MERCADOLIBRE INC - Quarter Report: 2011 March (Form 10-Q)

Form 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2011

-OR-


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-33647

MercadoLibre, Inc.

(Exact name of Registrant as specified in its Charter)


Delaware (State or other jurisdiction of incorporation or organization)		98-0212790 (I.R.S. Employer Identification Number)

Arias 3751, 7th Floor
Buenos Aires, C1430CRG, Argentina
(Address of registrant’s principal executive offices)

011-54-11-4640-8000
(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

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 of 1934 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 such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files. Yes þ No o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:


Large accelerated filer þ	Accelerated filer o	Non-accelerated filer o	Smaller reporting company o
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

44,136,660 shares of the issuer’s common stock, $0.001 par value, outstanding as of May 2, 2011.

MERCADOLIBRE, INC.
INDEX TO FORM 10-Q


PART I. FINANCIAL INFORMATION

Item 1 — Unaudited Condensed Consolidated Financial Statements

Condensed Consolidated Balance Sheets as of March 31, 2011 and December 31, 2010			2

Condensed Consolidated Statements of Income for the three-month periods ended March 31, 2011 and 2010			3

Condensed Consolidated Statements of Changes in Shareholders’ Equity for the three-month periods ended March 31, 2011 and 2010			4

Condensed Consolidated Statements of Cash Flows for the three-month periods ended March 31, 2011 and 2010			6

Notes to Condensed Consolidated Financial Statements			7

Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations			29

Item 3 — Qualitative and Quantitative Disclosures About Market Risk			45

Item 4 — Controls and Procedures			48

PART II. OTHER INFORMATION

Item 1 — Legal Proceedings			48

Item 1A — Risk Factors			49

Item 6 — Exhibits			50

Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

PART I. FINANCIAL INFORMATION


Item 1.		Unaudited Condensed Consolidated Financial Statements

MercadoLibre, Inc.

Condensed Consolidated Balance Sheets

As of March 31, 2011 and December 31, 2010

MercadoLibre, Inc.
Condensed Consolidated Financial Statements
as of March 31, 2011 and December 31, 2010
and for the three-month periods
ended March 31, 2011 and 2010

MercadoLibre, Inc.

Condensed Consolidated Balance Sheets

As of March 31, 2011 and December 31, 2010


	March 31,			December 31,
	2011			2010
	(Unaudited)			(Audited)
Assets
Current assets:
Cash and cash equivalents	$	50,968,258		$	56,830,466
Short-term investments		3,179,205			5,342,766
Accounts receivable, net		13,446,387			12,618,173
Funds receivable from customers		5,633,787			6,151,518
Prepaid expenses		843,908			913,262
Deferred tax assets		12,956,214			12,911,256
Other assets		7,196,704			6,867,767

Total current assets		94,224,463			101,635,208
Non-current assets:
Long-term investments		101,824,319			78,846,281
Property and equipment, net		22,672,952			20,817,712
Goodwill, net		60,480,828			60,496,314
Intangible assets, net		3,978,903			4,141,167
Deferred tax assets		2,841,633			2,975,118
Other assets		710,076			771,223

Total non-current assets		192,508,711			168,047,815

Total assets	$	286,733,174		$	269,683,023


Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable and accrued expenses	$	17,945,181		$	17,232,103
Funds payable to customers		52,771,717			48,788,225
Payroll and social security payable		9,775,513			10,786,534
Taxes payable		9,777,052			11,487,574
Loans payable and other financial liabilities		92,513			100,031
Dividends payable		3,530,510			—

Total current liabilities		93,892,486			88,394,467
Non-current liabilities:
Payroll and social security payable		2,513,539			2,562,343
Loans payable and other financial liabilities		166,592			188,846
Deferred tax liabilities		5,149,708			5,167,699
Other liabilities		1,905,713			1,651,398

Total non-current liabilities		9,735,552			9,570,286
Total liabilities	$	103,628,038		$	97,964,753


Commitments and contingencies (Note 8)

Shareholders’ equity:

Common stock, $0.001 par value, 110,000,000 shares authorized, 44,131,966 and 44,131,376 shares issued and outstanding at March 31, 2011 and December 31, 2010, respectively	$	44,132		$	44,131
Additional paid-in capital		120,426,216			120,391,622
Retained earnings		84,208,680			73,681,556
Accumulated other comprehensive loss		(21,573,892	)		(22,399,039	)

Total shareholders’ equity		183,105,136			171,718,270


Total liabilities and shareholders’ equity	$	286,733,174		$	269,683,023

The accompanying notes are an integral part of these condensed consolidated financial statements.

MercadoLibre, Inc.

Condensed Consolidated Statements of Income

For the three-month periods ended March 31, 2011 and 2010


	Three Months Ended March 31,
	2011			2010
	(Unaudited)

Net revenues	$	61,459,668		$	45,937,774
Cost of net revenues		(14,331,703	)		(9,893,051	)

Gross profit		47,127,965			36,044,723

Operating expenses:
Product and technology development		(5,156,890	)		(3,224,775	)
Sales and marketing		(13,228,942	)		(11,108,801	)
General and administrative		(9,450,977	)		(6,206,881	)

Total operating expenses		(27,836,809	)		(20,540,457	)

Income from operations		19,291,156			15,504,266


Other income (expenses):
Interest income and other financial gains		1,873,768			794,142
Interest expense and other financial charges		(628,950	)		(2,995,418	)
Foreign currency gain / (loss)		(500,655	)		396,972
Other income, net		20,344			—

Net income before income / asset tax expense		20,055,663			13,699,962


Income / asset tax expense		(5,998,029	)		(4,079,361	)

Net income	$	14,057,634		$	9,620,601


	Three Months Ended March 31,
	2011		2010
	(Unaudited)
Basic EPS
Basic net income per common share	$	0.32	$	0.22


Weighted average shares		44,131,383		44,113,595


Diluted EPS
Diluted net income per common share	$	0.32	$	0.22

Weighted average shares		44,147,667		44,149,700

The accompanying notes are an integral part of these condensed consolidated financial statements.

MercadoLibre, Inc.

Condensed Consolidated Statements of Changes in Shareholders’ Equity

For the three-month periods ended March 31, 2011 and 2010 (unaudited)


													Accumulated
								Additional					other
	Comprehensive			Common stock				paid-in			Retained		comprehensive
	income			Shares		Amount		capital			Earnings		income / (loss)			Total
Balance as of December 31, 2009					44,120,269	$	44,120	$	120,257,998		$	17,656,537	$	(23,765,418	)	$	114,193,237


Stock options exercised					2,307		2		1,968			—		—			1,970
Stock-based compensation — stock options					—		—		61			—		—			61
Stock-based compensation — restricted shares					—		—		21,204			—		—			21,204
Stock-based compensation LTRP					—		—		39,303			—		—			39,303
LTRP shares issued					3,981		4		(4	)		—		—			—
Net income	$	9,620,601			—		—		—			9,620,601		—			9,620,601
Currency translation adjustment		(566,885	)		—		—		—			—		(566,885	)		(566,885	)
Unrealized net loss on investments		(35,151	)		—		—		—			—		(35,151	)		(35,151	)
Realized net gain on investments		(27,630	)		—		—		—			—		(27,630	)		(27,630	)

Comprehensive income	$	8,990,935

Balance as of March 31, 2010					44,126,557	$	44,126	$	120,320,530		$	27,277,138	$	(24,395,084	)	$	123,246,710


Stock options exercised					4,819		5		16,224			—		—			16,229
Stock-based compensation — stock options					—		—		183			—		—			183
Stock-based compensation — restricted shares					—		—		16,492			—		—			16,492
Stock-based compensation LTRP					—		—		38,193			—		—			38,193
Net income	$	46,404,418			—		—		—			46,404,418		—			46,404,418
Currency translation adjustment		1,915,367			—		—		—			—		1,915,367			1,915,367
Unrealized net gain on investments		80,678			—		—		—			—		80,678			80,678
Realized net gain on investments		—			—		—		—			—		—			—

Comprehensive income	$	48,400,463

Balance as of December 31, 2010					44,131,376	$	44,131	$	120,391,622		$	73,681,556	$	(22,399,039	)	$	171,718,270

The accompanying notes are an integral part of these condensed consolidated financial statements.

MercadoLibre, Inc.
Condensed Consolidated Statements of Changes in Shareholders’ Equity
For the three-month periods ended March 31, 2011 and 2010 (unaudited)


													Accumulated
								Additional					other
	Comprehensive			Common stock				paid-in		Retained			comprehensive
	income			Shares		Amount		capital		Earnings			income / (loss)			Total
Balance as of December 31, 2010					44,131,376	$	44,131	$	120,391,622	$	73,681,556		$	(22,399,039	)	$	171,718,270


Stock options exercised					590		1		884		—			—			885
Stock-based compensation LTRP					—		—		33,710		—			—			33,710
Dividend Distribution					—		—		—		(3,530,510	)		—			(3,530,510	)
Net income	$	14,057,634			—		—		—		14,057,634			—			14,057,634
Currency translation adjustment		888,874			—		—		—		—			888,874			888,874
Unrealized net loss on investments		(18,200	)		—		—		—		—			(18,200	)		(18,200	)
Realized net gain on investments		(45,527	)		—		—		—		—			(45,527	)		(45,527	)

Comprehensive income	$	14,882,781

Balance as of March 31, 2011					44,131,966	$	44,132	$	120,426,216	$	84,208,680		$	(21,573,892	)	$	183,105,136

The accompanying notes are an integral part of these condensed consolidated financial statements.

MercadoLibre, Inc.

Condensed Consolidated Statements of Cash Flows

For the three-month periods ended March 31, 2011 and 2010 (unaudited)


	Three Months Ended March 31,
	2011			2010
	(Unaudited)
Cash flows from operations:
Net income	$	14,057,634		$	9,620,601
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		1,541,143			946,873
Accrued interest		(575,613	)		(228,151	)
Stock-based compensation expense — stock options		—			61
Stock-based compensation expense — restricted shares		—			21,204
LTRP accrued compensation		1,170,710			324,607
Deferred income taxes		316,866			(407,531	)
Changes in assets and liabilities:
Accounts receivable		(378,620	)		(3,020,745	)
Funds receivable from customers		479,325			441,399
Prepaid expenses		71,641			58,009
Other assets		(70,095	)		(92,884	)
Accounts payable and accrued expenses		(4,736,229	)		3,840,657
Funds payable to customers		3,072,102			418,066
Other liabilities		220,113			(467,618	)

Net cash provided by operating activities		15,168,977			11,454,548

Cash flows from investing activities:
Purchase of investments		(99,069,739	)		(34,354,598	)
Proceeds from sale and maturity of investments		80,823,544			12,723,697
Purchases of intangible assets		(73,405	)		(12,865	)
Purchases of property and equipment		(2,886,154	)		(1,396,672	)

Net cash used in investing activities		(21,205,754	)		(23,040,438	)

Cash flows from financing activities:
Decrease in loans payable		—			(3,213,878	)
Stock options exercised		885			1,970

Net cash used in financing activities		885			(3,211,908	)

Effect of exchange rate changes on cash and cash equivalents		173,684			(371,305	)

Net decrease in cash and cash equivalents		(5,862,208	)		(15,169,103	)
Cash and cash equivalents, beginning of the period		56,830,466			49,803,402

Cash and cash equivalents, end of the period	$	50,968,258		$	34,634,299


Supplemental cash flow information:
Cash paid for interest	$	13,889		$	2,832,119
Cash paid for income and asset taxes	$	7,898,283		$	4,935,701

The accompanying notes are an integral part of these condensed consolidated financial statements.

MercadoLibre, Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

Nature of Business

MercadoLibre Inc. (the “Company”) is an e-commerce enabler whose mission is to build the necessary online and technology tools to allow practically anyone to trade almost anything, helping to make inefficient markets more efficient in Latin America.

The Company developed a web-based marketplace in which buyers and sellers are brought together to browse, buy and sell items such as computers, electronics, collectibles, automobiles, clothing and a host of practical and miscellaneous items. Additionally, the Company introduced MercadoPago in 2004, an integrated online payments solution. MercadoPago was designed to facilitate transactions on the MercadoLibre Marketplace by providing an escrow mechanism that enables users to send and receive payments online.

Since 2004, the Company introduced an online classifieds platform for motor vehicles, vessels and aircrafts and since 2006 the real state online classifieds platform. In 2006, the Company launched eShops, a new platform tailored to attract lower rotation items and increase the breadth of products offered, the introduction of user generated information guides for buyers that improve the shopping experience, and the expansion of the online classifieds model by adding the services category.

During 2007 the Company also launched a new and improved version of its MercadoPago payments platform in Chile and Colombia as well as in Argentina during 2008. The new MercadoPago, in addition to improving the ease of use and efficiency of payments for marketplace purchases, also allows for payments outside of the Company’s marketplaces. Users are able to transfer money to other users with MercadoPago accounts and to incorporate MercadoPago as a means of payments in their independent commerce websites. In this way MercadoPago 3.0 as it has been called is designed to meet the growing demand for Internet based payments systems in Latin America. On March 30, 2010, the Company started processing off-MercadoLibre transactions through its new direct payments product to any site in Brazil which elects to adopt it. On July 16, 2010, the Company launched MercadoPago 3.0 in Brazil for all of its marketplace transactions. In February 2011, the Company started processing off-platform transactions in Mexico using its new direct payments product, MercadoPago 3.0, for any site in Mexico that elects to adopt it, while maintaining the escrow product for on-platform transactions. On April 15, 2011, the Company launched a new and improved version of its MercadoPago payments platform for all its marketplace transactions in Mexico.

As of March 31, 2011, the Company, through its wholly-owned subsidiaries, operated online commerce platforms directed towards Argentina, Brazil, Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, Mexico, Panama, Peru, Portugal, Uruguay and Venezuela, and online payments solutions directed towards Argentina, Brazil, Mexico, Venezuela, Chile and Colombia. In addition, the Company operates a real estate classified platform that covers some areas of Florida, U.S.A.

MercadoLibre, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)

Summary of Significant Accounting Policies

Basis of presentation

The accompanying unaudited interim condensed consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) and include the accounts of the Company and its wholly-owned subsidiaries. These financial statements are stated in US dollars. All intercompany transactions and balances have been eliminated.

Substantially all revenues and operating costs are generated in the Company’s foreign operations, amounting to approximately 99.7% and 99.3% of the consolidated totals during the three-month periods ended March 31, 2011 and 2010, respectively. Long-lived assets located in the foreign operations totaled $82,626,400 and $81,834,265 as of March 31, 2011 and December 31, 2010, respectively. Cash and cash equivalents as well as short and long-term investments, totaling $155,971,782 and $141,019,513 at March 31, 2011 and December 31, 2010, respectively, are mainly located in the United States of America and Brazil.

