Item 7. Management’s Discussion and Analysis
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of our operations in conjunction with our audited consolidated financial statements and the notes to those statements included elsewhere in this report. This discussion contains forward-looking statements reflecting our current expectations that involve risks and uncertainties. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors, including those discussed in the section entitled “Risk Factors” and elsewhere in this report.
The discussion and analysis of our financial condition and results of operations has been organized to present the following:
■ a brief overview of our company;
■ a review of our financial presentation and accounting policies, including our critical accounting policies and estimates;
■ a discussion of our principal trends and results of operations for the years ended December 31, 2023, 2022 and 2021;
■ 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;
■ a description of our key performance indicators; and
■ a description of our non-GAAP financial measures.
For discussion on results from 2022 compared to 2021, please refer to “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K filed with the SEC for the year ended December 31, 2022.
Certain monetary amounts included elsewhere in this document have been subject to rounding adjustments. Accordingly, figures shown as totals and percentages in certain tables may not be the arithmetic aggregation of the figures that precede them.
Business Overview
We are the largest online commerce ecosystem in Latin America based on unique visitors and orders processed, and we are present in 18 countries: Argentina, Brazil, Mexico, Chile, Colombia, Peru, Uruguay, Venezuela, Bolivia, Costa Rica, Dominican Republic, Ecuador, Guatemala, Honduras, Nicaragua, Panama, Paraguay and El 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 in Latin 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 in Latin America.
We offer our users an ecosystem of six integrated e-commerce services and digital financial services: the Mercado Libre Marketplace, the Mercado Pago Fintech platform, the Mercado Envios logistics service, the Mercado Ads solution, the Mercado Libre Classifieds service and the Mercado Shops online storefronts solution.
The Mercado Libre 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 the Mercado 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 on Mercado 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 any MercadoLibre registered user to securely and easily send and receive digital payments and to pay for purchases made on any of Mercado Libre’s Marketplaces. Currently, Mercado Pago processes and settles all transactions on our Marketplaces in Argentina, Brazil, Mexico, Chile, Colombia, Uruguay, Peru and Ecuador.
Beyond facilitating Marketplace transactions, over the years we have expanded our array of Mercado Pago services to third parties outside Mercado 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 in Latin 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 the 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. Finally, we have also deepened our fintech offerings by growing our online-to-offline (“O2O”) products and services.
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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 user 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 launched Meli Air with a fleet of dedicated aircraft covering routes across Brazil and Mexico, 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 of December 31, 2023, we offer our shipping solution directed towards deliveries in Argentina, Brazil, Mexico, Chile, Colombia, Uruguay, Peru and Ecuador and we also offer free shipping to buyers in Argentina, Brazil, Mexico, Chile, Colombia, Uruguay and Peru.
Mercado Credito, our credit solution available in Argentina, Brazil, Mexico and Chile, leverages our user base, which is loyal and engaged, and in part 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 in Argentina, Brazil, Mexico and Chile, is a critical pillar to build 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, we launched a digital assets feature as part of the Mercado Pago wallet in Brazil, Mexico and Chile, in 2021, 2022 and 2023, respectively. This service allows our millions of users to purchase, hold and sell selected digital assets through our interface without leaving the Mercado Pago application, while a partner acts as the custodian and exchange 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 Mercado Libre Marketplace and Mercado Pago Fintech platform. 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. Advertisers are able to leverage our first-party data to create and target highly particularized audiences.
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, benefiting both the commerce and fintech businesses.
Complementing the services we offer, our digital storefront solution, Mercado Shops, allows users to set-up, manage and promote their own digital stores. These stores are hosted by Mercado 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 are Brazil, Argentina, Mexico and Other Countries (including Chile, Colombia, Costa Rica, Ecuador, Peru and Uruguay). 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 years ended December 31, 2023, 2022 and 2021:
Year Ended December 31,
(% of total consolidated net revenues) 2023 2022 2021
Brazil 52.5 % 53.8 % 55.3 %
Argentina 22.4 23.7 21.7
Mexico 20.6 17.7 16.6
Other countries 4.5 4.8 6.5
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The following table summarizes the changes in our net revenues by segment for the years ended December 31, 2023, 2022 and 2021:
Year Ended December 31, Change from 2022 to 2023 Year Ended December 31, Change from 2021 to 2022
2023 2022 in Dollars in % 2022 2021 in Dollars in %
(In millions, except percentages) (In millions, except percentages)
Brazil $ 7,595 $ 5,666 $ 1,929 34.0 % $ 5,666 $ 3,910 $ 1,756 44.9 %
Argentina 3,240 2,500 740 29.6 2,500 1,531 969 63.3
Mexico 2,985 1,864 1,121 60.1 1,864 1,172 692 59.0
Other countries 653 507 146 28.8 507 456 51 11.2
Total net revenues $ 14,473 $ 10,537 $ 3,936 37.4 % $ 10,537 $ 7,069 $ 3,468 49.1 %
Critical Accounting Policies and Estimates
The preparation of our audited consolidated financial statements and related notes requires us to make judgments, estimates and assumptions that affect the 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. Management has discussed the development, selection and disclosure of these estimates with our audit committee and our 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 the consolidated financial statements. We believe that the following critical accounting policies reflect the more significant estimates and assumptions used in the preparation of our audited consolidated financial statements. You should read the following descriptions of critical accounting policies, judgments and estimates in conjunction with our audited consolidated financial statements and the notes thereto and other disclosures included in this report.
For an analysis of our Critical Accounting Policies and Estimates please refer to Note 2 – Summary of significant accounting policies to our audited consolidated financial statements included elsewhere in this report.
Allowance for doubtful accounts
For loans receivable that share similar risk characteristics such as product type, country, unpaid installments, days delinquent, and other relevant factors, we estimate the lifetime expected credit loss allowance based on a collective assessment. The lifetime expected credit losses are determined by applying probability of default and loss given default models to monthly projected exposures, then discounting these cash flows to present value using the portfolio’s loans interest rate, estimated as a weighted average of the original effective interest rate of all the loans that conform to the portfolio segment. The probability of default is an estimation of the likelihood that a loan receivable will default over a given time horizon. Probability of default models (“PDs”) are estimated using a survival methodology; these PDs are constructed using individual default information through time, taking into account the expected future delinquency rate (forward-looking models) using, since 2022, three probability-weighted macroeconomic scenarios (base, optimistic and pessimistic) following the increased complexity and possible outcomes of the global, regional and domestic macroeconomic performance, so that the models include macroeconomic outlook or projections and recent performance, instead of using one scenario as prior years. With this model, we estimate marginal monthly default probabilities for each delinquency bucket, type of product and country. Each marginal monthly probability of default represents a different possible scenario of default. The exposure at default is equal to the receivables’ expected outstanding principal, interest and other allowable balances. We estimate the exposure at default that the portfolio of loans would have in each possible moment of default, meaning for each possible scenario mentioned above. For credit cards we estimate an amortization scheme based on historical information. Also, for credit cards, since 2022, the Company has used, as applicable, credit conversion factor (“CCF”) estimated according to terms and conditions, considering the increase in the volume of credit cards portfolio. The loss given default (“LGD”) is the percentage of the exposure at default that is not recoverable. The LGD is estimated using Work-out and Chainladder approaches. This percentage depends on days past due, type of product and country, and is estimated by measuring an average of historical recovery rates from defaulted credits. The measurement of the current expected credit losses (“CECL”) is based on probability-weighted scenarios (probability of default for each month), in view of past events, current conditions and adjustments to reflect the reasonable and supportable forecast of future economic conditions. Considering a hypothetical increase in the probability of default of 10%, we would have recognized an increase in our allowance for doubtful accounts for loans receivable of approximately $34 million.
We believe that the accounting estimate related to allowance for doubtful accounts on loans receivable a critical accounting estimate because it requires Management to make complex assumptions and scenarios to estimate the CECL.
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 consolidated statements 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.
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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 discussed in “Item 3—Legal Proceedings,” and in Note 15 – Commitments and Contingencies to our audited 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 material 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 consolidated balance sheets. 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 our deferred tax assets will not be realized, we establish a valuation allowance. As far 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 tax expense” line in our consolidated statements of income. Please refer to Note 2 – Summary of significant accounting policies and Note 14 – Income taxes to our audited consolidated financial statements for additional information regarding income tax.
