnhanced Marketplace revenue in Mexico grew 146.7% during the year ended December 31, 2018 as compared to the same period in 2017.This increase primarily reflects the effect of not netting from revenues the shipping costs related to certain shipping services given that we startedacting as principal as of November 2018 and an increase in a local currency volume of 66.5%. This increase was partially offset by an increase of$6.0 million in shipping subsidies related to our free shipping initiative launched in the first quarter of 2017, which is presented netted fromrevenues, when we act as an agent, in accordance with ASC 606. Non-Marketplace revenue grew 64.8%, a $13.9 million increase, mainly driven byincreases in the volume of financing transactions offered to our users and shipping transactions.Enhanced Marketplace revenue in Mexico grew 3.3% during the year ended December 31, 2017 as compared to the same period in 2016. Theincrease primarily reflects an increase in a local currency volume of 64.6%, partially offset by: i) an increase of $35.2 million in shipping subsidiesrelated to our free shipping initiative launched in the first quarter of 2017, which is presented netted from revenues, when we act as an agent, inaccordance with ASC 606 and ii) a 1.2% average devaluation of the local currency. Non-Marketplace revenue grew 23.2%, a $4.0 million increase,mainly driven by increases in the volume of financing transactions offered to our users and shipping transactions.VenezuelaVenezuelan revenues have been deconsolidated since December 1, 2017. Please refer to Note 2 of our audited consolidated financial statementsfor additional detail.The following table sets forth our total net revenues and the sequential quarterly growth of these net revenues for the periods described below: Quarter EndedMarch 31,June 30,September 30,December 31,(in millions, except percentages)(*)2018 Net revenues (**) (***)$ 321.0$ 335.4$ 355.3$ 428.0Percent change from prior quarter-10%4% 6% 20% 2017 Net revenues (**) (***)$ 269.7$ 283.9$ 304.9$ 358.1Percent change from prior quarter5% 5% 7% 17% 2016 Net revenues$ 157.6$ 199.6$ 230.8$ 256.3Percent change from prior quarter-13%27% 16% 11% (*)Percentages have been calculated using whole-dollar amounts rather than the rounded amounts that appear in the table.(**)The amount incurred in shipping subsidies, which under ASC 606 are netted from revenues, when we act as an agent, were $424.8 million and $181.6 million forthe year ended ended December 31, 2018 and 2017, respectively. No shipping subsidies were provided in 2016. Please refer to Note 2 of our audited consolidatedfinancial statements for additional detail.(***)Venezuelan revenues have been deconsolidated since December 1, 2017. Please refer to Note 2 of our audited consolidated financial statements for additional detail.53 Table of Contents The following table set forth the growth in net revenues in local currencies for the years ended December 31, 2018 and 2017:Changes from (*)(Revenue growth in Local Currency) (**)2017 to 20182016 to 2017Brazil44.5% 41.2% Argentina73.0% 53.8% Mexico118.2% 12.0% Venezuela-100.0%521.6% Other Countries47.5% 34.7% Total Consolidated49.7% 61.0% (*)The local currency revenue growth was calculated by using the average monthly exchange rates for each month during 2017 and applying them to thecorresponding months in 2018, 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 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.See also the “Non-GAAP Financial Measures” section below for details on FX neutral measures.(**)Revenue growth in Local Currency as of December 31, 2017 has been adjusted for the adoption of the ASC 606.In Argentina, the increase in local currency growth is due to an increase in our Argentine transactions volume, increase in our shipped itemsvolume, increases in our MercadoPago transactions, increase in our credits volume granted and a high level of inflation, partially offset by highershipping subsidies related to our free shipping initiative.In Mexico and Brazil, the increase in local currency growth is a consequence of an increase of our Marketplace transactions volumes, increasesin our MercadoPago transactions, increase in our credits volume granted and shipped items volumes partially offset by higher shipping subsidiesrelated to our free shipping initiative. Cost of net revenues Years ended Change from 2017 Years ended Change from 2016December 31, to 2018 (*) December 31, to 2017 (*)2018 2017 in Dollars in % 2017 2016 in Dollars in %(in millions, except percentages) (in millions, except percentages)Total cost of net revenues$ 742.6 $ 496.9 $ 245.7 49.4% $ 496.9 $ 307.5 $ 189.4 61.6% As a percentage of net revenues (*)51.6% 40.8% 40.8% 36.4% (*)Percentages have been calculated using whole-dollar amounts rather than the rounded amounts that appear in the table. The table above may not total due torounding. For the year ended December 31, 2018 as compared to the year ended December 31, 2017, the increase of $245.7 million in cost of net revenueswas primarily attributable to: i) a 25.9% increase in collection fees amounting to $63.5 million, which was mainly attributable to our Brazilian,Argentine and Mexican operations as a result of the higher transaction volume of Mercado Pago in those countries and higher off-platform paymenttransactions; ii) an increase in cost of products sold of $52.4 million as a consequence of higher volumes of MPOS devices sold in Brazil, Argentinaand Mexico; iii) a $39.6 million increase in shipping carrier and operating costs; iv) an increase in sales tax amounting to $32.5 million, mainly inArgentina and Brazil, v) an increase of $25.2 million in hosting expenses and vi) a $20.7 million increase in customer support costs mainly as aconsequence of higher salaries and wages due to new hirings. For the year ended December 31, 2018, total volume of payments on marketplacerepresented 90.2% of our total GMV as compared to 81.9% for year ended December 31, 2017. For the year ended December 31, 2017 as compared to the year ended December 31, 2016, the increase of $189.4 million in cost of net revenueswas primarily attributable to: i) a 59.2% increase in collection fees amounting to $91.0 million, which was mainly attributable to our Argentine andBrazilian operations as a result of the higher transaction volume of Mercado Pago in those countries and higher off-platform payment transactions;ii) an increase in sales tax amounting to $31.4 million, mainly in Argentina and Brazil, iii) a $20.6 million increase in customer support costs mainlyas a consequence of higher salaries and wages due to new hirings and iv) a $14.3 million increase in hosting expenses. For the year endedDecember 31, 2017, total volume of payments on marketplace represented 81.9% of our total GMV as compared to 69.9% for year endedDecember 31, 2016. 54 Table of Contents Product and technology developmentYears endedChange from 2017Years endedChange from 2016December 31,to 2018 (*)December 31,to 2017 (*)20182017in Dollarsin %20172016in Dollarsin %(in millions, except percentages)(in millions, except percentages)Product and technology development$ 146.3$ 127.2$ 19.115.0% $ 127.2$ 98.5$ 28.729.1% As a percentage of net revenues (*)10.2% 10.5% 10.5% 11.7% (*)Percentages have been calculated using whole-dollar amounts rather than the rounded amounts that appear in the table. The table above may not total due torounding.For the year ended December 31, 2018 as compared to the year ended December 31, 2017, the 15.0% increase in product and technologydevelopment expenses amounted to $19.1 million and was primarily attributable to; i) an increase of $5.9 million in salaries and wages mainly dueto new hires in 2018, ii) an increase of $6.3 million in other product and technology development expenses primarily related to office, travel andaccommodation expenses; iii) a $4.1 million increase in expenses incurred for temporary services, primarily related to temporary technologydevelopment workers and iv) an increase of $2.8 million in depreciation and amortization expenses.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 mainly dueto new hires in 2017, ii) an increase of $8.5 million in depreciation and amortization expenses and iii) an increase of $4.8 million in other productand technology development expenses.We believe product development is one of our key competitive advantages and intend to continue to invest in adding engineers to meet theincreasingly sophisticated product expectations of our customer base.Sales and marketing Years ended Change from 2017 Years ended Change from 2016December 31, to 2018 (*) December 31, to 2017 (*)2018 2017 in Dollars in % 2017 2016 in Dollarsin %(in millions, except percentages) (in millions, except percentages)Sales and marketing$ 482.4 $ 325.4 $ 157.1 48.3% $ 325.4 $ 156.3 $ 169.1108.2% As a percentage of net revenues (*)33.5% 26.7% 26.7% 18.5% (*)Percentages have been calculated using whole-dollar amounts rather than the rounded amounts that appear in the table. The table above may not total due torounding. For the year ended December 31, 2018, the $157.1 million increase in sales and marketing expenses when compared to the year endedDecember 31, 2017 was primarily attributable to: i) an increase of $71.7 million in marketing expenses mainly in Brazil, Mexico and Argentina; ii)a $48.4 million increase in our buyer protection program expenses, mainly in Brazil; iii) an increase of $21.3 million in our bad debt expenses,primarily related to our credit solution; iv) a $7.3 million increase in salaries and wages and v) a $7.1 million increase in chargebacks from creditcards due to the increase in our MercadoPago transactions volume.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 $14.5 million increase in our buyer protection program expenses and v) an increase of 4.4 million in our bad debt expenses.55 Table of Contents General and administrative Years ended Change from 2017 Years ended Change from 2016December 31, to 2018 (*) December 31, to 2017 (*)2018 2017 in Dollars in % 2017 2016 in Dollars in %(in millions, except percentages) (in millions, except percentages)General and administrative$ 137.8 $ 122.2 $ 15.6 12.7% $ 122.2 $ 87.3 $ 34.9 40.0% As a percentage of net revenues (*)9.6% 10.0% 10.0% 10.3% (*)Percentages have been calculated using whole-dollar amounts rather than the rounded amounts that appear in the table. The table above may not total due torounding. For the year ended December 31, 2018 the $15.6 million increase in general and administrative expenses when compared to the same period in2017 was primarily attributable to: i) a $9.8 million increase in tax, legal fees and other professional fees; ii) a $4.0 million increase in other generaland administrative expenses, mainly related to stamp tax and certain tax withholdings; iii) a $1.9 million increase in depreciation and amortizationexpenses and iv) a $1.6 million increase in temporary services hired, mainly associated to temporary administrative employees. This increase waspartially offset by a decrease of $2.8 million in salaries and wages.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: i) a $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) $1.6 million increase in tax and other fees and v) a $1.1 million increase in depreciation and amortizationexpenses. Impairment of Long-Lived Assets Years ended Change from 2017 Years ended Change from 2016December 31, to 2018 (*) December 31, to 2017 (*)2018 2017 in Dollars in % 2017 2016 in Dollars in %(in millions, except percentages) (in millions, except percentages)Impairment of Long-Lived Assets$ - $ 2.8 $ (2.8) -100.0% $ 2.8 $ 13.7 $ (10.9) -79.3%As a percentage of net revenues (*)0.0% 0.2% 0.2% 1.6% (*)Percentages have been calculated using whole-dollar amounts rather than the rounded amounts that appear in the table. The table above may not total due torounding.We recorded an impairment of certain real estate offices owned by our Venezuelan subsidiaries of $2.8 million, $13.7 million during the secondquarter of 2017 and the second quarter of 2016, respectively. Loss on deconsolidation of Venezuelan subsidiaries Years ended Change from 2017 Years ended Change from 2016December 31, to 2018 (*) December 31, to 2017 (*)2018 2017 in Dollars in % 2017 2016 in Dollars in %(in millions, except percentages) (in millions, except percentages)Loss on deconsolidation of VenezuelanSubsidiaries$ - $ 85.8 $ (85.8) -100.0% $ 85.8 $ - $ 85.8 100.0% As a percentage of net revenues (*)0.0% 7.0% 7.0% 0.0% (*)Percentages have been calculated using whole-dollar amounts rather than the rounded amounts that appear in the table. The table above may not total due torounding.We deconsolidated our Venezuelan operations effective as of December 1, 2017. As a consequence, we recorded an impairment of $85.8million, including net assets, intercompany balances, accumulated translation differences and intangible assets. Please refer to Note 2 of our auditedconsolidated financial statements for additional detail. 56 Table of Contents Other income (expense), netYears endedChange from 2017Years endedChange from 2016December 31,to 2018 (*)December 31,to 2017 (*)20182017in Dollarsin %20172016in Dollarsin %(in millions, except percentages)(in millions, except percentages)Other income (expense), net$ 4.0$ (2.2)$ 6.2-282.9%$ (2.2)$ 4.3$ (6.5)-151.6%As a percentage of net revenues (*)0.3% -0.2%-0.2%0.5% (*) Percentages have been calculated using whole-dollar amounts rather than the rounded amounts that appear in the table. The table above may not total due to rounding. For the year ended December 31, 2018, the $6.2 million increase in other income/(expenses), net compared to the same period in 2017 wasprimarily attributable to a $39.8 million increase in foreign exchange gain, mainly attributable to higher foreign exchange gains in Argentina of$14.6 million and lower foreign exchange losses in Venezuela, which generated a $25.5 million foreign exchange loss in 2017, before itsdeconsolidation. This foreign exchange gain was partially offset by: i) a $29.8 million increase in financial expenses, mainly attributable tofinancial interest related to the 2028 Notes and financial loans in Argentina, Uruguay and Chile; and ii) a $3.9 million decrease in interest incomefrom our financial investments as a result of Argentine Peso devaluation. For the year ended December 31, 2017, the $6.5 million increase in other (expense)/income, net compared to the gain in the same period in2016 was primarily attributable to a $16.1 million increase in foreign exchange loss, mainly attributable to higher foreign exchange losses inVenezuela and Brazil of $17.8 million and $2.2 million, respectively, and lower foreign exchange gain in Argentina of $3.4 million, partially offsetby a higher foreign exchange gain in Mexico of $7.5 million. This foreign exchange loss was partially offset by a $10.5 million increase in interestincome arising from higher financial investments, mainly in Brazil and Argentina. Income tax Years ended Change from 2017 Years ended Change from 2016December 31, to 2018 (*) December 31, to 2017 (*)2018 2017 in Dollars in % 2017 2016 in Dollars in %(in millions, except percentages) (in millions, except percentages)Income tax gain/(expense)$ 28.9 $ (40.3) $ 69.2 -171.7% $ (40.3) $ (49.0) $ 8.7 -17.7%As a percentage of net revenues (*)2.0% -3.3% -3.3% -5.8% (*)Percentages have been calculated using whole-dollar amounts rather than the rounded amounts that appear in the table. The table above may not total due torounding. During the year ended December 31, 2018 as compared to the same period in 2017, income tax gain/(expense) variation was $69.2 million,mainly as a consequence of higher pre-tax losses recorded in Brazil, mainly attributable to an increase in our operating costs. U.S. and Argentine Tax ReformsPlease see Note 14 to our audited consolidated financial statements for additional information regarding tax reforms in each jurisdiction inwhich we operate.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 attributed primarily to our Argentine operations.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.57 Table of Contents The following table summarizes the changes in our blended and effective tax rate for the years ended December 31, 2018, 2017 and 2016:Years endedDecember 31,201820172016Blended tax rate44.1%74.5%26.4%Effective tax rate-97.3%118.5%30.0%Our blended tax rate for the year ended December 31, 2018 as compared to the same period in 2017, decreased 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, 2017 as compared to the same period in 2016, increased mainly due to theone-time loss recorded in our Venezuelan subsidiaries during the fourth quarter of 2017 related to the deconsolidation of Venezuelan subsidiaries(which is not deductible for tax purposes). Please refer to Note 2 of our audited consolidated financial statements for additional detail.The following table sets forth our effective income tax rate related to our main locations for the years ended December 31, 2018, 2017 and2016: Years endedDecember 31,201820172016Effective tax rate by countryArgentina23.3% 19.5% 19.3% Brazil-89.0%32.2% 26.6% Venezuela --2.3%-1.0%Mexico-0.8%-0.2%-7.0%The increase in the effective income tax rate in our Argentine subsidiaries during the year ended December 31, 2018 as compared to the sameperiod in 2017 was mainly related to lower pre-tax gains and higher non-deductible expenses, mainly associated to the functional currency changerelated to our Argentine operations during the third quarter of 2018.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. For information regarding the benefits granted to the Company under the software development law, please see Note 14 to our auditedconsolidated financial statement. The decrease in our Brazilian effective income tax rate, which was negative for the year ended December 31, 2018, as compared to the sameperiod in 2017, was mainly related to the combined effect of the increase in our pre-tax losses in Brazil at segment level (as a result of an increase inour shipping subsidies described above) and the provision for income tax corresponding to certain subsidiaries with pre-tax gains.The increase in our Mexican negative effective income tax rate for the year ended December 31, 2018, as compared with the same period in2017, was mainly related to the combined effect of the increase in our pre-tax losses in Mexico at segment level (as a result of an increase in ourshipping subsidies described above) and the provision for income tax corresponding to certain subsidiaries with pre-tax gains. Our management considers the earnings of our foreign subsidiaries to be indefinitely reinvested, other than certain earnings of which thedistributions do not imply withholdings, exchange rate differences or state income taxes, and for that reason has not recorded a deferred tax liability.58 Table of Contents Deferred Income TaxThe following table summarizes the composition of our deferred tax assets for the years ended December 31, 2018 and 2017:Year EndedYear EndedDecember 31, (*)December 31, (*)Deferred tax assets2018in %2017in %(in millions, except percentages)(in millions, except percentages)Brazilian operations$65.0 41.4 %$10.1 13.8 %U.S. tax credits & others U.S. deferred tax assets13.7 8.7 13.1 18.0 Operations in other countries8.2 5.2 6.6 9.1 Mexican operations56.9 36.2 29.0 39.9 Chilean operations5.2 3.3 3.4 4.6 Argentine operations8.2 5.2 10.6 14.6 Total$157.2 100.0 %$72.7 100.0 %As of December 31, 2018 and 2017 our deferred tax assets, were comprised mainly of loss carry forwards representing 71.6% and 48.5% of ourtotal deferred tax assets, respectively.The following table summarizes the composition of our deferred tax assets from loss carryforwards for the years ended December 31, 2018 and2017:Year EndedYear EndedDecember 31, (*)December 31, (*)Loss carryforwards2018in %2017in %(in millions, except percentages) (in millions, except percentages) Brazilian operations$51.5 45.7 %$2.7 7.7 %Mexican operations52.2 46.4 26.7 75.7 U.S. loss carry forwards0.2 0.2 0.2 0.6 Chilean operations4.2 3.7 2.3 6.6 Operations in other countries4.5 4.0 3.3 9.4 Total$112.6 100.0 %$35.2 100.0 %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, 2018 and 2017, our valuation allowance amounted to $15.7 million and $15.4 million, respectively.The following table summarizes the composition of our valuation allowance for the years ended December 31, 2018 and 2017:Year EndedYear EndedDecember 31, (*)December 31, (*)Valuation Allowance2018in %2017in %(in millions, except percentages) (in millions, except percentages) U.S. foreign tax credits and non-deductible interest$12.6 80.2 12.1 78.4 %Mexican operations0.0 0.1 %$0.0 0.1 Argentine operations2.2 13.9 3.3 21.5 Chilean operations0.9 5.8 —0.0 Total$15.7 100.0 %$15.4 100.0 %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 $2.2 million and $3.3 million of valuation allowances in Argentina as of December 31, 2018 and 2017, respectively, are a consequence ofmore restrictive requirements to compute doubtful accounts as an income tax deduction.59 Table of Contents The $12.6 million of valuation allowances in the United States as of December 31, 2018, are compossed of the impossibility to offset $11.2million foreign tax credits with future taxable income and $1.4 million related to non-deductible interests.The $0.9 million of valuation allowances in Chile as of December 31, 2018, are a consequence of tax loss carryfowards related to the merge oftwo Chilean subsidiaries, which are not recoverable for the merging subsidiary.Historically, these provisions have adequately provided for our actual income tax liabilities. Our future effective tax rates could be adverselyaffected by earnings being lower than anticipated in countries where we have lower statutory rates and higher than anticipated in countries where wehave higher statutory rates, by changes in the valuations of our deferred tax assets or liabilities, or by changes or interpretations in tax laws,regulations or accounting principles. Segment informationSee Note 7 to our audited consolidated financial statements for detailed description about our reporting segments.(In millions, except for percentages)Year ended December 31, 2018 (*)BrazilArgentinaMexicoVenezuela (**)Other CountriesTotalNet revenues$ 866.2 $ 376.6 $ 109.1 $ — $ 87.8 $ 1,439.7 Direct costs(762.6)(254.5)(164.6) —(79.6)(1,261.4)Direct contribution103.5 122.0 (55.5) —8.2 178.3 Margin12.0% 32.4% -50.9%0.0% 9.4% 12.4% Year ended December 31, 2017 (*)BrazilArgentinaMexicoVenezuelaOther CountriesTotalNet revenues$ 690.8 $ 359.4 $ 51.3 $ 54.3 $ 60.7 $ 1,216.5 Direct costs(471.6)(215.8)(107.4)(22.1)(53.2)(870.1)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 Margin31.7% 39.9% -109.2%-86.9%12.4% 21.9% Change from the year ended December 31, 2018 to December 31, 2017 (*) Brazil Argentina Mexico Venezuela Other Countries TotalNet revenues in Dollars$ 175.4 $ 17.2 $ 57.8 $ (54.3) $ 27.1 $ 223.1 in %25.4% 4.8% 112.5% -100.0% 44.6% 18.3% Direct costs in Dollars$ (291.0) $ (38.7) $ (57.2) $ 22.1 $ (26.4) $ (391.3)in %61.7% 17.9% 53.3% -100.0% 49.6% 45.0% Impairment of Long-Lived Assets in Dollars$ — $ — $ — $ 2.8 $ — $ 2.8 in %0.0% 0.0% 0.0% -100.0% 0.0% -100.0%Loss on Deconsolidation of Venezuelan Subsidiaries in Dollars$ — $ — $ — $ 76.6 $ — $ 76.6 in %0.0% 0.0% 0.0% 100.0% 0.0% 100.0% Direct contribution in Dollars$ (115.7) $ (21.5) $ 0.5 $ 47.2 $ 0.7 $ (88.7)in %-52.8% -15.0% -0.9% -100.0% 9.7% -33.2%(*)Percentages have been calculated using whole-dollar amounts rather than the rounded amounts that appear in the table. The table above may not total due torounding.(**)Venezuelan results have been deconsolidated since December 1, 2017. Please refer to Note 2 of our audited consolidated financial statements for additionaldetail.60 Table of Contents (In millions, except for percentages)Year ended December 31, 2017 (*)BrazilArgentinaMexicoVenezuelaOther CountriesTotalNet revenues$ 690.8 $ 359.4 $ 51.3 $ 54.3 $ 60.7 $ 1,216.5 Direct costs(471.6)(215.8)(107.4)(22.1)(53.2)(870.1)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 Margin31.7% 39.9% -109.2%-86.9%12.4% 21.9% 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% Change from the year ended December 31, 2017 to December 31, 2016 (*)BrazilArgentinaMexicoVenezuelaOther CountriesTotalNet revenuesin Dollars$ 235.8 $ 97.1 $ 5.0 $ 17.1 $ 17.1 $ 372.1 in %51.8% 37.0% 10.8% 46.1% 39.2% 44.1% Direct costsin Dollars$ (200.7)$ (63.7)$ (66.5)$ (4.4)$ (21.8)$ (356.9)in %74.1% 41.9% 162.3% 24.6% 69.2% 69.5% Impairment of Long-Lived Assetsin Dollars$ — $ — $ — $ 10.9 $ — $ 10.9 in %0.0% 0.0% 0.0% -79.3%0.0% -79.3%Loss on Deconsolidation of Venezuelan Subsidiariesin Dollars$ — $ — $ — $ (76.6)$ — $ (76.6)in %0.0% 0.0% 0.0% -100.0%0.0% -100.0%Direct contributionin Dollars$ 35.1 $ 33.4 $ (61.5)$ (53.0)$ (4.5)$ (50.5)in %19.1% 30.3% -1142.0%-923.3%-37.7%-15.9%(*)Percentages have been calculated using whole-dollar amounts rather than the rounded amounts that appear in the table. The table above may not total due torounding.