These unaudited interim condensed financial statements reflect the Company’s consolidated financial position as of March 31, 2011 and December 31, 2010. These statements also show the Company’s consolidated statement of income for the three-months ended March 31, 2011 and 2010, its consolidated statement of shareholders’ equity and its consolidated statement of cash flows for the three months ended March 31, 2011 and 2010. These statements include all normal recurring adjustments that management believes are necessary to fairly state the Company’s financial position, operating results and cash flows.

Because all of the disclosures required by generally accepted accounting principles in the United States of America for annual consolidated financial statements are not included herein, these interim financial statements should be read in conjunction with the audited financial statements and the notes thereto for the year ended December 31, 2010, contained in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 25, 2011. The condensed consolidated statements of income, shareholders’ equity and cash flows for the periods presented are not necessarily indicative of results expected for any future period.

Revenue Recognition

The Company generates revenues for different services provided. When more than one service is included in one single arrangement with the customer, the Company recognizes revenue according to multiple element arrangements accounting, distinguishing between each of the services provided and allocating revenues based on their respective selling prices.

MercadoLibre, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)

Summary of Significant Accounting Policies (Continued)

Revenue Recognition (Continued)

Revenues are recognized when evidence of an arrangement exists, the fee is fixed or determinable, no significant obligation remains and collection of the receivable is reasonably assured.

Services are separately recognized as revenue according to the following criteria described for each type of services:

• Services for intermediation between on-line buyers and sellers, for which the company charges a percentage on the transaction value (“final value fees”), are recognized as revenue once the sale transaction between the buyer and seller is successfully completed (which occurs upon confirmation of the sale by the seller).

• Services for the use of the Company’s on-line payments solution, for transactions off-platform ordered by MercadoPago customers. The Company does not charge a separate fee for on-platform transactions in certain countries. The fee that we charge for all off-marketplace platform transactions is recorded as revenue once the transaction is completed, at the time when the payment is processed by the Company. For on-marketplace platform transactions, we generate revenue in the countries where we offer the service in a way that implies that the customer has to pay an additional fee for the right to use the payments solution.

• Listing and optional feature services, which fees relate to the right of a seller to have the item offered listed in a preferential way, as well as classified advertising services, are recorded as revenue ratably during the listing period. Those fees are charged at the time the listing is uploaded 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 ratably during the advertising period, and MercadoClics services or sponsorship of sites are recognized based on per-click values and as the impressions are delivered.

Credit Cards Receivables

Credit cards receivables from customers mainly relate to the Company’s payments solution and arise due to the time taken to clear transactions through external payment networks or during a short period of time until those credit cards receivables are sold to financial institutions.

The company maintains allowances for doubtful accounts for estimated losses that may result from the inability of its customers to make required payments. Allowances are based upon several factors including, but not limited to, historical experience and the current condition of specific customers.

MercadoLibre, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)

Summary of Significant Accounting Policies (Continued)

Credit Cards Receivables (Continued)

Credit cards receivables are presented net of the related allowance for doubtful accounts and chargebacks.

As of March 31, 2011, there are no past due credit card receivables.

Foreign Currency Translation

All of the Company’s foreign operations have determined the local currency to be their functional currency, except for Venezuela, as described below. Accordingly, these foreign subsidiaries translate assets and liabilities from their local currencies to U.S. dollars using year end exchange rates while income and expense accounts are translated at the average rates in effect during the year. The resulting translation adjustment is recorded as part of accumulated other comprehensive income (loss), a component of shareholders’ equity. Gains and losses resulting from transactions denominated in non-functional currencies are recognized in earnings. Net foreign currency transaction results are included in the consolidated statements of income under the caption “Foreign currency gain / (loss)” and amounted to $(500,655) and $396,972 for the three-month periods ended March 31, 2011 and 2010, respectively.

Until September 30, 2009, the Company translated its Venezuelan subsidiaries assets, liabilities, income and expense accounts at the official rate of 2.15 “Bolivares Fuertes” per US dollar.

Starting in the fourth quarter of 2009, as a result of the changes in facts and circumstances that affected the Company’s ability to convert currency for dividends remittances using the official exchange rate in Venezuela, the Venezuelan subsidiaries assets, liabilities, income and expense accounts were translated using the parallel exchange rate resulting in the recognition in that quarter of a currency translation loss adjustment of $16,977,276 recorded in accumulated other comprehensive income/(loss). The average exchange rate used for translating the fourth quarter of 2009 results was 5.67 “Bolivares Fuertes” per US dollar and the year-end exchange rate used for translating assets and liabilities was 6.05 “Bolivares Fuertes” per US dollar.

As of the date of these interim condensed consolidated financial statements the Company did not buy US dollars at the official rate of 2.15 “Bolivares Fuertes” per US dollar.

MercadoLibre, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)

Summary of Significant Accounting Policies (Continued)

Foreign Currency Translation (Continued)

According to US GAAP, we have transitioned our Venezuelan operations to highly inflationary status as of January 1, 2010 considering the US dollar as the functional currency. See “Highly inflationary status in Venezuela” below.

Therefore, no translation effect was accounted for in other comprehensive income since January 1, 2010 related to our Venezuelan operations.

Until May 13, 2010, the only way by which US dollars could be purchased outside the official currency market was using an indirect mechanism consisting in the purchase and sale of securities, including national public debt bonds (DPNs) denominated in Bolivares Fuertes and bonds issued by the government that were denominated in U.S. dollars. This mechanism for transactions in certain securities created an indirect “parallel” foreign currency exchange market in Venezuela that enabled entities to obtain foreign currency through financial brokers without going through Commission for the Administration of Foreign Exchange (“CADIVI”). Although the parallel exchange rate was higher, and accordingly less beneficial, than the official exchange rate, some entities used the “parallel” market to exchange currency because of the delays of CADIVI in approving in a timely manner the exchange of currency requested by such entities. Until May 13, 2010, our Venezuelan subsidiaries used this mechanism to buy US dollars and accordingly we used the parallel average exchange rate to re-measure those foreign currency transactions.

However, on May 14th, 2010, the Venezuelan government enacted reforms to its exchange regulations and close-down such parallel market by declaring that foreign-currency-denominated securities issued by Venezuelan entities were included in the definition of foreign currency, thus making the Venezuelan Central Bank (BCV) the only institution that could legally authorize the purchase or sale of foreign currency bonds, thereby excluding non-authorized brokers from the foreign exchange market.

Trading of foreign currencies was re-opened as a regulated market on June 9, 2010 with the Venezuelan Central Bank as the only institution through which foreign currency-denominated transactions can be brokered. Under the new system, known as the Foreign Currency Securities Transactions System (SITME), entities domiciled in Venezuela can buy U.S. dollar–denominated securities only through banks authorized by the BCV to import goods, services or capital inputs. Additionally, the SITME imposes volume restrictions on an entity’s trading activity, limiting such activity to a maximum equivalent of $50,000 per day, not to exceed $350,000 in a calendar month. This limitation is non-cumulative, meaning that an entity cannot carry over unused volume from one month to the next.

MercadoLibre, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)

Summary of Significant Accounting Policies (Continued)

Foreign Currency Translation (Continued)

As a consequence of this new system, commencing on June 9, 2010, we have transitioned from the parallel exchange rate to the SITME rate and started re-measuring foreign currency transactions using the SITME rate published by BCV, which was 5.27 “Bolivares Fuertes” per U.S. dollar as of June 9, 2010.

For the period beginning on May 14, 2010 and ending on June 8, 2010 (during which there was no open foreign currency markets) we applied US GAAP guidelines, which state that if exchangeability between two currencies is temporarily lacking at the transaction date or balance sheet date, the first subsequent rate at which exchanges could be made shall be used.

Accordingly, the June 9, 2010 exchange rate published by the Venezuelan Central Bank has been used to re-measure transactions during the above mentioned period. As of March 31, 2011, the exchange rate used to re-measure transactions is 5.30 “Bolivares Fuertes” per U.S. dollar.

The following table sets forth the assets, liabilities and net assets of the Company’s Venezuelan subsidiaries, before intercompany eliminations, as of March 31, 2011 and December 31, 2010.


	March 31,			December 31,
	2011			2010

Venezuelan operations
Assets	$	19,930,242		$	21,928,340
Liabilities		(8,444,346	)		(8,212,581	)
Net Assets		11,485,896			13,715,759

As of March 31, 2011, net assets of the Venezuelan subsidiaries (before intercompany eliminations) amount to approximately 6.3% of our consolidated net assets, and cash and investments of the Venezuelan subsidiaries held in local currency in Venezuela amount to approximately 5.1% of our consolidated cash and investments.

Although, the current mechanisms available to obtain US dollars for dividends distributions to shareholders outside Venezuela imply increased restrictions, the Company does not expect that the current restrictions to purchase dollars have a significant adverse effect on its business plans with regard to the investment in Venezuela.

MercadoLibre, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)

Summary of Significant Accounting Policies (Continued)

Highly inflationary status in Venezuela

During May 2009, the International Practices Task Force discussed the highly inflationary status of the Venezuelan economy. Historically, the Task Force has used the Consumer Price Index (CPI) when considering the inflationary status of the Venezuelan economy.

The CPI has existed since 1984. However, the CPI covers only the cities of Caracas and Maracaibo. Commencing on January 1, 2008, the National Consumer Price Index (NCPI) has been developed to cover the entire country of Venezuela. Since inflation data is not available to compute a cumulative three year inflation rate for the entire country solely based on the NCPI, the Company uses a blended rate using the NCPI and CPI to calculate Venezuelan inflation rate.

The cumulative three year inflation rate as of December 31, 2009 was calculated using the CPI information for periods before January 1, 2008 and NCPI information for the period after January 1, 2008. The blended CPI/NCPI three-year inflation index (23 months of NCPI and 13 months of CPI) as of November 30, 2009 exceeded 100%. According to US GAAP, calendar year-end companies should apply highly inflationary accounting as from January 1, 2010. Therefore, the Company transitioned its Venezuelan operations to highly inflationary status as of January 1, 2010 considering the US dollar as the functional currency.

Taxes on revenues

The Company’s subsidiaries in Brazil, Argentina, Venezuela and Colombia are subject to certain taxes on revenues which are classified as cost of revenues. Taxes on revenues totaled $4,461,547 and $3,008,089 for the three-month periods ended March 31, 2011 and 2010, respectively.

Income and Asset Taxes

The Company is subject to U.S. and foreign income taxes. The Company accounts for income taxes following the liability method of accounting which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Deferred tax assets are also recognized for tax loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets or liabilities of a change in tax rates is recognized 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 expense consists of taxes currently payable, if any, plus the change during the period in the Company’s deferred tax assets and liabilities.

MercadoLibre, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)

Summary of Significant Accounting Policies (Continued)

Income and Asset Taxes

From fiscal year 2008 to fiscal year 2014, the Company’s Argentine subsidiary is a beneficiary of a software development law. Part of the benefits obtained from being a beneficiary of the aforementioned law is a relief of 60% of total income tax determined in each year, until fiscal year 2014. Aggregate tax benefit totaled $1,206,609 and $789,686 for the three-month period ended March 31, 2011 and 2010, respectively. Aggregate per share effect of the Argentine tax holiday amounts to $0.03 and $0.02 for the three-month period ended March 31, 2011 and 2010, respectively. If the Company had not been granted the Argentine tax holiday, the Company would have pursued an alternative tax planning strategy and, therefore, the impact of not having this particular benefit could result in a higher effective tax rate but would not necessarily be the above mentioned dollar and per share effect.

As of March 31, 2011 and December 31, 2010, MercadoLibre, Inc has included in the non-current deferred tax assets line the foreign tax credits related to the dividend distributions received from its subsidiaries for a total amount of $2,304,119 and $2,436,224, respectively. Those foreign tax credits will be used to offset the future domestic income tax payable.

Use of estimates

The preparation of condensed consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates are used for, but not limited to accounting for allowance for doubtful accounts, depreciation, amortization, impairment and useful lives of long-lived assets, compensation cost related to cash and share-based compensation and restricted shares, recognition of current and deferred income taxes and contingencies. Actual results could differ from those estimates.

Comprehensive Income

Comprehensive income is comprised of two components, net income and other comprehensive income (loss), and defined as all other changes in equity of the Company that result from transactions other than with shareholders. Other comprehensive income (loss) includes the cumulative translation adjustment relating to the translation of the financial statements of the Company’s foreign subsidiaries and unrealized gains on investments classified as available-for-sale securities. Total comprehensive income for the three-month periods ended March 31, 2011 and 2010 amounted to $14,882,781 and $8,990,935, respectively.

MercadoLibre, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)

Net income per share

Basic earnings per share for the Company’s common stock is computed by dividing net income available to common shareholders attributable to common stock for the period by the weighted average number of common shares outstanding during the period.

The Company’s restricted shares granted to its outside directors were participating securities. Accordingly, net income available to common stockholders for the three-month period ended March 31, 2010, was allocated between unvested restricted shares and common stock under the “two class method” for purposes of computing basic and diluted earnings per share.

Diluted earnings per share for the Company’s common stock assume the exercise of outstanding stock options and vesting restricted shares, additional shares and shares granted under the 2008 Long Term Retention Plan under the Company’s stock based employee compensation plans.

The following table shows how net income available to common shareholders is allocated using the two-class method, for the three-month periods ended March 31, 2011 and 2010:


	Three Months Ended March 31,
	2011				2010
	Basic		Diluted		Basic		Diluted

Net income	$	14,057,634	$	14,057,634	$	9,620,601	$	9,620,601


Net income available to common shareholders attributable to unvested restricted shares		—		—		1,821		1,821


Net income available to common shareholders attributable to common stock	$	14,057,634	$	14,057,634	$	9,618,780	$	9,618,780

MercadoLibre, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)

Net income per share (Continued)

Net income per share of common stock is as follows for the three-month periods ended March 31, 2011 and 2010:


	Three Months Ended March 31,
	2011				2010
	Basic		Diluted		Basic		Diluted

Net income available to common shareholders per common share	$	0.32	$	0.32	$	0.22	$	0.22


Numerator:
Net income available to common shareholders	$	14,057,634	$	14,057,634	$	9,618,780	$	9,618,780


Denominator:
Weighted average of common stock outstanding for Basic earnings per share		44,131,383		44,131,383		44,113,595		44,113,595
Adjustment for stock options		—		11,474		—		16,362
Adjustment for additional shares		—		—		—		7,969
Adjustment for shares granted under LTRP				4,810				11,774

Adjusted weighted average of common stock outstanding for Diluted earnings per share		44,131,383		44,147,667		44,113,595		44,149,700

The calculation of diluted net income per share excludes all anti-dilutive shares. During the three-month periods ended March 31, 2011 and 2010, there were no anti-dilutive shares.