Recent accounting pronouncements
See Item 8 of Part II, “Financial Statements and Supplementary Data” and Note 2 – Summary of significant accounting policies—Recently Adopted Accounting Standards and Accounting Pronouncements Not Yet Adopted.
Results of operations
Principal trends in results of operations
The information include in this section sets forth, for the years presented, certain data from our consolidated statements of income. This information should be read in conjunction with our audited consolidated financial statements and the notes to those statements included elsewhere in this report.
Net revenues
We disaggregate revenues into four geographical reporting segments. Within each of our segments, the services we provide and the products we sell generally fall into two distinct revenue streams: “Commerce” and “Fintech”.
Revenues from commerce transactions are mainly generated from:
■ marketplace fees that include final value fees and flat fees. 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;
■ first party sales, which are generated when control of the good is transferred, upon delivery to our customers;
■ shipping fees, which 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), and storage fees, which are charged to the seller for the utilization of the Company’s fulfillment facilities;
■ ad sales fees due to advertising services provided to sellers, vendors, brands and others, through performance products (product ads and brand ads) and display formats, which are recognized based on the number of clicks and impressions, respectively;
■ classifieds fees due to offerings in vehicles, real estate and services, which are charged to sellers who opt to give their listings greater exposure throughout our websites; and
■ fees from other ancillary businesses.
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;
■ interest, cash advances and fees from merchant and consumer loans granted under our Mercado Credito solution;
■ commissions that we charge from transactions carried out with Mercado Pago credit and debit cards;
■ revenues from the sale of mobile points of sale products;
■ revenues from insurtech fees; and
■ commissions from additional fees we charge when our sellers elect to withdraw cash.
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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.
Our Mercado Libre Marketplace is available in 18 countries (Argentina, Brazil, Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, Peru, Mexico, Panama, Honduras, Nicaragua, El Salvador, Uruguay, Bolivia, Guatemala, Venezuela (deconsolidated since December 1, 2017) and Paraguay), while Mercado Pago and Mercado Envios are available in 8 countries (Argentina, Brazil, Mexico, Colombia, Chile, Peru, Uruguay and Ecuador).
The functional currency for each country’s operations is the country’s local currency, except for Argentina, where the functional currency is the U.S. dollar due to Argentina’s status as a highly inflationary economy. Our net revenues are generated in multiple foreign currencies and then translated into U.S. dollars at the average monthly exchange rate. Please refer to Note 2 – Summary of significant accounting policies to our audited consolidated financial statements for further detail on foreign currency translation.
We have a highly fragmented customer revenue base given the large numbers of sellers and buyers who use our platforms. For the years ended December 31, 2023, 2022 and 2021, no single customer accounted for more than 5.0% of our net revenues.
Our net revenues grew during the year 2023, boosted by the growth of our gross merchandise volume, total payment volume and credit portfolio. The continued execution of our long-term strategies in Commerce and Fintech has enabled us to deliver record net revenues and profitability during the year.
The following table summarizes our consolidated net revenues for the years ended December 31, 2023, 2022 and 2021:
Year Ended December 31, Change from 2022 to 2023 Year Ended December 31, Change from 2021 to 2022
2023 2022 in Dollars in % 2022 2021 in Dollars in %
(In millions, except percentages) (In millions, except percentages)
Net revenues $ 14,473 $ 10,537 $ 3,936 37.4% $ 10,537 $ 7,069 $ 3,468 49.1%
The following table summarizes our consolidated net revenues by revenue stream and geographic segment for the years ended December 31, 2023, 2022 and 2021:
Consolidated net revenues Year Ended December 31, Change from 2022 to 2023 Year Ended December 31, Change from 2021 to 2022
2023 2022 in Dollars in % 2022 2021 in Dollars in %
(In millions, except percentages) (In millions, except percentages)
Brazil
Commerce $ 4,512 $ 3,072 $ 1,440 46.9 % $ 3,072 $ 2,481 $ 591 23.8 %
Fintech 3,083 2,594 489 18.9 2,594 1,429 1,165 81.5
7,595 5,666 1,929 34.0 5,666 3,910 1,756 44.9
Argentina
Commerce 1,261 1,085 176 16.2 1,085 856 229 26.8
Fintech 1,979 1,415 564 39.9 1,415 675 740 109.6
3,240 2,500 740 29.6 2,500 1,531 969 63.3
Mexico
Commerce 1,979 1,282 697 54.4 1,282 924 358 38.7
Fintech 1,006 582 424 72.9 582 248 334 134.7
2,985 1,864 1,121 60.1 1,864 1,172 692 59.0
Other countries
Commerce 449 369 80 21.7 369 374 (5) -1.3
Fintech 204 138 66 47.8 138 82 56 68.3
653 507 146 28.8 507 456 51 11.2
Consolidated
Commerce 8,201 5,808 2,393 41.2 5,808 4,635 1,173 25.3
Fintech 6,272 4,729 1,543 32.6 4,729 2,434 2,295 94.3
Total $ 14,473 $ 10,537 $ 3,936 37.4 % $ 10,537 $ 7,069 $ 3,468 49.1 %
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See Note 9 – Segments of our audited consolidated financial statements for further information regarding our net revenues disaggregated by similar products and services for the years ended December 31, 2023, 2022 and 2021.
Our Commerce revenues grew $2,393 million, or 41.2%, for the year ended December 31, 2023, as compared to the year ended December 31, 2022. This increase in Commerce revenues was primarily attributable to:
■ (i) an increase of $1,990 million in Commerce services revenues mainly related to a 30% increase in gross merchandise volume, (ii) a 25% increase in our shipped items and (iii) higher flat fee contributions for low gross merchandise volume transactions, which was offset by Shipping carrier costs, which are netted against revenues, that increased $653 million, from $1,809 million for the year ended December 31, 2022 to $2,462 million for the year ended December 31, 2023; and
■ an increase of $403 million in our revenues from Commerce products sales, mainly in Brazil and Mexico.
Our Fintech revenues grew 32.6%, from $4,729 million for the year ended December 31, 2022, to $6,272 million for the year ended December 31, 2023. This increase is mainly generated by:
■ an increase of $1,038 million in our revenues from Fintech services, mainly related to a 48% increase in our total payment volume; and
■ an increase of $513 million in our Credits revenues, mainly as a consequence of higher originations.
The deceleration in our Fintech revenues growth responds largely to lower credits revenues growth rates, mainly in Brazil and Argentina, due to our initiatives to maintain portfolio exposure towards lower risk customers, lower risk products and increase exposure to lower risk geographies, allowing us to continue improving our past due loans ratio.
Brazil
Commerce revenues in Brazil increased 46.9% in the year ended December 31, 2023 as compared to 2022. This increase was generated by an increase of $1,070 million in our commerce services revenues and an increase of $370 million in our revenues from commerce products sales. Fintech revenues grew by 18.9%, a $489 million increase, during the year ended December 31, 2023 as compared to 2022, mainly driven by an increase of $446 million in our revenues from fintech services and an increase of $53 million in our credits revenues.
Argentina
Commerce revenues in Argentina increased 16.2% in the year ended December 31, 2023 as compared to 2022. This increase was generated by an increase of $222 million in our commerce services revenues, partially offset by a decrease of $46 million in our revenues from commerce products sales. Fintech revenues grew 39.9%, a $564 million increase, during the year ended December 31, 2023 as compared to 2022, mainly driven by an increase of $388 million in our revenues from fintech services and an increase of $178 million in our credits revenues.
Mexico
Commerce revenues in Mexico increased 54.4% in the year ended December 31, 2023, as compared to 2022. This increase was generated by an increase of $617 million in our commerce services revenues and an increase of $80 million in our revenues from commerce products sales. Fintech revenues grew 72.9%, a $424 million increase, during the year ended December 31, 2023 as compared to 2022, mainly driven by an increase of $278 million in our credits revenues and an increase of $144 million in our revenues from fintech services.
