Cautionary Statement Regarding Forward-Looking Statements
Any statements made or implied in this report that are not statements of historical fact, including statements about our beliefs and expectations, are forward-looking statements within the meaning of Section 27 A of the Securities Act of 1933, as amended, (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and should be evaluated as such. The words "anticipate," "believe," "expect," "intend," "plan," "estimate," "target," "project," "should," "may," "could," "will" and similar words and expressions are intended 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, future economic, political and social conditions in the countries in which we operate and their possible impact on our business, and the effects of future regulation and the effects of competition. Such forward-looking statements reflect, among other things, our current expectations, plans, projections and strategies, anticipated financial results, future events and financial trends affecting our business, all of which are subject to known and unknown risks, uncertainties and other 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 e-commerce and Internet
usage in
?competition;
?our ability to expand our operations and adapt to rapidly changing technologies;
?our ability to attract new customers, retain existing customers and increase revenues;
?the impact of government, central bank and other regulations on our business;
?litigation and legal liability;
?security breaches and illegal uses of our services;
?systems interruptions or failures;
?our ability to attract and retain qualified personnel;
?consumer trends;
?reliance on third-party service providers;
?enforcement of intellectual property rights;
?our expectations regarding benefits and synergies from recent or future strategic investments, acquisitions of businesses, technologies, services or products;
?seasonal fluctuations; ?our indebtedness;
?volatility of market prices, impairment and unique risks related to loss of the digital assets that we acquire;
?political, social and economic conditions in
?our long-term sustainability goals; and
?the current and potential impact of COVID-19 on our net revenues, gross profit margins, operating margins and liquidity due to future disruptions in operations as well as the macroeconomic instability caused by the pandemic. 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. 40
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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 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 endedDecember 31, 2021 filed with theSecurities and Exchange Commission ("SEC") onFebruary 23, 2022 and in other reports we file from time to time with theSEC . 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, our unaudited interim condensed consolidated financial statements and related notes in Item 1 of Part I of this report and our audited consolidated financial statements and related notes in Item 8 of Part II of our Annual Report on Form 10-K for the year endedDecember 31, 2021 . 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 they are unknown to us or we do not perceive them to be material that could cause results to differ materially from our expectations. Certain monetary amounts included elsewhere in this document have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables may not be the arithmetic aggregation of the figures that precede them. 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 theSEC .
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 review of our financial presentation and accounting policies, including our critical accounting policies;
?a discussion of our principal trends and results of operations for the nine and
three-month periods ended
?a discussion of the principal factors that influence our results of operations, financial condition and liquidity;
?a discussion of our liquidity and capital resources and a discussion of our capital expenditures; and
?a description of our non-GAAP financial measures.
Other Information
We routinely post important information for investors on our Investor Relations website, http://investor.mercadolibre.com. We use this website as a means of disclosing material, non-public information and for complying with our disclosure obligations under SEC Regulation FD (Fair Disclosure). Accordingly, investors should monitor our Investor Relations website, in addition to following our press releases,SEC filings, public conference calls and webcasts. The information contained on, or that may be accessed through, our website is not incorporated by reference into, and is not a part of, this report.