Goodwill and Intangible Assets

The composition of goodwill and intangible assets is as follows:


	March 31,			December 31,
	2011			2010
Goodwill	$	60,480,828		$	60,496,314

Intangible assets with indefinite lives
- Trademarks		2,473,943			2,460,952
Amortizable intangible assets
- Licenses and others		2,638,816			2,606,402
- Non-compete agreement		1,249,909			1,241,357
- Customer list		1,602,673			1,607,097

Total intangible assets	$	7,965,341		$	7,915,808
Accumulated amortization		(3,986,438	)		(3,774,641	)

Total intangible assets, net	$	3,978,903		$	4,141,167

MercadoLibre, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)

Goodwill and Intangible Assets (Continued)

Goodwill

The changes in the carrying amount of goodwill for the three-month period ended March 31, 2011 and the year ended December 31, 2010, are as follows:


	Three Months Ended March 31, 2011
	Brazil		Argentina			Chile			Mexico		Venezuela		Colombia		Other Countries		Total
Balance, beginning of year	$	13,130,649	$	23,364,326		$	7,296,888		$	5,025,623	$	4,846,030	$	5,448,068	$	1,384,730	$	60,496,314
- Effect of exchange rates changes		302,325		(449,536	)		(174,255	)		193,827		—		100,035		12,118		(15,486	)

Balance, end of the period	$	13,432,974	$	22,914,790		$	7,122,633		$	5,219,450	$	4,846,030	$	5,548,103	$	1,396,848	$	60,480,828


	Year Ended December 31, 2010
	Brazil		Argentina			Chile		Mexico		Venezuela		Colombia		Other Countries		Total
Balance, beginning of year	$	12,565,062	$	24,446,463		$	6,734,405	$	4,770,560	$	4,846,030	$	5,100,939	$	1,359,287	$	59,822,746
- Effect of exchange rates changes		565,587		(1,082,137	)		562,483		255,063		—		347,129		25,443		673,568

Balance, end of the year	$	13,130,649	$	23,364,326		$	7,296,888	$	5,025,623	$	4,846,030	$	5,448,068	$	1,384,730	$	60,496,314

Amortizable intangible assets

Amortizable intangible assets are comprised of customer lists and user base, trademarks and trade names, non-compete agreements, acquired software licenses and other acquired intangible assets including developed technologies. Aggregate amortization expense for intangible assets totaled $236,121 and $172,861 for the three-month periods ended March 31, 2011 and 2010, respectively.

Expected future intangible asset amortization completed as of March 31, 2011 is as follows:


For year ended 12/31/2011	$	566,718
For year ended 12/31/2012		673,963
For year ended 12/31/2013		262,232
For year ended 12/31/2014		2,047

	$	1,504,960

Segments

Reporting segments are based upon the Company’s internal organizational structure, the manner in which the Company’s operations are managed, the criteria used by management to evaluate the Company’s performance, the availability of separate financial 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 performance defined by the management. The MercadoLibre segments include Brazil, Argentina, Mexico, Venezuela and other countries (such as Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, Panama, Peru, Portugal and Uruguay).

MercadoLibre, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)

Segments (Continued)

Direct contribution consists of net revenues from external customers less direct costs. Direct costs include specific costs of net revenues, sales and marketing expenses, and general and administrative expenses over which segment managers have direct discretionary control, such as advertising and marketing programs, customer support expenses, allowances for doubtful accounts, headcount compensation, 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 administrative costs are monitored by management through shared cost centers and are not evaluated in the measurement of segment performance.

The following tables summarize the financial performance of the Company’s reporting segments:


	Three Months Ended March 31, 2011
	Brazil			Argentina			Mexico			Venezuela			Other Countries			Total

Net revenues	$	34,723,195		$	10,579,932		$	5,234,333		$	6,770,453		$	4,151,755		$	61,459,668
Direct costs		(20,075,608	)		(4,427,098	)		(2,716,359	)		(3,069,739	)		(2,100,316	)		(32,389,120	)

Direct contribution		14,647,587			6,152,834			2,517,974			3,700,714			2,051,439			29,070,548

Operating expenses and indirect costs of net revenues																	(9,779,392	)

Income from operations																	19,291,156


Other income (expenses):
Interest income and other financial gains																	1,873,768
Interest expense and other financial results																	(628,950	)
Foreign currency losses																	(500,655	)
Other income, net																	20,344

Net income before income / asset tax expense																$	20,055,663

MercadoLibre, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)

Segments (Continued)


	Three Months Ended March 31, 2010
	Brazil			Argentina			Mexico			Venezuela			Other Countries			Total

Net revenues	$	26,351,472		$	8,354,246		$	4,469,937		$	3,475,490		$	3,286,629		$	45,937,774
Direct costs		(14,862,460	)		(3,945,784	)		(2,800,357	)		(1,914,056	)		(1,723,523	)		(25,246,180	)

Direct contribution		11,489,012			4,408,462			1,669,580			1,561,434			1,563,106			20,691,594

Operating expenses and indirect costs of net revenues																	(5,187,328	)

Income from operations																	15,504,266


Other income (expenses):
Interest income and other financial gains																	794,142
Interest expense and other financial results																	(2,995,418	)
Foreign currency gains																	396,972
Other income, net																	—

Net income before income / asset tax expense																$	13,699,962

The following table summarizes the allocation of the long-lived tangible assets based on geography:


	March 31,		December 31,
	2011		2010

US long-lived tangible assets	$	4,506,285	$	3,617,420

Other countries long-lived tangible assets
Argentina		13,985,160		13,580,175
Brazil		3,352,655		3,264,625
Mexico		310,590		68,878
Venezuela		177,628		206,815
Other countries		340,634		79,799

	$	18,166,667	$	17,200,292

Total long-lived tangible assets	$	22,672,952	$	20,817,712

MercadoLibre, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)

Segments (Continued)

The following table summarizes the allocation of the goodwill and intangible assets based on geography:


	March 31,		December 31,
	2011		2010

US intangible assets	$	—	$	3,507

Other countries goodwill and intangible assets
Argentina		24,230,203		24,825,718
Brazil		13,438,965		13,137,658
Mexico		5,234,534		5,043,335
Venezuela		6,595,597		6,595,866
Other countries		14,960,432		15,031,397

	$	64,459,731	$	64,633,974

Total goodwill and intangible assets	$	64,459,731	$	64,637,481

Fair Value Measurement of Assets and Liabilities

The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2011 and December 31, 2010:


			Quoted Prices in				Quoted Prices in
	Balances as of		active markets for		Balances as of		active markets for
	March 31,		identical Assets		December 31,		identical Assets
Description	2011		(Level 1)		2010		(Level 1)

Assets

Cash and Cash Equivalents:

Money Market Funds	$	10,171,913	$	10,171,913	$	14,578,477	$	14,578,477

Investments:

Asset backed securities		20,639,376		20,639,376		14,319,103		14,319,103

Sovereign Debt Securities		12,009,357		12,009,357		13,147,239		13,147,239

Corporate Debt Securities		15,063,598		15,063,598		11,381,761		11,381,761


Total financial Assets	$	57,884,244	$	57,884,244	$	53,426,580	$	53,426,580

MercadoLibre, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)

Fair Value Measurement of Assets and Liabilities (Continued)

The Company’s financial assets are valued using market prices on active markets (level 1). Level 1 instrument valuations are obtained from real-time quotes for transactions in active exchange markets involving identical assets. As of March 31, 2011 and December 31, 2010, the Company did not have any assets obtained from readily-available pricing sources for comparable instruments (level 2) or without observable market values that would require a high level of judgment to determine fair value (level 3).

The unrealized net gains on short term and long term investments are reported as a component of accumulated other comprehensive income. The Company does not anticipate any significant realized losses associated with those investments in excess of the Company’s historical cost.

In addition, as of March 31, 2011, the Company had $57,291,193 of short-term and long-term investments, which consisted of time deposits maintained as held to maturity investments. As of December 31, 2010, the Company had $45,340,944 of short-term and long-term investments, which consisted of time deposits considered held to maturity securities. Those investments are accounted for at amortized cost which, as of March 31, 2011 and December 31, 2010, approximates their fair values.

As of March 31, 2011 and December 31, 2010, the carrying value of the Company’s cash and cash equivalents approximated their fair value which was held primarily in money markets funds and bank deposits. In addition, the carrying value of accounts receivables, funds receivables from customers, other receivables, other assets, accounts payables, social security payables, taxes payables, loans and provisions and other liabilities approximates their fair values because of its short term maturity.

For the three-month period ended March 31, 2011 and 2010, the Company held no direct investments in auction rate securities, collateralized debt obligations, structured investment vehicles. As of March 31, 2011 and December 31, 2010, the Company does not have any non-financial assets or liabilities measured at fair value.

MercadoLibre, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)

Fair Value Measurement of Assets and Liabilities (Continued)

As of March 31, 2011 and December 31, 2010, the fair value of short and long-term investments classified as available for sale securities are as follows:


	March 31, 2011
					Gross
	Gross		Gross Unrealized		Unrealized			Estimated
	Amortized Cost		Gains		Losses			Fair Value
Short-term investments
Sovereign Debt Securities	$	443,218	$	—	$	(13,326	)	$	429,892
Corporate Debt Securities		431,569		7,338		(11,986	)		426,921
Asset Backed Securities (2)		546,046		—		(8,734	)		537,312

Total Short-term investments	$	1,420,833	$	7,338	$	(34,046	)	$	1,394,125


Long-term investments
Sovereign Debt Securities	$	11,736,024	$	79,659	$	(236,218	)	$	11,579,465
Corporate Debt Securities		14,659,990		150,143		(173,456	)		14,636,677
Asset Backed Securities (2)		19,919,527		509,621		(327,084	)		20,102,064

Total Long-term investments	$	46,315,541	$	739,423	$	(736,758	)	$	46,318,206


Total	$	47,736,374	$	746,761	$	(770,804	)	$	47,712,331


	December 31, 2010
			Gross
	Gross Amortized		Unrealized		Gross Unrealized			Estimated Fair
	Cost		Gains		Losses (1)			Value
Short-term investments
Corporate Debt Securities	$	398,752	$	26	$	(773	)	$	398,005

Total short-term investments	$	398,752	$	26	$	(773	)	$	398,005


Long-term investments
Sovereign Debt Securities	$	13,282,207	$	98,958	$	(233,926	)	$	13,147,239
Corporate Debt Securities		10,987,910		110,521		(114,675	)		10,983,756
Asset Backed Securities (2)		14,107,501		439,239		(227,637	)		14,319,103

Total long-term investments	$	38,377,618	$	648,718	$	(576,238	)	$	38,450,098


Total	$	38,776,370	$	648,744	$	(577,011	)	$	38,848,103


(1)		Unrealized losses from securities are primarily attributable to market price movements. Management does not believe any remaining unrealized losses represent other-than-temporary impairments based on our evaluation of available evidence including the credit rating of the investments, as of March 31, 2011 and December 31, 2010.

(2)		Asset backed securities have investment grade credit ratings. These investments are collateralized by real estate and they are guaranteed by the U.S. Federal Government.

MercadoLibre, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)

Fair Value Measurement of Assets and Liabilities (Continued)

As of March 31, 2011, the estimated fair values of short-term and long-term investments classified by its contractual maturities are as follows:


One year or less	$	1,394,124
One year to two years		8,312,798
Two years to three years		1,770,761
Three years to four years		4,536,279
Four years to five years		3,336,260
More than five years		28,362,109

Total	$	47,712,331

Compensation Plan for Outside Directors

The Company compensates its outside directors through the payment of cash fees and, from time to time, through the issuance of equity awards.

On June 10, 2009, the Company issued an aggregate of 2,305 shares of common stock and 8,350 restricted shares of common stock (the “Restricted Shares”) to our outside directors. The Restricted Shares vested in full in June 2010. Restricted Shares awarded to directors were measured at their fair market value using the grant-date price of the Company’s shares.

The total accrued compensation cost for the three-month periods ended March 31, 2011 and 2010 in cash and equity awards amounts to $129,135 and 68,546, respectively which were included in operating expenses.

Commitments and Contingencies

Litigation and Other Legal Matters

The Company has certain contingent liabilities with respect to existing or potential claims, lawsuits and other proceedings. The Company accrues liabilities when it considers probable that future costs will be incurred and such costs can be reasonably estimated. The proceeding-related reserve is based on developments to date and historical information related to actions filed against the Company. As of March 31, 2011, the Company had established reserves for proceeding-related contingencies of $1,836,533 to cover legal actions against the Company. As of March 31, 2011 no loss amount has been accrued for other legal actions considered by the Company’s legal counsels to be reasonably possible for the aggregate amount up to $3,893,702.

MercadoLibre, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)

Commitments and Contingencies (Continued)

Litigation and Other Legal Matters (Continued)

As of March 31, 2011, 338 legal actions were pending in the Brazilian ordinary courts, 8 of which were related to alleged intellectual property infringement. In addition, as of March 31, 2011, there were more than 1,591 cases still pending in Brazilian consumer courts. Filing and pursuing of an action before Brazilian consumer courts do not require the assistance of a lawyer. In most of the cases filed against the Company, the plaintiffs asserted that the Company was responsible for fraud committed against them, or responsible for damages suffered when purchasing an item on the Company’s website, when using MercadoPago, or when the Company invoiced them.