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)
2023
Net revenues $ 3,037 $ 3,415 $ 3,760 $ 4,261
Percent change from prior quarter 1% 12% 10% 13%
2022
Net revenues $ 2,248 $ 2,597 $ 2,690 $ 3,002
Percent change from prior quarter 5% 16% 4% 12%
2021
Net revenues $ 1,378 $ 1,703 $ 1,858 $ 2,130
Percent change from prior quarter 4% 24% 9% 15%
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The following table sets forth the growth in net revenues in local currencies, for the years ended December 31, 2023 and 2022 as compared to the same periods in 2022 and 2021, respectively:
Changes from
(% of revenue growth in Local Currency) 2022 to 2023 (1)
2021 to 2022 (2)
Brazil 29.4 % 38.7 %
Argentina (3)
184.2 126.3
Mexico 40.8 57.1
Other countries 24.9 23.2
Total consolidated 67.9 % 59.7 %
(1) The local currency revenue growth was calculated by using the average monthly exchange rates for each month during 2022 and applying them to the corresponding months in 2023, so as to calculate what our financial results would have been had exchange rates remained stable from one year to the next. See also the “Non-GAAP Measures of Financial Performance” section for details on FX neutral measures.
(2) The local currency revenue growth was calculated by using the average monthly exchange rates for each month during 2021 and applying them to the corresponding months in 2022, so as to calculate what our financial results would have been had exchange rates remained stable from one year to the next. See also the “Non-GAAP Measures of Financial Performance” section for details on FX neutral measures.
(3) Average inter-annual inflation rates in our Argentine segment for the years ended December 31, 2022 and 2021 was 70.7% and 48.1%, respectively. This effect was partially offset by an average inter-annual increase of Argentina’s official exchange rate against the U.S. dollar of 38.7% and 36.6% for the years ended December 31, 2022 and 2021, respectively. During the first eleven months of 2023, the average intern-annual inflation rate and the increase of the average intern-annual Argentina’s official exchange rate against the U.S. dollar were 120.4% and 107.8%, respectively. During December 2023, the Argentine government devaluated its local currency by 55.4% and monthly inflation rate was 25.5%. See also "Item 1A. Risk Factors - Risks related to doing business in Latin America - Local currencies used in the conduct of our business are subject to depreciation, volatility and exchange controls".
Cost of net revenues
Cost of net revenues primarily includes cost of goods sold, shipping operation costs (including warehousing costs), carrier and other operating costs, collection fees, sales taxes, funding costs related to our credits business, fraud prevention expenses, certain taxes on bank transactions, hosting and site operation fees, certain tax withholding related to export duties, compensation for customer support personnel and depreciation and amortization. The following table presents cost of net revenues for the years indicated:
Year Ended December 31, Change from 2022 to 2023 Year Ended December 31, Change from 2021 to 2022
2023 2022 in Dollars in % 2022 2021 in Dollars in %
(In millions, except percentages) (In millions, except percentages)
Cost of net revenues $ 7,267 $ 5,374 $ 1,893 35.2% $ 5,374 $ 4,064 $ 1,310 32.2%
As a percentage of net revenues 50.2% 51.0% 51.0% 57.5%
For the year ended December 31, 2023 as compared to the year ended December 31, 2022, the increase in cost of net revenues was primarily attributable to a: i) $625 million increase in shipping operating and carrier costs; ii) $329 million increase in sales taxes (which includes $31 million of one-off expenses regarding ICMS-DIFAL tax contingency in Brazil, see Note 15 – Commitments and Contingencies - Interstate rate of ICMS-DIFAL on interstate sales under Law No. 190/22) ; iii) $314 million increase in collection fees, which was mainly attributable to our Brazilian and Mexican operations as a result of the higher transactions volume of Mercado Pago in those countries; iv) $254 million increase in cost of goods sold mainly in Brazil and Mexico; v) $213 million increase in other Fintech costs mainly related to higher funding costs in connection with our credits business; and vi) $140 million increase in hosting and site operation fees (which includes $58 million of one-off expenses regarding certain disputed amounts from withholding income tax contingencies in Brazil , see note Note 15 – Commitments and Contingencies).
Our subsidiaries in Brazil, Argentina and Colombia are subject to certain taxes on revenues, which are classified as a cost of net revenues. These taxes represented 7.7%, 7.5% and 8.0% of net revenues for the years ended December 31, 2023, 2022 and 2021, respectively.
Gross profit margins
Our gross profit margin is defined as total net revenues minus total cost of net revenues, as a percentage of net revenues.
Our cost structure is directly affected by the level of operations of our services, and our strategic plan on gross profit is built on factors such as an ample liquidity to fund expenses and investments and a cost-effective capital structure.
For the years ended December 31, 2023 and 2022, our gross profit margins were 49.8% and 49.0%, respectively. The increase in our gross profit margin resulted primarily from the decrease in our cost of goods sold in Argentina and Mexico and customer experience expenses in Brazil and Mexico, partially offset by higher fintech costs in Argentina and Mexico, as a percentage of net revenues.
In the future, our gross profit margin could decline if we continue growing our sales of goods business, which has a lower pure product margin, building up our logistics network and if we fail to maintain an appropriate relationship between our cost of revenue structure and our net revenues trend.
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Product and technology development expenses
Our product and technology development related expenses consist primarily of compensation for our engineering and web-development staff (including long term retention program compensation), depreciation and amortization expenses related to product and technology development, certain tax withholding related to export duties, telecommunications costs and payments to third-party suppliers who provide technology maintenance services to us. The following table presents product and technology development expenses for the years indicated:
Year Ended December 31, Change from 2022 to 2023 Year Ended December 31, Change from 2021 to 2022
2023 2022 in Dollars in % 2022 2021 in Dollars in %
(In millions, except percentages) (In millions, except percentages)
Product and technology development $ 1,831 $ 1,099 $ 732 66.6% $ 1,099 $ 590 $ 509 86.3%
As a percentage of net revenues 12.7% 10.4% 10.4% 8.4%
For the year ended December 31, 2023, the increase in product and technology development expenses as compared to the year ended December 31, 2022, was primarily attributable to a: i) $334 million increase in other product and technology development expenses mainly related to a one-off charge of $261 million due to the risk of losing the case became probable in certain disputed amounts regarding withholding income tax contingencies in Brazil and higher tax withholding in connection with intercompany export services billing duties; ii) $332 million increase in salaries and wages mainly related to the increase of 13% in our product and technology development headcount and increases in amounts accrued under the LTRPs as a consequence of the increase in our common stock price; and iii) $49 million increase in depreciation and amortization expenses mainly related to capitalized information and technology assets.
We believe that product and technology development is one of our key competitive advantages and we intend to continue to invest in hiring engineers to meet the increasingly sophisticated product expectations of our customer base.
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 program, the salaries of employees involved in these activities (including long term retention program compensation), chargebacks related to our Mercado Pago operations, branding initiatives, marketing activities for our users and depreciation and amortization expenses.
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 the Mercado 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.
The following table presents sales and marketing expenses for the years indicated:
Year Ended December 31, Change from 2022 to 2023 Year Ended December 31, Change from 2021 to 2022
2023 2022 in Dollars in % 2022 2021 in Dollars in %
(In millions, except percentages) (In millions, except percentages)
Sales and marketing $ 1,736 $ 1,296 $ 440 34.0% $ 1,296 $ 1,074 $ 222 20.7%
As a percentage of net revenues 12.0% 12.3% 12.3% 15.2%
For the year ended December 31, 2023, the increase in sales and marketing expenses as compared to the year ended December 31, 2022 was primarily attributable to a: i) $194 million increase in online and offline marketing expenses mainly in Brazil; ii) $100 million increase in our buyer protection program expenses; iii) $71 million increase in salaries and wages mainly related to the increase of 12% in our sales and marketing headcount and increases in amounts accrued under the LTRPs as a consequence of the increase in our common stock price; iv) $27 million increase in sales expenses; and v) $27 million increase in chargebacks.