Business Overview
We are the largest online commerce ecosystem inLatin America based on unique visitors and page views, and we are present in 18 countries:Brazil ,Argentina ,Mexico ,Chile ,Colombia ,Peru ,Uruguay ,Venezuela ,Bolivia ,Costa Rica ,Dominican Republic ,Ecuador ,Guatemala ,Honduras ,Nicaragua ,Panama ,Paraguay andEl Salvador . Our platform is designed to provide users with a complete portfolio of services to facilitate commercial transactions both digitally and offline. Through our e-commerce platform, we provide buyers and sellers with a robust and safe environment that fosters the development of a large e-commerce community inLatin America , a region with a population of over 650 million people and with one of the fastest-growing Internet penetration and e-commerce growth rates in the world. We believe that we offer world-class technological and commercial solutions that address the distinctive cultural and geographic challenges of operating a digital commerce platform inLatin America . We offer our users an ecosystem of six integrated e-commerce services: theMercado Libre Marketplace , the Mercado Pago fintech solution, the Mercado Envios logistics service, the Mercado Libre Ads solution, the Mercado Libre Classifieds service and theMercado Shops online storefronts solution. 41
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The Mercado Libre Marketplace , which we sometimes refer to as our marketplace, is a fully-automated, topically-arranged and user-friendly online commerce platform, which can be accessed through our website and mobile app. This platform enables us (when we act as sellers in our first party sales), merchants and individuals to list merchandise and conduct sales and purchases digitally. The Marketplace has an ample assortment of products, with a wide range of categories such as consumer electronics, apparel and beauty, home goods, automotive accessories, toys, books and entertainment and consumer packaged goods. To complement theMercado Libre Marketplace and enhance the user experience for our buyers and sellers, we developed Mercado Pago, an integrated digital payments solution. Mercado Pago was initially designed to facilitate transactions onMercado Libre's Marketplaces by providing a mechanism that allowed our users to securely, easily and promptly send and receive payments. Now Mercado Pago is a full ecosystem of Financial Technology solutions both in the digital and physical world. Our digital payments solution enables anyMercadoLibre registered user to securely and easily send and receive digital payments and to pay for purchases made on any ofMercadoLibre's Marketplaces. Currently, Mercado Pago processes and settles all transactions on our Marketplaces inBrazil ,Argentina ,Mexico ,Chile ,Colombia ,Uruguay ,Peru and inEcuador . In addition, Mercado Pago grants through ourMercado Credito solution, loans to sellers and buyers inArgentina ,Brazil ,Mexico , andChile . Beyond facilitating Marketplace transactions, over the years we have expanded our array of Mercado Pago services to third parties outsideMercado Libre's Marketplace. We began first by satisfying the growing demand for online-based payment solutions by providing merchants the necessary digital payment infrastructure for e-commerce to flourish inLatin America . Today, Mercado Pago's digital payments business not only allows merchants to facilitate checkout and payment processes on their websites through a branded or white label solution or software development kits, but it also enables users to transfer money in a simple manner to each other through the Mercado Pago website or on Mercado Pago app. Through Mercado Pago, we brought trust to the merchant customer relationship, allowing online consumers to shop easily and safely, while giving them the confidence to share sensitive personal and financial data with us. The Mercado Envios logistics solution enables sellers on our platform to utilize third-party carriers and other logistics service providers, while also providing them with fulfillment and warehousing services. The logistics services we offer are an integral part of our value proposition, as they reduce friction between buyers and sellers, and allow us to have greater control over the full experience. Sellers that opt into our logistics solutions are not only able to offer a uniform and seamlessly integrated shipping experience to their buyers at competitive prices, but are also eligible to access shipping subsidies to offer free or discounted shipping for many of their sales on our Marketplaces. In 2020, we launchedMeli Air with a fleet of dedicated aircrafts covering routes acrossBrazil andMexico , with the aim of improving our delivery times. We have also developed a network of independent neighborhood stores and commercial points (known as "MELI Places") to receive and store packages that are in transit using our integrated technology. MELI Places network allows buyers and sellers to pick-up, drop-off, or return packages with a better experience, reducing the travel distance for all parties. As ofSeptember 30, 2022 , we offer our shipping solution directed towards deliveries inArgentina ,Brazil ,Mexico ,Colombia ,Chile ,Uruguay ,Peru andEcuador and we also offer free shipping to buyers inBrazil ,Argentina ,Mexico ,Chile ,Colombia ,Uruguay andPeru .Mercado Credito , our credit solution, leverages our user base, which is not only loyal and engaged, but has also been historically underserved or overlooked by financial institutions and suffers from a lack of access to needed credit. Facilitating credit is a key service overlay that enables us to further strengthen the engagement and lock-in rate of our users, while also generating