(**)Venezuelan results have been deconsolidated since December 1, 2017. Please refer to Note 2 of our audited consolidated financial statements for additionaldetail.Net revenuesNet revenues for the years ended December 31, 2018, 2017 and 2016 are described above in “Item 7 – Management’s Discussion and Analysisof Financial Condition and Results of Operations – Net revenues”.61 Table of Contents Direct costs, Impairment of Long-Lived Assets and Loss on Deconsolidation of Venezuelan Subsidiaries by SegmentBrazilFor the year ended December 31, 2018 as compared to the same period in 2017, direct costs increased by 61.7%, mainly driven by: i) a 70.6%increase in sales and marketing expenses, mainly due to an increase in online and offline marketing expenses, buyer protection program expenses,bad debt expenses, salaries and wages and chargebacks from credit cards due to the increase in our MercadoPago transaction volume; ii) a 62.4%increase in cost of net revenues, mainly attributable to an increase in collection fees as a consequence of higher MercadoPago transactionvolume,and an increase in cost of products sold as a consequence of higher volumes of MPOS devices, sales tax and salaries and wages related tocustomer service; iii) a 36.1% increase in general and administrative expenses, mainly attributable to an increase in salaries and wages, tax, legal andother professional fees and temporary services expenses; and iv) a 35.7% increase in product and technology development expenses, mainly due toan increase in depreciation and amortizacion expenses and other product and technology development expenses.For the year ended December 31, 2017 as compared to the same period in 2016, direct costs increased by 74.1%, mainly driven by: i) a 105.2%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 transaction volume, salaries and wages, and buyer protection program expenses; ii) a 72.1% increase in cost of net revenues,mainly attributable to an increase in collection fees as a consequence of higher MercadoPago transaction volume, sales tax, cost of product sold as aconsequence of higher volumes of MPOS devices sold and salaries and wages; iii) a 37.0% increase in product and technology developmentexpenses, mainly due to an increase in depreciation and amortizacion expenses and other product and technology development expenses; and iv) a23.7% increase in general and administrative expenses, mainly attributable to increases in salaries and wages and legal fees.ArgentinaFor the year ended December 31, 2018 as compared to the same period in 2017, direct costs increased by 17.9%, mainly driven by: i) a 35.3%increase in sales and marketing expenses, mainly due to an increase in online and offline marketing expenses, buyer protection program expenses, chargebacks from credit cards due to the increase in our MercadoPago transaction volume, bad debt expenses and salaries and wages; ii) an 11.2%increase in cost of net revenues, mainly attributable to an increase in collection fees as a consequence of a higher MercadoPago transaction volume,sales taxes and cost of products sold as a consequence of higher volumes of MPOS devices; iii) an 8.6% increase in product and technologydevelopment expenses, mainly due to an increase in depreciation and amortization expenses and iv) an 84.3% increase in general and administrativeexpenses, mainly attributable to an increase in tax and legal fees.For 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 transaction volume, buyer protection program expenses and salaries and wages; ii) a 34.4% increase in cost of netrevenues, mainly attributable to an increase in collection fees as a consequence of a higher MercadoPago transaction volume, customer support,sales taxes costs and cost of product sold as a consequence of higher volumes of MPOS devices sold; iii) a 70.6% increase in product andtechnology development expenses, mainly due to higher depreciation and amortization expenses; and iv) a 14.1% increase in general andadministrative expenses.MexicoFor the year ended December 31, 2018 as compared to the same period in 2017, direct costs increased by 53.3%, mainly driven by: i) a 135.9%increase in cost of net revenues, mainly attributable to an increase in collection fees due to higher MercadoPago penetration, shipping carrier andoperating costs (including warehousing expenses), customer support costs and cost of products sold as a consequence of higher volumes of MPOSdevices; ii) a 28.0% increase in sales and marketing expenses, mainly due to increases in online and offline marketing expenses, buyer protectionprogram expenses, chargebacks from credit cards due to the increase in our MercadoPago transaction volume and salaries and wages; and iii) a72.0% increase in product and technology development expenses, mainly attributable to depreciation and amortization.For the year ended December 31, 2017 as compared to the same period in 2016, direct costs increased by 162.3%, mainly driven by: i) a266.0% increase in sales and marketing expenses, mainly due to increases in online marketing expenses; ii) a 102.2% increase in cost of netrevenues, mainly attributable to an increase in shipping costs as a consequence of our free shipping strategy, an increase in collection fees due tohigher MercadoPago transaction volume and customer support costs 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.VenezuelaWe deconsolidated our Venezuelan’s operations effective as of December 1, 2017 and recorded an impairment of $85.8 million, of which $76.6million are included as direct costs, and relates to the company’s investment in Venezuela, including net assets, intangibles accumulated translationdifferences and $9.1 million are related to intercompany balances. Please refer to note 2 from our audited consolidated financial statements foradditional detail.62 Table of Contents During the second quarter of 2017 and 2016, we recorded impairments of long-lived and other non-current assets of $2.8 million and $13.7million, respectively, in our Venezuelan subsidiaries.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. Liquidity and Capital ResourcesOur main cash requirement historically has been working capital to fund MercadoPago financing operations. We also require cash for capitalexpenditures relating to technology infrastructure, software applications, office space, business acquisitions, and to fund our credit business and theinterest payments on our issued Convertible Notes.Since our inception, we have funded our operations primarily through contributions received from our stockholders during the first two years ofoperations, funds raised from our initial public offering, and from cash generated from our operations. As discussed above under “CriticalAccounting Policies and Estimates”, we issued the 2019 Notes and 2028 Notes for net proceeds of approximately $321.7 million and $864.6million, respectively. We have funded MercadoPago mainly by discounting credit card receivables and credit lines.Additionally, we started to fund our MercadoCredito business through securitization of certain loans receivable through SPEs created in Braziland Argentina, formed to securitize loans receivable provided by us to our users. We will be using this alternative funding as the MercadoCreditobusiness requires financing to develop and improve its operations. Please refer to Note 22 of our audited consolidated financial statements for furtherdetail on securitization transactions.As of December 31, 2018, our main source of liquidity, amounting to $617.6 million of cash and cash equivalents and short-term investments(which excludes $284.3 million regarding Central Bank of Brazil mandatory guarantee) and $276.1 million of long-term investments, consists ofcash generated from operations and from the issuance of the Convertible Notes. We consider our long-term investments as part of our liquiditybecause long-term investments are comprised of available-for-sale securities classified as long-term as a consequence of their contractual maturities.We have funded MercadoPago, mainly, by discounting credit cards receivable and loans backed with credit cards receivable.The significant components of our working capital are cash and cash equivalents, restricted cash and cash equivalents, short-term investments,accounts receivable, credit cards receivable, loans receivable, accounts payable and accrued expenses, funds receivable from and payable toMercadoPago users, and short-term debt.As of December 31, 2018, cash and investments of our non-U.S. subsidiaries amounted to $734.5 million, representing 61.1% of ourconsolidated cash, restricted cash and cash equivalents and investments and our cash and investments held outside U.S. amounted to 54.5% of ourconsolidated cash and investments. Our non-U.S. dollar-denominated cash and investments are located primarily in Brazil and Argentina. In the event we change the way we manage our business, our working capital needs could be funded, as in the past, through a combination ofthe sale of credit card coupons to financial institutions and securitization of financial assets through a special purpose vehicle, such as a trust.The following table presents our cash flows from operating activities, investing activities and financing activities for the years endedDecember 31, 2018, 2017 and 2016:Years endedDecember 31, (*)(In millions)201820172016Net cash provided by (used in):Operating activities$ 230.9$ 269.0$ 190.3Investing activities(672.5)(22.6)(84.2)Financing activities608.9 (50.9)(19.7)Effect of exchange rates on cash and cash equivalents(90.9)(41.3)(19.1)Net increase in cash and cash equivalents$ 76.4$ 154.1$ 67.3(*)Percentages have been calculated using whole-dollar amounts rather than the rounded amounts that appear in the table.63 Table of Contents Net cash provided by operating activitiesCash provided by operating activities consists of net (loss)/income adjusted for certain non-cash items, and the effect of changes in workingcapital and other activities: Years ended Change from December 31, 2017 to 2018 (*) 2018 2017 in Dollars in % (in millions, except percentages)Net Cash provided by: Operating activities $ 230.9 $ 269.0 $ (38.1) -14.2%The(*)Percentages have been calculated using whole-dollar amounts rather than the rounded amounts that appear in the table.The $38.1 million decrease in net cash provided by operating activities during the year ended December 31, 2018, as compared to the sameperiod in 2017, was primarily driven by a $85.8 million decrease related to the Venezuela’s deconsolidation in 2017, a $68.0 million decreaserelated to deferred income taxes, a $66.6 decrease in funds payable to customers, a $60.1 million decrease in accounts payable and accruedexpenses, a $50.4 million decrease in our net income, and a $32.0 million decrease in prepaid expenses, partially offset by a $300.2 million increasein credit card receivables and a $20.5 million increase in other liabilities.Years endedChange fromDecember 31,2016 to 2017 (*)20172016in Dollarsin %(in millions, except percentages)Net Cash provided by:Operating activities$ 269.0$ 190.3$ 78.841.4% (*)Percentages have been calculated using whole-dollar amounts rather than the rounded amounts that appear in the table.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 million increase in accounts payable and accrued expenses and a $78.0 million increase in fundspayable to customers of MercadoPago in credit card receivables. This increase was partially offset by a $77.0 million decrease in credit cardreceivables and a $30.4 million decrease in other assets.Net cash used in investing activities Years ended Change from December 31, 2017 to 2018 (*) 2018 2017 in Dollars in % (in millions, except percentages)Net Cash (used in): Investing activities $ (672.5) $ (22.6) $ (649.8) 2870.1% (*)Percentages have been calculated using whole-dollar amounts rather than the rounded amounts that appear in the table.Net cash used in investing activities in the year ended December 31, 2018 resulted mainly from purchases of investments of $3,176.1 million,partially offset by proceeds from the sale and maturity of investments of $2,662.8 million, as part of our financial strategy. We used $57.2 million inprincipal loans receivable granted to merchants under our MercadoCredito solution; $93.1 million in the purchase of property and equipment(mainly in our Argentine, Mexican and Brazilian offices and in information technology in Argentina, Mexico and Brazil); $4.4 million in advancesfor property and equipment (mainly offices in Argentina) and $4.2 million to fund the acquisitions of Machinalis S.R.L., Kaitzen S.A. and KinexoS.A. in Argentina (see note 6 to our audited consolidated financial statements).64 Table of Contents Years ended Change from December 31, 2016 to 2017 (*) 2017 2016 in Dollars in % (in millions, except percentages)Net Cash (used in): Investing activities $ (22.6) $ (84.2) $ 61.6 -73.1%(*)Percentages have been calculated using whole-dollar amounts rather than the rounded amounts that appear in the table.Net cash used 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 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), and $8.6 million to fund the acquisitions of Ecommet Software Ltda. (see note 6 to ouraudited consolidated financial statements).Net cash provided by (used in) financing activities Years ended Change from December 31, 2017 to 2018 (*) 2018 2017 in Dollars in % (in millions, except percentages)Net Cash provided by (used in): Financing activities $ 608.9 $ (50.9) $ 659.8 1296.2% (*)Percentages have been calculated using whole-dollar amounts rather than the rounded amounts that appear in the table.For the year ended December 31, 2018, our cash provided by financing activities was primarily derived from $880.0 million in funds receivedfrom the issuance of the 2028 Notes, $236.9 million from loans payable, $136.1 million related to the partial unwinding of the 2019 Notes CappedCall Transactions. This increase in net cash from financing activities was partially offset by $348.1 million in payments from the exchange of the2019 Notes, $148.9 million used to fund the portion of the 2019 Capped Call Transactions purchased in 2018 and the 2028 Notes Capped CallTransactions, $123.8 million for payments on loans payable, $16.3 million related to transactional costs arising from the issuance of the 2028 Notes,$6.6 million in cash dividends and $0.3 million in payments under finance lease obligations. 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 the 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).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. 65 Table of Contents DebtConvertible Senior NotesOn June 30, 2014, we issued $330 million of 2.25% Convertible Senior Notes due 2019. The 2019 Notes are unsecured, unsubordinatedobligations of the Company, which pay interest in cash semi-annually, on January 1 and July 1 of each year, at a rate of 2.25% per annum. The 2019Notes will mature on July 1, 2019 unless earlier repurchased or converted in accordance with their terms prior to such date. The 2019 Notes may beconverted, under specific conditions, based on an initial conversion rate of 7.9353 shares of common stock per $1,000 principal amount of the 2019Notes (equivalent to an initial conversion price of $126.02 per share of common stock), subject to adjustment as described in the indenturegoverning the Notes.On August 24, 2018, we issued $800 million of 2.00% Convertible Senior Notes due 2028 and on August 31, 2018 we issued an additional$80 million of notes pursuant to the partial exercise of the initial purchasers’ option to purchase such additional notes, resulting in an aggregateprincipal amount of $880 million of 2.00% Convertible Senior Notes due 2028. The 2028 Notes are unsecured, unsubordinated obligations of us,which pay interest in cash semi-annually, on February 15 and August 15 of each year, at a rate of 2.00% per annum. The 2028 Notes will matureon August 15, 2028 unless earlier repurchased or converted in accordance with their terms prior to such date. The 2028 Notes may be converted,under specific conditions, based on an initial conversion rate of 2.2553 shares of common stock per $1,000 principal amount of the 2028 Notes(equivalent to an initial conversion price of $443.40 per share of common stock), subject to adjustment as described in the indenture governing the2028 Notes.Please refer to Notes 2 and 17 to our audited consolidated financial statements for additional information regarding the 2019 Notes, the 2028Notes and the related capped call transactions.MercadoPago FundingDuring 2018, we, through our subsidiaries, obtained certain lines of credit in Argentina, Chile and Uruguay primarily to fund the MercadoPagobusiness. Additionally, we started to securitize certain loans receivable through the Argentine and Brazilian SPEs, formed to securitize loanreceivables provided by us to our users. Please refer to Note 22 to our audited consolidated financial statements for additional detail.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 rather than issuing a dividend. Consequently, thedecision has 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 inmultiple projects in our various platforms. Any future determination as to the declaration of dividends on our common stock will be made at thediscretion of our Board of Directors and will depend on our earnings, operating and financial condition, capital requirements and other factorsdeemed relevant by our 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 (as fulfillment centers), intangible assets and acquiredbusinesses) for the years ended December 31, 2018 and 2017 amounted to $102.0 million and $83.5 million, respectively.We invested $55.5 million and $6.0 million across our Argentine, Mexican, Brazilian and Uruguayan offices during the years ended December31, 2018 and 2017, respectively. We also invested $54.7 million and $46.0 million, respectively, in Information Technology, which wasconcentrated across Brazil, Argentina and Mexico.We are continuing to increase our level of investment in hardware and software licenses necessary to improve and update our platform’stechnology and our internally-developed software. We anticipate continued investments in capital expenditures related to information technologyin the future as we 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, 2018 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.66 Table of Contents 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, 2018 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)$1,245.3 $154.4 $87.6 $35.2 $968.0 Finance Lease Obligations9.6 1.9 3.6 3.4 0.7 Operating lease obligations (2)381.5 32.6 78.6 74.9 195.3 Purchase obligations169.0 64.3 72.6 32.1 —Total$1,805.3 $253.2 $242.5 $145.6 $1,164.1 h (*)The table above may not total due to rounding.(1)Includes principal and interest amounts. For additional details regarding our loans payable, 2019 Notes and 2028 Notes and collateralized debt securitization, please seeNote 15, 17 and 22 to our audited consolidated financial statements, respectively. (2)Includes leases of office space and fulfillment centers.We have leases for office space and fulfillment centers in certain countries in which we operate. Purchase obligation amounts include minimumpurchase commitments for advertising, capital expenditures (technological equipment and software licenses) and other goods and services that wereentered into in the ordinary course of business. We have developed estimates to project payment obligations based upon historical trends, whenavailable, and our anticipated future obligations. Given the significance of performance requirements within our advertising and other arrangements,actual payments could differ significantly from these estimates. Item 7A. Quantitative and Qualitative Disclosures About Market RiskWe are exposed to market risks arising from our business operations. These market risks arise mainly from the possibility that changes ininterest rates and the U.S. dollar exchange rate with local currencies, particularly the Brazilian Real and Argentine Peso due to Brazil’s andArgentine’s respective share of our revenues, may affect the value of our financial assets and liabilities.We are also exposed to market risks arising from our long-term retention plans (“LTRPs”). These market risks arise from our obligations to payemployees cash payments in amounts that vary based on the market price of our stock.Foreign currenciesAs of December 31, 2018, we hold cash and cash equivalents and short-term investments in local currencies in our subsidiaries, and havereceivables denominated in local currencies in all of our operations. Our subsidiaries generate revenues and incur most of their expenses in therespective local currencies of the countries in which they operate. As a result, our subsidiaries use their local currency as their functional currencyexcept for our Argentine subsidiaries whose functional currency is the U.S. dollar due to the highly inflationary environment. As of December 31,2018, the total cash and cash equivalents denominated in foreign currencies totaled $288.7 million, short-term investments denominated in foreigncurrencies totaled $342.6 million and accounts receivable, credit cards receivable and loans receivable in foreign currencies totaled $395.2 million.As of December 31, 2018, we had no long-term investments denominated in foreign currencies. To manage exchange rate risk, our treasury policy isto transfer most cash and cash equivalents in excess of working capital requirements into U.S. dollar-denominated accounts in the United States. Asof December 31, 2018, our U.S. dollar-denominated cash and cash equivalents and short-term investments totaled $294.9 million and our U.S.dollar-denominated long-term investments totaled $276.1 million. For the year ended December 31, 2018, we had a consolidated gain on foreigncurrency of $18.2 million mainly as a consequence of a $19.0 million gain on foreign exchange in our Argentine subsidiaries, partially offset by a$0.5 million and $0.4 million loss on forex exchange in our Mexican and Brazilian subsidiaries, respectively. (See “Management’s Discussion andAnalysis of Financial Condition and Results of Operations—Results of operations—Other income (expenses), net” for more information). Please see Note 2 to our audited consolidated financial statements for further detail on Argentina’s functional currency change.67 Table of Contents The following table sets forth the percentage of consolidated net revenues by segment for the years ended December 31, 2018, 2017 and 2016: Years ended December 31,(% of total consolidated net revenues) (*)(**) 2018 2017 2016 Brazil 60.2 % 56.8 %53.9 %Argentina 26.2 29.5 31.1 Mexico 7.6 4.2 5.5 Venezuela (***) — 4.5 4.4 Other Countries 6.1 5.0 5.2 (*)Percentages have been calculated using whole-dollar amounts rather than rounded amounts that appear in the table. The table above may not total due to rounding.