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Provision for doubtful accounts
Provision for doubtful accounts consists of the current expected credit losses on our financial assets, mainly loans receivable. The following table presents provision for doubtful accounts expenses for the years indicated:
Year Ended December 31, Change from 2022 to 2023 Year Ended December 31, Change from 2021 to 2022
2023 2022 in Dollars in % 2022 2021 in Dollars in %
(In millions, except percentages) (In millions, except percentages)
Provision for doubtful accounts $ 1,050 $ 1,073 $ (23) (2.1)% $ 1,073 $ 435 $ 638 146.7%
As a percentage of net revenues 7.3% 10.2% 10.2% 6.2%
For the year ended December 31, 2023, as compared to the year ended December 31, 2022, the provision for doubtful accounts decreased $23 million. Initiatives to maintain portfolio exposure towards lower risk customers, lower risk products and increase exposure to lower risk geographies, allowed us to continue improving our past due loans ratio from 39.9% as of December 31, 2022 to 29.5% as of December 31, 2023.
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, changes in the fair value (for the year ended December 31, 2023) and impairment (for the years ended December 31, 2022 and 2021) of digital assets, travel and business expenses, as well as depreciation and amortization expenses. 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. The following table presents general and administrative expenses for the years indicated:
Year Ended December 31, Change from 2022 to 2023 Year Ended December 31, Change from 2021 to 2022
2023 2022 in Dollars in % 2022 2021 in Dollars in %
(In millions, except percentages) (In millions, except percentages)
General and administrative $ 766 $ 661 $ 105 15.9% $ 661 $ 465 $ 196 42.2%
As a percentage of net revenues 5.3% 6.3% 6.3% 6.6%
For the year ended December 31, 2023, the increase in general and administrative expenses as compared to the year ended December 31, 2022 was primarily attributable to a $111 million increase in salaries and wages, mainly related to the increase in amounts accrued under the LTRPs as a consequence of the increase in our common stock price, and in the Argentine segment, as a consequence of higher average monthly inflation rate than the average monthly local currency devaluation. This increase was partially offset by a $14 million gain due to changes in the fair value of digital assets, please see Note 2 – Summary of significant accounting policies, recently adopted accounting standards for further detail.
Operating income margins
Our operating income margin is defined as income from operations as a percentage of net revenues.
Our operating income margin is affected by our operating expenses structure, which mainly consists of our employees’ salaries, our sales and marketing expenses related to those activities we incurred to promote our services, provision for doubtful accounts mainly related to our loans receivable portfolio and product and technology development expenses, among other operating expenses. As we continue to grow and focus on expanding our leadership in the region, we will continue to invest in product and technology development, sales and marketing and human resources in order to promote our services and capture long-term business opportunities. As a result, we may experience decreases in our operating income margins.
For the year ended December 31, 2023, as compared to the year ended December 31, 2022, our operating margin increased from a margin of 9.8% to a margin of 12.6%. This increase was mainly explained by a decrease in provision for doubtful accounts, as a percentage of net revenues and our improvement in cost of net revenues margins. This increase was partially offset by one-off expenses of $351 million related to disputed amounts regarding certain tax contingencies in Brazil. The year ended December 31, 2023’s financial results reflect our ongoing commitment to deliver sustainable and profitable growth.
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Other income (expenses), net
Other income (expenses), net 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. The following table presents other income (expenses), net for the years indicated:
Year Ended December 31, Change from 2022 to 2023 Year Ended December 31, Change from 2021 to 2022
2023 2022 in Dollars in % 2022 2021 in Dollars in %
(In millions, except percentages) (In millions, except percentages)
Other income (expenses), net $ (270) $ (254) $ (16) 6.3% $ (254) $ (200) $ (54) 27.0%
As a percentage of net revenues -1.9 % -2.4% -2.4% -2.8%
For the year ended December 31, 2023, the increase in other income (expenses), net as compared to the year ended December 31, 2022 was primarily attributable to a: i) $417 million increase in our foreign currency loss, mainly due to the acquisition of our own common stock in the Argentine market at a price that reflects the additional cost of accessing U.S. dollars through an indirect mechanism due to restrictions imposed by the Argentine government for buying U.S. dollars at the official exchange rate (refer to Note 25 – Share repurchase program of our audited consolidated financial statements for further detail), and higher foreign exchange losses from our Argentinian subsidiaries ($183 million) due to the Argentine peso devaluation during December 2023 and the acquisition of U.S. dollars in the Argentine market at a price that reflects the additional cost of accessing U.S. dollars through an indirect mechanism due to restrictions imposed by the Argentine government for buying U.S. dollars at the official exchange rate; and ii) $57 million increase in interest expense and other financial losses mainly attributable to higher rates (mainly in Brazil) and higher levels of indebtedness in 2023 (mainly in Mexico). This increase was partially offset by a $458 million increase in interest income and other financial gains from our financial investments, primarily as a result of higher interest income due to higher float and rates in Brazil and Argentina.
Income tax
We are subject to federal and state income tax 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 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.
The following table summarizes the composition of our income taxes for the years ended December 31, 2023, 2022 and 2021:
Year Ended December 31,
2023 2022 2021
(In millions)
Current:
U.S. $ 41 $ 12 $ —
Non-U.S. 812 383 178
853 395 178
Deferred:
U.S. 36 55 (3)
Non-U.S. (320) (152) (26)
(284) (97) (29)
Income tax expense $ 569 $ 298 $ 149
The following table presents income tax expense for the years indicated:
Year Ended December 31, Change from 2022 to 2023 Year Ended December 31, Change from 2021 to 2022
2023 2022 in Dollars in % 2022 2021 in Dollars in %
(In millions, except percentages) (In millions, except percentages)
Income tax expense $ 569 $ 298 $ 271 90.9 % $ 298 $ 149 $ 149 100.0 %
As a percentage of net revenues 3.9 % 2.8% 2.8% 2.1%
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During the year ended December 31, 2023 as compared to the year ended December 31, 2022, income tax expense increased mainly as a result of higher income tax expense in Argentina and Brazil as a consequence of higher pre-tax gains in those segments in 2023. This increase was partially offset by income tax gains in Mexico as a result of the reversal of the valuation allowance in one of our Mexican subsidiaries during the third quarter of 2023 (please see Note 14 – Income taxes of our audited consolidated financial statements for further information regarding this valuation allowance reversal) and income tax gains in Brazil related to deferred tax assets due to deductible disputed amounts from withholding income tax contingency (please see Note 15 – Commitments and Contingencies of our audited consolidated financial statements for further information regarding this tax contingency).
Our effective tax rate is defined as income tax expense as a percentage of net income before income tax expense.
The following table summarizes the changes in our effective tax rate for the years ended December 31, 2023, 2022 and 2021:
Year Ended December 31,
2023 2022 2021
Effective tax rate 36.6 % 38.2 % 61.8 %
Our effective tax rate for the year ended December 31, 2023 as compared to 2022, decreased largely as a result of the reversal of the valuation allowance in one of our Mexican subsidiaries during the third quarter of 2023 (please see Note 14 – Income taxes of our audited consolidated financial statements for further information regarding this valuation allowances reversal). This decrease was partially offset by taxable foreign exchange gains accounted for local tax purposes in Argentina, which are not recorded for accounting purposes given that under U.S. GAAP and due to Argentina’s highly inflationary status, its functional currency is the U.S. dollar, and higher non-deductible foreign exchange losses related to the acquisition of our own common stock in the Argentine market (please see Note 25 – Share repurchase program for further information).
The following table sets forth our effective income tax rate related to our main locations for the years ended December 31, 2023, 2022 and 2021:
Year Ended December 31,
Effective tax rate by country 2023 2022 2021
Argentina 45.0 % 34.1 % 22.1 %
Brazil 3.9 % (11.6) % 5.9 %
Mexico (12.3) % (27.4) % (7.2) %
The increase in the effective income tax rate in our Argentine segment during the year ended December 31, 2023 as compared to 2022 was mainly related to higher taxable foreign exchange gains accounted for local tax purposes which are not recorded for accounting purposes since, under U.S. GAAP, Argentine operations’ functional currency is the U.S. dollar due to the highly inflationary status of the country.