On March 17, 2006, Vintage Denim Ltda., or Vintage, sued the Company’s Brazilian subsidiaries MercadoLivre.com Atividades de Internet Ltda. and eBazar.com.br Ltda. in the 29th Civil Court of the County of São Paulo, State of São Paulo, Brazil. Vintage requested a preliminary injunction alleging that these subsidiaries were infringing Diesel trademarks and their right of exclusive distribution as a result of sellers listing allegedly counterfeit and original imported Diesel branded clothing through the Brazilian page of the Company’s website, based on Brazilian Industrial Property Law (Law 9,279/96). Vintage sought an order enjoining the sale of Diesel-branded clothing on the Company’s platform. A preliminary injunction was granted on April 11, 2006 to prohibit the offer of Diesel-branded products, and a fine for non-compliance was imposed in the approximate amount of $5,300 per defendant per day of non-compliance. The Company appealed that fine and obtained its suspension in 2006. Because the appeal of the preliminary injunction failed, in March of 2007, Vintage presented petitions alleging the Company’s non-compliance with the preliminary injunction granted to Vintage and requested a fine of approximately $3.3 million against the Company’s subsidiaries, which represents approximately $5,300 per defendant per day of alleged non-compliance since April 2006. In July 2007, the judge ordered the payment of the fine mandated in the preliminary injunction, without specifying the amount. In September 2007, the judge decided that (i) the Brazilian subsidiaries were not responsible for alleged infringement of intellectual property rights by its users; and that (ii) the plaintiffs did not prove the alleged infringement of its intellectual property rights. However, the decision maintained the injunction until such ruling is non-appealable. The plaintiff appealed the judge’s ruling regarding the subsidiary’s non-responsibility and the Company appealed the decision that maintained the preliminary injunction. Both appeals are still pending. In the opinion of the Company’s legal counsel the probable loss amounts to $259,409 and a remaining amount of $1,828,145 was not reserved since it was considered reasonably possible but not probable.

State of São Paulo Fraud Claim

On June 12, 2007, a state prosecutor of the State of São Paulo, Brazil presented a claim against the Brazilian subsidiary. The state prosecutor alleges that the Brazilian subsidiary should be held liable for any fraud committed by sellers on the Brazilian version of the Company’s website, or responsible for damages suffered by buyers when purchasing an item

MercadoLibre, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)

Commitments and Contingencies (Continued)

Litigation and Other Legal Matters (Continued)

on the Brazilian version of the MercadoLibre website. On June 26, 2009, the Judge of the first instance court ruled in favor of the State of São Paulo prosecutor, declaring that the Brazilian subsidiary shall be held joint and severally liable for fraud committed by sellers and damages suffered by buyers when using the website, and ordering us to remove from the Terms of Service of the Brazilian website any provision limiting the Company’s responsibility, with a penalty of approximately $2,500 per day of non-compliance. On June 29, 2009 the Company presented a recourse to the lower court. On September 29, 2009 the Company presented an appeal and requested to suspend the effects of the ruling issued by the lower court until the appeal is decided by State Court of Appeals, which request was granted on December, 1, 2009. The decision on the appeal is still pending. In the opinion of the Company’s legal counsel the risk of loss is reasonably possible.

City of São Paulo Tax Claim

On September 13, 2007, the Company paid to tax authorities in São Paulo, Brazil approximately $1.1 million, consisting of $1.0 million in accrued taxes and $0.1 million in fines, related to the Brazilian subsidiary’s activities in São Paulo for the period 2002 through 2004. The Company had reserved approximately $1.1 million against these taxes as of December 31, 2006 so no additional provision was recorded for the payment. São Paulo tax authorities have also asserted taxes and fines against us relating to the period from 2005 to 2007 in an approximate additional amount of $5.9 million according to the exchange rate at that moment. In January 2005, the Brazilian subsidiary had moved its operations to Santana de Parnaíba City, Brazil and began paying taxes to that jurisdiction, therefore the Company believes it has strong defenses to the claims of the São Paulo authorities with respect to this period. On August 31, 2007, the Company presented administrative defenses against the authorities’ claim. On September, 12, 2009 the tax authorities ruled against the Brazilian subsidiary. On October 13, 2009, the Company presented an appeal to the Conselho Municipal de Tributos or Sao Paulo Municipal Council of Taxes. On January 19, 2011, Sao Paulo Municipal Council of Taxes ruled on our appeal and reduced the fine to approximately $4.7 million. On February 11, 2011, the Company appealed this decision to the Câmaras Reunidas do Egrégio Conselho Municipal de Tributos (Superior Chamber of the São Paulo Municipal Council of Taxes) and awaits a ruling on this appeal. As of the date of these financial statements, the total amount of the claim is approximately $15.3 million including surcharges and interest. The Company believes that the risk of loss is remote, and as a result, has not reserved provisions for this claim. In the opinion of the Company’s legal advisors, it is unlikely and remote that the resolution of this matter could have a material negative effect on the Company’s results of operations and for the Company’s financial position.

MercadoLibre, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)

Commitments and Contingencies (Continued)

Litigation and Other Legal Matters (Continued)

State of São Paulo Customer Service Level Claim

On September 1, 2010, a state prosecutor of the State of São Paulo, Brazil presented a claim against the Company’s Brazilian subsidiary. The state prosecutor alleges that the Brazilian subsidiary should improve our customer service level and provide (among other things) a telephone number for customer support. On November 17, 2010, the Judge of the first instance court granted an injunction against the Brazilian subsidiary imposing the obligation to provide customer service over telephone means within 60 days with a penalty of approximately $65,000 per day of non-compliance. On April 08, 2011, the Company was summoned of the lawsuit and the injunction. On April 14, 2011, the Company presented recourse to the lower court; even though, the injunction was not lifted, an extension of 30 days was granted, and the non-compliance fine would start running as of July 11, 2011. On April 20, 2011 the Company presented an appeal and requested to suspend the effects of the injunction issued by the lower court until the appeal is decided by State Court of Appeals. The decision on the appeal is still pending. In the opinion of the Company’s legal counsel the risk associated with this claim is approximately $307,000 which considered reasonably possible.

Other third parties have from time to time claimed, and others may claim in the future, that the Company was responsible for fraud committed against them, or that the Company has infringed their intellectual property rights. The underlying laws with respect to the potential liability of online intermediaries like the Company are unclear in the jurisdictions where the Company operates. Management believes that additional lawsuits 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 amounts of management time, could require expensive changes in the Company’s methods of doing business, or could require the Company to enter into costly royalty or licensing agreements. The Company may be subject to patent disputes, and be subject to patent infringement claims as the Company’s services expand in scope and complexity. In particular, the Company may face additional patent infringement claims involving 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 number and significance of these disputes and inquiries are increasing as the Company’s business expands and the Company grows larger.

Other contingencies

As of March 31, 2011 the Company had reserved $71,820 against some tax contingencies (other than income tax) identified in some of its subsidiaries.

MercadoLibre, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)

Long Term Retention Plan

On August 8, 2008, the Board of Directors approved an employee retention program (“the 2008 LTRP”) that will be payable 50% in cash and 50% in shares, in addition to the annual salary and bonus of certain executives. Payments will be made in the first quarter on annual basis according to the following vesting schedule:

	•		Year 1 (2008): 17%

	•		Year 2 (2009): 22%

	•		Year 3 (2010): 27%

	•		Year 4 (2011): 34%

The shares granted for the 2008 LTRP were valued at the grant-date fair market value PF $36.8 per share.

For the three-month period ended March 31, 2011, the related accrued compensation expense was $69,818 corresponding $33,710 to the share portion of the award credited to Additional Paid-in Capital and $36,108 to the cash portion included in the Balance Sheet as Social security payable.

For the three-month period ended March 31, 2010, the related accrued compensation expense was $91,652 corresponding $34,376 to the share portion of the award credited to Additional Paid-in Capital and $57,276 to the cash portion included in the Balance Sheet as Social security payable.

On June 15, 2009, and June 25, 2010, the Board of Directors, upon the recommendation of the compensation Committee approved the 2009 and the 2010 employee retention programs (“the 2009 and 2010 LTRP”). The awards under the 2009 and 2010 LTRP are fully payable in cash in addition to the annual salary and bonus of each employee.

The 2009 and 2010 LTRP will be paid in 8 equal annual quotas (12.5% each) commencing on March 31, 2010 and March 31, 2011, respectively. Each quota is calculated as follows:

•

6.25% of the amount is calculated in nominal terms (“the nominal basis share”),

•

6.25% is adjusted by multiplying the nominal amount by the average closing stock price for the last 60 trading days of the year previous to the payment date and divided by the average closing stock price for the last 60 trading days of 2008 and 2009 for the 2009 and 2010 LTRP, respectively. The average closing stock price for the 2009 and 2010 LTRP amounted to $13.81 and $45.75, respectively (“the variable share”).

The 2008, 2009 and 2010 LTRP have performance and/or eligibility conditions to be achieved at each year end and also require the employee to stay in the Company at the payment date.

MercadoLibre, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)

The 2008 LTRP compensation cost and the variable share compensation cost of the 2009 and 2010 LTRP are recognized in accordance with the graded-vesting attribution method and are accrued up to each payment date. The 2009 and 2010 LTRP nominal basis share are recognized in straight line bases using the equal annual accrual method.

As of March 31, 2011, the 2009 LTRP accrued compensation expense for the three-month period ended March 31, 2011 and March 31, 2010 were $519,086 and $328,012, respectively.

As of March 31, 2011, the 2010 LTRP accrued compensation expense for the three-month period ended March 31, 2011 was $507,977.

10.

Cash dividend distribution

On February 18, 2011, the Board of Directors approved the first quarterly cash dividend distribution of $3.5 million or $0.08 per share which was paid on April 15, 2011.

* * * *


Item 2		— Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Statement Regarding Forward-Looking Statements

Certain statements regarding our future performance made or implied in this report are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The words “anticipate,” “believe,” “expect,” “intend,” “plan,” “estimate,” “target,” “project,” “should,” “may,” “could,” “will” and similar words and expressions are intended to identify forward-looking statements. Forward-looking statements generally relate to information concerning our possible or assumed future results of operations, business strategies, financing plans, competitive position, industry environment, potential growth opportunities, 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 trends affecting our business, all of which are subject to known and unknown risks, uncertainties and important factors (in addition to those discussed elsewhere 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 online commerce and Internet usage in Latin America;

	•		our ability to expand our operations and adapt to rapidly changing technologies;

	•		government regulation;

	•		litigation and legal liability;

	•		systems interruptions or failures;

	•		our ability to attract and retain qualified personnel;

	•		consumer trends;

	•		security breaches and illegal uses of our services;

	•		competition;

	•		reliance on third-party service providers;

	•		enforcement of intellectual property rights;

	•		our ability to attract new customers, retain existing customers and increase revenues;

	•		seasonal fluctuations; and

	•		political, social and economic conditions in Latin America in general, and Venezuela and Argentina in particular, including Venezuela’s status as a highly inflationary economy and new exchange rate system.

Many of these risks are beyond our ability to control or predict. New risk factors emerge from time to time and it is not possible for management 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 any factor, 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 are cautioned not to place undue reliance on our forward-looking statements. These statements are not guarantees of future performance. They are subject to future events, risks and uncertainties — many of which are beyond our control — as well as potentially inaccurate assumptions that could cause actual results to differ materially from our expectations and projections. Some of the material risks and uncertainties (in addition to those referred to above and elsewhere in this report) that could cause actual results to differ materially from our expectations and projections are described in “Item 1A — Risk Factors” in Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2010 filed with the Securities and Exchange Commission on February 25, 2011. You should read that information in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 2 of Part I of this report and our unaudited condensed consolidated financial statements and related notes in Item 1 of Part I of this report. We note such information for investors as permitted by the Private Securities Litigation Reform Act of 1995. There also may be other factors that we cannot anticipate or that are not described in this report, generally because we do not perceive them to be material that could cause results to differ materially 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 statements except as may be required by law. You are advised, however, to review any further disclosures we make on related subjects in our periodic filings with the Securities and Exchange Commission.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

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 quarters ended March 31, 2011 and 2010;

	•		a review of our financial presentation and accounting policies, including our critical accounting policies;

	•		a discussion of the principal factors that influence our results of operations, financial condition and liquidity;

	•		a discussion of our liquidity and capital resources, a discussion of our capital expenditures and a description of our contractual obligations; and

	•		a discussion of the market risks that we face.

Business Overview

MercadoLibre, Inc. (together with its subsidiaries “us”, “we”, “our” or the “company”) hosts the largest online commerce platform in Latin America located at www.mercadolibre.com, which is focused on enabling e-commerce and its related services. Our services are designed to provide our users with mechanisms for buying, selling, paying, collecting, generating leads and comparing via e-commerce transactions in an effective and efficient manner. We are market leaders in e-commerce in each of Argentina, Brazil, Chile, Colombia, Costa Rica, Ecuador, Mexico, Peru, Uruguay and Venezuela, based on unique visitors and page views. Additionally, we also operate online commerce platforms in the Dominican Republic, Panama and Portugal.

Through our online commerce platform, we provide buyers and sellers with a robust online commerce environment that fosters the development of a large and growing e-commerce community in Latin America, a region with a population of over 550 million people and one of the fastest-growing Internet penetration rates in the world. We believe that we offer a technological and commercial solution that addresses the distinctive cultural and geographic challenges of operating an online commerce platform in Latin America.

We offer our users an eco-system of four related e-commerce services: the MercadoLibre Marketplace, the MercadoPago payments solution, the MercadoClics advertising program and the MercadoShops on-line stores solution.

The MercadoLibre Marketplace, which we sometimes refer to as our marketplace, is a fully-automated, topically-arranged and user-friendly online commerce service. This service permits both businesses and individuals to list items and conduct their sales and purchases online in either a fixed-price or auction-based format. Additionally, through online classified listings, our registered users can list and purchase motor vehicles, vessels, aircraft, real estate and services. Any Internet user can browse through the various products and services that are listed on our web site and register with MercadoLibre to list, bid for and purchase items and services.

To complement the MercadoLibre Marketplace, we developed MercadoPago, an integrated online payments solution. MercadoPago is designed to facilitate transactions both on and off the MercadoLibre Marketplace by providing a mechanism that allows our users to securely, easily and promptly send, receive and finance payments online.

As a further enhancement to the MercadoLibre Marketplace, in 2009, we launched our MercadoClics program to allow businesses to promote their products and services on the Internet. Through MercadoClics users and advertisers are able to place display and/or text advertisements on our web pages in order to promote their brands and offerings. MercadoClics offers advertisers a cost efficient and automated platform through which it will acquire traffic. Advertisers purchase, on a cost per clicks basis, advertising space that appear alongside product search results for specific categories and other pages. These advertising placements are clearly differentiated from product search results and direct traffic both to and off our platform to the advertisers destination of choice.

To close out our suite of e-commerce services we launched, during 2010, the MercadoShops on-line stores solution. Through MercadoShops users can set-up, manage and promote their own on-line webstores. These webstores are hosted by MercadoLibre and offer integration with the other marketplace, payments and advertising services we offer. Users can choose from a basic, free webstore or pay monthly subscriptions for enhanced functionality and added services on their stores.

Reporting Segments

Our segment reporting is based on geographic areas, this being the current criteria we are using to evaluate our segment performance. Our geography segments include Brazil, Argentina, Mexico, Venezuela and other countries (such as Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, Panama, Peru, Portugal and Uruguay).