(**)The amount incurred in shipping subsidies, which under ASC 606 are netted from revenues when we act as an agent, were $424.8 million and $181.6 million for theyear ended ended December 31, 2018 and 2017, respectively. No shipping subsidies were provided in 2016. Please refer to Note 2 of our audited consolidatedfinancial statements for additional detail. (***)Venezuelan revenues have been deconsolidated since December 1, 2017. Please refer to Note 2 of our audited consolidated financial statements for additional detail.Foreign Currency Sensitivity AnalysisThe table below shows the impact on our net revenues, expenses, other expenses and income tax, net loss and equity for a positive and anegative 10% fluctuation on all the foreign currencies to which we are exposed to as of December 31, 2018 and for the year then ended: Foreign Currency Sensitivity Analysis (*)(In millions) -10%Actual+10% (1) (2)Net revenues $ 1,599.5$ 1,439.7$ 1,308.9Expenses (1,677.1)(1,509.1)(1,371.7)Loss from operations (77.6)(69.5)(62.8) Other expenses and income tax related to P&L items 18.3 14.7 11.7 Foreign Currency impact related to the remeasurement of our Net Assetposition 20.3 18.2 16.5 Net Loss (39.0)(36.6)(34.6) Total Shareholders' Equity $ 416.0$ 336.7$ 283.7(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 loss when the U.S. dollar weakens against foreign currencies because of the net negative impact ofthe re-measurement of our net asset position in foreign currencies and the increase in our loss from operations and other expenses, net and incometax lines related to the translation effect. Similarly, the table above shows a decrease in our net loss when the U.S. dollar strengthens against foreigncurrencies because the re-measurement of our net asset position in foreign currencies has a lesser impact than the decrease in our loss from operationsand other expenses, net and income tax lines related to the translation effect.During 2018, we entered into hedging transactions in Brazil and Chile in order to reduce the volatility of earnings and cash flows associatedwith changes in foreign currency exchange rates. These financial instruments were cancelled as of December 31, 2018. During 2017, we did notentered into any such hedging transactions. Argentine SegmentIn accordance with U.S. GAAP, we have classified our Argentine operations as highly inflationary since July 1, 2018, using the U.S. dollar asthe functional currency for purposes of reporting our financial statements. Therefore, no translation effect has been accounted for in othercomprehensive income related to our Argentine operations since July 1, 2018. 68 Table of Contents Had a hypothetical devaluation of 10% of the Argentine Peso against the U.S. dollar occurred on December 31, 2018, the reported net asset inour Argentine subsidiaries, before intercompany eliminations, would have recorded a foreign exchange loss amounting to $4.7 million. 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 Argentine segment.Brazilian SegmentHad a hypothetical increase in the Brazilian Reais exchange rate against the U.S. dollar of 10% occurred on December 31, 2018, the reportednet assets in our Brazilian subsidiaries, before intercompany eliminations, would have decreased by $22.5 million with the related impact in OtherComprehensive Income. Additionally, we would have recorded a foreign exchange gain amounting to $2.4 million in our Brazilian subsidiaries.InterestOur earnings and cash flows are also affected by changes in interest rates. These changes could have an impact on the interest rates thatfinancial institutions charge us prior to the time we sell our credit cards receivable. As of December 31, 2018, MercadoPago’s funds receivable fromcredit cards totaled $360.3 million. Interest rate fluctuations could also impact interest earned through our MercadoCredito solution. As ofDecember 31, 2018, loans granted under our MercadoCredito solution totaled $95.8 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 31,2018, the average duration of our available for sale debt securities, defined as the approximate percentage change in price for a 100-basis-pointchange in yield, was 1.3%. If interest rates were to instantaneously increase (decrease) by 100 basis points, the fair market value of our available forsale debt securities as of December 31, 2018 could decrease (increase) by $5.2 million.As of December 31, 2018, our short-term investments amounted to $461.5 million and our long-term investments amounted to $276.1 million.These investments, except for the $284.3 million included in short-term investment related to the Central Bank of Brazil Mandatory Guarantee, canbe readily converted at any time into cash or into securities with a shorter remaining time to maturity. We determine the appropriate classification ofour 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 2011 and 2012 long-term retention plans (the “2011 and 2012 LTRPs), under which certain employees areeligible to receive cash awards (“LTRP Awards”), which are payable as follows:·the eligible employee will receive a fixed payment equal to 6.25% of his or her LTRP Award under the 2011, and/or 2012 LTRP,respectively, once a year for a period of eight years. The 2011 LTRP awards began paying out starting in 2012, the 2012 LTRP Awardsstarting in 2013(the “2011 or 2012 Annual Fixed Payment”, respectively); and·on each date we pay the respective Annual Fixed Payment to an eligible employee, he or she will also receive a payment (the “2011 or2012 Variable Payment”, respectively) equal to the product of (i) 6.25% of the applicable 2011 and/or 2012 LTRP Award and (ii) thequotient of (a) divided by (b), where (a), the numerator, equals the Applicable Year Stock Price (as defined below) and (b), thedenominator, equals the 2010 (with respect to the 2011 LTRP) and 2011 (with respect to the 2012 LTRP) Stock Price, ($65.41 and$77.77 for the 2011 and 2012 LTRP, respectively, which was the average closing price of the Company’s common stock on the NASDAQGlobal Select Market during the final 60 trading days of 2010 and 2011, respectively. The “Applicable Year Stock Price” equals theaverage closing price of the Company’s common stock on the NASDAQ Global Select Market during the final 60 trading days of the yearpreceding the applicable payment date.Our board of directors, upon the recommendation of the compensation committee, approved the 2013, 2014, 2015, 2016, 2017 and 2018 LongTerm Retention Plan (the “2013, 2014, 2015, 2016, 2017 and 2018 LTRPs”), respectively.In order to receive an award under the 2013, 2014, 2015, 2016, 2017 and/or 2018 LTRP, each eligible employee must satisfy the performanceconditions established 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 2013, 2014, 2015, 2016, 2017 and/or 2018 LTRPaward, payable as follows:·the eligible employee will receive a fixed payment, equal to 8.333% of his or her 2013, 2014, 2015, 2016, 2017 and/or 2018 LTRPbonus once a year for a period of six years starting in March 2014, 2015, 2016, 2017, 2018 and/or 2019 respectively (the “2013, 2014,2015, 2016, 2017 or 2018 Annual Fixed Payment”, respectively); and69 Table of Contents ·on each date we pay the Annual Fixed Payment to an eligible employee, he or she will also receive a payment (the “2013, 2014, 2015,2016, 2017 or 2018 Variable Payment”, respectively) equal to the product of (i) 8.333% of the applicable 2013, 2014, 2015, 2016, 2017and/or 2018 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 2012 (with respect to the 2013 LTRP), 2013 (with respect to the 2014 LTRP), 2014(with respect to the 2015 LTRP), 2015 (with respect to the 2016 LTRP), 2016 (with respect to the 2017 LTRP) and 2017 (with respect tothe 2018 LTRP) Stock Price, defined as $79.57, $118.48, $127.29, $111.02, $164.17 and $270.84 for the 2013, 2014, 2015, 2016, 2017and 2018 LTRP, respectively, which was the average closing price of our common stock on the NASDAQ Global Select Market duringthe final 60 trading days of 2012, 2013, 2014, 2015, 2016 and 2017, respectively. The “Applicable Year Stock Price” shall equal theaverage closing price of our common stock on the NASDAQ Global Select Market during the final 60 trading days of the year precedingthe applicable payment date.As of December 31, 2018, the total contractual obligation fair value of our outstanding LTRP Variable Award Payment obligation amounted to$63.3 million. As of December 31, 2018, the accrued liability related to the outstanding Variable Award Payment of the LTRP included in Salariesand Social security payable in our consolidated balance sheet amounted to $42.6 million. The following table shows a sensitivity analysis of therisk associated with our total contractual obligation fair value related to the outstanding LTRP Variable Award Payment if our common stock priceper share were to increase or decrease by up to 40%: As of December 31, 2018 MercadoLibre, Inc 2011, 2012, 2013, 2014, 2015, 2016, 2017 and 2018 Equity Price LTRP Variable Award contractual obligation(In thousands, except equity price) Change in equity price in percentage 40% 452.07 88,604 30% 419.78 82,275 20% 387.49 75,946 10% 355.20 69,618 Static(*)322.91 63,289 -10% 290.62 56,960 -20% 258.33 50,631 -30% 226.04 44,302 -40% 193.74 37,973 (*)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.70 Table of Contents Changes in Internal Control over Financial ReportingThere were no changes in our internal controls over financial reporting as defined in Exchange Act Rule 13a-15(f) that occurred during our mostrecently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financialreporting.Management’s Report on Internal Control over Financial ReportingOur Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) to provide reasonable assurance regarding the reliability of our financial reporting and the preparationof financial statements for external purposes in accordance with U.S. generally accepted accounting principles.Our Management, including our Chief Executive Officer and our Chief Financial Officer, conducted an evaluation of the effectiveness of ourinternal control over financial reporting based on the framework in Internal Control Integrated Framework updated by the Committee of 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, 2018 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, 2018 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, 2019. 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, 2019.71 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, 2019.The following table represents information as of December 31, 2018 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 of securitiesto be issued uponexercise of outstandingoptions, Warrantsand Rights Weighted-averageexercise price ofoutstanding options,Warrants andrights Number of securitiesremaining available forfuture issuance underequitycompensation plans(excluding securitiesreflected in column (a)) (a) (b) (c) Equity compensation plans approved by security holders (1) — — 232,825 Total — — 232,825 (1) Represents our 2009 Equity Compensation which was approved by our stockholders on June 10, 2009.Description of 2009 Equity Compensation Plan (the “2009 Plan”)Our 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, 2018,there were no outstanding options to purchase shares of common stock under the 2009 Plan.No stock options were granted during the period from January 1, 2007 to December 31, 2018 and there were no stock-based compensationexpenses related to stock options for the years ended December 31, 2018, 2017 and 2016. There is no stock option award outstanding under the2009 Plan. As of December 31, 2018, there were 232,825 shares of common stock available for additional awards 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 of72 Table of Contents alcohol or drugs that interfered with the performance of the participant’s duties, the conviction of participant for committing a felony or similarforeign crime, and any other cause for termination set forth in a participant’s employment agreement. An option terminates 10 days after aparticipant ceases to be an independent consultant, contractor or advisor to us or agent of ours for any reason. It also terminates three months afterthe death or permanent disability of a participant, or, if the participant is a party to an employment agreement, the disability of such participant asdefined in the employment agreement. Other reasons for termination may be set out in the Award Agreement.An option will not be considered an incentive stock option to the extent that the aggregate fair market value (on the date of the grant of theincentive stock option) of all stock with respect to which incentive stock options are exercisable for the first time by a participant during anycalendar year is greater than $100,000. No option shall be affected by a change of duties or position of a participant (including transfer to oursubsidiaries) as long as the participant continues to be our employee or an employee of our subsidiaries.Adjustments upon the occurrence of material transactions. In the event we undergo dissolution or liquidation, a reorganization, merger orconsolidation in which we are not the surviving entity, or a sale of all or substantially all of our assets (each, a “Material Transaction”) holders ofoptions will be given 10-day prior written notice and will decide within those 10 days whether to exercise their respective options. Any option thatis not so exercised will terminate. However, such notice and exercise mechanism would not apply if provision is made in connection with a MaterialTransaction for assumption of outstanding options, or substitution of options for new options or equity securities, with any appropriate adjustmentsas to the number, kind and prices of shares subject to options.Transferability . Unless the prior written consent of the administrator is obtained, no option can be assigned or otherwise transferred by anyparticipant except by will or by the laws of descent and distribution. Except in the case of an approved transfer, an option may be exercised duringthe lifetime of a participant only by the participant or his/her legal representative if the participant is legally disabled.Restricted stock . Restricted stock awards are awards of shares of common stock that vest according to the terms and conditions established bythe administrator. The administrator may impose whatever restrictions on transferability, risk of forfeiture and other restrictions as it determines. Aholder of restricted stock has the rights of a stockholder, including the right to vote the restricted stock. During the restricted period applicable to therestricted stock, it may not be sold, transferred, pledged, hypothecated, margined or otherwise encumbered. Except as otherwise determined by theadministrator, restricted stock that is subject to restrictions is subject to forfeiture upon termination of a participant’s employment.Amendment . Our board of directors may modify the 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 2019 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 2019 Proxy Statement to befiled with the SEC is incorporated herein by reference. 73 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, 2018 and 2017 3 Consolidated statements of income for the years ended December 31, 2018, 2017 and 2016 4 Consolidated statements of comprehensive income for the years ended December 31, 2018, 2017 and 2016 5 Consolidated statements of equity for the years ended December 31, 2018, 2017 and 2016 6 Consolidated statements of cash flows for the years ended December 31, 2018, 2017 and 2016 7 Notes to consolidated financial statements9 (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)4.04 Indenture with respect to the Registrant’s 2.00% Convertible Senior Notes due 2028, dated as of August 24, 2018, between theRegistrant and Wilmington Trust, National Association, as trustee. (7)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 (8)10.08 Base Call Option Transaction Confirmation, dated as of June 24, 2014, between MercadoLibre and Bank of America, N.A. (9)10.09 Base Call Option Transaction Confirmation, dated as of June 24, 2014, between MercadoLibre and Citibank N.A. (10)10.10 Base Call Option Transaction Confirmation, dated as of June 24, 2014, between MercadoLibre and Deutsche Bank AG, LondonBranch (11)10.11 Additional Call Option Transaction Confirmation, dated as of June 27, 2014, between MercadoLibre and JPMorgan Chase Bank,National Association, London Branch (12)74 Table of Contents 10.12 Additional Call Option Transaction Confirmation, dated as of June 27, 2014, between MercadoLibre and Bank of America, N.A. (13)10.13 Additional Call Option Transaction Confirmation, dated as of June 27, 2014, between MercadoLibre and Citibank N.A. (14)10.14 Additional Call Option Transaction Confirmation, dated as of June 27, 2014, between MercadoLibre and Deutsche Bank AG, LondonBranch (15)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 (16)10.16 Amended and Restated 2009 Long-Term Retention Plan (17)10.17 Amended and Restated 2010 Long-Term Retention Plan (17)10.18 Amended and Restated 2011 Long-Term Retention Plan (17)10.19 Amended and Restated 2012 Long-Term Retention Plan (17)10.20 Amended and Restated 2013 Long-Term Retention Plan (17)10.21 Amended and Restated 2014 Long-Term Retention Plan (17)10.22 Amended and Restated 2015 Long-Term Retention Plan (17)10.23 2016 Long-Term Retention Plan (17)10.24 2017 Long-Term Retention Plan (18)10.25 2018 Long-Term Retention Plan (19)10.26 MercadoLibre Inc. 2016 Director Compensation Program (17)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* * 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 the Registrant’s Current Report on form 8-K filed on August 24, 2018(8) Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 30, 2014(9) Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on June 30, 2014(10) Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on June 30, 2014(11) Incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on June 30, 2014(12) Incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on June 30, 2014(13) Incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed on June 30, 2014(14) Incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K filed on June 30, 2014(15) Incorporated by reference to Exhibit 10.8 to the Company’s Current Report on Form 8-K filed on June 30, 2014(16) Incorporated by reference to Exhibit 1.1 to the Company’s Current Report on Form 8-K filed on June 30, 2014(17) 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(18) Incorporated by reference to the Company’s Current Report on Form 8-K filed on April 7, 2017(19) Incorporated by reference to the Company’s Current Report on Form 8-K filed on August 24, 201875 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 28, 2019Pursuant 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 28, 2019 /s/ Pedro ArntPedro Arnt Chief Financial Officer (Principal Financial Officer and PrincipalAccounting Officer) February 28, 2019 /s/ Mario VazquezMario Vazquez Director February 28, 2019 /s/ Susan SegalSusan Segal Director February 28, 2019 /s/ Nicolás AguzinNicolás Aguzin Director February 28, 2019 /s/ Nicolás GalperinNicolás Galperin Director February 28, 2019 /s/ Emiliano CalemzukEmiliano Calemzuk Director February 28, 2019 /s/ Meyer MalkaMeyer Malka Director February 28, 2019 /s/ Javier OlivanJavier Olivan Director February 28, 2019/s/ Roberto Balls SalloutiRoberto Balls Sallouti Director February 28, 2019 76 Table of Contents MercadoLibre, Inc.Consolidated Financial Statementsas of December 31, 2018 and 2017and for the three years in the periodended December 31, 20181 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, 2018and 2017, the related consolidated statements of income, comprehensive income, equity, and cash flows, for each of the three years in the periodended December 31, 2018, 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, 2018, 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, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018,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, 2018, 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.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 28, 2019We have served as the Company's auditor since 2010.2 Table of Contents MercadoLibre, Inc.Consolidated Balance SheetsAs of December 31, 2018 and 2017(In thousands of U.S. dollars, except par value) December 31, December 31,2018 2017Assets Current assets: Cash and cash equivalents$ 440,332 $ 388,260Restricted cash and cash equivalents24,363 —Short-term investments (284,317 held in guarantee - see Note 4)461,541 209,432 Accounts receivable, net35,153 28,168 Credit cards receivable, net360,298 521,130 Loans receivable, net95,778 73,409 Prepaid expenses27,477 5,864 Inventory4,612 2,549 Other assets61,569 58,107 Total current assets1,511,123 1,286,919 Non-current assets: Long-term investments276,136 34,720 Property and equipment, net165,614 114,837 Goodwill88,883 92,279 Intangible assets, net18,581 23,174 Deferred tax assets141,438 57,324 Other assets37,744 63,934 Total non-current assets728,396 386,268 Total assets$ 2,239,519 $ 1,673,187 Liabilities and Equity Current liabilities: Accounts payable and accrued expenses$ 266,759 $ 221,095Funds payable to customers640,954 583,107 Salaries and social security payable60,406 65,053 Taxes payable31,058 32,150 Loans payable and other financial liabilities132,949 56,325 Other liabilities34,098 3,678 Dividends payable — 6,624 Total current liabilities1,166,224 968,032 Non-current liabilities: Salaries and social security payable23,161 25,002 Loans payable and other financial liabilities602,228 312,089 Deferred tax liabilities91,698 23,819 Other liabilities19,508 18,466 Total non-current liabilities736,595 379,376 Total liabilities$ 1,902,819 $ 1,347,408 Equity: Common stock, $0.001 par value, 110,000,000 shares authorized, 45,202,859 and 44,157,364 shares issued and outstanding at December 31, 2018 and December 31, 2017$ 45 $ 44Additional paid-in capital224,800 70,661 Retained earnings503,432 537,925 Accumulated other comprehensive loss(391,577) (282,851)Total Equity336,700 325,779 Total Liabilities and Equity$ 2,239,519 $ 1,673,187The accompanying notes are an integral part of these consolidated financial statements.3 Table of Contents MercadoLibre, Inc.Consolidated Statements of IncomeFor the years ended December 31, 2018, 2017 and 2016(In thousands of U.S. dollars, except for share data) Year Ended December 31,201820172016Net revenues$ 1,439,653$ 1,216,542$ 844,396Cost of net revenues(742,645)(496,942)(307,538)Gross profit697,008 719,600 536,858 Operating expenses:Product and technology development(146,273)(127,160)(98,479)Sales and marketing(482,447)(325,375)(156,296)General and administrative(137,770)(122,194)(87,310)Impairment of Long-Lived Assets —(2,837)(13,717)Loss on deconsolidation of Venezuelan subsidiaries —(85,761) —Total operating expenses(766,490)(663,327)(355,802)(Loss) income from operations(69,482)56,273 181,056 Other income (expenses):Interest income and other financial gains42,039 45,901 35,442 Interest expense and other financial losses(56,249)(26,469)(25,605)Foreign currency gains (losses)18,240 (21,635)(5,565)Net (loss) income before income tax gain (expense)(65,452)54,070 185,328 Income tax gain (expense)28,867 (40,290)(48,962)Net (loss) income$ (36,585)$ 13,780$ 136,366 Year Ended December 31,201820172016Basic EPSBasic net (loss) incomeAvailable to shareholders per common share$ (0.82)$ 0.31$ 3.09Weighted average of outstanding common shares44,529,614 44,157,364 44,157,251 Diluted EPSDiluted net (loss) incomeAvailable to shareholders per common share$ (0.82)$ 0.31$ 3.09Weighted average of outstanding common shares44,529,614 44,157,364 44,157,251 Cash Dividends declared (per share) —0.600 0.600 The accompanying notes are an integral part of these consolidated financial statements.4 Table of Contents MercadoLibre, Inc.Consolidated Statements of Comprehensive IncomeFor the years ended December 31, 2018, 2017 and 2016(In thousands of U.S. dollars) Year Ended December 31, 2018 2017 2016 Net (loss) income $ (36,585) $ 13,780 $ 136,366Other comprehensive loss, net of income tax: Currency translation adjustment (110,659) (41,731) (20,619)Reclassification of currency translation adjustment due to deconsolidation ofVenezuelan subsidiaries — 17,310 —Unrealized gains on hedging activities 1,533 — —Unrealized net gains (losses) on available for sale investments 2,729 796 (587)Less: Reclassification adjustment for gains (losses) from accumulated othercomprehensive income 2,329 (587) (672)Net change in accumulated other comprehensive loss, net of income tax (108,726) (23,038) (20,534) Total Comprehensive (loss) income $ (145,311) $ (9,258) $ 115,832The accompanying notes are an integral part of these consolidated financial statements.5 Table of Contents MercadoLibre, Inc.Consolidated Statement of EquityFor the years ended December 31, 2018, 2017 and 2016(In thousands of U.S. dollars) Accumulated Additional other Common stock paid-in Retained comprehensive TotalShares Amount capital Earnings loss EquityBalance 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 Common Stock Issued in exchange of 2019 Notes1,045 1 342,999 — — 343,000 Exercise of Convertible Notes1 — (8) — — (8)Repurchase of 2019 Notes Conversion Option — — (433,289) — — (433,289)Convertible notes - 2028 Notes Equity Component — — 257,277 — — 257,277 Unwind Capped Call — — 136,108 — — 136,108 Capped Call — — (148,948) — — (148,948)Changes in accounting standards – (See Note 2) — — — 2,092 — 2,092 Net loss — — — (36,585) — (36,585)Other comprehensive loss — — — — (108,726) (108,726)Balance as of December 31, 201845,203 $ 45 $ 224,800 $ 503,432 $ (391,577) $ 336,700 The accompanying notes are an integral part of these consolidated financial statements.6 Table of Contents MercadoLibre, Inc.Consolidated Statement of Cash FlowsFor the years ended December 31, 2018, 2017 and 2016(In thousands of U.S. dollars) Year Ended December 31, 2018 2017 2016 Cash flows from operations: Net (loss) income $ (36,585) $ 13,780 $ 136,366Adjustments to reconcile net (loss) income to net cash provided by operating activities: Unrealized devaluation loss, net 11,131 28,463 4,967 Impairment of Long-Lived Assets — 2,837 13,717 Loss on deconsolidation of Venezuelan subsidiaries — 85,761 —Depreciation and amortization 45,792 40,921 29,022 Accrued interest (17,811) (20,192) (17,794)Non cash interest and convertible bonds amortization of debt discount and amortizationof debt issuance costs 11,408 10,855 9,837 LTRP accrued compensation 27,525 35,719 22,983 Deferred income taxes (92,585) (24,575) (6,188)Changes in assets and liabilities: Accounts receivable (27,105) (21,817) (15,428)Credit cards receivable 42,655 (257,563) (180,592)Prepaid expenses (23,342) 8,670 (9,133)Inventory (3,015) (1,549) (787)Other assets (17,617) (54,780) (24,425)Accounts payable and accrued expenses 90,123 150,215 47,980 Funds payable to customers 175,398 242,037 164,060 Other liabilities 28,202 7,680 (45)Interest received from investments 16,733 22,548 15,719 Net cash provided by operating activities 230,907 269,010 190,259 Cash flows from investing activities: Purchase of investments (3,176,078) (4,553,649) (3,501,283)Proceeds from sale and maturity of investments 2,662,800 4,713,934 3,508,293 Payment for acquired businesses, net of cash acquired (4,195) (8,568) (7,284)Reduction of cash due to Venezuela deconsolidation — (27,230) —Purchases of intangible assets (192) (33) (431)Changes in principal loans receivable, net (57,232) (72,244) (6,599)Advance for property and equipment (4,426) (19,695) (8,412)Purchases of property and equipment (93,136) (55,156) (68,527)Net cash used in investing activities (672,459) (22,641) (84,243)Cash flows from financing activities: Funds received from the issuance of convertible notes 880,000 — —Transaction costs from the issuance of convertible notes (16,264) — —Payments on convertible note (348,123) — —Purchase of convertible note capped calls (148,943) (67,308) —Unwind of convertible note capped calls 136,108 — —Proceeds from loans payable and other financial liabilities 236,873 47,905 11,435 Payments on loans payable and other financing (123,822) (5,004) (6,684)Dividends paid (6,624) (26,496) (24,419)Payment of finance lease obligations (323) — —Net cash provided by (used in) financing activities 608,882 (50,903) (19,668)Effect of exchange rate changes on cash, cash equivalents, restricted cash and cashequivalents (90,895) (41,346) (19,089)Net increase in cash, cash equivalents, restricted cash and cash equivalents 76,435 154,120 67,259 Cash, cash equivalents, restricted cash and cash equivalents, beginning of the year 388,260 234,140 166,881 Cash, cash equivalents, restricted cash and cash equivalents, end of the year $464,695 $388,260 $234,140 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, 2018, 2017 and 2016(In thousands of U.S. dollars) Year Ended December 31, 2018 2017 2016Supplemental cash flow information: Cash paid for interest $ 19,511 $ 7,734 $ 8,059Cash paid for income tax $ 99,488 $ 110,913 $ 74,008 Non-cash financing activities: Stock based compensation $ — $ — $ 56Common Stock Issued in exchange of 2019 Notes $ 343,000 $ — $ —Exercise of convertible notes $ 1 $ — $ 3Finance lease obligations $ 7,125 $ — $ — Non-cash investing activities: Contingent considerations and escrows from acquired business $ 5,206 $ — $ 1,215Property and equipment acquired under finance leases $ 7,448 $ — $ — Acquisition of business 2018 (1) 2017 (2) 2016Cash and cash equivalents $ 507 $ 165 $ 93Accounts receivable 1,145 471 609 Tax credits — — 21 Other current assets 202 18 224 Fixed Assets 90 1 71 Total assets acquired 1,944 655 1,018 Accounts payable and accrued expenses 149 26 434 Other liabilities 1,341 429 389 Total liabilities assumed 1,490 455 823 Net assets acquired 454 200 195 Goodwill, Identifiable Intangible Assets and deferred tax liabilities 7,022 5,966 6,874 Trademarks 1,020 328 251 Customer lists 475 1,280 676 Software — 709 282 Non Compete and Non Solicitation Agreement 937 250 314 Total purchase price 9,908 8,733 8,592 Cash and cash equivalents acquired 507 165 93 Payment for acquired businesses, net of cash acquired $ 9,401 $ 8,568 $ 8,499(1) Related to the acquisition of software development and machine-learning companies in Argentina – See Note 6.(2) Related to the acquisition of software development companies in Brazil – See Note 6. The accompanying notes are an integral part of these consolidated financial statements. 8 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 1.Nature of BusinessMercadoLibre, Inc. (“MercadoLibre” or the “Company”) was incorporated in the state of Delaware, in the United States of America, in October1999. MercadoLibre is the largest online commerce ecosystem in Latin America, serving as an integrated regional platform and as a provider ofnecessary online and technology tools that allow businesses and individuals to trade products and services in the region. The Companyenables commerce through its marketplace platform (including online classifieds for motor vehicles, vessels, aircraft, services and real estate),which allows users to buy and sell in most of Latin America. Through MercadoPago, the FinTech solution, MercadoLibre enables individuals and businesses to send and receive online payments; throughMercadoEnvios, MercadoLibre facilitates the shipping of goods from sellers to buyers; through our advertising products, MercadoLibrefacilitates advertising services for large retailers and brands to promote their product and services on the web; through MercadoShops,MercadoLibre allows users to set-up, manage, and promote their own on-line web-stores under a subscription-based business model; throughMercadoCredito, MercadoLibre extends loans to certain merchants and consumers; and through MercadoFondo, MercadoLibre allows users toinvest funds deposited in their MercadoPago accounts. In addition, MercadoLibre develops and sells software enterprise solutions to e-commerce business clients in Brazil.As of December 31, 2018, 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, El Salvador,Uruguay, Bolivia, Guatemala, Paraguay and Venezuela. Additionally, MercadoLibre operates an online payments solution in Argentina,Brazil, Mexico, Colombia, Chile, Peru and Uruguay. It also offers a shipping solution directed towards Argentina, Brazil, Mexico, Colombia,Chile and Uruguay. In addition, the Company operates a real estate classified platform that covers some areas of State of Florida, in the UnitedStates 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, its wholly-owned subsidiaries and consolidated Variable InterestEntities (“VIE”). These consolidated financial statements are stated in U.S. dollars, except for amounts otherwise indicated. Intercompanytransactions and balances have been eliminated for consolidation purposes.The Company determined that, effective December 1, 2017, evolving conditions in Venezuela have caused the Company to no longer meet theaccounting criteria for control over its Venezuelan subsidiaries. The Venezuela’s selective default determination, restrictive exchange controlsand suspension of foreign exchange market that severely incremented the lack of access to U.S. dollars through official currency exchangemechanisms, plus the worsening in Venezuela macroeconomic environment, has resulted in other-than-temporary lack of exchangeabilitybetween the Venezuelan bolivar and the U.S. dollar, and restricted the Company’s ability to pay dividends and satisfy other obligationsdenominated in U.S. dollars. The currency controls in Venezuela have significantly limited the Company’s ability to realize the benefits fromearnings and to access to resulting liquidity of those operations. For accounting purposes, this lack of exchangeability has resulted in lack ofcontrol over Venezuelan subsidiaries. Therefore, in accordance to the applicable accounting standards, as of December 1, 2017, the Companydeconsolidated the financial statements of its subsidiaries in Venezuela and began reporting the results under the cost method of accounting.Accordingly, as of December 1, 2017, the Company no longer includes the results of its Venezuelan operations.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, 2018 and 2017 the Company ’s investment in Venezuela equals zero.9 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 2.Summary of significant accounting policies (continued)Principles of consolidation (continued)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, the Company will continue its operations in Venezuela for the foreseeable future. Further, the Company only recognizes revenue fromintercompany service allocations to Venezuelan subsidiaries to the extent the Company collects the respective receivables.Substantially all net revenues, cost of net revenues and operating expenses, are generated in the Company’s foreign operations. Long-livedassets, and intangible assets and goodwill located in the foreign jurisdictions totaled $270,073 thousands and $223,134 thousands as ofDecember 31, 2018 and 2017, respectively.Cash and cash equivalents, restricted cash and cash equivalents, short-term and long-term investments, amounted to $1,202,372 thousands and$632,412 thousands as of December 31, 2018 and 2017, respectively. As of December 31, 2018, 45% of those assets are located in the UnitedStates of America and 55% are located in foreign locations, mainly Brazil, Mexico and Argentina. As of December 31, 2017, 30% of thoseassets were located in the United States of America and 70% were in foreign locations, mainly Brazil and Argentina.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, intangible assets withindefinite useful lives and tax loss carryforwards, impairment of short-term and long-term investments, impairment of long-lived assets,compensation costs relating to the Company’s long term retention plan, fair value of convertible debt, fair value of investments, recognition ofincome taxes and contingencies. 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, to be cash equivalents. Cash, cash equivalents and restricted cash and cash equivalents of $464,695 thousands as reported in the consolidated statements of cash flowfor the yerar ended December 31, 2018 is the sum of $440,332 thousand and $24,363 thousands shown in lines Cash and cash equivalents andRestricted cash and cash equivalents, respectively, of the consolidated balance sheet.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 2018, 2017 and 2016.Money market funds, corporate and sovereign debt securities (including Central Bank of Brazil mandatory guarantee) are valued at fair value.See Note 8 “Fair Value Measurement of Assets and Liabilities” for further details.10 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 either during the time required to collect the installments or during the period of time until those credit cardsreceivables are sold to financial institutions.Credit cards receivables are presented net of the related provision for chargebacks. As of December 31, 2018 and 2017, 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 users held by theCompany. Funds, net of any amount due to the Company by the user, are maintained in the user’s current account until withdrawl is requestedby the user. See Note 4 “Short-term and long-term investments” for adicional information on regulations in Brazil.Loans receivable, netLoans receivable represents loans granted to certain merchants and consumers through the Company’s MercadoCredito solution.Loans receivable are reported at their outstanding principal balances plus estimated collectible interest, net of allowances. 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. The Company places loans on non-accrual status at 90 days past due.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, 2018, 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 and Brazil.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, 2018 and 2017, there is no continuing involvement with transferred credit card coupons. Based on historical experience to datethe Company assessed that it does not hold a significant credit risk exposure in relation to transfer of financial assets with recourse. Theaggregate gain included in net revenues arising from these financing transactions, net of the costs recognized on sale of credit card coupons, is$258,595 thousands, $185,469 thousands and $119,779 thousands, for the years ended December 31, 2018, 2017 and 2016, respectively.11 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 2.Summary of significant accounting policies (continued)Concentration of credit riskCash and cash equivalents, restricted cash and cash equivalents, short-term and long-term investments, credit card receivables, accountsreceivable and loans receivable are potentially subject to concentration of credit risk. Cash and cash equivalents and investments are placedwith financial institutions and financial instruments that Management believes are of high credit quality. Accounts receivable are derived fromrevenue earned from customers located internationally. Accounts receivable balances are settled through customer credit cards, debit cards, andMercadoPago accounts, with the majority of accounts receivable collected upon processing of credit card transactions. Loans receivable aregranted to several loyal merchants with the best reputation on the site and certain loyalty buyers. The Company maintains an allowance fordoubtful accounts receivable, loans receivable and credit cards receivables based upon its historical experience and current aging of customers.Historically, such charges have been within Management expectations. However, unexpected or significant future changes in trends couldresult in a material impact to future statements of income or cash flows. Due to the relatively small dollar amount of individual accountsreceivable and loans receivable, the Company generally does not require collateral on these balances. The allowance for doubtful accounts isrecorded as a charge to sales and marketing expense.During the years ended December 31, 2018, 2017 and 2016, no single customer accounted for more than 5% of net revenues. As ofDecember 31, 2018 and 2017, no single customer, except for high credit quality credit card processing companies, accounted for more than 5%of accounts receivable 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.Provision for buyer protection programThe Company provides consumers with a buyer protection program (“BPP”) for all transactions completed through the Company’s onlinepayment solution (“MercadoPago”). The Company is exposed to losses under this program due to this program is designed to protect buyers inthe Marketplace from losses due primarily to fraud or counterparty non-performance. Provisions for BPP represent our estimate of probablelosses based on our historical experience.InventoryInventory, consisting of mobile point of sale (“MPOS”) devices available for sale, are accounted for using the weighted average price 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 2018 and 2017, the Company capitalized $38,412 thousands and $35,560 thousands, respectively.12 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 2.Summary of significant accounting policies (continued)Property and equipment, net (continued)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.Buildings, excluding lands, are depreciated from the date when they are ready to be used, using the straight-line depreciation method over a50-year depreciable life. Goodwill and intangible assetsGoodwill represents the excess of the purchase price over the fair value of the net assets acquired in a business combination.Intangible assets consist of customer lists, trademarks, licenses, software, non-solicitation and non-compete agreements acquired in businesscombinations and valued at fair value at the acquisition date. Intangible assets with definite useful life are amortized over the period ofestimated benefit to be generated by those assets and using the straight-line method; their estimated useful lives ranges from three to ten years.Trademarks with indefinite useful life are not subject to amortization, but are subject to an annual impairment test, by comparing their carryingamount with their corresponding fair value. For any given intangible asset with indefinite useful life, if its fair value exceeds its carryingamount no impairment loss shall be recognized.Impairment of long-lived assetsThe Company reviews long-lived assets for impairments whenever events or changes in circumstances indicate that the carrying value of anasset may not be recoverable. Recoverability of assets to be held and used is measured by 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 $2,837 thousands and$13,717 thousands on June 30, 2017 and June 30, 2016, respectively, by using the market approach and considering prices for similar assets.Impairment of goodwill and intangible assets with indefinite useful lifeGoodwill and intangible assets with indefinite useful life are reviewed at the end of the year for impairment or more frequently, if events orchanges in circumstances indicate that the carrying value may not be recoverable. Goodwill is tested for impairment at the reporting unit level(considering each segment of the Company as a reporting unit) by comparing the reporting unit’s carrying amount, including goodwill, to thefair value of such reporting unit.As of December 31, 2018 and 2017, the Company elected to perform the quantitative impairment test for both goodwill and intangible assetswith indefinite useful life.For the year ended December 31, 2018, 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 16.1%to 18.9%. The average discount rate used for 2018 was 17.5%. 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 a percentage of GMV andoperating margins. In addition, the analysis include a business to e-commerce rate, which represents growth of e-commerce as a percentage ofGross Domestic Product (“GDP”), Internet penetration rates as well as trends in the Company’s market share.13 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 2.Summary of significant accounting policies (continued)Impairment of goodwill and intangible assets with indefinite useful life (continued)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, 2018, 2017 and 2016 asManagement’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, 2018, 2017 and 2016.Revenue recognitionRevenues are recognized when control of the promised services is transferred to customers, in an amount that reflects the consideration theCompany expects to be entitled to in exchange for those services.Contracts with customers may include promises to transfer multiple services including discounts on current or future services. Determiningwhether services are considered distinct performance obligations that should be accounted for separately versus together may requirejudgment.Revenues are recognized when each performance obligation is satisfied by transferring the promised service to the customer according to thefollowing criteria described for each type of service:a)Enhanced Marketplace services:·Revenues from intermediation services derived 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. ·Revenues from shipping services are generated when a buyer elects to receive the item through our shipping service and the service isrendered to the customer. When the Company acts as an agent, revenues derived from the shipping services are presented net of thetransportation costs charged by third-party carriers and when the Company acts as principal, revenues derived from the shipping servicesare presented in gross basis. As part of the Company’s business strategy, shipping costs may be fully or partially subsidized at theCompany’s option.b)Non-Marketplace services:·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, net of rebatesgranted. The Company also earns revenues as a result of offering financing to its MercadoPago users, either when the Company financesthe transactions directly or when the Company sells the corresponding financial assets to financial institutions. When the Companyfinances the transactions directly, it recognizes financing revenue ratably over the period of the financing. When the Company sells thecorresponding financial assets to financial institutions, the result of such sale is accounted for as financing revenues net of financingcosts at the time of transfer of the financial assets.·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 sale of MPOS are genreated when control of the good is transferred to our customer.·Revenues from interest earned on loans and advances granted to merchants and consumers are recognized over the period of the loan andare based on effective interest rates. The Company places loans on non-accrual status at 90 days past due.14 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 2.Summary of significant accounting policies (continued)Revenue recognition (continued)Contract BalancesTiming of revenue recognition may differ from the timing of invoicing to customers. Receivables represent amounts invoiced and revenuerecognized prior to invoicing when the Company has satisfied the performance obligation and has the unconditional right to payment. Theallowance for doubtful accounts, loan receivables and chargebacks is estimated based upon our assessment of various factors, includinghistorical experience, the age of the accounts receivable balances, current economic conditions and other factors that may affect our customers’ability to pay. The allowance for doubtful accounts, loan receivables and chargebacks was $23,411 thousands and $19,735 thousands as ofDecember 31, 2018 and 2017, respectively.Deferred revenue consists of fees received related to unsatisfied performance obligations at the end of the year in accordance with ASC 606 (asdefined below). Due to the generally short-term duration of contracts, the majority of the performance obligations are satisfied in the followingreporting period. Deferred revenue as of December 31, 2017 and 2016 was $6,116 thousands and $1,955 thousands, respectively, of whichsubstantially all were recognized as revenue during the years ended December 31, 2018 and 2017, respectively.As of December 31, 2018, total deferred revenue was $5,918 thousands, mainly due to fees related to listing and optional feature services billedand loyalty programs that are expected to be recognized as revenue in the coming months.Share-based paymentsThe liability related to the variable portion of the long term retention plans is remeasured at fair value (See Note 16 “Long Term RetentionPlan” for more details). In addition, the Director Compensation Program includes an adjustable Board service award based on the averageclosing price of the Company’s common stock (see Note 11 “Compensation Plan for Outside Directors” for more details).Sales taxThe Company’s subsidiaries in Brazil, Argentina, Venezuela and Colombia are subject to certain sales taxes which are classified as cost of netrevenues and totaled $139,433 thousands, $106,980 thousands and $75,618 thousands for the years ended December 31, 2018, 2017 and2016, respectively. Venezuelan result have been deconsolidated since December 1, 2017, therefore, 2018 results do not include Venezuelansegment results.