The increase in our Brazilian effective income tax rate for the year ended December 31, 2023 as compared to 2022, was mainly related to a higher pre-tax gains and a higher proportion of pre-tax results arising from entities under the general income tax treatment regime over the Brazilian segment, as compared to the same period in 2022, the combined effect of which resulted in accounting for an income tax expense unlike the same period in 2022 where we recognized an income tax gain. As a consequence, the effective tax rate of the Brazilian segment resulted in positive 3.9% for the year ended December 31, 2023, as compared to negative 11.6% for 2022.
The decrease in our Mexican negative effective income tax rate for the year ended December 31, 2023 as compared to 2022, was mainly driven by the income tax gains recognized in Mexico during the third quarter of 2023 as a result of the reversal of the valuation allowance in one of our Mexican subsidiaries due to the change in judgment regarding the realizability of the deferred tax assets of the Mexican subsidiary, as positive trends observed in recent periods became enough evidence to support the conclusion along with higher pre-tax gains in 2023 as compared to the same period in 2022. Please see Note 14 – Income taxes of our audited consolidated financial statements for further information regarding this valuation allowance reversal.
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Deferred Income Tax
The following table summarizes the composition of our deferred tax assets as of December 31, 2023 and 2022:
December 31, December 31,
Deferred tax assets 2023 in % 2022 in %
(In millions, except percentages) (In millions, except percentages)
Brazilian operations $ 386 34.6 % $ 232 30.6 %
Argentine operations 36 3.2 58 7.7
Mexican operations 335 30.0 268 35.4
U.S. deferred tax assets 308 27.6 163 21.5
Operations in other countries 50 4.6 37 4.8
Total $ 1,115 100.0 % $ 758 100.0 %
As of December 31, 2023 and 2022 our deferred tax assets, were comprised mainly of i) allowance for doubtful accounts representing 21.0% and 14.5% of our total deferred tax assets, respectively; (ii) provisions representing 24.7% and 17.3% of our total deferred tax assets, respectively; (iii) U.S. foreign tax credits representing 27.3% and 20.6% of our total deferred tax assets, respectively and (iv) loss carryforwards representing 15.9% and 33.6% of our total deferred tax assets, respectively.
The following table summarizes the composition of our deferred tax assets from loss carryforwards as of December 31, 2023 and 2022:
December 31, December 31,
Loss carryforwards 2023 in % 2022 in %
(In millions, except percentages) (In millions, except percentages)
Mexican operations $ 123 69.5 % $ 161 63.1 %
Brazilian operations 31 17.5 67 26.3
Argentine operations 10 5.6 15 5.9
Operations in other countries 13 7.4 12 4.7
Total $ 177 100.0 % $ 255 100.0 %
We also assess the likelihood that our net deferred tax assets will be realized from future taxable income. To the extent we believe that it is more likely than not that some portion or the total deferred tax assets will not be realized, we establish a valuation allowance.
As of December 31, 2023 and 2022, our valuation allowance amounted to $374 million and $360 million, respectively.
The following table summarizes the composition of our valuation allowance as of December 31, 2023 and 2022:
December 31, December 31,
Valuation Allowance 2023 in % 2022 in %
(In millions, except percentages) (In millions, except percentages)
U.S. deferred tax assets $ 304 81.3 % $ 161 44.7 %
Mexican operations 53 14.2 180 50.0
Argentine operations 7 1.9 6 1.7
Operations in other countries 10 2.6 13 3.6
Total $ 374 100.0 % $ 360 100.0 %
Our valuation allowance is based on our assessment that it is more likely than not that the deferred tax asset will not be realized. The fluctuations in the valuation allowance will depend on the capacity of each country’s operations to generate taxable income or our execution of future tax planning strategies that allow us to use the aforementioned deferred tax assets. 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 tax provision in our consolidated statements of income.
Our future effective tax rates could be adversely affected by earnings being lower than anticipated in countries where we have lower statutory rates and higher than anticipated in countries where we have higher statutory rates, by changes in the valuations of our deferred tax assets or liabilities, or by changes or interpretations in tax laws, regulations or accounting principles.
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Pillar Two
The Organization for Economic Co-operation and Development (OECD)/G20 Inclusive Framework on Base Erosion and Profit Shifting published the Pillar Two model rules designed to address the tax challenges arising from the digitalization of the global economy. The Global Anti-Base Erosion Model Rules (GLoBE Rules or Pillar Two model rules) apply to multinational enterprises with revenue in excess of EUR 750 million per their consolidated financial statements.
While the framework for the GLoBE Rules is global, the rules would be implemented through legislation enacted in jurisdictions that adopt the rules. The GloBE Rules have not been enacted or substantively enacted in jurisdictions in which we operate. We continue to monitor the legislation, including the effective date of the legislation by country, transitional safe harbors relief, if any, and other significant requirements.
Segment information
See Note 9 – Segments of our audited consolidated financial statements for detailed description about our reporting segments.
Year Ended December 31, 2023
Brazil Argentina Mexico Other Countries Total
(In millions, except for percentages)
Net revenues $ 7,595 $ 3,240 $ 2,985 $ 653 $ 14,473
Direct costs (5,763) (1,837) (2,371) (595) (10,566)
Direct contribution $ 1,832 $ 1,403 $ 614 $ 58 $ 3,907
Direct contribution margin 24.1% 43.3% 20.6% 8.9% 27.0%
Year Ended December 31, 2022
Brazil Argentina Mexico Other Countries Total
(In millions, except for percentages)
Net revenues $ 5,666 $ 2,500 $ 1,864 $ 507 $ 10,537
Direct costs (4,717) (1,488) (1,579) (481) (8,265)
Direct contribution $ 949 $ 1,012 $ 285 $ 26 $ 2,272
Direct contribution margin 16.7% 40.5% 15.3% 5.1% 21.6%
Change from the Year Ended December 31, 2022 to December 31, 2023
Brazil Argentina Mexico Other Countries Total
(In millions, except for percentages)
Net revenues
in Dollars $ 1,929 $ 740 $ 1,121 $ 146 $ 3,936
in % 34.0% 29.6% 60.1% 28.8% 37.4%
Direct costs
in Dollars $ (1,046) $ (349) $ (792) $ (114) $ (2,301)
in % 22.2% 23.5% 50.2% 23.7% 27.8%
Direct contribution
in Dollars $ 883 $ 391 $ 329 $ 32 $ 1,635
in % 93.0% 38.6% 115.4% 123.1 % 72.0%
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Year Ended December 31, 2022
Brazil Argentina Mexico Other Countries Total
(In millions, except for percentages)
Net revenues $ 5,666 $ 2,500 $ 1,864 $ 507 $ 10,537
Direct costs (4,717) (1,488) (1,579) (481) (8,265)
Direct contribution $ 949 $ 1,012 $ 285 $ 26 $ 2,272
Direct contribution margin 16.7% 40.5% 15.3% 5.1% 21.6%
Year Ended December 31, 2021
Brazil Argentina Mexico Other Countries Total
(In millions, except for percentages)
Net revenues $ 3,910 $ 1,531 $ 1,172 $ 456 $ 7,069
Direct costs (3,233) (998) (1,139) (380) (5,750)
Direct contribution $ 677 $ 533 $ 33 $ 76 $ 1,319
Direct contribution margin 17.3% 34.8% 2.9% 16.6% 18.7%
Change from the Year Ended December 31, 2021 to December 31, 2022
Brazil Argentina Mexico Other Countries Total
(In millions, except for percentages)
Net revenues
in Dollars $ 1,756 $ 969 $ 692 $ 51 $ 3,468
in % 44.9% 63.3% 59.0% 11.2% 49.1%
Direct costs
in Dollars $ (1,484) $ (490) $ (440) $ (101) $ (2,515)
in % 45.9% 49.1% 38.6% 26.6% 43.7%
Direct contribution
in Dollars $ 272 $ 479 $ 252 $ (50) $ 953
in % 40.2% 89.9% 763.6% (65.8 %) 72.3%
Net revenues
Net revenues for the years ended December 31, 2023, 2022 and 2021 are described above in “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Net revenues”.