In addition, we operate a real estate classifieds platform that covers some areas of Florida in the United States, the operations of which are included in our segment for “other countries”.

Recent Developments

Launch of MercadoPago 3.0 in Mexico

In February 2011, we started processing off-platform transactions in Mexico using our new direct payments product, MercadoPago 3.0, for any site in Mexico that elects to adopt it, while maintaining the escrow product for on-platform transactions. On April 15, 2011, we launched a new and improved version of our MercadoPago payments platform that may be used for all our marketplace transactions in México. We also made offering MercadoPago obligatory in our marketplace listings (with the exception of free listings).

MercadoPago 3.0, which had previously been available only in Argentina, Brazil, Chile and Colombia, is designed to meet the growing demand for Internet-based payments systems in Latin America. In addition to improving the ease of use and efficiency of payments for purchases made in our marketplace, MercadoPago 3.0 also allows payments for transactions that occur outside of our platforms. Users are able to transfer money to other users with MercadoPago accounts and to incorporate MercadoPago as a means for payments on their independent commerce websites. In addition, with Mercado Pago 3.0 in Mexico, the MercadoPago processing fee for on-platform transactions is borne entirely by the seller through a single MercadoLibre-MercadoPago fee that entitles the seller to free usage of the MercadoPago platform for their sales. In the case of off-platform transactions, the seller will be required to pay a service fee. The finance fee of any transaction is paid by the buyer according to the installment plan elected.

Finally, in Venezuela we have available MercadoPago 2.0, which is a closed system in which the buyer pays for its usage.

Description of line items

Net revenues

We recognize revenues in each of our five reporting segments. Our reporting segments include our operations in Brazil, Argentina, Mexico, Venezuela and other countries (Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, Panama, Peru, Portugal and Uruguay).

We offer three types of up-front fees for three different combinations of placement and features. Up-front fees are charged at the time the listing is uploaded onto our platform and are not subject to successful sale of the items listed. Following this fee structure modification, revenues for the MercadoLibre Marketplace transacctions are now generated by:

	•		up front fees;

	•		final value fees; and

	•		online advertising fees.

As from the third quarter of 2010, we offer payment processing through our MercadoPago solution at no added cost in Brazil and Argentina. This change in pricing implies that for Marketplace transactions we no longer charge our users a specific fee for processing on-platform payments as we did in the past. We do continue, however, to generate payment related revenues, reported within each of our reporting segments, attributable to:

	•		commissions charged to sellers for the use of the MercadoPago platform with respect to transactions that occur outside of our Marketplace platform;

	•		revenues from a financial charge when a buyer elects to pay in installments through our MercadoPago platform, both on transaction occurs on or off our Marketplace platform.

The following table sets forth the percentage of consolidated net revenues by country for the three-month periods ended March 31, 2011 and 2010:


	Three Month Period Ended
	March 31,
(% of total consolidated net revenues)	2011			2010

Brazil		56.5	%		57.4	%
Argentina		17.2	%		18.2	%
Venezuela		8.5	%		9.7	%
Mexico		11.0	%		7.6	%
Other Countries		6.8	%		7.2	%

The following table summarizes the changes in net revenues for the three-month periods ended March 31, 2011 and 2010:


	Three Month Period Ended				Change from 2010
	March 31,				*to 2011 ()**
	2011		2010		in Dollars		in %
	(in millions, except percentages)

Net Revenues:
Brazil	$	34.7	$	26.3	$	8.4		31.8	%
Argentina	$	10.6	$	8.4	$	2.2		26.6	%
Venezuela	$	6.8	$	3.5	$	3.3		94.8	%
Mexico	$	5.2	$	4.5	$	0.7		17.1	%
Other Countries	$	4.2	$	3.3	$	0.9		26.3	%

Total Net Revenues	$	61.5	$	45.9	$	15.5		33.8	%


(*)		Percentages have been calculated using whole-dollar amounts rather than rounded amounts that appear in the table.

The table above may not add due to rounding

We have a highly fragmented customer revenue base given the large numbers of sellers and buyers who use our platforms. For the three-month periods ended March 31, 2011 and 2010, no single customer accounted for more than 1.0% of our net revenues. Our MercadoLibre Marketplace is available in thirteen countries (Argentina, Brazil, Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, Mexico, Panama, Peru, Portugal, Uruguay and Venezuela), and MercadoPago is available in six countries (Argentina, Brazil, Chile, Colombia, Mexico and Venezuela). The functional currency for each country’s operations is the local currency, except for Venezuela whose functional currency is the US dollar due to Venezuela’s status as a highly inflationary economy. See “Critical accounting policies and estimates — Foreign Currency Translation” included in this report. Therefore, our net revenues are generated in multiple foreign currencies and then translated into US dollars at the average monthly exchange rate.

Our subsidiaries in Brazil, Argentina, Venezuela and Colombia are subject to certain taxes on revenues which are classified as a cost of net revenues. These taxes represented 7.3% of net revenues for the three-month period ended March 31, 2011.

Cost of net revenues

Cost of net revenues primarily represents bank and credit card processing charges for transactions and fees paid with credit cards and other payment methods, certain taxes on revenues, compensation for customer support personnel, ISP connectivity charges, depreciation and amortization and hosting and site operation fees.

Product and technology development expenses

Our product and technology development related expenses consist primarily of depreciation and amortization costs related to product and technology development, compensation for our engineering and web-development staff, telecommunications costs and payments to third-party suppliers who provide technology maintenance services to our company.

Sales and marketing expenses

Our sales and marketing expenses consist primarily of marketing costs for our platforms through online and offline advertising, bad debt charges, the salaries of employees involved in these activities, public relations costs, marketing activities for our users and depreciation and amortization costs.

We carry out the vast majority of our marketing efforts on the Internet. In that context, we enter in agreements with portals, search engines, social networks, ad networks and other sites in order to attract Internet users to the MercadoLibre Marketplace and convert them into confirmed registered users and active traders on our platform. Additionally, we allocate a portion of our marketing budget to cable television advertising in order to improve our brand awareness and to complement our online efforts.

We also work intensively on attracting, developing and growing our seller community through our supply efforts. We have dedicated professionals in most of our operations that work with sellers, through trade show participation, seminars and meetings to provide them with important tools and skills to become effective sellers on our platform.

General and administrative expenses

Our general and administrative expenses consist primarily of salaries for management and administrative staff, compensation for outside directors, long term retention plan compensation, expenses for legal, accounting and other professional services, insurance expenses, office space rental expenses, travel and business expenses, as well as depreciation and amortization costs. General and administrative expenses include the costs of the following areas of our company: general management, finance, administration, accounting, legal and human resources.

Other income (expenses)

Other income (expenses) consists of interest income derived primarily from our investments and cash equivalents, foreign currency gains or losses, and other non-operating results. In addition, other income (expenses) included mainly interest expense related to the working capital requirements for our MercadoPago operations through the second quarter of 2010. Beginning in the third quarter of 2010 and for as long as we continue pre-selling credit card receivables there has been, and will in the future be, no interest expense included in Other income (expenses) line.

Income and asset tax

We are subject to federal and state taxes in the United States, as well as foreign taxes in the multiple jurisdictions where we operate. Our tax obligations consist of current and deferred income taxes and asset taxes incurred in these jurisdictions. We account for income taxes following the liability method of accounting. Therefore, our income tax expense consists of taxes currently payable, if any (given that in certain jurisdictions we still have net operating loss carry-forwards), plus the change during the period in our deferred tax assets and liabilities.

Critical accounting policies and estimates

The preparation of our unaudited condensed consolidated financial statements and related notes requires us to make judgments, estimates and assumptions that affect our reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We have based our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our management has discussed the development, selection and disclosure of these estimates with our audit committee and board of directors. Actual results may differ from these estimates under different assumptions or conditions.

An accounting policy is considered to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact our condensed consolidated financial statements. We believe that the following critical accounting policies reflect the more significant estimates and assumptions used in the preparation of our condensed consolidated financial statements. You should read the following descriptions of critical accounting policies, judgments and estimates in conjunction with our unaudited condensed consolidated financial statements, the notes there to and other disclosures included in this report.

Foreign Currency Translation

Historically, all of our foreign operations have used the local currency as their functional currency. Accordingly, these foreign subsidiaries translate assets and liabilities from their local currencies to US dollars using year end exchange rates while income and expense accounts are translated at the average rates in effect during the year. The resulting translation adjustment is recorded as part of other comprehensive income (loss), a component of shareholders’ equity. Gains and losses resulting from transactions denominated in non-functional currencies are recognized in earnings. Net foreign currency exchange losses or gains are included in the consolidated statements of income under the caption “Foreign currency gain /(loss)”.

Until September 30, 2009, our Venezuelan subsidiaries assets, liabilities, income and expenses were translated at the official exchange rate of 2.15 “Bolivares Fuertes” per US dollar.

In the fourth quarter of 2009, we began to use the parallel exchange rate rather than the official exchange rate to translate our Venezuelan financial statements. The following facts and circumstances have been considered in our analysis of the applicable exchange rate:

	•		At the date we changed the translation exchange rate (and as of the date of this report), we have not obtained dividends remittances at the official exchange rate (and we have not at the date of this report),

	•		The industry in which we operate may not influence our ability to access to the official exchange rate,

	•		The Commission for the Administration of Foreign Exchange (“CADIVI”) volume of approvals of the use of the Official Rate was down 50% on a year-to-year basis as of July 2009.

	•		CADIVI has not only delayed approvals but also removed many items from priority lists (current priorities appear to be food and medicine) causing delays in the repatriation of dividends for many companies.

Consequently, in the fourth quarter of 2009, we translated our Venezuelan assets, liabilities, income and expense accounts using the parallel exchange rate.

As of the date of this report the Company did not buy dollars at the CADIVI official rate.

In accordance with US GAAP, we have classified our Venezuelan operations as highly inflationary as of January 1, 2010 and have used the US dollar to be the functional currency for purposes of our financial statements. Therefore, no translation effect was accounted for in other comprehensive income since October 1, 2009 related to our Venezuelan operations.

Until May 13, 2010, the only way by which US dollars could be purchased outside the official currency market was using an indirect mechanism consisting in the purchase and sale of securities, including national public debt bonds (DPNs) denominated in Bolivares Fuertes and bonds issued by the government that were denominated in US dollars. This mechanism for transactions in certain securities created an indirect “parallel” foreign currency exchange market in Venezuela that enabled entities to obtain foreign currency through financial brokers without going through CADIVI. Although the parallel exchange rate was higher, and accordingly less beneficial, than the official exchange rate, some entities have used the “parallel” market to exchange currency because, as already mentioned, CADIVI used not to approve in a timely manner the exchange of currency requested by such entities. Until May 13, 2010, our Venezuelan subsidiaries used this mechanism to buy US dollars and accordingly we used the parallel average exchange rate to re-measure those foreign currency transactions.

Trading of foreign currencies was re-opened as a regulated market on June 9, 2010 with the Venezuelan Central Bank as the only institution through which foreign currency-denominated transactions can be brokered. Under the new system, known as the Foreign Currency Securities Transactions System (SITME), entities domiciled in Venezuela can buy US dollar —denominated securities only through banks authorized by the BCV to import goods, services or capital inputs. Additionally, the SITME imposes volume restrictions on an entity’s trading activity, limiting such activity to a maximum equivalent of $50,000 per day, not to exceed $350,000 in a calendar month. This limitation is non-cumulative, meaning that an entity cannot carry over unused volume from one month to the next.

For the period beginning on May 14, 2010 and ended on June 8, 2010 (during which there was no open foreign currency markets), we applied US GAAP guidelines, which state that if exchangeability between two currencies is temporarily lacking at the transaction date or balance sheet date, the first subsequent rate at which exchanges could be made shall be used.

Accordingly, the June 9, 2010 exchange rate published by the Venezuelan Central Bank has been used to re-measure transactions during the above-mentioned period.

During 2010 and previous years we were able to obtain U.S. dollars using alternative mechanisms other than the Venezuelan Commission of Foreign Exchange Administration (“CADIVI”). These dollars, obtained at a higher exchange rate than the one offered by CADIVI, and held in balance at U.S. bank accounts of our Venezuelan subsidiaries, were used for dividend distributions from our Venezuelan subsidiary. As a result, during 2010, lack of CADIVI approval did not restrict our ability to distribute the full amount of our retained earnings as dividends related to fiscal years 2008 ($0.8 million), and 2009 ($1.8 million). In addition, during 2011, our Venezuelan subsidiary distributed dividends of a $4.2 million, related to earnings for fiscal year 2010, using existing cash balances held in the U.S. bank accounts of our Venezuelan subsidiaries.

The following table sets forth the assets, liabilities and net assets of our Venezuelan subsidiaries, before intercompany eliminations, as of March 31, 2011 and December 31, 2010.


	March 31,			December 31,
	2011			2010

Venezuelan operations
Assets	$	19,930,242		$	21,928,340
Liabilities		(8,444,346	)		(8,212,581	)
Net Assets		11,485,896			13,715,759

Net assets of our Venezuelan subsidiary amount to approximately 6.3% of our consolidated net assets, and cash and investments of our Venezuelan subsidiary held in local currency in Venezuela amount only to approximately 5.1% of our consolidated cash and investments.

Impairment of long-lived assets and goodwill

We review long-lived assets for impairments whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to undiscounted future net cash flows expected to be generated by the asset. If such assets are considered to be impaired on this basis, the impairment loss to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.

Goodwill and certain indefinite life trademarks are reviewed at the end of the year for impairment or more frequently when events or changes in circumstances indicate that the carrying value may not be recoverable. Impairment of goodwill and certain trademarks are tested 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 and certain trademarks, to the fair value of the reporting unit. The fair values of the reporting units are estimated using a combination of the income or discounted cash flows approach and the market approach, which utilizes comparable companies’ data. If the carrying amount of the reporting unit exceeds its fair value, goodwill or indefinite useful life intangible assets are considered impaired and a second step is performed to measure the amount of impairment loss, if any. No impairments were recognized during the reporting periods and management’s assessment of each reporting unit’s fair value materially 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 to change from period to period because: (i) it requires management to make assumptions about gross merchandise volume growth, future interest rates, sales and costs; and (ii) the impact that recognizing an impairment would have on the assets reported on our balance sheet as well as our net income would be material. Management’s assumptions about future sales and future costs require significant judgment.