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.Comprehensive (loss) incomeComprehensive (loss) income is comprised of two components, net (loss) income and other comprehensive (loss) income. This last componentis defined as all other changes in the equity of the Company that result from transactions other than with shareholders. Other comprehensive(loss) income includes the cumulative adjustment relating to the translation of the financial statements of the Company’s foreign subsidiaries,unrealized gains and losses on investments classified as available-for-sale and on hedging activities. Total comprehensive (loss) income for theyears ended December 31, 2018, 2017 and 2016 amounted to $(145,311) thousands, $(9,258) thousands and $115,832 thousands,respectively.Variable Interest Entities (VIE)A VIE is an entity (i) that has insufficient equity to permit the entity to finance its activities without additional subordinated financial support,(ii) that has equity investors who lack the characteristics of a controlling financial interest or (iii) in which the voting rights of some equityinvestors are disproportionate to their obligation to absorb losses or their right to receive returns, and substantially all of the entity’s activitiesare conducted on behalf of the equity investors with disproportionately few voting rights. The Company consolidates VIEs of which it is theprimary beneficiary. The Company is considered to be the primary beneficiary of a VIE when it has both the power to direct the activities thatmost significantly impact the entity’s economic performance and the obligation to absorb losses or the right to receive benefits from the entitythat could potentially be significant to the VIE. Please see Note 22 to these consolidated financial statements for additional detail on the VIEsused for securitization purposes.15 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 2.Summary of significant accounting policies (continued)Foreign currency translationAll of the Company’s foreign operations have determined the local currency to be their functional currency, except for Argentina, which hasused the U.S. dollar as its functional currency since July 1, 2018 and Venezuela since January 1, 2010, which functional currency was the U.S.dollar until its deconsolidation. Accordingly, the foreign subsidiaries with local currency as functional currency translate assets and liabilitiesfrom their local currencies into U.S. dollars by using year-end exchange rates while income and expense accounts are translated at the averagemonthly rates in effect during the year, unless exchange rates fluctuate significantly during the period, in which case the exchange rates at thedate of the transaction are used. The resulting translation adjustment is recorded as a component of other comprehensive loss. Gains and lossesresulting from transactions denominated in non-functional currencies are recognized in earnings. Net foreign currency transaction results areincluded in the consolidated financial statements of income under the caption “Foreign currency gains (losses)” and amounted to $18,240thousands, ($21,635) thousands and ($5,565) thousands for the years ended December 31, 2018, 2017 and 2016, respectively.Argentine currency statusDuring 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 15.89During 2017, the Argentine Peso exchange rate increased by 17% against the U.S. dollar to 18.65 Argentine Pesos per U.S. dollar as ofDecember 31, 2017. Due to such increase in the Argentine Peso exchange rate against the U.S. dollar, the Company recognized a foreignexchange gain of $4,422 thousands (as a result of having a net asset position in U.S. dollars) and the reported Other Comprehensive Lossincreased by $37,602 thousands (as a result of having a net asset position in Argentine Pesos during the year).As of July 1, 2018, the Company transitioned its Argentinian operations to highly inflationary status in accordance with U.S. GAAP, andchanged the functional currency for Argentine subsidiaries from Argentine Pesos to U.S. dollars, which is the functional currency of theirinmediate parent company.Pursuant to the change in the functional currency, local currency monetary assets and liabilities are re measured at closing exchange rate, andnon-monetary assets, revenues and expenses are remeasured at the rate prevailing on the date of the respective transaction. The effect of the remeasurement is recognized as foreign currency gains (losses).During 2018, the Argentine Peso exchange rate increased by 102% against the U.S. dollar to 37.7 Argentine Pesos per U.S. dollar as ofDecember 31, 2018. Due to such increase in the Argentine Peso exchange rate against the U.S. dollar, and the adoption of the U.S. dollar asArgentine subsidiaries’s functional currency due to hyperinflation, during the year ended December 31, 2018, the Company recognized aforeign exchange gain of $19,021 thousands (this gain was a consequence of having, mainly, a net monetary asset position in U.S. dollarsduring the first half of 2018, and mainly, a net monetary liability position in Argentine Pesos, during the second half of 2018).Argentina is the second largest principal market of the Company’s business, as measured by net revenue (see Note 7 – Segment Reporting).Recently, the economic environment in Argentina has been volatile with weak economic conditions, devaluation of local currency, highinterest rates, high level of inflation and a large public deficit which led Argentina to request financial assistance from the InternationalMonetary Fund. 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.16 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 2.Summary of significant accounting policies (continued)Income taxes (continued)On August 17, 2011, the Argentine government issued a new software development law and on September 9, 2013 the Argentine governmentissued a regulatory decree establishing the requirements to become a beneficiary of the new software development law, including arequirement to comply with annual incremental ratios related to exports of services and research and development. The new law will expire onDecember 31, 2019.The Argentine Industry Secretary approved the Company’s application for eligibility under the new law for Mercadolibre S.R.L., Neosur S.RL.and Business Vision S.A., which are Argentine subsidiaries of the Company. As a result, these subsidiaries have been granted a tax holiday thatincludes as benefit a 60% relief of total income tax related to software development activities and a 70% relief of payroll taxes related tosoftware development activities. The tax holiday applies retroactively as of September 18, 2014.As a result of the Company’s eligibility under the new law, it recorded an income tax benefit of $19,988 thousands, $22,919 thousands and$22,570 thousands during 2018, 2017 and 2016, respectively. Furthermore, the Company recorded a labor cost benefit of $6,801thousands, $7,605 thousands and $5,481 thousands during 2018, 2017 and 2016. Additionally, $1,875 thousands, $2,137 thousands and$1,967 thousands were accrued to pay software development law audit fees during 2018, 2017 and 2016, respectively. Aggregate per shareeffect of the Argentine tax holiday amounted to $0.45, $0.52 and $0,51 for the years ended December 31, 2018, 2017 and 2016, respectively. 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 2012 primarily include the U.S., Argentina, Brazil and Mexico.2.00% Convertible Senior Notes due 2028 – Debt ExchangeOn August 24, 2018, the Company issued $800,000 thousands of 2.00% Convertible Senior Notes due 2028 and on August 31, 2018 theCompany issued an additional $80,000 thousands of notes pursuant to the partial exercise of the initial purchasers’ option to purchase suchadditional notes, resulting in an aggregate principal amount of $880 million of 2.00% Convertible Senior Notes due 2028 (collectively, the“2028 Notes”). In connection with the issuance of the 2028 Notes, the Company paid $91,784 thousands (including transaction expenses) toenter into capped call transactions with respect to its common shares (the “ 2028 Notes Capped Call Transactions”), with certain financialinstitutions. For more detailed information in relation to the 2028 Notes and the 2028 Notes Capped Call Transactions, see Note 17 to theseconsolidated financial statements.The convertible debt instrument was separated into debt and equity components at issuance and a fair value was assigned. The value assignedto the debt component was the estimated fair value, as of the issuance date, of similar debt without the conversion feature. As of the issuancedate the Company determined the fair value of the liability component of the 2028 Notes based on market data that was available for senior,unsecured non-convertible 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 2028 Notes was valued at $546,532 thousands, based on the contractual cash flows discounted at anappropriate market rate for non-convertible debt at the date of issuance, which was determined to be 7.44%. The carrying value of thepermanent equity component reported in additional paid-in-capital was initially valued at $333,468 thousands. The effective interest rate afterallocation of transaction costs to the liability component is 7.66% and is used to amortize the debt discount and transaction costs.Additionally, the Company recorded a deferred tax liability related to the additional paid-in capital component of the 2028 Notesof $70,028 thousands.17 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 2.Summary of significant accounting policies (continued)2.00% Convertible Senior Notes due 2028 – Debt Exchange (continued)In connection with the 2028 Notes issued, the Company used a portion of the net proceeds to repurchase or exchange $263,724 thousandsprincipal amount of its 2019 Notes, $131,602 thousands of which were exchanged through a private exchange agreement. The Companyassessed whether the instruments subject to exchange were substantially different, considering both qualitative (e.g., currency, term, and rate)and quantitative aspects, and whether i) the present value of discounted cash flows under the conditions of the new instrument and originalinstrument is at least 10% different and ii) the change in the fair value of the embedded conversion option is at least 10% of the carryingamount of the original debt immediately prior to the exchange. In this regard, the Company recognizes the exchange of the Notes as anextinguishment due to the fact that the instruments subject to exchange are substantially different.Recently Adopted Accounting StandardsEffective January 1, 2018, the Company adopted ASC 606 – Revenue from Contracts with Customers related to revenue recognition (“ASC606”) issued by the Financial Accounting Standards Board (“FASB”) in 2014. ASC 606 provides a unified model to determine when and howrevenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services tocustomers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. TheCompany adopted ASC 606 using the full retrospective transition method and recast the prior reporting period presented.In connection with the MercadoEnvios service the Company has identified a performance obligation with the seller to arrange for thetransportation of the merchandise sold to the buyer using third-party carriers. When the Company acts as agent, upon adoption of ASC 606, therevenues derived from the shipping services are presented net of the respective transportation costs charged by third-party carriers and paid bythe Company. As part of the business strategy, the Company may fully or partially subsidize the cost of shipping at the Company’s option.Under the current guidance the Company must account for the subsidized cost of shipping netting of revenues rather than as cost of netsales. For the years ended December 31, 2018 and 2017, the Company incurred $424,838 thousands and $181,553 thousands, respectively, ofsubsidized shipping costs that have been incurred and included as a reduction of revenues.Under the full retrospective method, the Company retrospectively applied ASC 606 to year ended December 31, 2017. The total impactresulting from the change in presentation of shipping subsidies was a decrease in Net revenues and Cost of net revenues of $181,553thousands in the Consolidated Statement of Income for the year ended December 31, 2017. Additionally, the adoption of ASC 606 did notmodify the carrying amount of assets or liabilities as of the beginning of the first period presented, thus, there was no effect on the openingbalance of retained earnings as of January 1, 2017.Furthermore, the adoption did not have a material impact on the consolidated balance sheets as of December 31, 2018 and December 31, 2017,on Net (loss) income and on the Statements of Cash Flows for the years ended December 31, 2018 and 2017.In October 2016, the FASB issued Accounting Standards Update No. 2016-16 (ASU 2016-16) "Income Taxes (Topic 740): Intra-EntityTransfers of Assets Other than Inventory." ASU 2016-16 generally accelerates the recognition of income tax consequences for asset transfersbetween entities under common control. The Company adopted ASU 2016-16 as of January 1, 2018 using a modified retrospective transitionmethod, resulting in a $2,092 thousands increase to the opening balance of retained earnings.In August 2017, the FASB issued Accounting Standards Update No. 2017-12 (ASU 2017-12) "Derivatives and Hedging (Topic 815): Targetimprovements to accounting for hedging activities." ASU 2017-12 expands and refines hedge accounting for both non-financial and financialrisk components and align the recognition and presentation effects of the hedging instrument and the hedged item in the financial statements.The amendments also make certain improvements to simplify the hedge accounting guidance and ease the administrative burden of hedgedocumentation requirements and assessing hedge effectiveness. The Company early-adopted ASU 2017-12 as of April 1, 2018. The adoptiondid not have a material impact on the Company’s financial statements for prior periods, as the Company did not engage in hedging activitiesduring any of the comparative periods presented.Accounting Pronouncements Not Yet AdoptedIn February 2016, the FASB issued a new standard related to leases to increase transparency and comparability among organizations byrequiring the recognition of right-of-use (ROU) assets and lease liabilities on the balance sheet. Most prominent among the changes in thestandard is the recognition of ROU assets and lease liabilities by lessees for those leases classified as operating leases under current U.S. GAAP.Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement.Under the new standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing,and uncertainty of cash flows arising from leases.18 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 2.Summary of significant accounting policies (continued)Accounting Pronouncements Not Yet Adopted (continued)The guidance permits the use of a modified retrospective approach, which requires an entity to recognize and measure leases existing at, orentered into after, the beginning of the earliest comparative period presented. Alternatively, the guidance permits a “Comparatives Under 840Option” that changes the date of initial application to the beginning of the period of adoption. The Company will be electing theComparatives Under 840 Option in which it will apply ASC 840 to all comparative periods, including disclosures, and recognize the effects ofapplying ASC 842 as a cumulative-effect adjustment to retained earnings as of January 1, 2019, if any. The Company will elect the package ofpractical expedients permitted under the transition guidance within the new standard, which among other things, allows to carryforward thehistorical lease classification. In addition, the Company elected certain practical expedients and accounting policies including the lesseepractical expedient to not separate lease components. The Company will also make an accounting policy election to keep leases with an initialterm of 12 months or less off of the balance sheet. The Company will recognize those lease payments in the Consolidated Statements of Incomeon a straight-line basis over the lease term.The standard will have a material impact on the Company’s consolidated balance sheets. The most significant impact will be the recognition ofROU assets and lease liabilities for operating leases, while the accounting for existing finance leases remains substantially unchanged.Adoption of the standard will result in the recognition of ROU assets and lease liabilities for operating leases in a range of $115,000 – $125,000 thousands and $115,000 – $125,000 thousands, respectively, as of January 1, 2019, the date of initial application. TheCompany does not believe the standard will materially affect the consolidated net earnings.On June 16, 2016 the FASB issued the ASU 2016-13 “Financial Instruments-Credit Losses (Topic 326): Measurement of credit losses onfinancial instruments” and in November 2018 issued the ASU 2018-19 “Codification improvements to Topic 326 Financial Instruments-Creditlosses. These updates amend guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities.For assets held at amortized cost basis, this update eliminates the probable initial recognition threshold in current GAAP and, instead, requiresan entity to reflect its current estimate of all expected credit losses. For available for sale debt securities, credit losses should be measured in amanner similar to current GAAP, however this topic will require that credit losses be presented as an allowance rather than as a write-down. Thenew standard is effective for fiscal years beginning after December 15, 2019. The Company is assessing the effects that the adoption of theseaccounting pronouncements may have on its financial statements. 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.On August 28, 2018 the FASB issued the ASU 2018-13 “Fair value measurement (Topic 820): Disclosure Framework—Changes to thedisclosure requirements for fair value measurement”. This update modified the disclosure requirements on fair value measurements based onconcepts in the FASB Concepts Statement. The amendments in this update are effective for fiscal years beginning after December 15, 2019,including interim periods within those fiscal years. The adoption of this standard is not expected to have a material impact onthe Company’s financial statements. On August 29, 2018 the FASB issued the ASU 2018-15 “Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40)”. Theamendments in this update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a servicecontract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hostingarrangements that include an internal-use software license). The amendments require an entity (customer) in a hosting arrangement that is aservice contract to follow the guidance in Subtopic 350-40 to determine which implementation costs to capitalize as an asset related to theservice contract and which costs to expense. The amendments in this update are effective for fiscal years beginning after December 15, 2019,including interim periods within those fiscal years. The Company is assessing the effects that the adoption of this accounting pronouncementmay have on its financial statements.19 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 3.Net (loss) income per shareBasic earnings per share for the Company’s common stock is computed by dividing, net (loss) income available to common shareholdersattributable to common stock for the period by the weighted average number of common shares outstanding during the year.On June 30, 2014, the Company issued $330,000 thousands of 2.25% Convertible Senior Notes due 2019 and on August 24, 2018 and August31, 2018 the Company issued an aggregate principal amount of $880,000 thousands of 2.00% Convertible Senior Notes due 2028 (please referto Note 17 to these consolidated financial statements for discussion regarding these debt notes). The conversion of these debt notes areconsidered for diluted earnings per share utilizing the “if converted” method, the effect of that conversion is not assumed for purposes ofcomputing diluted earnings per share if the effect is antidilutive.The denominator for diluted net (loss) income per share for the years ended on December 31, 2018, 2017 and 2016 does not include any effectfrom the 2019 Notes Capped Call Transactions or the 2028 Notes Capped Call Transactions (as defined in Note 17) because it would beantidilutive. In the event of conversion of any or all of the 2019 Notes or the 2028 Notes, the shares that would be delivered to the Companyunder The Capped Call Transactions (as defined in Note 2) are designed to partially neutralize the dilutive effect of the shares that theCompany would issue under the Notes.For the years ended December 31, 2018, 2017 and 2016, the effects on diluted earnings per share were antidilutive and, as a consequence, theywere not computed for diluted earnings per share.Net (loss) income per share of common stock is as follows for the years ended December 31, 2018, 2017 and 2016: Year Ended December 31, 2018 2017 2016 (In thousands) Basic Diluted Basic Diluted Basic DilutedNet (loss) income percommon share $ (0.82) $ (0.82) $ 0.31 $ 0.31 $ 3.09 $ 3.09 Numerator: Net (loss) income $ (36,585) $ (36,585) $ 13,780 $ 13,780 $ 136,366 $ 136,366 Denominator: Weighted average ofcommon stockoutstanding forBasic earnings pershare 44,529,614 — 44,157,364 — 44,157,251 —Adjusted weightedaverage of commonstockoutstanding forDiluted earnings pershare — 44,529,614 — 44,157,364 — 44,157,251 20 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, 2018 2017 (In thousands)Short-term investments Time Deposits $ 20,056 $ 202,820Sovereign Debt Securities (Central Bank of Brazil mandatory guarantee) 284,317 —Sovereign Debt Securities 157,147 2,225 Corporate Debt Securities 21 4,387 Total $ 461,541 $ 209,432 Long-term investments Sovereign Debt Securities $ 272,455 $ 13,671Corporate Debt Securities 241 19,926 Others Investments 3,440 1,123 Total $ 276,136 $ 34,720Unrealized gains (losses) of available-for-sale securities, net of tax, were $2,729 thousands, $796 thousands and $(587) thousands for the yearsended December 31, 2018, 2017 and 2016, respectively.As of December 31, 2018 and 2017, the Company has no securities considered held-to-maturity.Sovereign Debt Securities (Central Bank of Brazil mandatory guarantee)On November 1, 2018, the Company obtained the approval from the Central Bank of Brazil to operate as authorized payment institution. Withthe authorization, MercadoPago in Brazil will be subject to the supervision of the Central Bank of Brazil and must fully comply with all theobligations established in the current regulation. Among other obligations, the regulation requires authorized payment institutions to hold thebalance available in the payment institution account in either in a specific account of Central Bank of Brazil that does not pay interest or inBrazilian federal government bonds registered with the “Sistema Especial de Liquidacao e Custodia”. The percentage of the electroniccurrency that must be deposited was 80% as of December 31, 2018 and 100% as of January 1, 2019. As of December 31, 2018 and inaccordance with the regulation, the Company held $284,317 thousands deposited in Brazilian federal government bonds as mandatoryguarantee.21 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 5.Balance sheet components December 31, December 31, 2018 2017 (In thousands)Accounts receivable, net: Users $ 32,148 $ 25,615Advertising 7,061 6,868 Others debtors 4,646 5,506 43,855 37,989 Allowance for doubtful accounts (8,702) (9,821) $ 35,153 $ 28,168 December 31, December 31, 2018 2017 (In thousands)Credit cards receivable Credit cards and other means of payments $ 368,371 $ 526,314Allowance for chargebacks (8,073) (5,184) $ 360,298 $ 521,130 December 31, December 31, 2018 2017 (In thousands)Loans receivable, net Loans receivables $ 102,414 $ 78,139Allowance for uncollectible accounts (6,636) (4,730) $ 95,778 $ 73,409 December 31, December 31, 2018 2017 (In thousands)Current other assets: VAT credits $ 19,656 $ 15,819Income tax credits 26,304 24,902 Sales tax 5,307 10,002 Other 10,302 7,384 $ 61,569 $ 58,107 December 31, December 31, 2018 2017 (In thousands)Non current other assets: Advances for fixed assets $ — $ 21,612Judicial deposits 32,421 39,325 Other 5,323 2,997 $ 37,744 $ 63,934 22 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 5.Balance sheet components (continued) Estimated useful life December 31, December 31, (years) 2018 2017 (In thousands)Property and equipment, net: Equipment 3-5 $ 68,526 $ 62,218Land & Building 50 (1) 68,607 41,347 Furniture and fixtures 3-5 20,732 16,292 Software 3 139,611 97,871 Cars 3 — 14 297,476 217,742 Accumulated depreciation (131,862) (102,905) $ 165,614 $ 114,837(1)Estimated useful life attributable to “Buildings”. Year Ended December 31, 2018 2017 2016 (In thousands)Depreciation and amortization: Cost of net revenues $ 4,332 $ 3,737 $ 1,965Product and technology development 31,852 29,092 20,581 Sales and marketing 1,643 2,071 1,599 General and administrative 7,965 6,021 4,877 $ 45,792 $ 