additional touchpoints and incentives to use Mercado Pago as an end-to-end financial solution. Our asset management product, which is available inArgentina ,Brazil andMexico , is a critical pillar to building our alternative two-sided network vision. It incentivizes our users to begin to fund their digital wallets with cash as opposed to credit or debit cards given that the return our product offers is greater than traditional checking accounts. As an extension of our asset management and savings solutions for users, in 2021 we launched inBrazil a cryptocurrency feature as part of the Mercado Pago wallet. This service allows our millions of users to purchase, hold and sell selected cryptocurrencies through our interface without leaving the Mercado Pago application, while a partner acts as the custodian and offers the blockchain infrastructure platform. This feature is available for all users through their Mercado Pago wallet. Our advertising platform, Mercado Ads, enables businesses to promote their products and services on the Internet. Through our advertising platform,MercadoLibre's brands and sellers are able to display ads on our webpages through product searches, banner ads, or suggested products. Our advertising platform enables merchants and brands to access the millions of consumers that are on our Marketplaces at any given time with the intent to purchase, which increases the likelihood of conversion. ? 42
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Through Mercado Libre Classifieds, our online classified listing service, our users can also list and purchase motor vehicles, real estate and services in the countries where we operate. Classifieds listings differ from Marketplace listings as they only charge optional placement fees and not final value fees. Our classifieds pages are also a major source of traffic to our platform, benefitting both the Commerce and Fintech businesses. Complementing the service that we offer to our users, our digital storefront solution,Mercado Shops , allows users to set-up, manage and promote their own digital stores. These stores are hosted byMercado Libre and offer integration with the rest of our ecosystem, namely our Marketplaces, payment services and logistics services. Users can create a store at no cost, and can access additional functionalities and value added services on commission.
Reporting Segments and Geographic Information
Our segment reporting is based on geography, which is the criterion our Management currently uses to evaluate our segment performance. Our geographic segments areBrazil ,Argentina ,Mexico and Other Countries (includingChile ,Colombia ,Costa Rica ,Ecuador ,Peru andUruguay ). Although we discuss long-term trends in our business, it is our policy not to provide earnings guidance in the traditional sense. We believe that uncertain conditions make the forecasting of near-term results difficult. Further, we seek to make decisions focused primarily on the long-term welfare of our company and believe focusing on short-term earnings does not best serve the interests of our stockholders. We believe that execution of key strategic initiatives as well as our expectations for long-term growth in our markets will best create stockholder value. A long-term focus may make it more difficult for industry analysts and the market to evaluate the value of our Company, which could reduce the value of our common stock or permit competitors with short-term tactics to grow more rapidly than us. We, therefore, encourage potential investors to consider this strategy before making an investment in our common stock. The following table sets forth the percentage of our consolidated net revenues by segment for the nine and three-month periods endedSeptember 30, 2022 and 2021: Nine Months Ended Three Months Ended September 30, September 30, (% of total consolidated net revenues) 2022 2021 2022 2021 Brazil 54.9 % 56.3 % 53.2 % 57.2 % Argentina 23.7 21.4 25.1 21.2 Mexico 16.7 15.8 17.3 15.7 Other Countries 4.7 6.5 4.4 5.9
The following table summarizes the changes in our net revenues by segment for
the nine and three-month periods ended
Nine Months Ended Change from 2021 Three Months Ended Change from 2021 September 30, to 2022 September 30, to 2022 2022 2021 in Dollars in % 2022 2021 in Dollars in % (in millions, except percentages) (in millions, except percentages)
Net Revenues: Brazil$ 4,134 $ 2,783 $ 1,351 48.5 %$ 1,431 $ 1,063 $ 368 34.6 % Argentina 1,787 1,056 731 69.2 675 393 282 71.8 Mexico 1,257 780 477 61.2 465 291 174 59.8 Other Countries 357 320 37 11.6 119 111 8 7.2 Total Net Revenues$ 7,535 $ 4,939 $ 2,596 52.6 %$ 2,690 $ 1,858 $ 832 44.8 %
Description of Line Items
Net revenues
We disaggregate revenues into four geographical reporting segments. Within each of our segments, the services we provide and products we sell generally fall into two distinct revenue streams: "Commerce" and "Fintech." ? 43
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The following table summarizes our consolidated net revenues by revenue stream
for the nine and three-month periods ended
Nine Months Ended Three Months Ended September 30, September 30, Consolidated net revenues by revenue stream 2022 2021 2022 2021 (in millions) (in millions) Commerce$ 4,147 $ 3,278 $ 1,465 $ 1,225 Fintech 3,388 1,661 1,225 633 Total$ 7,535 $ 4,939 $ 2,690 $ 1,858
Revenues from Commerce transactions are mainly generated from:
?marketplace fees that include final value fees and flat fees for transactions below a certain merchandise value;
?first party sales;
?shipping fees, net of the third-party carrier costs (when we act as an agent);
?ad sales up-front fees; ?classifieds fees; and
?fees from other ancillary businesses.