Direct costs
Brazil
For the year ended December 31, 2023, as compared to 2022, the increase in direct costs was mainly driven by a: i) $989 million increase in cost of net revenues, mainly attributable to an increase in shipping operating and carrier costs, sales taxes, cost of goods sold and collection fees as a consequence of the higher transactions volume of our Mercado Pago business; and ii) $183 million increase in sales and marketing expenses, mainly due to an increase in online and offline marketing expenses, buyer protection program expenses and salaries and wages (related to headcount increase and increases in amounts accrued under the LTRPs as a consequence of the increase in our common stock price). This was partially offset by a decrease of $140 million in provision for doubtful accounts mainly related to our initiatives to maintain portfolio exposure towards lower risk customers, lower risk products and increase exposure to lower risk, allowing us to continue improving our past due loans ratio.
Argentina
For the year ended December 31, 2023, as compared to 2022, the increase in direct costs was mainly driven by a: i) $287 million increase in cost of net revenues, mainly attributable to an increase in other payments costs in connection with higher funding cost related to our credits business, collection fees as a consequence of the higher transactions volume of our Mercado Pago business, sales taxes and shipping operating and carrier costs; and ii) $48 million increase in sales and marketing expenses, mainly due to buyer protection program expenses, chargebacks, salaries and wages (related to headcount increase and increases in amounts accrued under the LTRPs as a consequence of the increase in our common stock price) and online and offline marketing expenses.
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Mexico
For the year ended December 31, 2023, as compared to 2022, the increase in direct costs was mainly driven by a: i) $522 million increase in cost of net revenues, mainly attributable to increases in shipping operating and carrier costs, collection fees due to higher Mercado Pago penetration, cost of goods sold as a consequence of an increase in first-party sales, other payments costs mainly related to higher funding cost related to our credits business and hosting expenses; ii) $126 million increase in sales and marketing expenses, mainly due to online and offline marketing expenses, buyer protection program expenses, sales expenses, chargebacks and salaries and wages (related to headcount increase and increases in amounts accrued under the LTRPs as a consequence of the increase in our common stock price); and iii) $124 million increase in provision for doubtful accounts mainly related to our consumer credits business growth.
Liquidity and Capital Resources
Our main cash requirement has been working capital to fund Mercado Pago financing operations and our credit business. We also require cash for capital expenditures relating to technology infrastructure, software applications, office space, business acquisitions, to build out our logistics capacity and to make interest payments on our loans payable and other financial liabilities.
We have funded Mercado Pago mainly by selling credit card receivables and through credit lines. Additionally, we have financed our Mercado Pago and Mercado Credito businesses through the securitization of credit card receivables and certain loans through SPEs created in Brazil, Mexico and Argentina. Finally, we obtained funding through our financial institution in Brazil through deposit certificates and financial bills. Refer to Note 17 – Loans payable and other financial liabilities and Note 21 – Securitization transactions of our audited consolidated financial statements for further detail.
We committed to purchase cloud services for: i) a total amount of $824 million, to be paid within a 5-year period starting on October 1, 2021 and ii) a total amount of $200 million to be paid within a 3-year period starting on September 23, 2022. Please refer to Note 15 – Commitments and Contingencies of our audited consolidated financial statements for further detail on purchase commitments.
Further, in connection with the closing of MELI Kaszek Pioneer Corp’s (“MEKA”) initial public offering on October 1, 2021, MEKA (a special purpose acquisition company sponsored by MELI Kaszek Pioneer Sponsor LLC (the “Sponsor”), which is a joint venture between our subsidiary, MELI Capital Ventures LLC, and Kaszek Ventures Opportunity II, L.P.) entered into a forward purchase agreement with the Sponsor, pursuant to which the Sponsor committed to purchase from MEKA 5 million Class A ordinary shares at a price of $10 per share in a private placement to close substantially concurrently with the consummation of MEKA’s initial business combination. MEKA was deemed dissolved on January 2, 2024, resulting in the extinguishment of this commitment.
On April 8, 2022, we signed a 10-year agreement with Gol Linhas Aereas S.A. under which we committed to contract a minimum amount of air logistics services for a total annual cost of $43 million (total amount once all the dedicated aircraft are in operation). Pursuant to the agreement, Gol Linhas Aereas S.A. will provide logistics services in Brazil to Mercado Envios through six dedicated aircraft, all of which have already started operations as of December 31, 2023.
Since October 2023, we signed 3-year agreements with certain shipping companies in Brazil, under which we committed to contract a minimum amount of logistics services for a total cost of $31 million.
On January 10, 2024, we signed a 5-year agreement for the naming rights of the Complexo Pacaembu (municipal stadium of the city of São Paulo), for a total amount of $56 million. The agreement has the option to extend the term for 5 additional independent periods of 5 years each, for the same amount indexed by the Brazilian inflation rate index IPCA.
Additionally, we have several committed leases, mainly related to our fulfillment and service centers, which are one of the most important investments for our Mercado Envios business. In this sense, as of December 31, 2023, we have committed rental expenditures with our lessors for $1,180 million and $173 million for operating leases and finance leases, respectively. See Note 23 – Leases of our audited consolidated financial statements for further detail on leases.
We and certain financial institutions participate in a supplier finance program (“SFP”) that enables certain of our suppliers, at their own election, to request the payment of their invoices to the financial institutions earlier than the terms stated in our payment policies. Suppliers’ voluntary inclusion of invoices in the SFP does not change our payment terms, the amounts paid or liquidity. The supplier invoices that have been confirmed as valid under the program require payment in full according to the terms established in our payment policies (between 60 and 90 days). There are no assets pledged as security or other forms of guarantees provided for the committed payment to the financial institution. We have no economic interest in a supplier’s decision to participate in the SFP and have no financial impact in connection with the SFP. As of December 31, 2023, the obligations outstanding that the Company has confirmed as valid to the financial institutions amounted to $381 million, and are included in the consolidated balance sheets within the accounts payable and accrued expenses line.
In August 2022, we issued commercial notes in Brazil (denominated in Brazilian Real) for $198 million (considering the exchange rate as of the date of issuance), to continue investing in capital expenditures for our shipping business, in order to continue developing our shipping strategy. See Note 17 – Loans payable and other financial liabilities of our audited consolidated financial statements for further detail.
In November 2021, we closed an equity public offering for an aggregate of 1,000,000 shares of our Common Stock at a public offering price of $1,550 per share. The aggregate proceeds of the equity offering were $1,520 million net of issuance costs paid. See Note 22 – Equity Offering of our audited consolidated financial statements for additional information regarding our equity offerings.
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Finally, on March 31, 2022, we entered into a $400 million revolving credit arrangement (“the Credit Arrangement”). The interest rates under the Credit Arrangement are based on Adjusted Term SOFR plus an interest margin of 1.25% per annum. Any loans drawn under the Credit Arrangement must be repaid on or prior to March 31, 2025. We are also obligated to pay a commitment fee on the unused amounts of the facility at an annual rate of 0.3125%. As of December 31, 2023, no amounts had been borrowed under the facility. See Note 17 – Loans payable and other financial liabilities of our audited consolidated financial statements for further detail.
As of December 31, 2023, our main source of liquidity was $3,747 million of cash and cash equivalents and short-term investments, which excludes $2,289 million investment mainly related to the Central Bank of Brazil Mandatory Guarantee, and consists of cash generated from operations and proceeds from loans.
As of December 31, 2023, cash and cash equivalents, restricted cash and cash equivalents and investments of our non-U.S. subsidiaries amounted to $6,459 million, or 86.2% of our consolidated cash and cash equivalents, restricted cash and cash equivalents and investments, and our cash and cash equivalents, restricted cash and cash equivalents and investments held outside U.S. amounted to 78.3% of our consolidated cash and cash equivalents, restricted cash and cash equivalents and investments. Our non-U.S. dollar-denominated cash and investments are located primarily in Brazil, Mexico and Argentina.