40,921 $ 29,022 December 31, December 31, 2018 2017 (In thousands)Accounts payable and accrued expenses: Accounts payable $ 243,307 $ 199,498Accrued expenses Advertising 16,083 16,575 Buyer protection program provision 4,146 1,087 Professional fees 1,242 1,146 Other expense provisions 1,888 2,698 Other current liabilities 93 91 $ 266,759 $ 221,095 December 31, December 31, 2018 2017 (In thousands)Current loans payable and other financial liabilities: Convertible notes $ 64,748 $ —Loans payable 46,273 36,876 Unsecured lines of credit 20,464 19,449 Finance lease obligations 1,464 — $ 132,949 $ 56,32523 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 5.Balance sheet components (continued) December 31, December 31, 2018 2017 (In thousands)Non current loans payable and other financial liabilities: Convertible notes $ 550,126 $ 311,994Loans payable 46,441 95 Finance lease obligations 5,661 — $ 602,228 $ 312,089 December 31, December 31, 2018 2017 (In thousands)Current other liabilities: Advanced Collections $ 20,465 $ —Provisions and contingencies (*) 5,992 —Contingent considerations and escrows from acquisitions 1,124 611 Other 6,517 3,067 $ 34,098 $ 3,678 December 31, December 31, 2018 2017 (In thousands)Non current other liabilities: Provisions and contingencies (*) $ 12,591 $ 16,791Contingent considerations and escrows from acquisitions 4,942 1,161 Other 1,975 514 $ 19,508 $ 18,466 December 31, December 31, December 31, 2018 2017 2016 (In thousands)Accumulated other comprehensive loss: Foreign currency translation $ (394,306) $ (283,647) $ (259,226)Unrealized gains (losses) on investments 3,345 1,211 (909)Estimated tax loss (gain) on unrealized gains on investments (616) (415) 322 $ (391,577) $ (282,851) $ (259,813)(*)Includes an amount of $12,770 thousands ($5,992 thousands current and $6,778 thousands non current) and $10,889 thousands as of December 31, 2018 and 2017,respectively, corresponding to deferred payments in relation to sales taxes up to the amounts disbursed for the building acquisitions in the City of Buenos Aires, asexplained in Note 2.24 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 5.Balance sheet components (continued)The following table summarizes the changes in accumulated balances of other comprehensive loss for the year December 31, 2018: Unrealized Unrealized Foreign Estimated tax (Loss) Gains on (Losses) Gains on Currency (expense) hedging activities, net(*) Investments Translation benefit Total 2018 Total 2017 (In thousands)Balances as ofDecember 31, 2017 $ — $ 1,211 $ (283,647) $ (415) $ (282,851) $ (259,813)Other comprehensive(loss) income beforereclassifications 1,533 3,345 (110,659) (616) (106,397) (40,935)Amount of (gain) lossreclassified fromaccumulated othercomprehensive (loss)income (1,533) (1,211) — 415 (2,329) 587 Reclassification ofcurrency translationadjustment due todeconsolidation ofVenezuelansubsidiaries — — — — 17,310 Net current periodother comprehensive(loss) income — 2,134 (110,659) (201) (108,726) (23,038)Ending balance $ — $ 3,345 $ (394,306) $ (616) $ (391,577) $ (282,851)(*) During 2018, the Company used foreign currency exchange contracts to hedge the foreign currency effects related to the principal amount of certain loans denominatedin U.S. dollars owed by a Brazilian subsidiary whose functional currency is the Brazilian Reais. These contracts were settled in December 2018.25 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 loss for the year ended December 31,2018: 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 gains on investments $ 1,211 Interest income and other financialgainsUnrealized gains on hedging activities 1,533 Foreign currency gains (losses)Estimated tax gain on unrealized losses on investments (415) Income tax lossTotal reclassifications for the year $ 2,329 Total, net of income taxes 6.Business combinations, goodwill and intangible assetsBusiness combinationsAcquisition of a software development company in ArgentinaIn October 2018, the Company, through its subsidiaries Meli Participaciones S.L. and Marketplace Investment LLC, completed the acquisitionof 100% of the equity interest of Kaitzen S.A. and Kinexo S.A. (K&K), which are software development companies located and organized underthe laws of Argentina. The objective of the acquisition was to enhance the capabilities of the Company in terms of software development.The aggregate purchase price for the acquisition was $4,053 thousands, measured at its fair value amount, which included: (i) the total cashpayment of $2,136 thousands at the time of closing; (ii) an escrow of $1,051 thousands and (iii) a contingent additional cash consideration upto $866 thousands.The Company’s consolidated statement of income includes the results of operations of the acquired business as from October 2018. The netincome before intercompany eliminations of the acquired Company included in the Company’s consolidated statement of income since theacquisition amounted to $419 thousands.In addition, the Company incurred in certain direct costs of the business combination which were expensed as incurred.The following table summarizes the purchase price allocation for the acquisition: K&KIn thousands of U.S. dollars Cash and cash equivalents $222 Other net tangible liabilities (6) Total net tangible assetsacquired 216 Customer lists 375 Trademark 721 Non-solicitation and Non-compete agreements 698 Goodwill 2,043 Purchase Price $4,053 26 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 6.Business combinations, goodwill and intangible assets (continued)Business combinations (continued)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, non-compete and non-solicitation agreements for a total amount of $1,794 thousands. Management of the Company estimates that customer lists,trademark and non-compete agreements will be amortized over a three-year period, while non-solicitation agreements will be amortized over afive-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 Argentinean segment 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 such segment.Goodwill arising from this acquisition is not deductible for tax purposes.The results of operations for periods prior to the acquisitions, individually and in the aggregate, were not material to the Company’sconsolidated statements of income and, accordingly, pro forma information has not been presented.Acquisition of a machine learning company in ArgentinaIn September 2018, the Company, through its subsidiaries Meli Participaciones S.L. and Marketplace Investment LLC, completed theacquisition of 100% of the equity interest of Machinalis S.R.L., a company that develops machine-learning tools located and organized underthe laws of Argentina. The objective of the acquisition was to enhance the capabilities of the Company in machine-learning tools.The aggregate purchase price for the acquisition was $5,855 thousands, measured at its fair value amount, which included: (i) the total cashpayment of $2,566 thousands at the time of closing; (ii) an escrow of $2,096 thousands and (iii) a contingent additional cash consideration upto $1,193 thousands.The Company’s consolidated statement of income includes the results of operations of the acquired business as from September 2018. The netincome before intercompany eliminations of the acquired Company included in the Company’s consolidated statement of income since theacquisition amounted to $113 thousands.In addition, the Company incurred in certain direct costs of the business combination which were expensed as incurred.The following table summarizes the purchase price allocation for the acquisition: Machinalis S.R.L.In thousands of U.S. dollarsCash and cash equivalents $285 Other net tangible liabilities (47)Total net tangible assets acquired 238 Customer lists 100 Trademark 299 Non-solicitation and Non-compete agreements 239 Goodwill 4,979 Purchase Price $5,855 27 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 6.Business combinations, goodwill and intangible assets (continued)Business combinations (continued)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, non-compete and non-solicitation agreements for a total amount of $638 thousands. Management of the Company estimates that customer lists,trademark and non-compete agreements will be amortized over a three-year period, while non-solicitation agreements will be amortized over afive-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 proportionally to each of the segments identified by the Company’s Management,considering the synergies expected from this acquisition and it is expected that the acquiree will contribute to the earnings generation processof such segment. Goodwill arising from this acquisition is not deductible for tax purposes.The results of operations for periods prior to the acquisitions, individually and in the aggregate, were not material to the Company’sconsolidated statements of income and, accordingly, pro forma information has not been presented.Acquisition of a software development company in Brazil In December 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 2017. The netrevenues and net income of the acquiree included in the Company’s statement of income since the acquisition amounted to 251 thousands and41 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-yearperiod. The Company recognized goodwill for this acquisition based on Management’s 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 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 disclosed above, was not material to the consolidatedfinancial statements of income of the Company and, accordingly, such information has not been presented.Goodwill and intangible assetsThe composition of goodwill and intangible assets is as follows: December 31, December 31, 2018 2017 (In thousands)Goodwill $ 88,883 $ 92,279Intangible assets with indefinite useful lives - Trademarks 8,584 11,587 Amortizable intangible assets - Licenses and others 5,406 6,175 - Non-compete agreement 3,028 2,689 - Customer list 14,897 16,584 - Trademarks 4,565 1,772 Total intangible assets $ 36,480 $ 38,807Accumulated amortization (17,899) (15,633)Total intangible assets, net $ 18,581 $ 23,174GoodwillThe changes in the carrying amount of goodwill for the years ended December 31, 2018 and 2017 are as follows: Year ended December 31, 2018 Brazil Argentina Mexico Chile Colombia Other Countries Total (In thousands)Balance,beginningof theperiod $ 32,492 $ 5,761 $ 30,396 $ 18,805 $ 3,632 $ 1,193 $ 92,279 - Businessacquisitions 3,110 3,175 543 61 80 53 7,022 - Effect ofexchangerateschanges (5,533) (1,990) 401 (2,852) (373) (71) (10,418)Balance,end of theyear $ 30,069 $ 6,946 $ 31,340 $ 16,014 $ 3,339 $ 1,175 $ 88,883 29 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 6.Business combinations, goodwill and intangible assets (continued) Year ended December 31, 2017 Brazil Argentina Mexico Chile Venezuela Colombia Other Countries Total (In thousands)Balance, beginning of the year $ 27,660 $ 6,587 $ 29,342 $ 17,388 $ 5,989 $ 3,643 $ 1,188 $ 91,797 - Business acquisitions 5,966 — — — — — — 5,966 - Effect of exchange rateschanges (1,134) (826) 1,054 1,417 — (11) 5 505 - Deconsolidation of Venezuelansubsidiaries — — — — (5,989) — — (5,989)Balance, end of the year $ 32,492 $ 5,761 $ 30,396 $ 18,805 $ — $ 3,632 $ 1,193 $ 92,279 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 $6,102 thousands, $4,402 thousands and $4,030 thousands for the years ended December 31, 2018, 2017 and 2016, respectively.The following table summarizes the remaining amortization of intangible assets with definite useful life as of December 31, 2018:For year ended 12/31/2019$ 3,513For year ended 12/31/20202,299 For year ended 12/31/20211,827 For year ended 12/31/20221,125 Thereafter1,233 $ 9,997 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 and other countries (such as Chile, Colombia, CostaRica, Dominican Republic, Ecuador, Peru, Panama, Honduras, Nicaragua, El Salvador, Uruguay, Bolivia, Guatemala, Paraguay and the UnitedStates of America).30 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 7.Segments (continued)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 and 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.As a consequence of the implementation of ASC 606 further described in Note 2, the Company reassessed the definition of its customers foreach service, which resulted in a change of the information presented for net revenues by similar services. As of January 1, 2018 when theCompany acts as an agent, net revenues from shipping are presented net of the respective transportation costs as part of the EnhancedMarketplace service. Such change has been applied retroactively for comparative purposes.The following tables summarize the financial performance of the Company’s reporting segments: Year Ended December 31, 2018 Brazil Argentina Mexico Other Countries Total (In thousands)Net revenues $ 866,175 $ 376,563 $ 109,096 $ 87,819 $ 1,439,653 Direct costs (762,636) (254,539) (164,637) (79,581) (1,261,393)Direct contribution 103,539 122,024 (55,541) 8,238 178,260 Operating expenses and indirect costs of net revenues (247,742)Loss from operations (69,482) Other income (expenses): Interest income and other financial gains 42,039 Interest expense and other financial losses (56,249)Foreign currency gains 18,240 Net loss before income tax gain $ (65,452) Year Ended December 31, 2017 Brazil Argentina Mexico Venezuela (*) Other Countries Total (In thousands)Net revenues $ 690,808 $ 359,357 $ 51,335 $ 54,327 $ 60,715 $ 1,216,542 Direct costs (471,588) (215,831) (107,408) (22,101) (53,201) $ (870,129)Impairment of Long-lived Assets - - - (2,837) - $ (2,837)Loss on deconsolidation of Venezuelansubsidiary - - - (76,617) - $ (76,617)Direct contribution 219,220 143,526 (56,073) (47,228) 7,514 266,959 Operating expenses and indirect costs of netrevenues (201,542)Loss on Deconsolidation of Venezuelan'sIntercompany balances (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.31 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 7.Segments (continued) 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 ofnet revenues (136,366)Income from operations 181,056 Other income (expenses): Interest income and other financialgains 35,442 Interest expense and other financiallosses (25,605)Foreign currency losses (5,565)Net income before income tax expense $ 185,328 The following table summarizes the allocation of the long-lived tangible assets based on geography: December 31, December 31, 2018 2017 (In thousands)US property and equipment, net $ 2,959 $ 7,037Other countries Argentina 58,358 26,028 Brazil 78,227 68,796 Mexico 16,497 3,570 Other countries 9,573 9,406 $ 162,655 $ 107,800Total property and equipment, net $ 165,614 $ 114,837The following table summarizes the allocation of the goodwill and intangible assets based on geography: December 31, December 31, 2018 2017 (In thousands)US intangible assets $ 46 $ 119Other countries goodwill and intangible assets Argentina 9,050 6,059 Brazil 32,955 36,462 Mexico 35,993 38,600 Chile 24,638 28,985 Other countries 4,782 5,228 $ 107,418 $ 115,334Total goodwill and intangible assets $ 107,464 $ 115,45332 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 7.Segments (continued)Consolidated net revenues by similar products and services for the years ended December 31, 2018, 2017 and 2016 were as follows: Consolidated Net Revenues 2018 2017 2016 (In thousands)Enhanced Marketplace (*) $ 702,379 $ 737,465 $ 548,140Non-marketplace (**)(***) $ 737,274 $ 479,077 $ 296,256Total $ 1,439,653 $ 1,216,542 $ 844,396(*)Includes Final Value Fees and Shipping fees.(**) Includes, among other things, Ad Sales, Classified Fees, Payment Fees and other ancillary services.(***)Includes an amount of $601,021 thousands, $356,417 thousands and $201,976 thousands of Payment Fees for the year ended December 31, 2018, 2017 and 2016,respectively.33 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 31,2018 and 2017: 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 observable inputs inputsDescription 2018 (Level 1) (Level 2) (Level 3) 2017 (Level 1) (Level 2) (Level 3) (In thousands)Assets Cash and CashEquivalents: Money MarketFunds $ 179,252 $ 179,252 $ — $ — $ 85,337 $ 85,337 $ — $ — Restricted Cash andCash Equivalents: Money MarketFunds 24,363 24,363 — — — — — —Investments: Sovereign DebtSecurities(Central Bankof Brazilmandatoryguarantee) 284,317 284,317 — — — — — —Sovereign DebtSecurities 429,602 429,602 — — 15,896 15,896 — —Corporate DebtSecurities 262 237 25 — 24,313 15,512 8,801 —Total FinancialAssets $ 917,796 $ 917,771 $ 25 $ — $ 125,546 $ 116,745 $ 8,801 $ — Liabilities: Contingentconsiderations $ 2,097 $ — $ — $ 2,097 $ — $ — $ — $ — Long-termretention plan 42,625 — 42,625 — 43,227 — 43,227 —Total FinancialLiabilities $ 44,722 $ — $ 42,625 $ 2,097 $ 43,227 $ — $ 43,227 $ — As of December 31, 2018 and 2017, 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.34 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 8.Fair value measurement of assets and liabilities (continued)As of December 31, 2018 and 2017, 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, 2018, the Company assumed contingent considerations for anamount of $2,097 thousands.The unrealized net gains or loss on short term and long term investments are reported as a component of other comprehensive income. TheCompany does not anticipate any significant realized losses associated with those investments in excess of the Company’s historical cost.As of December 31, 2018 and 2017, 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, cash equivalents, restrictedcash and cash equivalents and short-term investments (excluding money markets funds and debt securities), accounts receivable, credit cardsreceivable, loans receivable, funds payable to customers, other assets, accounts payable, salaries and social security payable (excludingvariable LTRP), taxes payable, provisions and other liabilities (excluding contingent consideration). The carrying values of the 2019 Notes(liability component) and the 2028 Notes (liability component) approximate their fair value because as of December 31, 2018 the discountrates used for the initial accouting are not materially different from market interest rates. As of December 31, 2017 the estimated fair value ofthe 2019 Notes (liability component), which was based on level 2 inputs, was $323,080 thousands and was determined based on marketinterest rates. The rest of the loans payable and other financial liabilities approximate their fair value because the interest rates are notmaterially different from market interest rates.The following table summarizes the fair value level for those financial assets and liabilities of the Company measured at amortized cost as ofDecember 31, 2018 and 2017: Balances as of Significant other Balances as of Significant other December 31, observable inputs December 31, observable inputs 2018 (Level 2) 2017 (Level 2) (In thousands)Assets Time Deposits $ 20,056 20,056 $ 202,820 $ 202,820Accounts receivable, net 35,153 35,153 28,168 28,168 Credit Cards receivable, net 360,298 360,298 521,130 521,130 Loans receivable, net 95,778 95,778 73,409 73,409 Other assets 102,753 102,753 101,552 101,552 Total Assets $ 614,038 $ 614,038 $ 927,079 $ 927,079Liabilities Accounts payable and accrued expenses $ 266,759 $ 266,759 $ 221,095 $ 221,095Funds payable to customers 640,954 640,954 583,107 583,107 Salaries and social security payable 40,942 40,942 46,828 46,828 Taxes payable 31,058 31,058 32,150 32,150 Dividends payable — — 6,624 6,624 Loans payable and other financial liabilities (*) 735,177 735,177 368,414 379,500 Other liabilities 51,509 51,509 22,144 22,144 Total Liabilities $ 1,766,399 $ 1,766,399 $ 1,280,362 $ 1,291,448 (*) The fair value of the 2019 Notes and the 2028 Notes (including the equity component) is disclosed in Note 17.As of December 31, 2018 and 2017, the Company held no direct investments in auction rate securities and does not have any non-financialassets or liabilities measured at fair value.35 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 8.Fair value measurement of assets and liabilities (continued)As of December 31, 2018 and 2017, the fair value of money market funds, short and long-term investments classified as available for salesecurities are as follows: December 31, 2018 Cost Gross Unrealized Gains(1) Gross Unrealized Losses (1) Estimated Fair Value (In thousands)Cash and cash equivalents Money Market Funds $ 179,252 $ — $ — $ 179,252Total Cash and cash equivalents $ 179,252 $ — $ — $ 179,252 Restricted Cash and cash equivalents Money Market Funds $ 24,363 $ — $ — $ 24,363Total Restricted Cash and cash equivalents $ 24,363 $ — $ — $ 24,363 Short-term investments Sovereign Debt Securities (Central Bank of Brazilmandatory guarantee) $ 282,752 $ 1,565 $ — $ 284,317Sovereign Debt Securities 156,910 237 — 157,147 Corporate Debt Securities 21 — — 21 Total Short-term investments $ 439,683 $ 1,802 $ — $ 441,485 Long-term investments Sovereign Debt Securities $ 271,024 $ 1,431 $ — $ 272,455Corporate Debt Securities 244 — (3) 241 Total Long-term investments $ 271,268 $ 1,431 $ (3) $ 272,696 Total $ 914,566 $ 3,233 $ (3) $ 917,796 36 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 8.Fair value measurement of assets and liabilities (continued) December 31, 2017Cost Gross Unrealized Gains(1) Gross Unrealized Losses(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 Securities4,396 — (9) 4,387 Total Short-term investments$ 6,631 $ — $ (19) $ 6,612 Long-term investments Sovereign Debt Securities$ 13,821 $ — $ (150) $ 13,671Corporate Debt Securities20,054 — (128) 19,926 Total Long-term investments$ 33,875 $ — $ (278) $ 33,597 Total$ 125,843 $ — $ (297) $ 125,546(1)Unrealized gains (losses) from securities are attributable to market price movements, net foreign exchange losses and foreign currency translation. Managementdoes not believe any remaining significant unrealized losses represent other-than-temporary impairments based on the evaluation of available evidence includingthe credit rating of the investments, as of December 31, 2018 and 2017. The material portion of the Sovereign Debt Securities is U.S. Treasury Notes and Brazilian federal government bonds with no significant riskassociated.As of December 31, 2018, the estimated fair values (in thousands of U.S. dollars) of money market funds, short-term and long-term investmentsclassified by its effective maturities or Management expectation to convert the investments into cash are as follows: One year or less 645,100 One year to two years 272,476 Two years to three years 155 Three years to four years 40 Four years to five years 25 Total $ 917,79637 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 9.Common stockAuthorized, issued and outstanding sharesAs of December 31, 2018 and 2017, 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, 2018 and 2017, there were 45,202,859 and 44,157,364 shares of common stock issued and outstanding with a par value of$0.001 per share.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, 2018 and 2017, 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 Select Market during the 30-trading day period preceding the Annual Meeting of Stockholders to be held during the respectivecompensation period divided by (b) the average closing sale price of our common stock on The NASDAQ Global Select Market during the 30-trading day period preceding the prior Annual Meeting of Stockholders. The Director Compensation Program also includes a non-adjustablechair service award for committee services from June 2016 to June 2019. Under the terms of the Director Compensation Program, the chair ofeach of the Audit Committee, Compensation Committee, Nominating and Corporate Governance Committee and the lead independent directorare entitled to receive annual cash compensation in addition to existing director compensation in the amount of $22 thousands, $22thousands, $7 thousands 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, 2018, 2017 and 2016: Year ended December 31, 2018 2017 2016 (In thousands)Chairman Fee $ 66 $ 66 $ 64Adjustable Award 779 1,432 783 Non-adjustable Award 420 416 444 $ 1,265 $ 1,914 $ 1,291 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, 2018, 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, 2018, there are no outstanding options granted under the 2009 Plan.There was no granting during the period from January 1, 2007 to December 31, 2018. 