Final value fees represent a percentage of the sale value that is charged to the seller once an item is successfully sold and flat fees represent a fixed charge for transactions below a certain merchandise value.
Revenues from first-party sales are generated when control of the good is transferred, upon delivery to our customers.
Shipping revenues are generated when a buyer elects to receive an item through our shipping service net of the third-party carrier costs (when we act as an agent).
Through our classifieds offerings in vehicles, real estate and services, we generate revenues from up-front fees. These fees are charged to sellers who opt to give their listings greater exposure throughout our websites.
Our Advertising revenues are generated by selling either display product and/or text link ads throughout our websites to interested advertisers.
Fintech revenues correspond to our Mercado Pago service, which are attributable to:
?commissions representing a percentage of the payment volume processed that are charged to sellers in connection with off Marketplace-platform transactions;
?commissions from additional fees we charge when a buyer elects to pay in installments through our Mercado Pago platform, for transactions that occur either on or off our Marketplace platform;
?commissions from additional fees we charge when our sellers elect to withdraw cash;
?interest, cash advances and fees from merchant and consumer credits granted
under our
?commissions that we charge from transactions carried out with Mercado Pago credit and debit cards; and
?revenues from the sale of mobile points of sale products and insurtech fees.
Although we also process payments on the Marketplace, we do not charge sellers an added commission for this service, as it is already included in the Marketplace final value fee that we charge.
When more than one service is included in one single arrangement with the same customer, we recognize revenue according to multiple element arrangements accounting, distinguishing between each of the services provided and allocating revenues based on their respective estimated selling prices. We have a highly fragmented customer revenue base given the large numbers of sellers and buyers who use our platforms. For the nine-month periods endedSeptember 30, 2022 and 2021, no single customer accounted for more than 5.0% of our net revenues. 44
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OurMercado Libre Marketplace is available in 18 countries (Argentina ,Brazil ,Chile ,Colombia ,Costa Rica ,Dominican Republic ,Ecuador ,Mexico ,Panama ,Peru ,Uruguay ,Venezuela (deconsolidated sinceDecember 1, 2017 ),Bolivia ,Honduras ,Nicaragua ,El Salvador ,Guatemala andParaguay ), and Mercado Pago is available in 7 countries (Argentina ,Brazil ,Chile ,Peru ,Colombia ,Mexico andUruguay ). Additionally,Mercado Envios is available in 8 countries (Argentina ,Brazil ,Mexico ,Colombia ,Chile ,Peru ,Uruguay andEcuador ). The functional currency for each country's operations is the country's local currency, except forArgentina , where the functional currency is theU.S. dollar due toArgentina's status as a highly inflationary economy. Our net revenues are generated in multiple foreign currencies and then translated intoU.S. dollars at the average monthly exchange rate. Please refer to "Summary of significant accounting policies" in Note 2 of our unaudited interim condensed consolidated financial statements for further detail on foreign currency translation. Our subsidiaries inBrazil ,Argentina andColombia are subject to certain taxes on revenues, which are classified as a cost of net revenues. These taxes represented 7.5% of net revenues for the nine-month periodSeptember 30, 2022 , as compared to 8.7% for the same period in 2021. For the three-month periods endedSeptember 30, 2022 and 2021, these taxes represented 7.5% and 9.2% of net revenues, respectively. Cost of net revenues
Cost of net revenues primarily includes cost of sales of goods, shipping operation costs (including warehousing costs), carrier and other operating costs, collection fees, sales taxes, funding costs related to our credits business, fraud prevention fees, certain taxes on bank transactions, hosting and site operation fees, compensation for customer support personnel, ISP connectivity charges and depreciation and amortization.