Allowances for doubtful accounts and chargebacks

We are exposed to losses due to uncollectible accounts and credits to sellers. Allowances for these items represent our estimate of future losses based on our historical experience. The allowance for doubtful accounts and chargebacks is recorded as a charge to sales and marketing expenses. Historically, our actual losses have been consistent with our charges. However, future changes in trends could have a material impact on our future consolidated statements of income and cash flows.

We believe that the accounting estimate related to allowances for doubtful accounts and chargebacks is a critical accounting estimate because it requires management to make assumptions about future collections and credit analysis. Our management’s assumptions about future collections require significant judgment.

Legal contingencies

In connection with certain pending litigation and other claims, we have estimated the range of probable loss and provided for such losses through charges to our condensed consolidated statement of income. These estimates are based on our assessment of the facts and circumstances and historical information related to actions filed against the Company at each balance sheet date and are subject to change based upon new information and future events.

From time to time, we are involved in disputes that arise in the ordinary course of business. We are currently involved in certain legal proceedings as described in “Legal Proceedings” in Item 1 of Part II of this report, Item 3 of Part I of our annual report on Form 10-K for our most recently completed fiscal year filed with the Securities and Exchange Commission, and in Note 8 to our unaudited interim condensed consolidated financial statements. We believe that we have meritorious defenses to the claims against us, and we will defend ourselves accordingly. However, even if successful, our defense could be costly and could divert management’s time. If the plaintiffs were to prevail on certain claims, we might be forced to pay damages or modify our business practices. Any of these consequences could materially harm our business and could have a material adverse impact on our financial position, results of operations or cash flows.

Income taxes

We are required to recognize a provision for income taxes based upon taxable income and temporary differences between the book and tax bases of our assets and liabilities for each of the tax jurisdictions in which we operate. This process requires a calculation of taxes payable under currently 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 benefit from our tax net operating losses are reported as deferred tax assets and liabilities in our condensed consolidated balance sheet. 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 is more likely than not that some portion or all of deferred tax asset will not be realized, we establish a valuation allowance. At March 31, 2011, we had a valuation allowance on certain foreign net operating losses based on our assessment that it is more likely than not that the deferred tax asset will not be realized. To the extent we establish a valuation allowance or change the allowance in a period, we reflect the change with a corresponding increase or decrease in our “Income/asset tax expense” line in our condensed consolidated statement of income.

Results of operations for the three-month period ended March 31, 2011 compared to three-month period ended March 31, 2010.

The selected financial data for the three-month periods ended March 31, 2011 and 2010 have been derived from our unaudited condensed consolidated financial statements included in Item 1 of Part I of this report. These statements include all normal recurring adjustments that management believes are necessary to fairly state our financial position, results of operations and cash flows. Results of operations for the three-month periods ended March 31, 2011 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2011 or for any other period.

Statement of income data


	Three Months Ended March 31,
(In millions)	*2011 ()**			*2010 ()**
	(Unaudited)
Net revenues	$	61.5		$	45.9
Cost of net revenues		(14.3	)		(9.9	)

Gross profit		47.1			36.0

Operating expenses:

Product and technology development		(5.2	)		(3.2	)
Sales and marketing		(13.2	)		(11.1	)
General and administrative		(9.5	)		(6.2	)

Total operating expenses		(27.8	)		(20.5	)

Income from operations		19.3			15.5


Other income (expenses):
Interest income and other financial gains		1.9			0.8
Interest expense and other financial charges		(0.6	)		(3.0	)
Foreign currency gains / losses		(0.5	)		0.4
Other income, net		0.0			—

Net income before income / asset tax expense		20.1			13.7


Income / asset tax expense		(6.0	)		(4.1	)

Net income	$	14.1		$	9.6


(*)		Totals may not add due to rounding

Other Data


	Three Months Ended March 31,
(In millions)	2011		2010

Number of confirmed registered users at end of the period ¹		55.6		44.9
Number of confirmed new registered users during the period ²		2.7		2.3
Gross merchandise volume ³		954.0		731.6
Number of items sold ⁴		10.9		8.3
Total payment volume ⁵		245.2		123.8
Total payment transactions ⁶		2.6		1.1
Capital expenditures		3.0		1.4
Depreciation and amortization		1.5		0.9


1	–	Measure of the cumulative number of users who have registered on the MercadoLibre Marketplace and confirmed their registration.

2	–	Measure of the number of new users who have registered on the MercadoLibre Marketplace and confirmed their registration.

3	–	Measure of the total U.S. dollar sum of all transactions completed through the MercadoLibre Marketplace, excluding motor vehicles, vessels, aircraft and real estate.

4	–	Measure of the number of items that were sold/purchased through the MercadoLibre Marketplace.

5	–	Measure of the total U.S. dollar sum of all transactions paid for using MercadoPago.

6	–	Measure of the number of all transactions paid for using MercadoPago.

Net revenues


	Three Month Period Ended						Change from 2010
	March 31,						*to 2011 ()**
	2011			2010			in Dollars		in %
	(in millions, except percentages)

Total Net Revenues	$	61.5		$	45.9		$	15.5		33.8	%

As a percentage of net revenues (*)		100.0	%		100.0	%


(*)		Percentages have been calculated using whole-dollar amounts rather than rounded amounts that appear in the table.

The 33.8% growth in net revenues from the first quarter of 2010 to the first quarter of 2011 resulted principally from a 30.4% increase in the gross merchandise volume (“GMV”) transacted through our platform from the first quarter of 2010 to the first quarter of 2011 and a 30.7% increase in items sold between those periods . In addition, there is a positive impact on US dollars figures mainly due to the appreciation of the Brazilian Real and because the parallel exchange rate used by our Venezuelan subsidiary in the first quarter of 2010 was 6.52 Bolivares Fuertes per US dollar as compared to 5.3 Bolivares Fuertes per US dollar for the first quarter of 2011. See “Critical accounting policies and estimates — Foreign currency translation” for more detail.

For the three-month period ended March 31, 2011, net revenues also include the net amount collected from financial institutions as a result of pre-selling installment-related financing receivables. We entered into these pre-selling agreements with the aim of substantially eliminating credit risk and optimizing financial cost. For the three-month period ended March 31, 2011, our net revenues have no financial related expenses. For the three-month period ended March 31, 2010, as we had assumed the financial risk of installment-related financing receivables, our MercadoPago financing revenues had an associated $3.4 million of financial expenses.

Measured in local currencies, net revenues grew 25.5% in the three-month period ended March 31, 2011, compared to the same period a year earlier. The local currency revenue growth was calculated by using the average monthly exchange rates for each month during 2010 and applying them to the corresponding months in 2011, so as to calculate what our financial results would have been had exchange rates remained stable from one year to the next.

In addition, net revenues increased slightly due to growth in our take rate, defined as net revenues as a percentage of gross merchandise volume, from 6.3% for the three-month period ended March 31, 2010 to 6.4% for the three-month period ended March 31, 2011.

The following table summarizes the changes in net revenues by each reporting segment for the three -month periods ended March 31, 2011 and 2010:


	Three Month Period Ended				Change from 2010
	March 31,				*to 2011 ()**
	2011		2010		in Dollars		in %
	(in millions, except percentages)

Net Revenues:
Brazil	$	34.7	$	26.3	$	8.4		31.8	%
Argentina	$	10.6	$	8.4	$	2.2		26.6	%
Venezuela	$	6.8	$	3.5	$	3.3		94.8	%
Mexico	$	5.2	$	4.5	$	0.7		17.1	%
Other Countries	$	4.2	$	3.3	$	0.9		26.3	%

Total Net Revenues	$	61.5	$	45.9	$	15.5		33.8	%


(*)		Percentages have been calculated using whole-dollar amounts rather than rounded amounts that appear in the table.

The table may not add due to rounding.

On a segment basis, our net revenues for the three-month period ended March 31, 2011 as compared to the same periods in 2010, increased across all segments In local currency, our revenues grew 25.5% in the three-month period ended March 31, 2011 compared to the same period in the previous year.

The following table sets forth our total net revenues and the sequential quarterly growth of these net revenues for the periods described below:


	Quarter Ended
	March 31,			June 30,			September 30,			December 31,
	(in millions, except percentages) (*)

2011
Net Revenues	$	61.5			n/a			n/a			n/a
Percent change from prior quarter		-1	%

2010
Net Revenues	$	45.9		$	52.5		$	56.0		$	62.3
Percent change from prior quarter		-6	%		14	%		7	%		11	%

2009
Net Revenues	$	32.3		$	40.9		$	50.6		$	49.0
Percent change from prior quarter		-3	%		27	%		24	%		-3	%

2008
Net Revenues	$	28.8		$	34.5		$	40.3		$	33.4
Percent change from prior quarter		7	%		20	%		17	%		-17	%


(*)		Percentages have been calculated using whole-dollar amounts rather than rounded amounts that appear in the table.

Cost of net revenues


	Three Month Period Ended						Change from 2010
	March 31,						*to 2011 ()**
	2011			2010			in Dollars		in %
	(in millions, except percentages)

Total cost of net revenues	$	14.3		$	9.9		$	4.4		44.9	%

As a percentage of net revenues (*)		23.3	%		21.5	%


(*)		Percentages have been calculated using whole-dollar amounts rather than rounded amounts that appear in the table.

For the three-month period ended March 31, 2011, the increase in cost of net revenues as compared to the same period of 2010 was primarily attributable to a $1.6 million increase in collection fees which includes our payment processing fees. The increase in collection fees, which occurred primarily in Brazil and Argentina, was a result of the higher penetration of our Payment solution into our Marketplace, which has a higher collection fee cost. In addition, sales taxes on our net revenues increased by $1.5 million, or 48.3% for the three-month period ended March 31, 2011, compared to the same period of 2010 mainly as a consequence of increases in net revenues. Moreover, during the three-month period ended March 31, 2011 as compared to the same period in the prior year, expenditures related to our in-house customer support operations increased by $1.0 million primarily driven by an increase in compensation costs, recruitment, investments in improved service and initiatives to combat fraud, illegal items and fee evasion. Finally, during the three-month period ended March 31, 2011 as compared to the same period in the prior year, our hosting expenditures grew $0.2 million because we occupied more space in data centers located in the U.S..

Product and technology development


	Three Month Period Ended						Change from 2010 to
	March 31,						*2011 ()**
	2011			2010			in Dollars		in %
	(in millions, except percentages)

Product and technology development	$	5.2		$	3.2		$	2.0		59.9	%

As a percentage of net revenues (*)		8.4	%		7.0	%


(*)		Percentages have been calculated using whole-dollar amounts rather than rounded amounts that appear in the table.

For the three-month period ended March 31, 2011, the growth in product and technology development expenses as compared to the same periods in 2010 was primarily attributable to an increase of $1.0 million or a 60.8% increase in compensation costs. These additional compensation expenses were primarily related to increases in compensation costs, as we continue to invest in top quality talent to develop enhancements and new features across our platforms. We believe product development is one of our key competitive advantages and intend to continue to invest in adding engineers to meet the increasingly sophisticated product expectations of our customer base.

Product and technology development expenses also grew during the three-month period ended March 31, 2011 as a consequence of increased depreciation and amortization expenses related to product and technology development of $0.4 million, or 61.6% compared to the same period in 2010 and an increase in maintenance expenses of $0.3 million compared to the same period in 2010.

Sales and marketing


	Three Month Period Ended						Change from 2010 to
	March 31,						*2011 ()**
	2011			2010			in Dollars		in %
	(in millions, except percentages)

Sales and marketing	$	13.2		$	11.1		$	2.1		19.1	%

As a percentage of net revenues (*)		21.5	%		24.2	%


(*)		Percentages have been calculated using whole-dollar amounts rather than rounded amounts that appear in the table.

For the three-month period ended March 31, 2011, the increase in sales and marketing expenses when compared to the same period in 2010 was primarily attributable to a $0.8 million increase in compensation costs driven by higher salaries to retain talent, and a $0.7 million increase in bad debt charges in the 2011 period. Bad debt charges for the three-month period ended March 31, 2011 represented 6.5% of net revenues versus 7.2% for the same period in 2010. In addition, sales and marketing expenses related to trust and safety expenses increased by $0.5 million in the first quarter of 2011 when compared to the same period in 2010, due to the increased use of our buyer protection program, developed to compensate buyers for unfulfilled transactions or other claims related to the quality of the purchased goods. In addition, other marketing expenses increased by $0.4 million in the three-month period ended March 31, 2011 as compared to the same period of the previous year. The increase in sales and marketing expenses for the three-month period ended March 31, 2011 was partially offset by a $0.4 million decrease in our online advertising expenses related to specific deals, as we have optimized investment allocation over the same period ended March 31, 2010. Online advertising represented 6.2% of our net revenues in the three-month period ended March 31, 2011, down from 9.3% for the same period in 2010.

General and administrative


	Three Month Period Ended						Change from 2010 to
	March 31,						*2011 ()**
	2011			2010			in Dollars		in %
	(in millions, except percentages)

General and administrative	$	9.5		$	6.2		$	3.3		52.3	%

As a percentage of net revenues (*)		15.4	%		13.5	%


(*)		Percentages have been calculated using whole-dollar amounts rather than rounded amounts that appear in the table.

For the three-month period ended March 31, 2011, the increase in general and administrative expenses as compared to the same period of 2010, was primarily attributable to a $1.8 million increase in compensation costs in the 2011 period related to increases in salaries to retain talent and to increases in our long term retention plan cost, a $0.6 million increase in outside services mainly related to legal and tax fees, a $0.4 million increase in office expenses mainly related to new offices in our main locations and to a $0.3 million related to other general and administrative expenses.

Other income (expenses)


	Three Month Period Ended						Change from 2010 to
	March 31,						*2011 ()**
	2011			2010			in Dollars		in %
	(in millions, except percentages)

Other income (expenses)	$	0.8		$	(1.8	)	$	2.6		-142.4	%

As a percentage of net revenues		1.2	%		-3.9	%


(*)		Percentages have been calculated using whole-dollar amounts rather than rounded amounts that appear in the table.

For the three-month period ended March 31, 2011 as compared to the same period in 2010, the decrease in other expenses was primarily a result of: (a) a $2.4 million decrease in financial expenses, because in the first quarter of 2011 as we pre-sold installment related financing receivables related to our payment solution to better managed credit risk and to generate increased predictability of the associated cost, there is no related financial expense; and (b) a $1.1 million increase in interest income and other financial charges related to higher interest income earned on our investments driven by higher interest rates and a greater volume of investments, particularly in Brazil.