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, 2018.39 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 14.Income taxesThe components of pretax (loss) income in consolidated companies for the years ended December 31, 2018, 2017 and 2016 are as follows: Year Ended December 31, 2018 2017 2016 (In thousands)United States $ (19,461) $ (29,895) $ (12,321)Brazil (38,778) 104,641 106,123 Argentina 107,913 132,913 115,032 Mexico (91,681) (78,778) (15,747)Venezuela(*) — (8,890) (15,202)Other Countries(**) (23,445) (65,921) 7,443 $ (65,452) $ 54,070 $ 185,328(*) In 2017, corresponds to the pretax loss for the eleven-month period until deconsolidation occurred (Note 2).(**) In 2017, 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, 2018 2017 2016 (In thousands)Income Tax: Current: U.S. $ (10) $ 22 $ 47Non-U.S. 64,028 64,843 55,103 64,018 64,865 55,150 Deferred: U.S. (3,618) 1,827 1,337 Non-U.S. (89,267) (26,402) (7,525) (92,885) (24,575) (6,188)Income tax (gain) expense (28,867) 40,290 48,962 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 2018, 2017 and 2016 to income before taxes: Year Ended December 31, 2018 2017 2016 (In thousands)Net (loss) income before income tax $ (65,452) $ 54,070 $ 185,328Income tax rate 21% 35% 34% Expected income tax gain (expense) $ (13,745) $ 18,925 $ 63,148Permanent differences: Federal and assets taxes 7 14 31 Transfer pricing adjustments 1,818 1,634 1,328 Non-deductible tax 1,043 800 545 Non-deductible expenses 6,982 5,704 599 Loss on deconsolidation of Venezuelan subsidiaries — 21,006 —Dividend distributions 1,085 5,342 5,860 Impairment of Venezuela property and equipment — 888 3,216 Non-taxable income (*) (31,562) (27,602) (25,923)Effect of rates different than statutory 3,020 10,039 —Currency translation 3,866 (202) (8,245)Change in valuation allowance 3,130 14,040 8,535 Reversal of outside basis dividends — (12,097) —Argentine tax reform (including changes in income tax rate) 1,217 1,828 —U.S. tax reform — (840) —Colombia tax reform 442 — —Deferred tax reversed by merger (3,994) — —Exchange of convertible note (1,756) — —True up (420) 811 (132)Income tax (gain) expense $ (28,867) $ 40,290 $ 48,962(*)Includes Argentine Tax holiday described in Note 2 “Income taxes”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, 2018 and 2017: December 31, December 31, 2018 2017 (In thousands)Deferred tax assets Allowance for doubtful accounts $ 8,191 $ 8,655Unrealized net gains on investments — 133 Property and equipment, net 4,472 1,217 Accounts payable and accrued expenses 2,324 230 Payroll and social security payable 6,374 8,098 Foreign exchange effect 1,233 —Taxes payable 781 565 Non compete agreement 114 —Provisions and non-deductible interest 9,901 6,505 Foreign tax credit 11,207 12,097 Tax loss carryforwards 112,565 35,246 Total deferred tax assets 157,162 72,746 Valuation allowance (15,724) (15,422)Total deferred tax assets, net 141,438 57,324 Deferred tax liabilities Property and equipment, net (17,265) (15,269)Customer lists (1,296) (1,928)Non compete agreement (100) (16)Unrealized net losses on investments (462) —Trademarks (1,074) (1,537)Goodwill (3,199) (3,211)Convertible notes and Capped Call (68,302) (1,846)Foreign exchange effect — (12)Total deferred tax liabilities $ (91,698) $ (23,819)As of December 31, 2018, consolidated loss carryforwards for income tax purposes were $356,869 thousands. If not utilized, tax losscarryforwards will begin to expire as follows: 2023$14 2024 15 2025 5,332 2026 12,885 2027 65,105 Thereafter 106,275 Without due dates 167,243 Total$356,869 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 of 2020. Thenew regulation imposes a withholding income tax on dividends paid by an Argentine entity of 7 percent for 2018 and 2019, increasing to 13percent as of 2020. Also, repeals the current “equalization tax” (i.e., 35 percent withholding applicable to dividends distributed in excess ofthe 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.In addition, in September 2018, the Argentine Government issued the Decree 793/2018 which established a temporary withholding on exportsof 12%. This new withholding on exports will be applicable for exports of years 2019 and 2020.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 the Company’s foreign subsidiaries. To determine the amount of the Transition Tax, the Company must determine, in addition toother 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 Company filed its 2017 U.S. Federal Income Tax return in October 2018, and in connection with that filing finalized its calculation of theTransition Tax and determined that no tax duty resulted from the Transition Tax since the tax was offset in its entirety with available foreigntax credits as of December 31, 2017. Because the final calculation was consistent with the Company’s previous estimate of the Transition Tax,the Company has not recorded any adjustments as a result of finalizing the calculation.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 recorded avaluation allowance of $ 11,207 thousands and $12,097 thousands to fully reserve the outstanding foreign tax credits as of December 31, 2018and 2017, respectively.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 was not required to record any impact in connection with the potential GILTI tax as of December 31, 2018 and 2017, respectively.Management considers the earnings of our foreign subsidiaries to be indefinitely reinvested, other than certain earnings of which thedistributions do not imply withholdings, exchange rate differences or state income taxes, and for that reason has not recorded a deferred taxliability. 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.Proceeding-related liabilities are based on developments to date and historical information related to actions filed against the Company. As ofDecember 31, 2018, the Company had accounted for estimated liabilities involving proceeding-related contingencies and other estimatedcontingencies of $5,813 thousands to cover legal actions against the Company in which its Management has assessed the likelihood of a finaladverse outcome as probable. Expected legal costs related to litigations are accrued when the legal service is actually provided. In addition, asof December 31, 2018, the Company and its subsidiaries are subject to certain legal actions considered by the Company’s Management and itslegal counsels to be reasonably possible for an aggregate amount up to $6,940 thousands. No loss amounts have been accrued for suchreasonably possible legal actions, the most significant of which are described below.City of São Paulo Tax ClaimIn 2007, São Paulo tax authorities assessed taxes and fines against the Company’s Brazilian subsidiary MercadoLivre.com relating to the“Imposto sobre Serviços” for the period from 2005 to 2007 in an approximate amount of $5.9 million according to the exchange rate in effectat that time. In 2007, the Company presented administrative defenses against the authorities’ claim. On September 12, 2009, the São Paulo taxauthorities ruled against the Company, upholding the previously assessed taxes and fines. Also in 2009, the Company presented an appeal tothe Conselho Municipal de Tributos (São Paulo Municipal Council of Taxes), which reduced the fine. On February 11, 2011, the Companyappealed this decision to the Câmaras Reunidas do Conselho Municipal de Tributos (Superior Chamber of the São Paulo Municipal Council ofTaxes), which affirmed the reduction of the fine. This decision concluded the administrative stage. On August 15, 2011, the Company made adeposit in court of R$9.5 million and filed a lawsuit with the 8th Public Treasury Court of the City of São Paulo, State of São Paulo, Brazil, tocontest the taxes and fines assessed by the tax authorities. On May 31, 2016, a lower court judge ruled in favor of the Company. On November10, 2016, the São Paulo Municipal Council appealed that decision. On April 12, 2018, the São Paulo Appellate Court rejected an appeal of theSão Paulo Municipal Council, confirming the 2016 lower court decision in favor of the Company. On July 4, 2018, the São Paulo AppellateCourt denied the admissibility of a subsequent special appeal by the São Paulo Municipal Council. As of the date of this report, the Companyis waiting for a further appeal to the Superior Court of Justice that may be filed by the São Paulo Municipal Council. As of the date of theseconsolidated financial statements, the total amount of the claim is $4.0 million, including surcharges and interest. The opinion of theCompany's management, based on the opinion of external legal counsel, is that the risk of losing the case is remote.44 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 15.Commitments and Contingencies (continued)Tax ClaimsOn September 2, 2011, the Brazilian Federal tax authority asserted taxes and fines against the Brazilian subsidiary, Mercadolivre.com, relatingto the income tax for the 2006 period in an approximate amount $ 1.3 million according to the exchange rate in effect as of December 31,2018. 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, partially decreasing the outstanding debt. On November 21, 2014, the Companyappealed to the Board of Tax Appeals, which rejected the appeal on September 8, 2016. The Company filed an appeal against the decision, andthe Câmara Superior de Recursos Fiscais (Superior Administrative Court of Tax Appeals) ruled against the Company to uphold the claimedtaxes and fines. This decision marked the end of the administrative stage. On July 28, 2017, the Company filed an annulment court actionagainst the federal tax authority, which is now in its evidentiary phase. In December 2017, the Company also posted a bank security bond inthe amount of $ 0.6 million according to the exchange rate as of December 31, 2018. The Company´s management, based on the opinion ofexternal legal counsel, believes that the tax position adopted is more likely than not, based on the technical merits of the tax position. For thatreason, the Company has not recorded any expense or liability for the controversial amounts.Brazilian preliminary injunction against the Brazilian tax authoritiesOn November 6, 2014, the Brazilian subsidiaries Mercadolivre.com, Ebazar and MercadoPago filed a writ of mandamus and requested apreliminary injunction with the Federal Court of Osasco against the federal tax authority to avoid the IR (income tax) withholding overpayments remitted by the Brazilian subsidiaries to the Argentine subsidiary (Mercado Libre S.R.L.) for the provision of IT support andassistance services by the latter, and requested reimbursement of the amounts improperly withheld over the course of the preceding five (5)years. The preliminary injunction was granted on the grounds that such withholding violated the convention signed between Brazil andArgentina that prevents double taxation. In August 2015, the injunction was revoked by the first instance judge in its award, which wasfavorable to the tax authority. The Company filed an appeal in September 2015, which is pending judgment. As a result, the Company hasstarted making deposits in court for the disputed amounts (in a total amount of $28.4 million as of December 31, 2018). Management’sopinion, based on the opinion of external legal counsel, is that the tax authorities’ position is more likely than not to succeed in court, basedon the technical merits of the tax position and the existence of favorable decisions issued by 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 asserted taxes and fines against its Brazilian subsidiary, Ebazar, relating to the entitlement ofPIS and COFINS credits from 2012 in an approximate amount of $0.8 million, according to the exchange rate as of December 31, 2018. TheCompany presented administrative defenses against the authorities’ claim, which is pending judgment. 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.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 $3.1 million according to the exchangerate as of December 31, 2018. On February 1, 2017, the Company presented administrative defenses against the authorities’ claim. On October9, 2017, a judgment was handed down recognizing that expenses with credit card companies are essential for payment institutions. OnSeptember 22, 2017, the award rendered was partially favorable to the Company, reducing the value of the tax assessment notice byapproximately 60%. The Company filed an administrative appeal, which is pending judgment. Management’s opinion, based on the opinionof external legal counsel, 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 the Brazilian subsidiary IBazar relating to “ICMS” (tax oncommerce and services) for the period from July 2012 to December 2013 in an amount of $3.2 million according to the exchange rate as ofDecember 31, 2018. The Company filed administrative defenses against the claim, but the São Paulo authorities ruled against the Companyand upheld the claimed taxes and fines. On October 30, 2017, the Company filed an appeal with the Tribunal de Impostos e Taxas de SãoPaulo (São Paulo Tax Administrative Court), which granted the appeal on February 23, 2018. The tax authorities filed a special appeal withthe Câmara Superior (Superior Chamber of the Administrative Court), which was admitted on August 1, 2018 and is now pendingjudgment. Management’s opinion, based on the opinion of external legal counsel, is that the risk of losing the case is reasonably possible, butnot probable.45 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 15.Commitments and Contingencies (continued)Other third parties have from time to time claimed, and others may claim in the future, that the Company was responsible for fraud committedagainst them, or that the Company has infringed their intellectual property rights. The underlying laws with respect to the potential liability ofonline intermediaries like the Company are unclear in the jurisdictions where the Company operates. Management believes that additionallawsuits alleging that the Company has violated copyright or trademark laws will be filed against the Company in the future.Intellectual property and regulatory claims, whether meritorious or not, are time consuming and costly to resolve, require significant amountsof management time, could require expensive changes in the Company’s methods of doing business, or could require the Company to enterinto costly royalty or licensing agreements. The Company may be subject to patent disputes, and be subject to patent infringement claims asthe Company’s services expand in scope and complexity. In particular, the Company may face additional patent infringement claimsinvolving various aspects of the payments businesses.From time to time, the Company is involved in other disputes or regulatory inquiries that arise in the ordinary course of business. The numberand significance of these disputes and inquiries are increasing as the Company’s business expands and the Company grows larger.Operating leasesThe Company has leases for office space and fulfillment centers in the various countries in which it operates. Total rental expense amounted to$11,206 thousands, $7,771 thousands and $6,112 thousands for the years ended December 31, 2018, 2017 and 2016, respectively.Minimum remaining annual commitments under the non-cancelable operating leases are as follows: For the year ended December 31, 2019$32,624 For the year ended December 31, 202039,300 For the year ended December 31, 202139,339 For the year ended December 31, 202238,267 For the year ended December 31, 202336,654 Thereafter195,348 $381,532 Buyer protection programThe Company provides consumers with a BPP for all transactions completed through MercadoPago. This program is designed to protect buyersin the Marketplace from losses due primarily to fraud or counterparty non-performance. The Company’s BPP provides protection to consumersby reimbursing them for the total value of a purchased item and the value of any shipping service paid if it does not arrive or does not matchthe seller’s description. The Company is entitled to recover from the third-party carrier companies performing the shipping service certainamounts paid under the BPP. Furthermore, in some specific circumstances (i.e. Black Friday, Hot Sale), the Company enters into insurancecontracts with third-party insurance companies in order to cover contingencies 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 terms and conditions of the Company’s BPP. Based on historical losses to date, the Company does not believe that themaximum potential exposure is representative of the actual potential exposure. The Company records a liability with respect to losses underthis program when they are probable and the amount can be reasonably estimated.As of December 31, 2018 and 2017, Management’s estimate of the maximum potential exposure related to the Company’s buyer protectionprogram is $988,664 thousands and $925,690 thousands, respectively, for which the Company recorded a provision of $4,146 thousands and$1,087 thousands, respectively.46 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 15.Commitments and Contingencies (continued)Employment ContractsEach executive officer of the Company is a party to an individual employment agreement. The executive employment agreements provide forannual base salaries of approximately $1,457 thousands per year in the aggregate. For the year ended 2018 the executive officers will notreceive annual bonus payment due to planned targets were not achieved. The executive employment agreements automatically renewannually, if not terminated by either party. Each agreement includes clauses that provide that in the event of an executive officer’s terminationof 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 2011 Planthe executive officers of the Company are eligible to receive approximately $1,655 thousands in a period of 3 months. Under the 2012 Plan theexecutive officers of the Company are eligible to receive approximately $3,321 thousands in a period of 1 year and 3 months. Under the 2013Plan the executive officers of the Company are eligible to receive approximately $4,395 thousands in a period of 3 months. Under the 2014Plan the executive officers of the Company are eligible to receive approximately $6,474 thousands in a period of 1 year and 3 months. Underthe 2015 Plan the executive officers of the Company are eligible to receive approximately $9,555 thousands in a period of 2 years and 3months. Under the 2016 Plan the executive officers of the Company are eligible to receive approximately $14,079 thousands in a period of 3years and 3 months. Under the 2017 Plan the executive officers of the Company are eligible to receive approximately $13,680 thousands in aperiod of 4 years and 3 months. Finally, because the targets planned were not achieved in 2018, executive officers will not receive anycompensation of the 2018 Plan. In all cases, the estimated amount has been calculated considering the average closing price of the Company´scommon stock on the NASDAQ Global Select Market during the final 60 -trading days as of December 31, 2018.Loans payable and other financial liabilitiesDuring last quarter of 2018, the Company, through its Chilean subsidiary, obtained two lines of credit from Scotiabank Chile denominated inChilean Pesos, to be applied to working capital needs. As of December 31, 2018, the amount outstanding under these lines of credit is $7,211thousands and $4,325 thousands with maturity in January 2019 (renewed upon maturity) and bears interest at a fixed rate of 3.61% and 3.64%per annum, respectively. In addition, the Chilean subsidiary, obtained two lines of credit from Banco de Chile denominated in Chilean pesos,to be applied to working capital needs. As of December 31, 2018, the amount outstanding under these lines of credit is $9,382 thousands and$9,147 thousands with maturity in January 2019 (renewed upon maturity) and bears interest at a fixed rate of 3.84% and 3.48% per annum,respectively. Lastly, the Chilean subsidiary obtained an unsecured line of credit from Banco de Chile denominated in local currency for anamount of $1,185 thousands which bears interest at a fixed rate of 4.59% per annum. These lines of credit have maturity date within the nexttwo months.As of December 31, 2018, the Company, through its Uruguayan subsidiary obtained an unsecured line of credit denominated in local currencyfor an amount of $13,462 thousands which bears interest at a fixed rate of 9.11% per annum; through its Argentine subsidiary obtainedunsecured lines of credit denominated in local currency for an amount of $8,579 thousands and $4,942 thousands, which bears fixed interest ata weighted average rate of 63.29% and a fixed rate of 85.00% per annum, respectively.As of December 31, 2018 the Company, through its Mexican subsidiary, had two finance leases contracts in force related to facilities for itsfulfillment center. The outstanding amount is $5,972 thousands which bears interest at a fixed rate of 6.39% per annum with maturity withinthe next 5 years and $1,153 thousands which bears interest at a fixed rate of 9.00% per annum with maturity within the next 5.7 years.See additionally Note 17 and 22 to these consolidated financial statements for details regarding the Company’s 2019 Notes and 2028 Notesand collateralized debt securitization, respectively. 47 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 16.Long term retention planOn June 28, 2018, the Board of Directors, upon the recommendation of the Compensation Committee, adopted the 2018 Long-Term RetentionPlan (“2018 LTRP”). In addition to the annual salary and bonus of each employee, certain employees (“Eligible Employees”) are eligible toparticipate in the 2018 LTRP, which provides for the grant to an Eligible Employee of a cash-settled fixed (a “2018 LTRP Fixed Award”) andcash-settled variable award, (a “2018 LTRP Variable Award”, and together with any 2018 LTRP Fixed Award, the “2018 LTRP Awards”). Inorder to receive payment in respect of the 2018 LTRP Awards, each Eligible Employee must satisfy the performance conditions established bythe 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 2018 LTRP Awards, payable as follows:·2018 LTRP Fixed Award: the Eligible Employee will receive a fixed payment equal to 16.66% of his or her 2018 LTRP Fixed Awardonce a year for a period of six years starting in March 2019 (the “Annual Fixed Payment”); and·2018 LTRP Variable Award: on each date the Company pays the Annual Fixed payment to the Eligible Employee, he or she will alsoreceive the 2018 LTRP Variable Award payment equal to the product of (i) 16.66% of the applicable 2018 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 2017 Stock Price (as defined below). For purposes of the 2018 LTRP, the “2017 Stock Price” shallequal $270.84 (the average closing price of the Company’s common stock on the NASDAQ Global Select Market during the final 60 -trading days of 2017) and the “Applicable Year Stock Price” shall equal the average closing price of the Company’s common stock onthe NASDAQ Global Select Market during the final 60-trading days of the year preceding the applicable payment date for so long as theCompany’s common stock is listed on the NASDAQ.The rest of LTRP outstanding as of December 31, 2018, follows similar calculation method as explain above for 2018 LTRP. The 2009, 2010,2011, 2012, 2013, 2014, 2015, 2016, 2017 and 2018 LTRP have performance and/or eligibility conditions to be achieved at each year-endand also require the employee remain employed by the Company as of each payment date.The following tables summarize the 2009, 2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017 and 2018 LTRP Variable Award contractualobligation for the years ended December 31, 2018, 2017 and 2016: December 31, 2018 December 31, 2017 December 31, 2016 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 Outstanding LTRP 2010 - - 1,721 0.25 2,062 0.75 Outstanding LTRP 2011 1,738 0.25 3,023 0.75 2,713 1.25 Outstanding LTRP 2012 3,460 0.75 4,469 1.25 3,569 1.75 Outstanding LTRP 2013 4,318 0.25 7,524 0.75 6,796 1.25 Outstanding LTRP 2014 6,037 0.75 7,900 1.25 6,357 1.75 Outstanding LTRP 2015 9,398 1.25 11,022 1.75 8,361 2.25 Outstanding LTRP 2016 15,343 1.75 16,949 2.25 11,977 2.75 Outstanding LTRP 2017 14,860 2.25 15,652 2.75 - -Outstanding LTRP 2018 8,135 2.88 - - - -48 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 16.Long term retention plan (continued)The following tables summarize the LTRP accrued compensation expense for the years ended December 31, 2018, 2017 and 2016: Year ended December 31, 2018 2017 2016 (In thousands)LTRP 2009 - 29 692 LTRP 2010 24 1,050 1,122 LTRP 2011 766 1,668 1,420 LTRP 2012 1,398 2,300 1,749 LTRP 2013 2,416 4,554 3,897 LTRP 2014 2,921 4,591 3,653 LTRP 2015 3,984 5,766 4,641 LTRP 2016 5,975 8,350 5,809 LTRP 2017 6,639 7,411 -LTRP 2018 3,402 - - $ 27,525 $ 35,719 $ 22,98317.Convertible Senior Notes2.00% Convertible Senior Notes Due 2028On August 24, 2018, the Company issued $800,000 thousands of 2.00% Convertible Senior Notes due 2028 and on August 31, 2018 theCompany issued an additional $80,000 thousand of notes pursuant to the partial exercise of the initial purchasers’ option to purchase suchadditional notes, resulting in an aggregate principal amount of $880,000 thousands of 2.00% Convertible Senior Notes due 2028 (collectively,the “2028 Notes”). The 2028 Notes are unsecured, unsubordinated obligations of the Company, which pay interest in cash semi-annually, onFebruary 15 and August 15 of each year, at a rate of 2.00% per annum. The 2028 Notes will mature on August 15, 2028 unless earlierredeemed, repurchased or converted in accordance with their terms prior to such date. The 2028 Notes may be converted, under specificconditions, based on an initial conversion rate of 2.2553 shares of common stock per $1,000 principal amount of the 2028 Notes (equivalent toan initial conversion price of $443.40 per share of common stock), subject to adjustment as described in the indenture governing the 2028Notes. See Note 2 of these consolidated financial statements for more details about the initial accounting of the 2028 Notes.The Company will not have the right to redeem the notes prior to August 21, 2023. On or after August 21, 2023, if the last reported sale priceof the Company’s common stock has been at or above 130% of the conversion price during specified periods, the Company may (at its option)redeem all or any portion of the 2028 Notes for cash equal to the 2028 Notes’ principal amount plus accrued and unpaid interest to, butexcluding the redemption date.Holders were able to convert their 2028 Notes at their option at any time prior to February 15, 2028 only under the following circumstances:(1) during any calendar quarter commencing after the calendar quarter ending on September 30, 2018 (and only during such calendar quarter),if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutivetrading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversionprice on each applicable trading day; (2) during the five business day period after any five consecutive trading day period (the “measurementperiod”) in which the trading price per $1,000 principal amount of 2028 Notes for each trading day of the measurement period was lessthan 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day; (3) ifthe Company calls any or all of the 2028 Notes for redemption, at any time prior to the close of business on the scheduled trading dayimmediately preceding the redemption date; or (4) upon the occurrence of specified corporate events. On or after February 15, 2028 until theclose of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their 2028 Notes at anytime, regardless of the foregoing circumstances. 