The following table presents our cash flows from operating activities, investing activities and financing activities for the years ended December 31, 2023, 2022 and 2021:
Year Ended December 31,
2023 2022 2021
(In millions)
Net cash provided by (used in):
Operating activities $ 5,140 $ 2,940 $ 965
Investing activities (3,450) (3,871) (1,597)
Financing activities (267) 916 1,925
Effect of exchange rates on cash and cash equivalents, restricted cash and cash equivalents (938) (270) (153)
Net increase (decrease) in cash, cash equivalents, restricted cash and cash equivalents $ 485 $ (285) $ 1,140
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:
Year Ended December 31, Change from 2022 to 2023
2023 2022 in Dollars in %
(In millions, except percentages)
Net Cash provided by:
Operating activities $ 5,140 $ 2,940 $ 2,200 74.8 %
Net cash provided by operating activities during the year ended December 31, 2023, resulted primarily from our net income of $987 million, adjustments to net income related to non-cash items of $2,103 million, a $1,502 million increase in funds payable to customers, an increase of $1,225 million in payables and accrued expenses and an increase of $693 million in amounts payable due to credit and debit card transactions, which were partially offset by a $1,321 million increase in credit card receivables and other means of payments. The $2,200 million increase in the net cash provided by operating activities in the year ended December 31, 2023, as compared to 2022, is mainly explained by the $505 million increase in net income together with a $776 million increase in payables and accrued expenses, an increase of $565 million in amounts payable due to credit and debit card transactions and $458 million in funds payable to customers.
Net cash used in investing activities
Year Ended December 31, Change from 2022 to 2023
2023 2022 in Dollars in %
(In millions, except percentages)
Net Cash used in:
Investing activities $ (3,450) $ (3,871) $ 421 (10.9) %
Net cash used in investing activities in the year ended December 31, 2023 resulted mainly from the use of $2,047 million related to changes on loans receivable due to loans granted to merchants and consumers and Mercado Pago credit card utilization under our Mercado Credito solution net of collections and $509 million in the investment of property and equipment (mainly related to our shipping network and information technology assets in Argentina, Brazil and Mexico).
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Net cash (used in) provided by financing activities
Year Ended December 31, Change from 2022 to 2023
2023 2022 in Dollars in %
(In millions, except percentages)
Net Cash (used in) provided by:
Financing activities $ (267) $ 916 $ (1,183) (129.1 %)
For the year ended December 31, 2023, our net cash used in financing activities was primarily derived from the $356 million related to repurchases of our common stock and $33 million for the payments of finance lease liabilities.
In the event that we decide to pursue strategic acquisitions in the future, we may fund them with available cash, third-party debt financing, or by raising equity capital, as market conditions allow.
Debt
2028 Notes
On August 24, 2018, we issued $800 million of 2.00% Convertible Senior Notes due 2028 and on August 31, 2018 we issued an additional $80 million of notes pursuant to the partial exercise of the initial purchasers’ option to purchase such additional notes, resulting in an aggregate principal amount of $880 million of 2.00% Convertible Senior Notes due 2028 (collectively the “2028 Notes”). The 2028 Notes were unsecured, unsubordinated obligations, which paid interest in cash semi-annually, on February 15 and August 15, at a rate of 2.00% per annum.
In January 2021, we signed agreements with 2028 Notes holders to repurchase $440 million principal amount of our outstanding 2028 Notes. The total amount paid amounted to $1,865 million, which includes principal, interest accrued and premium.
On September 19, 2023, we announced our intention to redeem all our 2028 Notes on November 14, 2023. Holders of the 2028 Notes could elect to convert their notes at any time before November 13, 2023. Each $1,000 principal amount of 2028 Notes was convertible into 2.2952 shares of MercadoLibre common stock. As of November 13, 2023, holders of the 2028 Notes converted $439 million principal amount of 2028 Notes into 1,007,597 shares of our common stock, which we held as treasury stock. As of December 31, 2023, no principal amount of 2028 Notes remained outstanding.
Please refer to Note 17 – Loans payable and other financial liabilities to our audited consolidated financial statements for additional information regarding the 2028 Notes and the related capped call transactions.
Debt Securities Guaranteed by Subsidiaries
On January 14, 2021, we issued $400 million aggregate principal amount of 2.375% Sustainability Notes due 2026 (the “2026 Sustainability Notes”) and $700 million aggregate principal amount of 3.125% Notes due 2031 (the “2031 Notes” and collectively, the “Notes”). The payment of principal, premium, if any, interest, and all other amounts in respect of each of the Notes, is fully and unconditionally guaranteed (the “Subsidiary Guarantees”), jointly and severally, on an unsecured basis, by certain of our subsidiaries (the “Subsidiary Guarantors”). The initial Subsidiary Guarantors were MercadoLibre S.R.L., Ibazar.com Atividades de Internet Ltda., eBazar.com.br Ltda., Mercado Envios Servicos de Logistica Ltda., Mercado Pago Instituição de Pagamento Ltda. (formerly known as “MercadoPago.com Representações Ltda.”), MercadoLibre Chile Ltda., MercadoLibre, S.A. de C.V., Institución de Fondos de Pago Electrónico (formerly known as “MercadoLibre, S. de R.L. de C.V.”), DeRemate.com de México, S. de R.L. de C.V. and MercadoLibre Colombia Ltda. On October 27, 2021, MercadoLibre, S.A. de C.V., Institución de Fondos de Pago Electrónico became an excluded subsidiary pursuant to the terms of the Notes and it was released from its Subsidiary Guaranty. On October 27, 2021, MP Agregador, S. de R.L. de C.V. became a Subsidiary Guarantor under the Notes. On July 1 and October 1, 2022, Ibazar.com Atividades de Internet Ltda. and Mercado Envios Servicos de Logistica Ltda. were merged into eBazar.com.br Ltda, respectively.
We pay interest on the Notes on January 14 and July 14 of each year, beginning on July 14, 2021. The 2026 Sustainability Notes will mature on January 14, 2026, and the 2031 Notes will mature on January 14, 2031.
The Notes rank equally in right of payment with all of the Company’s other existing and future senior unsecured debt obligations. Each Subsidiary Guarantee will rank equally in right of payment with all of the Subsidiary Guarantor’s other existing and future senior unsecured debt obligations, except for statutory priorities under applicable local law.
Each Subsidiary Guarantee will be limited to the maximum amount that would not render the Subsidiary Guarantor’s obligations subject to avoidance under applicable fraudulent conveyance provisions of applicable law. By virtue of this limitation, a Subsidiary Guarantor’s obligation under its Subsidiary Guarantee could be significantly less than amounts payable with respect to the Notes, or a Subsidiary Guarantor may have effectively no obligation under its Subsidiary Guarantee.
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Under the indenture governing the Notes, the Subsidiary Guarantee of a Subsidiary Guarantor will terminate upon: (i) the sale, exchange, disposition or other transfer (including by way of consolidation or merger) of the Subsidiary Guarantor or the sale or disposition of all or substantially all the assets of the Subsidiary Guarantor (other than to the Company or a Subsidiary) otherwise permitted by the indenture, (ii) satisfaction of the requirements for legal or covenant defeasance or discharge of the Notes, (iii) the release or discharge of the guarantee by such Subsidiary Guarantor of the Triggering Indebtedness (as defined in the applicable indenture) or the repayment of the Triggering Indebtedness, in each case, that resulted in the obligation of such Subsidiary to become a Subsidiary Guarantor, provided that in no event shall the Subsidiary Guarantee of an Initial Subsidiary Guarantor terminate pursuant to this provision, or (iv) such Subsidiary Guarantor becoming an Excluded Subsidiary (as defined in the applicable indenture) or ceasing to be a Subsidiary.
We may, at our option, redeem the 2026 Sustainability Notes, in whole or in part, at any time prior to December 14, 2025 (the date that is one month prior to the maturity of the 2026 Sustainability Notes) and the 2031 Notes, in whole or in part, at any time prior to October 14, 2030 (the date that is three months prior to the maturity of the 2031 Notes), in each case by paying 100% of the principal amount of such Notes so redeemed plus the applicable “make-whole” amount and accrued and unpaid interest and additional amounts, if any. We may, at our option, redeem the 2026 Sustainability Notes, in whole or in part, on December 14, 2025 or at any time thereafter and the 2031 Notes on October 14, 2030 or at any time thereafter, in each case at the redemption price of 100% of the principal amount of such Notes so redeemed plus accrued and unpaid interest and additional amounts, if any. If we experience certain change of control triggering events, we may be required to offer to purchase the notes at 101% of their principal amount plus any accrued and unpaid interest thereon through the purchase date.