The increase in other income (expenses) was partially offset by an increase of $0.9 million in foreign currency losses, from $0.4 million of foreign currency gains in the first quarter of 2010 to a $0.5 million of foreign currency loss in the first quarter of 2011. The increase in foreign currency losses for the three-month period ended March 31, 2011 was primarily due to losses in Brazil and Mexico attributable to the impact of the local currency appreciation on the cash balances held by our Brazilian and Mexican subsidiaries in US dollars during the first quarter of 2011 versus a devaluation of those local currencies in the first quarter of 2010.

Income and asset tax


	Three Month Period Ended						Change from 2010 to
	March 31,						*2011 ()**
	2011			2010			in Dollars		in %
	(in millions, except percentages)

Income and asset tax		6.0			4.1			1.9		47.0	%

As a percentage of net revenues (*)		9.8	%		8.9	%


(*)		Percentages have been calculated using whole-dollar amounts rather than rounded amounts that appear in the table.

During the three-month period ended March 31, 2011 as compared to the three-month period ended March 31, 2010, income and asset tax increased $1.9 million or 47.0% as a consequence of increases in our pre-tax income. In addition, our income and asset taxes expense margin was negatively impacted by increases in income tax charge in Brazil as a consequence of permanent tax differences period over period.

Our blended tax rate is defined as income and asset tax expense as a percentage of income before income and asset tax. Our effective income tax rate is defined as the provision for income taxes (net of charges related to dividend distribution from foreign subsidiaries which are offset with domestic foreign tax credits) as a percentage of pre tax income. The effective income tax rate excludes the effects of the deferred income tax, and the Mexican tax called “Impuesto Empresarial a Tasa Única” (“IETU”).

The following table summarizes the changes in our blended and effective tax rate for the three-month periods ended March 31, 2011 and 2010:


	Three Months Ended
	March 31,
	2011			2010

Blended tax rate		29.9	%		29.8	%

Effective tax rate		28.2	%		30.4	%


(*)		Percentages have been calculated using whole-dollar amounts rather than rounded amounts that appear in the table.

Our blended tax rate for the three-month periods ended March 31, 2011 and 2010 was 29.9% and 29.8%, respectively. The decrease in our effective tax rate from the three-month period ended March 31, 2010 to the same period in 2011 was mainly due to our Brazilian businesses reorganization, generated as part of our tax planning strategy, permitted us to use tax loss carryforwards in that country. Our effective tax rate also decreased due to permanent tax differences in Venezuela that reduce our local effective tax rate.

The following table sets forth our effective income tax rate related to our main locations as of March 31, 2011 and 2010:


	Three Months Ended
	March 31,
	2011			2010

Effective tax rate by country

Argentina		18.3	%		15.7	%
Brazil		32.3	%		35.6	%
Mexico		20.4	%		9.7	%
Venezuela		29.7	%		46.4	%

Our Argentine subsidiary is a beneficiary of a software development law granting it a relief of 60% of total income tax determined in each year. Mainly for that reason, as of March 31, 2011 and 2010, our Argentine operation’s effective income tax rate of 18.3% and 15.7%, respectively, are currently lower than the local statutory rate of 35%. If we had not been granted the Argentine tax holiday, we would have pursued an alternative tax planning strategy and, therefore, the impact of not having this particular benefit could result in a higher effective tax rate in Argentina, but not necessarily as high as the local statutory rate of 35%.

The increase in our Argentine operation’s effective income tax rate period over period is mainly related to variations in temporary tax differences.

As of March 31, 2011 our Brazilian effective income tax rate is lower than the local statutory rate of 34% mainly because of the business reorganization generated as part of our tax planning strategy, which permitted us to use tax loss carryforwards in that country. As of March 31, 2010 our Brazilian effective income tax rate is higher than the local statutory rate as a consequence of variations in both temporary and permanent tax differences.

As of March 31, 2011, our Mexican effective income tax rate is lower than the local statutory rate of 30% mainly because of variations in permanent tax differences. As of March 31, 2010, our Mexican effective income tax rate is lower than the local statutory rate mainly because of a business reorganization generated as part of our tax planning strategy, which permitted us to use tax loss carryforwards in that country (all tax loss carryforwards have been used in 2010) and due to variations in permanent tax differences.

As of March 31, 2011, our Venezuelan effective income tax rate is lower than the local statutory rate of 34%, mainly as a consequence of a loss related to the local inflation adjustment that is not recorded for US GAAP purposes. As of March 31, 2010, our Venezuelan effective income tax rate is higher than the local statutory rate mainly because the loss generated by the re-measurement of our local-currency position recorded for US GAAP purposes cannot be computed for tax purposes.

Our effective tax rate reflects the tax effect of significant operations outside the United States, which are generally taxed at rates lower than the U.S. statutory rate of 35%, especially in the case of Argentina, where we have significant operations with an effective tax rate of approximately 18%. A future change in the mix of pretax income from these various tax jurisdictions would impact the Company’s periodic effective tax rate.

We do not expect such a change in mix to have a significant impact in the domestic effective income tax rate related to dividend distributions from foreign subsidiaries since our strategy is to reinvest our cash surplus in our international operations, and to distribute dividends when they can be offset with available tax credits.

Liquidity and Capital Resources

Our main cash requirement historically has been working capital to fund our MercadoPago financing operations in Brazil. We also require cash for capital expenditures relating to technology infrastructure, software applications, office space and to fund the payment of quarterly cash dividends on shares of our common stock.

Since our inception, we have funded our operations primarily through contributions received from our stockholders during the first two years of operations, from funds raised during our initial public offering, and from cash generated from our operations. We fund MercadoPago by discounting credit card receivables and through cash advances derived from our business.

At March 31, 2011, our principal source of liquidity was $54.1 million of cash and cash equivalents and short-term investments and $101.8 million of long-term investments provided by cash generated from operations.

The significant components of our working capital are cash and cash equivalents, short-term investments, accounts receivable, accounts payable and accrued expenses, funds receivable from and payable to MercadoPago users, and short-term debt. As long as we continue transferring credit card receivables to financial institutions in return for cash, as we have done since the last quarter of 2008, we will continue generating cash.

As of March 31, 2011, cash and investments of foreign subsidiaries amount to $130.6 million or 83.7% of our consolidated cash and investments and approximately 51.3% of consolidated cash and investments are held outside the U.S., mostly in Brazil. Our strategy is to reinvest our undistributed earnings of our foreign operations in those operations and to distribute dividends when they can be offset with available tax credits. We do not expect a material impact in any repatriation of undistributed earnings of foreign subsidiaries on our operations since the taxable domestic gains generated by any dividend distributions will be mostly offset with foreign tax credits that arise from income tax paid in our foreign operations, which we are allowed to compute for domestic income tax purposes.

In the event we change the way we manage our business, the working capital needs could be funded, as we did in the past, through a combination of the sale of credit card coupons to financial institutions, loans backed by credit card receivables and cash advances from our business.

The following table presents our cash flows from operating activities, investing activities and financing activities for the three-month periods ended March 31, 2011 and 2010:


	Three Month Period Ended March 31,
(In millions)	2011			2010
	(in millions)
Net cash provided by (used in):

Operating activities	$	15.2		$	11.5
Investing activities		(21.2	)		(23.0	)
Financing activities		0.0			(3.2	)
Effect of exchange rates on cash and cash equivalents		0.2			(0.4	)

Net decrease in cash and cash equivalents	$	(5.9	)	$	(15.2	)

Totals may not add due to rounding.

Net cash provided by operating activities

Cash provided by operating activities consists of net income adjusted for certain non-cash items, and the effect of changes in working capital and other activities.


	Three Month Period Ended March 31,				Change from 2010 to 2011
	2011		2010		in Dollars		in %
	(in millions, except percentages) (*)

Net Cash provided by:

Operating activities	$	15.2	$	11.5	$	3.7		32.4	%


(*)		Percentages have been calculated using whole-dollar amounts rather than rounded amounts that appear in the table.

The $3.7 million increase in net cash provided by operating activities during the three-month period ended March 31, 2011 compared to the same period in 2010 was mainly attributable to a $4.4 million increase in net income. Additionally, net cash provided by operating activities was impacted by a $2.6 million decrease in changes in account receivables in the three-month period ended March 31, 2011 versus the same period of 2010, a $2.7 million increases in working capital related to our Payment solution, derived mostly from increases of funds payable to customers due to a higher amount of transactions in 2011, a $1.8 million increase in non-cash losses such as long term retention plan compensation expenses, depreciation and amortization, accrued interest and deferred taxes and a $0.7 million increase in other liabilities.

These increases in cash provided by operations were partially offset by a $8.6 million decrease in changes in account payable.

Net cash used in investing activities


	Three Month Period Ended March 31,						Change from 2010 to 2011
	2011			2010			in Dollars		in %
	(in millions, except percentages) (*)

Net Cash used in:

Investing activities	$	(21.2	)	$	(23.0	)	$	1.8		-8.0	%


(*)		Percentages have been calculated using whole-dollar amounts rather than rounded amounts that appear in the table.

Net cash used in investing activities in the three-month period of 2011 resulted mainly from purchases of investments for $99.1 million. Additionally, we used $3.0 million of cash in the three-month period ended March 31, 2011 to make capital expenditures related to technological equipment, software licenses, new office space in Argentina and to office equipment in Brazil and Mexico. During the three-month period ended March 31, 2011, the increase in cash used in investment activities was partially offset by proceeds from the sale and maturity of $80.8 million of investments as part of our financial strategy.

As of March 31, 2010, net cash used in investing activities resulted primarily from purchases of investments for $34.3 million. Additionally, in the three-month period ended March 31, 2010, we used $1.4 million of cash for capital expenditures related to technological equipment, software licenses and, to a lesser degree, office equipment. During the three-month period ended March 31, 2010, the increase in cash used in investment activities was partially offset by proceeds from the sale and maturity of $12.7 million of investments as part of our financial strategy.

Net cash used in financing activities


	Three Month Period Ended March 31,					Change from 2010 to 2011
	2011		2010			in Dollars		in %
	(in millions, except percentages)
	*()**

Net Cash used in:

Financing activities	$	0.0	$	(3.2	)	$	3.2		-100.0	%


(*)		Percentages have been calculated using whole-dollar amounts rather than rounded amounts that appear in the table.

For the three-month period ended March 31, 2010, our primary use of cash for financing activities was a reduction in short term debt as we paid $3.2 million of notes outstanding which were issued in connection with the DeRemate acquisition. In the event that we decide to pursue strategic acquisitions in the future, we may fund them with available cash, third party debt financing, or by raising equity capital, as market conditions allow.

Debt

As of March 31, 2011, the Company recorded $3.5 million of dividends payable to its stockholders. In addition, as of March 31, 2011, our outstanding debt of $0.2 million is related to an Argentine car lease contract. See Contractual obligations for more detail.

Cash Dividends

In February 2011, our board of directors declared our first quarterly cash dividend in our history of $3.5 million on our outstanding shares of common stock. The dividend was paid on April 15, 2011 to stockholders of record as of the close of business on March 31, 2011. We currently expect to continue paying similar amount of cash dividends on a quarterly basis. However, any future determination as to the declaration of dividends on our common stock will be made at the discretion of our board of directors.

Capital expenditures

Our capital expenditures increased by $1.6 million to $3.0 million for the three-month period ended March 31, 2011 as compared to $1.4 million for the same period in 2010, mainly due to investments made during the three-month period ended March 31, 2011. The Company increased the level of investment on hardware and software licenses necessary to improve and update the technology of our platform, cost of computer software developed internally and office equipment and new office space in Argentina, Brazil and Mexico. We anticipate continued investments in capital expenditures in 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 be sufficient to fund our operating activities, property and equipment expenditures and to pay or repay obligations going forward.

Off-balance sheet arrangements

At March 31, 2011, we had no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our consolidated financial condition, results of operations, liquidity, capital expenditures or capital resources.

Contractual obligations

We 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. We cannot provide certainty regarding the timing and amount of Payments. Below is a summary of the most significant assumptions used in our determination of amounts presented in the table. Contractual obligations at March 31, 2011 are as follows:


	Payment due by period
			Less than		1 to 3		3 to 5		More than
(in millions)	Total		1 year		years		years		5 years
Capital lease obligations (1)	$	0.3	$	0.1	$	0.2	$	—	$	—
Operating lease obligations (2)		4.4		1.3		2.2		0.8		0.1
Purchase obligations		5.3		4.6		0.7		—		—


Total	$	10.0	$	6.0	$	3.1	$	0.8	$	0.1


(1)		On February 22, 2010, our Argentina subsidiary signed a Company car lease contract to buy 12 cars for certain employees of the Company. The total lease contract amounts to $0.4 million and matures in July 2013.

(2)		Includes leases of office space.

We have leases for office space in certain countries in which we operate and leases for Company cars in Argentina. These are our only operating leases. Purchase obligation amounts include minimum purchase commitments for advertising, capital expenditures (technological equipment and software licenses) and other goods and services that were entered into in the ordinary course of business. We have developed estimates to project payment obligations based upon historical trends, when available, 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 3		— Qualitative and Quantitative Disclosure About Market Risk

We are exposed to market risks arising from our business operations. These market risks arise mainly from the possibility that changes in interest rates and the US dollar exchange rate with respect to local currencies, particularly the Brazilian Real due to Brazil’s share of our revenues, may affect the value of our financial assets and liabilities.

Foreign currencies

At March 31, 2011, we hold cash and cash equivalents in local currencies in our subsidiaries, and have receivables denominated in local currencies in all of our operations. Our subsidiaries generate revenues and incur most of their expenses in local currency. As a result, our subsidiaries use their respective local currency as their functional currency, except for our Venezuelan subsidiaries whose functional currency is the US dollar due to a highly inflationary accounting. At March 31, 2011, the total cash and cash equivalents denominated in foreign currencies totaled $19.3 million, short-term investments denominated in foreign currencies totaled $1.8 million, long-term investments denominated in foreign currencies totaled $55.5 million and accounts receivable and funds receivable from customers in foreign currencies totaled $18.8 million. To manage exchange rate risk, our treasury policy is to transfer a certain portion of cash and cash equivalents in excess of working capital requirements into dollar-denominated accounts in the United States. At March 31, 2011, our dollar-denominated cash and cash equivalents and short-term investments totaled $33.1 million and our dollar-denominated long-term investments totaled $46.3 million. For the three-month period ended March 31, 2011, we incurred foreign currency losses in the amount of $0.5 million as the cash and investment balances of the subsidiaries held in US dollars depreciated in local current terms. (See “Management Discussion and Analysis of Financial Condition and Results of Operations — Results of operations for the three-month period ended March 31, 2011 compared to three-month period ended March 31, 2010 — Other income (expenses)” for more detail).