49 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 17.Convertible Senior Notes (continued)2.00% Convertible Senior Notes Due 2028 (continued)In connection with the issuance of the 2028 Notes, the Company paid $91,784 thousands and $11,472 thousands (including transactionexpenses) in August 2018 and November 2018, respectively, to enter into the 2028 Notes Capped Call Transactions with certain financialinstitutions. The 2028 Notes Capped Call Transactions are expected generally to reduce the potential dilution upon conversion of the 2028Notes in the event that the market price of the Company’s common stock is greater than the strike price of the 2028 Notes Capped CallTransactions. The cost of the 2028 Notes Capped Call Transactions is included as a net reduction to additional paid-in capital in thestockholders’ equity section of the consolidated balance sheets.The total estimated fair value of the 2028 Notes was $787,266 thousands as of December 31, 2018. The fair value was determined based on theclosing trading price per $100 principal amount of the 2028 Notes as of the last day of trading for the period. The Company considered the fairvalue of the 2028 Notes as of December 31, 2018 to be a Level 2 measurement. The fair value of the 2028 Notes is primarily affected by thetrading price of our common stock and market interest rates. Based on the $292.85 closing price of the Company’s common stock on December31, 2018, the if-converted value of the 2028 Notes did not exceed their principal amount. The intention of the Company is to share-settle theexcess conversion value upon conversion of the 2028 Notes.The following table presents the carrying amounts of the liability and equity components related to the 2028 Notes as of December 31, 2018: December 31, 2018(In thousands)Amount of the equity component (1)$327,305 2.00% Convertible Senior Notes due 2028$880,000 Unamortized debt discount (2) (325,783)Unamortized transaction costs related to the debt component (9,958)Contractual coupon interest accrual 5,867 Net carrying amount$550,126 (1)Net of $6,163 thousands of transaction costs related to the equity component of the 2028 Notes.(2)As of December 31, 2018, the remaining period over which the unamortized debt discount will be amortized is 9.75 years.The following table presents the interest expense for contractual interest, the accretion of debt discount and the amortization of debt issuancecosts: Year ended December 31,2018(In thousands)Contractual coupon interest expense$5,867 Amortization of debt discount 7,686 Amortization of debt issuance costs 143 Total interest expense related to the 2028 Notes$13,696 50 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 17.Convertible Senior Notes (continued)2.25% Convertible Senior Notes Due 2019On June 30, 2014, the Company issued $330,000 thousands of 2.25% convertible senior notes due 2019 (the “2019 Notes”). The 2019 Notesare unsecured, unsubordinated obligations of the Company, which pay interest in cash semi-annually, on January 1 and July 1, at a rateof 2.25% per annum. The 2019 Notes will mature on July 1, 2019 unless earlier repurchased or converted in accordance with their terms priorto such date. The 2019 Notes may be converted, under specific conditions, based on an initial conversion rate of 7.9353 shares of commonstock per $1,000 principal amount of 2019 Notes (equivalent to an initial conversion price of $126.02 per share of common stock), subject toadjustment as described in the indenture governing the 2019 Notes.Holders could convert their 2019 Notes at their option at any time prior to January 1, 2019 only under the following circumstances: (1) duringany calendar quarter commencing after the calendar quarter ending on September 30, 2014 (and only during such calendar quarter), if the lastreported 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 2019 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.In connection with the issuance of the 2019 Notes, the Company paid $19,668 thousands, $67,308 thousands and $45,692 thousands(including transaction expenses) in June 2014, September 2017 and March 2018, respectively, to enter into capped call transactions withrespect to shares of the common stock (the “2019 Notes Capped Call Transactions” and together with the 2028 Notes Capped CallTransactions, the “Capped Call Transactions”), with certain financial institutions. The 2019 Notes Capped Call Transactions are expectedgenerally to reduce the potential dilution upon conversion of the 2019 Notes in the event that the market price of the common stock is greaterthan the strike price of the 2019 Notes Capped Call Transactions. The cost of the 2019 Notes Capped Call Transactions is included as a netreduction to additional paid-in capital in the stockholders’ equity section of the consolidated balance sheets.On August 24, 2018, the Company used a portion of the net proceeds from the 2028 Notes to repurchase or exchange and retire $263,724thousands principal amount of its outstanding 2019 Notes. The consideration paid included $348,123 thousands in cash and 1,044,298 sharesof the Company’s common stock. Additionally, the Company entered into agreements with certain financial institutions who werecounterparties to the existing 2019 Notes Capped Call Transactions entered into in June 2014 and September 2017 to terminate a portion ofthose transactions, in each case, in a notional amount corresponding to the amount of 2019 Notes repurchased or exchanged and retired. Inconnection with the termination of existing 2019 Notes Capped Call Transactions and the related unwinding of the existing hedge position,the Company received from certain financial institutions the amount of $121,703 thousands and $14,405 thousands in August 2018 andNovember 2018, respectively.During the year ended December 31, 2018, 289 of 2019 Notes were converted for a total amount of $289 thousands. 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 excess conversion amount due uponconversion of the Notes.From January 1, 2019 to the date of issuance of these consolidated financial statements, additional conversion requests for 1 note were made.The total estimated fair value of the 2019 Notes was $150,572 thousands and $829,048 thousands as of December 31, 2018 and 2017,respectively. The fair value was determined based on the closing trading price per $100 of the 2019 Notes as of the last day of trading for theperiod. The Company considered the fair value of the 2019 Notes as of December 31, 2018 and 2017 to be a Level 2 measurement. The fairvalue of the 2019 Notes is primarily affected by the trading price of our common stock and market interest rates. Based on the $292.85 closingprice of the Company’s common stock on December 31, 2018, the if-converted value of the 2019 Notes exceeded their principal amountby $87,357 thousands.51 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 17.Convertible Senior Notes (continued)2.25% Convertible Senior Notes Due 2019 (continued)The following table presents the carrying amounts of the liability and equity components related to the 2019 Notes as of December 31, 2018and December 31, 2017: December 31, 2018 December 31, 2017 (In thousands) Amount of the equity component (1)$9,196 $45,808 2.25% Convertible Senior Notes due 2019$65,987 $329,972 Unamortized debt discount (2) (1,063) (15,469) Unamortized transaction costs related to the debt component (176) (2,509) Contractual coupon interest accrual 5,447 7,425 Contractual coupon interest payment (5,447) (7,425) Net carrying amount$64,748 $311,994 (1) Net of $236 thousands of transaction costs related to the equity component of the 2019 Notes.(2) As of December 31, 2018, the remaining period over which the unamortized debt discount will be amortized is 0.5 years.The following table presents the interest expense for the contractual interest and the accretion of debt discount: Year ended December 31,2018 2017 2016 (In thousands) (In thousands) (In thousands)Contractual coupon interest expense$5,447 $7,425 $7,425 Amortization of debt discount 7,424 9,628 9,117 Amortization of debt issuance costs 1,188 1,459 1,341 Total interest expense related to the 2019 Notes$14,059 $18,512 $17,883 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 amounting to$9,519 thousands and $1,862 thousands as of December 31, 2018 and 2017, respectively, which were expensed as incurred. 52 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, 2018, 2017 and 2016: 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, 2016 11,286 12,952 (13,802) 10,436 Year ended December 31, 2017 10,436 12,264 (12,879) 9,821 Year ended December 31, 2018 9,821 10,968 (12,087) 8,702 Credit cards receivable allowance for chargebacks Year ended December 31, 2016 1,234 1,294 (17) 2,511 Year ended December 31, 2017 2,511 3,422 (749) 5,184 Year ended December 31, 2018 5,184 9,199 (6,310) 8,073 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 Year ended December 31, 2018 4,730 27,725 (25,819) 6,636 Tax valuation allowance 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 Year ended December 31, 2018 15,422 3,130 (2,828) 15,724 Contingencies 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 Year ended December 31, 2018 5,902 7,969 (8,058) 5,813 53 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, 2018, 2017 and 2016: Quarter Ended March 31, June 30, September 30, December 31, (In thousands, except for share data)2018 Net Revenues $ 320,976 $ 335,377 $ 355,281 $ 428,019Gross profit 162,758 159,749 169,718 204,783 Net loss (12,919) (11,251) (10,078) (2,337)Net loss per share-basic (0.29) (0.25) (0.23) (0.05)Net loss per share-diluted (0.29) (0.25) (0.23) (0.05)Weighted average shares Basic 44,157,364 44,157,364 44,588,704 45,202,859 Diluted 44,157,364 44,157,364 44,588,704 45,202,859 2017 Net Revenues $ 269,675 $ 283,882 $ 304,921 $ 358,064Gross 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 21.Cash Dividend DistributionAfter 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 from the first quarter of 2018.During 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.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, 2016.54 Table of Contents MercadoLibre, Inc.Notes to Consolidated Financial Statements 22. Securitization TransactionsThe process of securitization consists of the issuance of securities collateralized by a pool of assets through a special purpose entity, oftenunder a VIE.The Company securitizes financial assets associated with its loan receivables portfolio. The Company’s securitization transactions typicallyinvolve the legal transfer of financial assets to bankruptcy remote special purpose entities (“SPEs”) or the acquisition of loans receivableportfolios through SPEs. The Company generally retains economic interests in the collateralized securitization transactions, which are retainedin the form of subordinated interests. For accounting purposes, the Company is precluded from recording the transfers of assets in securitizationtransactions as sales or is required to consolidate the SPE.The Company securitizes certain loan receivables through Brazilian and Argentine SPEs, formed to securitize loan receivables provided by theCompany to its users or purchased from financial institutions that grant loans to the Company’s users through MercadoPago. According to theSPE contracts, the Company has determined that it has both the power to direct the activities of the entity that most significantly impact theentity’s performance and the obligation to absorb losses or the right to receive benefits of the entity that could be significant because it retainsthe equity certificates of participation, and would therefore also be consolidated. When the Company controls the vehicle, it accounts thesecuritization transactions as if they were secured financing and therefore the assets, liabilities, and related results are consolidated in itsfinancial statements.As of December 31, 2018, the carrying value of the Brazilian collateralized debt was $46,951 thousands, composed by: 1) $15,668 thousandsbears interest at a rate of Brazilian DI plus 3.5% per annum for a term of 36 months, due in June 2021 and 2) $31,283 thousands bears interestat a rate of Brazilian DI plus 3.25% per annum for a term of 30 months, due in May 2021. The carrying value of the Argentine collateralizeddebt was $7,029 thousands, composed of: 1) $2,242 thousands bearing interest at a variable rate equivalent to the BADLAR rate plus 200 basispoints with a minimum 27% and a maximum 37% nominal rate per annum for a term of 8 months, due in March 2019 and 2) $4,787 thousandsbearing interest at a variable rate equivalent to the BADLAR rate plus 200 basis points with a minimum 30% and a maximum 45% nominalrate per annum for a term of 12 months, due in June 2019. This secured debt is issued by the SPEs and includes collateralized securities used tofund MercadoCredito business. The third-party investors in the securitization transactions have legal recourse only to the assets securing thedebt and do not have recourse to the Company. Additionally, the cash flows generated by the SPEs are restricted to the payment of amountsdue to third-party investors, but the Company retains the right to residual cash flows.The assets and liabilities of the SPEs included in the Company’s consolidated financial statements as of December 31, 2018 are: December 31,2018Assets(in thousands)Current assets: Restricted cash and cash equivalents$24,363 Loans receivable, net 51,471 Total current assets 75,834 Total assets$75,834 Liabilities Current liabilities: Accounts payable and accrued expenses$113 Loans payable and other financial liabilities 7,539 Total current liabilities 7,652 Non-current liabilities: Loans payable and other financial liabilities 46,441 Total non-current liabilities 46,441 Total liabilities$54,093 55 Exhibit 21.01MercadoLibre Inc.LIST OF SUBSIDIARIES Legal nameJurisdictionMercadoLibre S.R.L.ArgentinaDeRemate.com de Argentina S.A.ArgentinaMeli Log S.R.L.ArgentinaMachinalis S.R.L.ArgentinaKaitzen S.A.ArgentinaKinexo S.A.ArgentinaIbazar.com Atividades de Internet Ltda.BrazilMercadoLivre.Com Atividades de Internet Ltda.BrazilMercadoPago.com Representações Ltda.BrazileBazar.com.br Ltda.BrazilMercadoEnvios Servicos de Logística Ltda.BrazilDabee Brasil Serviços de Intermediação e Facilitação deNegócios Ltda.BrazilMercado Envios Tranporte Ltda.BrazilMercadoLibre Chile Ltda.ChileMercadoPago S.A.ChileMercadoLibre Colombia, Ltda.ColombiaMercadoPago Colombia S.A.ColombiaMercadoLibre Costa Rica S.R.L.Costa RicaMercadoLibre Ecuador Cia. Ltda.EcuadorMeli Participaciones S.L.SpainDabee Technology India Private LimitedIndiaMercadoLibre S. de R.L. de C.V.MexicoDeremate.com de Mexico S. de R.L. de C.V.MexicoPSGAC Prestadora de Servicios Gerenciales,Administrativos y Comerciales, S de R.L. de C.VMexicoMercado Lending S.A. de C.V.MexicoInmobiliaria Web Chile S. de R.L de C.VMexicoMercadoLibre Perú S.R.L.PeruMeli Uruguay S.R.L.UruguayTech Fund S.R.LUruguayDeremate.com de Uruguay S.A.UruguayHammer.com, LLCDelaware, USAListaPop, LLCDelaware, USAServicios Administrativos y Comerciales, LLCDelaware, USAMercadoPago, LLCDelaware, USAMercado Pago International, LLCDelaware, USAAutopark, LLCDelaware, USAAutopark Classifieds, LLCDelaware, USAMarketplace Investments, LLCDelaware, USAMeli Technology, Inc.California, USAClassifieds LLCDelaware, USABrick.com, LLCDelaware, USA 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 28, 2019 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, 2018./s/ DELOITTE & Co. S.A.Buenos Aires, ArgentinaFebruary 28, 2019 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 28, 2019, 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, 2018./s/ DELOITTE & Co. S.A.Buenos Aires, ArgentinaFebruary 28, 2019 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, 2018 ofMercadoLibre, Inc. (the “registrant”);2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to statea material fact necessary to make the statements made, in light of the circumstances under which suchstatements were made, not misleading 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 present in all material respects the financial condition, results of operations and cash flows of theregistrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosurecontrols and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controlover financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant andhave:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and proceduresto be designed under our supervision, to ensure that material information relating to the registrant,including its consolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this report is being prepared;(b)Designed such internal control over financial reporting, or caused such internal control over financialreporting to be designed under our supervision, to provide reasonable assurance regarding thereliability of financial reporting and the preparation of financial statements for external purposes inaccordance with generally accepted accounting principles;(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in thisreport our conclusions about the effectiveness of the disclosure controls and procedures, as of the endof the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the registrant’s internal control over financial reporting thatoccurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in thecase of an annual report) that has materially affected, or is reasonably likely to materially affect, theregistrant’s internal control over financial reporting; and5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation ofinternal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’sboard of directors (or persons performing the equivalent function): (a)All significant deficiencies and material weaknesses in the design or operation of internal control overfinancial reporting which are reasonably likely to adversely affect the registrant’s ability to record,process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have asignificant role in the registrant’s internal control over financial reporting. 4 February 28, 2019 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, 2018 ofMercadoLibre, Inc. (the “registrant”);2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to statea material fact necessary to make the statements made, in light of the circumstances under which suchstatements were made, not misleading 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 present in all material respects the financial condition, results of operations and cash flows of theregistrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosurecontrols and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controlover financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant andhave:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and proceduresto be designed under our supervision, to ensure that material information relating to the registrant,including its consolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this report is being prepared;(b)Designed such internal control over financial reporting, or caused such internal control over financialreporting to be designed under our supervision, to provide reasonable assurance regarding thereliability of financial reporting and the preparation of financial statements for external purposes inaccordance with generally accepted accounting principles;(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in thisreport our conclusions about the effectiveness of the disclosure controls and procedures, as of the endof the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the registrant’s internal control over financial reporting thatoccurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in thecase of an annual report) that has materially affected, or is reasonably likely to materially affect, theregistrant’s internal control over financial reporting; and5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation ofinternal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’sboard of directors (or persons performing the equivalent function):(a)All significant deficiencies and material weaknesses in the design or operation of internal control overfinancial reporting which are reasonably likely to adversely affect the registrant’s ability to record,process, summarize and report financial information; and (b)Any fraud, whether or not material, that involves management or other employees who have asignificant role in the registrant’s internal control over financial reporting. February 28, 2019 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, 2018, 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 of1934 as amended; and (2)the information contained in the Report fairly presents, in all material respects, the financial condition andresults of operations of the Company. /s/ Marcos GalperinMarcos GalperinPresident and Chief Executive Officer(Principal Executive Officer)February 28, 2019The 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, 2018, 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 Actof 1934, as amended; and (2)the information contained in the Report fairly presents, in all material respects, the financial conditionand results of operations of the Company. /s/ Pedro ArntPedro ArntExecutive Vice President and ChiefFinancial Officer(Principal Financial Officer)February 28, 2019The 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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