Product and technology development expenses
Our product and technology development related expenses consist primarily of compensation for our engineering and web-development staff, depreciation and amortization costs related to product and technology development, telecommunications costs and payments to third-party suppliers who provide technology maintenance services to us.
Sales and marketing expenses
Our sales and marketing expenses consist primarily of costs related to marketing our platforms through online and offline advertising and agreements with portals, search engines and other sales expenses related to strategic marketing initiatives, charges related to our buyer protection programs, the salaries of employees involved in these activities, chargebacks related to our Mercado Pago operations, branding initiatives, marketing activities for our users and depreciation and amortization costs. We carry out the majority of our marketing efforts on the Internet. We enter into agreements with portals, search engines, social networks, ad networks and other sites in order to attract Internet users to theMercado Libre Marketplace and convert them into registered users and active traders on our platform. We also work intensively on attracting, developing and growing our seller community through our customer support 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.
Provision for doubtful accounts
Provision for doubtful accounts consists of the expected credit losses on our financial assets, mainly loans receivable, accounts receivable and credit card receivables and other means of payments.
General and administrative expenses
Our general and administrative expenses consist primarily of salaries for management and administrative staff, compensation of non-employee directors, long term retention program compensation, expenses for legal, audit and other professional services, insurance expenses, office space rental expenses, impairment losses from digital assets, travel and business expenses, as well as depreciation and amortization costs. Our general and administrative expenses include the costs of the following areas: general management, finance, treasury, internal audit, administration, accounting, tax, legal and human resources.
Other income (expenses), net
Other income (expenses) consists primarily of interest income derived from our investments and cash equivalents, interest expense and other financial charges related to financial liabilities and foreign currency gains or losses. 45
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Income tax
We are subject to federal and state taxes inthe United States , as well as foreign taxes in the multiple jurisdictions where we operate. Our tax obligations consist of current and deferred income taxes incurred in these jurisdictions. We account for income taxes following the liability method of accounting. A valuation allowance is recorded when, based on the available evidence, it is more likely than not that all or a portion of our deferred tax assets will not be realized. 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 in our deferred tax assets and liabilities during each period.
Equity in earnings of unconsolidated entity
Equity in earnings of unconsolidated entity consists primarily of earnings and losses related to our share in our equity investment.
Critical Accounting Policies and Estimates
There have been no significant changes in our critical accounting policies, Management estimates or accounting policies since the year endedDecember 31, 2021 and disclosed in the Form 10-K, see "Critical Accounting Policies and Estimates," except for the adoption of ASU 2020-06 andSAB 121 as ofJanuary 1, 2022 . See section Recently Adopted Accounting Standards of Note 2 to our unaudited interim condensed consolidated financial statements included in Item 1 of Part I of this report.
Results of operations for the nine and three-month periods ended
The selected financial data for the nine and three-month periods endedSeptember 30, 2022 and 2021 discussed herein is derived from our unaudited interim 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. The results of operations for the nine and three-month periods endedSeptember 30, 2022 , are not necessarily indicative of the results that may be expected for the full year endingDecember 31, 2022 or for any other period. ? 46
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