In accordance with US GAAP, we have transitioned our Venezuelan operations to highly inflationary status as of January 1, 2010 and have been using the US dollar as the functional currency for these operations since then. In accordance with US GAAP, translation adjustments for prior periods were not removed from equity and the translated amounts for nonmonetary assets at December 31, 2010 become the accounting basis for those assets. Monetary assets and liabilities in “Bolivares Fuertes” were re-measured to the US dollar at the closing parallel exchange rate and the results of the operations in “Bolivares Fuertes” were re-measured to the US Dollar at the average monthly parallel exchange rate up to May 13, 2010.

However, on May 14th, 2010, the Venezuelan government enacted reforms to its exchange regulations and close down the parallel market by declaring that foreign-currency-denominated securities issued by Venezuelan entities were included in the definition of foreign currency, thus making the Venezuelan Central Bank (BCV) the only institution that could legally authorize the purchase or sale of foreign currency bonds, thereby excluding non-authorized brokers from the foreign exchange market.

Trading of foreign currencies was re-opened as a regulated market on June 9, 2010 with the Venezuelan Central Bank as the only institution through which foreign currency-denominated transactions can be brokered. Under the new system, known as the Foreign Currency Securities Transactions System (SITME), entities domiciled in Venezuela can buy US dollar—denominated securities only through banks authorized by the BCV to import goods, services or capital inputs. Additionally, the SITME imposes volume restrictions on an entity’s trading activity, limiting such activity to a maximum equivalent of $50,000 per day, not to exceed $350,000 in a calendar month. This limitation is non-cumulative, meaning that an entity cannot carry over unused volume from one month to the next.

For the period beginning on May 14, 2010 and ending on June 8, 2010 (during which there was no open foreign currency markets) we applied US GAAP guidelines which state that if exchangeability between two currencies is temporarily lacking at the transaction date or balance sheet date, the first subsequent rate at which exchanges could be made shall be used.

Accordingly, the June 9, 2010 exchange rate published by the Venezuelan Central Bank has been used to re-measure transactions during the above mentioned period.

During 2010 and previous years we were able to obtain US dollars using alternative mechanisms other than the Venezuelan Commission of Foreign Exchange Administration (“CADIVI”). These dollars, obtained at a higher exchange rate than the one offered by CADIVI, and held in balance at U.S. bank accounts of our Venezuelan subsidiaries, were used for dividend distributions from our Venezuelan subsidiary. As a result, during 2010, lack of CADIVI approval did not restrict our ability to distribute the full amount of our retained earnings as dividends related to fiscal years 2008 ($0.8 million), and 2009 ($1.8 million). In addition, during 2011, our Venezuelan subsidiary distributed dividends related to earnings for fiscal year 2010, using existing cash balances held in the U.S. bank accounts for a $4.2 million.

If the US dollar weakens against foreign currencies, the translation of these foreign-currency-denominated transactions will result in increased net revenues, operating expenses, and net income while the re-measurement of our net asset position in US dollars will have a negative impact in our Statement of Income. Similarly, our net revenues, operating expenses and net income will decrease if the US dollar strengthens against foreign currencies, while the re-measurement of our net asset position in US dollars will have a positive impact in our Statement of Income. During the three-month period ended March 31, 2011, 56.5% of our revenues were denominated in Brazilian reais, 17.2% in Argentine pesos, 11.0% in Venezuelan “Bolivares Fuertes”, 8.5% in Mexican pesos and 6.8% in the currency of other countries.

The table below shows the impact on our Net Revenues, Expenses, Other income and Income tax, Net Income and Shareholders’ Equity for a positive or negative 10% fluctuation on all the foreign currencies to which we are exposed as of March 31, 2011 and for the three-month period ended March 31, 2011:

Foreign Currency Sensitivity Analysis


(In millions)	-10%			Actual			+10%
	(1)						(2)
Net revenues		68.3			61.5			55.9
Expenses		(46.8	)		(42.2	)		(38.4	)

Income from operations		21.4			19.3			17.5

Other income (expenses) and income tax related to P&L items		(5.8	)		(4.7	)		(4.8	)
Foreign Currency impact related to the remeasurement of our Net Asset position		(10.3	)		(0.5	)		8.4

Net income		5.3			14.1			21.1


Total Shareholders’ Equity		188.9			183.1			178.3


(1)		Appreciation of the subsidiaries local currency against US Dollar

(2)		Depreciation of the subsidiaries local currency against US Dollar

The table above shows a decrease in our net income when the US dollar weakens against foreign currencies because the re-measurement of our net asset position in US Dollars has a greater negative impact than the increase in net revenues, operating expenses, and other income (expenses) and income tax lines related to the translation effect. Similarly, the table above shows an increase in our net income when the US dollar strengthens against foreign currencies because the re-measurement of our net asset position in US Dollars has a greater negative impact than the decrease in net revenues, operating expenses, and other income (expenses) and income tax lines related to the translation effect.

During 2011 we have not entered into any agreement to hedge our foreign currency translation exposure.

Interest

Our earnings and cash flows are also affected by changes in interest rates. These changes can have an impact on our interest expenses derived from selling our MercadoPago receivables. At March 31, 2011, MercadoPago funds receivable from customers totaled approximately $5.6 million. Interest fluctuations could also negatively affect certain of our fixed rate and floating rate investments comprised primarily of time deposits, money market funds, investment grade corporate debt securities, 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 less income 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 March 31, 2011, the average duration of our available for sale securities, defined as the approximate percentage change in price for a 100-basis-point change in yield, is 3.71%. If interest rates were to instantaneously increase (decrease) by 100 basis points, the fair market value of our available for sale securities as of March 31, 2011 could decrease (increase) by approximately $1.8 million.

Our short-term and long-term investments, which are classified on our balance sheet as current assets in the amount of $3.2 million and as non-current assets in the amount of $101.8 million, respectively, can be readily converted at any time into cash or into securities with a shorter remaining time to maturity. We determine the appropriate classification of our investments at the time of purchase and re-evaluate such designations as of each balance sheet date.

Equity Price Risk

Our board of directors adopted the 2009 and 2010 long-term retention plan (the “2009 and 2010 LTRP”) payable as follows:

	•		the eligible employee will receive a fixed cash payment equal to 6.25% of his or her 2009 and/or 2010 LTRP bonus once a year for a period of eight years starting in 2010 and/or 2011 (the “2009 and 2010 Annual Fixed Payment”); and

	•		on each date we pay the Annual Fixed Payment to an eligible employee, he or she will also receive a cash payment (the “2009 and 2010 Variable Payment”) equal to the product of (i) 6.25% of the applicable 2009 and/or 2010 LTRP bonus and (ii) the quotient of (a) divided by (b), where (a), the numerator, equals the Applicable Year Stock Price (as defined below) and (b), the denominator, equals the 2008 and 2009 Stock Price, defined as $13.81 and $45.75 for the 2009 and 2010 LTRP, respectively, which was the average closing price of the Company’s common stock on the NASDAQ Global Market during the final 60 trading days of 2008 and 2009, respectively. The “Applicable Year Stock Price” shall equal the average closing price of the Company’s common stock on the NASDAQ Global Market during the final 60 trading days of the year preceding the applicable payment date.

The 2009 and 2010 Variable Payment LTRP liability subjects us to equity price risk. At March 31, 2011, the total contractual obligation fair value of our 2009 and 2010 Variable Payment LTRP liability amounts to $8,861,138. As of March 31, 2011, the accrued liability related to the 2009 and 2010 Variable Payment portion of the LTRP included in Social security payable in our condensed consolidated balance sheet amounts to $3,229,896. The following table shows a sensitivity analysis of the risk associated with our total contractual obligation related to the 2009 and 2010 variable payment if our stock price were to increases or decreases by up to 40%.


	As of March 31, 2011
	MercadoLibre, Inc		2009 and 2010 variable
(In US dollars)	Equity Price		LTRP liability
Change in equity price in percentage

40%		98.67		12,405,593
30%		91.63		11,519,479
20%		84.58		10,633,366
10%		77.53		9,747,252
Static (*)		70.48		8,861,138
-10%		63.43		7,975,024
-20%		56.38		7,088,910
-30%		49.34		6,202,797
-40%		42.29		5,316,683


(*)		Average closing stock price for the last 60 trading days of the closing date


Item 4		— Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

Evaluation of disclosure controls and procedures

Based on the evaluation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) required by Exchange Act Rules 13a-15(b) or 15d-15(b), our chief executive officer and our chief financial officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective.

Changes in Internal Controls Over Financial Reporting

There were no changes in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the three-month period ended March 31, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION


Item 1		— Legal Proceedings

From time to time, we are involved in disputes that arise in the ordinary course of our business. The number and significance of these disputes is increasing as our business expands and our company grows. Any claims against us, whether meritorious or not, may be time consuming, result in costly litigation, require significant amounts of management time, result in the diversion of significant operational resources or require expensive implementations of changes to our business methods to respond to these claims. See “Item 1A—Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2010 as filed with the Securities and Exchange Commission on February 25, 2011, for additional discussion of the litigation and regulatory risks facing our company.

As of March 31, 2011, our total reserves for proceeding-related contingencies were approximately $1.8 million to cover legal actions against us in which we have determined that a loss is probable. The proceeding-related reserve is based on developments to date and historical information related to actions filed against our company. We do not reserve for losses we determine to be possible or remote.

As of March 31, 2011, there were 338 lawsuits pending against our Brazilian subsidiary in the Brazilian ordinary courts. In addition, as of March 31, 2011, there were more than 1,591 lawsuits pending against our Brazilian subsidiary in the Brazilian consumer courts, where no lawyer is required to file or pursue a claim. In most of these cases, the plaintiffs asserted that we were responsible for fraud committed against them, or responsible for damages suffered when purchasing an item on our website, when using MercadoPago, or when we invoiced them. We believe we have meritorious defenses to these claims and intend to continue defending them.

We have described below material developments that occurred during the quarter ended March 31, 2011 to pending legal proceedings which we have determined may be material to our business, all of which have been previously disclosed in our Annual Report on Form 10-K. We have excluded ordinary routine legal proceedings incidental to our business. In each of these proceedings we also believe we have meritorious defenses, and intend to continue defending these actions. We have established a reserve for those proceedings which we have considered that a loss is probable.

City of São Paulo Tax Claim

On September 13, 2007, the Company paid to tax authorities in São Paulo, Brazil approximately $1.1 million, consisting of $1.0 million in accrued taxes and $0.1 million in fines, related to its Brazilian subsidiary’s activities in São Paulo for the period 2002 through 2004. The Company had reserved approximately $1.1 million against these taxes as of December 31, 2006 so no additional provision was recorded for the payment. São Paulo tax authorities have also asserted taxes and fines against us relating to the period from 2005 to 2007 in an approximate additional amount of $5.9 million according to the exchange rate at that moment. In January 2005, the Brazilian subsidiary had moved its operations to Santana de Parnaíba City, Brazil and began paying taxes to that jurisdiction, therefore the Company believes it has strong defenses to the claims of the São Paulo authorities with respect to this period. On August 31, 2007, the Company presented administrative defenses against the authorities’ claim. On September, 12, 2009 the tax authorities ruled against the Brazilian subsidiary. On October 13, 2009, the Company presented an appeal to the Conselho Municipal de Tributos or São Paulo Municipal Council of Taxes. On January 19, 2011, São Paulo Municipal Council of Taxes ruled on our appeal and reduced the fine to approximately $4.7 million. On February 11, 2011 the Company appealed this decision to the Câmaras Reunidas do Egrégio Conselho Municipal de Tributos (Superior Chamber of the São Paulo Municipal Council of Taxes) and awaits a ruling on this appeal. As of the date of this report, the Company believes the risk of loss is remote, and as a result, has not established a reserve against this claim.

State of São Paulo Customer Service Level Claim

On September 1, 2010, a state prosecutor of the State of São Paulo, Brazil presented a claim against the Company’s Brazilian subsidiary. The state prosecutor alleges that the Brazilian subsidiary should improve its customer service level and provide (among other things) a telephone number for customer support. On November 17, 2011, the Judge of the first instance court granted an injunction against the Brazilian subsidiary imposing the obligation to provide customer service over telephone means within 60 days with a penalty of approximately $ 65,000 per day of non-compliance. On April 8, 2011, the Company was summoned of the lawsuit and the injunction. On April 14, 2011, the Company presented recourse to the lower court; even though, the injunction was not lifted, an extension of 30 days was granted, and the non-compliance fine would start running as of July 11, 2011. On April 20, 2011, the Company presented an appeal and requested to suspend the effects of the injunction issued by the lower court until the appeal is decided by State Court of Appeals. The decision on the appeal is still pending.

Intellectual Property Claims

In the past third parties have from time to time claimed, and others may claim in the future, that we have infringed their intellectual property rights. We have been notified of several potential third-party claims for intellectual property infringement through our website. These claims, whether meritorious or not, are time consuming, can be costly to resolve, could cause service upgrade delays, and could require expensive implementations of changes to our business methods to respond to these claims. See “Item 1A Risk factors—Risks related to our business—We could potentially face legal and financial liability for the sale of items that infringe on the intellectual property rights of others and for information disseminated on the MercadoLibre marketplace”.


Item 1A		— Risk Factors

During this quarter there have been no material changes in our risk factors from those disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010.


Item 6		— Exhibits


	31.1	Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

	31.2	Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

	32.1	Certification of Chief Executive Officer pursuant to 18 USC. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**

	32.2	Certification of Chief Financial Officer pursuant to 18 USC. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**

101.INS		XBRL Instance Document***

101.SCH		XBRL Taxonomy Extension Schema Document***

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document***

101.LAB		XBRL Taxonomy Extension Label Linkbase Document***

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document***

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document***


*		Filed herewith

**		Furnished herewith

***		XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities and Exchange Act of 1933, is deemed not filed for purposes of section 18 of the Securities and Exchange Act of 1934, and otherwise is not subject to liability under these sections.

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	MERCADOLIBRE, INC. Registrant
Date: May 6, 2011	By:	/s/ Marcos Galperín
		Marcos Galperín
		President and Chief Executive Officer


	By:	/s/ Hernán Kazah
		Hernán Kazah
		Executive Vice President and Chief Financial Officer

MercadoLibre, Inc.

INDEX TO EXHIBITS


	31.1			Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

	31.2			Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

	32.1			Certification of Chief Executive Officer pursuant to 18 USC. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**

	32.2			Certification of Chief Financial Officer pursuant to 18 USC. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**


*		Filed herewith

**		Furnished herewith