During 2023, we repurchased $9 million and $70 million principal amount of the outstanding 2026 Sustainability Notes and 2031 Notes, respectively. The total amount paid amounted to $66 million. For the year ended December 31, 2023, we recognized $14 million as a gain in Interest income and other financial gains in our consolidated statement of income.
See Note 17 – Loans payable and other financial liabilities of our audited consolidated financial statements for additional detail.
We are presenting the following summarized financial information for the issuer and the Subsidiary Guarantors (together, the “Obligor Group”) pursuant to Rule 13-01 of Regulation S-X, Guarantors and Issuers of Guaranteed Securities Registered or Being Registered. For purposes of the following summarized financial information, transactions between the Company and the Subsidiary Guarantors, presented on a combined basis, have been eliminated. Financial information for the non-guarantor subsidiaries, and any investment in a non-guarantor subsidiary by the Company or by any Subsidiary Guarantor, have been excluded. Amounts due from, due to and transactions with the non-guarantor subsidiaries and other related parties, as applicable, have been separately presented in footnotes.
Summarized balance sheet information for the Obligor Group as of December 31, 2023 and 2022 is provided in the table below:
December 31,
2023 2022
(In millions)
Current assets (1) (2)
$ 11,343 $ 7,966
Non-current assets (3)
3,032 2,693
Current Liabilities (4)
9,683 7,214
Non-current Liabilities 2,327 2,547
(1) Includes restricted cash and cash equivalents of $430 million and $687 million and foreign government debt securities (Central Bank of Brazil mandatory guarantee) of $2,289 million and $1,219 million as of December 31, 2023 and December 31, 2022, respectively.
(2) Includes Current assets from non-guarantor subsidiaries of $1,405 million and $863 million as of December 31, 2023 and December 31, 2022, respectively.
(3) Includes Non-current assets from non-guarantor subsidiaries of $309 million and $410 million as of December 31, 2023 and December 31, 2022, respectively.
(4) Includes Current liabilities to non-guarantor subsidiaries of $1,808 million and $1,334 million as of December 31, 2023 and December 31, 2022, respectively.
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Summarized statement of income information for the Obligor Group for the year ended December 31, 2023 is provided in the table below:
Year Ended
December 31,
2023
(In millions)
Net Revenues (1)
$ 11,978
Gross Profit (2)
5,503
Income from operations (3)
1,172
Net income (4)
506
(1) Includes Net revenues from transactions with non-guarantor subsidiaries of $64 million for the year ended December 31, 2023.
(2) Includes charges from transactions with non-guarantor subsidiaries of $698 million for the year ended December 31, 2023.
(3) In addition to the charges included in Gross profit, Income from operations includes charges from transactions with non-guarantor subsidiaries of $828 million for the year ended December 31, 2023.
(4) Includes other income/(expense) from transactions with non-guarantor subsidiaries of $(52) million for the year ended December 31, 2023.
Cash Dividends
Our board of directors suspended the payment of dividends on our common stock as of the first quarter of 2018 after reviewing our capital allocation process and concluding that we have multiple investment opportunities that should generate greater returns to shareholders through investing capital into the business as compared to paying dividends. Any future determination as to the declaration of dividends on our common stock will be made at the discretion of our board of directors and will depend on our earnings, operating and financial condition, capital requirements and other factors deemed relevant by our board of directors, including the applicable requirements of the Delaware General Corporation Law.
Capital expenditures
Our capital expenditures (comprised of our investments in property and equipment (such as certain assets used in our fulfillment centers) and intangible assets (excluding digital assets) for the years ended December 31, 2023 and 2022 amounted to $509 million and $455 million, respectively.
During the year ended December 31, 2023, we invested $225 million in information and technology assets in Brazil, Argentina and Mexico, and $233 million in our Argentine, Brazilian and Mexican shipping premises and offices.
We are continually increasing our level of investment in hardware and software licenses necessary to improve and update our platform’s technology and computer software developed internally. We anticipate continued investments in capital expenditures related to information technology and logistics network capacity in the future as we strive to maintain our position in the Latin American e-commerce and fintech market.
We believe that our existing cash and cash equivalents, including the sale of credit card receivables, short-term investments and cash generated from operations, will be sufficient to fund our operating activities, property and equipment expenditures and to pay or repay obligations in the foreseeable future.
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Other Data
The following table includes eight key performance indicators, which are calculated as defined in the footnotes to the table. Each of these indicators provide a different measure of the level of activity on our ecosystem, and we use them to monitor the performance of the business.
Year Ended December 31, (1)
2023 2022 2021
(In millions, except percentages)
Unique Active Users (2)
218 148 140
Gross merchandise volume (3)
$ 44,749 $ 34,449 $ 28,351
Number of items sold (4)
1,404 1,147 1,014
Number of items shipped (5)
1,377 1,105 962
Total payment volume (6)
$ 182,821 $ 123,633 $ 77,371
Total volume of payments on marketplace (7)
$ 47,182 $ 36,281 $ 29,078
Total payment transactions (8)
9,470 5,470 3,255
NIMAL (9)
36.2 % 32.0 % 36.5 %
Capital expenditures $ 509 $ 455 $ 630
Depreciation and amortization $ 524 $ 403 $ 204
(1) Figures have been calculated using rounded amounts. Growth calculations based on this table may not total due to rounding.
(2) New or existing user who performed at least one of the following actions during the reported period: (1) made one purchase, or reservation, or asked one question on Mercado Libre Marketplace or Classified Marketplace (2) maintained an active listing on Mercado Libre Marketplace or Classified Marketplace (3) maintained an active account in Mercado Shops (4) made a payment, money transfer, collection and/or advance using Mercado Pago (5) maintained an outstanding credit line through Mercado Credito or (6) maintained a balance of more than $5 invested in a Mercado Fondo asset management account. Management uses this metric to evaluate the size of our community of users who interact with the ecosystem and of which we have the opportunity to generate further engagement. With the changes in our businesses we believe it provides a better indication of our active user base rather than our discontinued registration metric that did not reflect any sort of interaction.
(3) Total U.S. dollar sum of all transactions completed through the Mercado Libre Marketplace, excluding Classifieds transactions.
(4) Number of items that were sold/purchased through the Mercado Libre Marketplace, excluding Classifieds items.
(5) Number of items that were shipped through our shipping service.
(6) Total U.S. dollar sum of all transactions paid for using Mercado Pago, including marketplace and non-marketplace transactions.
(7) Total U.S. dollar sum of all marketplace transactions paid for using Mercado Pago. Management uses this metric to evaluate the performance of our payments services and development of our integrated ecosystem. As from January 1, 2022, we no longer disclose our total volume of payments on marketplace net of shipping and financing fees. Given the growth of our shipping and Fintech businesses, Management believes that including shipping and financing fees in the calculation of total volume of payments on marketplace results in a more accurate indicator of that performance on a go-forward basis. Consequently, total volume of payment on marketplace for the year ended December 31, 2021 has been recast to include shipping and financing fees.
(8) Number of all transactions paid for using Mercado Pago.
(9) Net interest margins after losses (“NIMAL”) represents the annualized ratio between the total credits revenues less funding costs and provision for doubtful accounts for the period and total average gross loans receivable for the period. Management uses NIMAL to monitor how effectively the Company is pricing and managing the credit products relative to their risk and setting targets. Accordingly, management is of the opinion that NIMAL provides useful information to investors and others related to the Company’s risk appetite through the different periods and shows how the Company effectively prices risk.
Non-GAAP Measures of Financial Performance
To supplement our audited consolidated financial statements presented in accordance with U.S. GAAP, we present earnings before interest income and other financial gains, interest expense and other financial losses, foreign currency losses, net, income tax expense, depreciation and amortization and equity in earnings of unconsolidated entity (“Adjusted EBITDA”), net debt and foreign exchange (“FX”) neutral measures as non-GAAP measures. Reconciliation of these non-GAAP financial measures to the most comparable U.S. GAAP financial measures can be found in the tables below.
These non-GAAP measures should not be considered in isolation or as a substitute for measures of performance prepared in accordance with U.S. GAAP and may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles. Non-GAAP measures have limitations in that they do not reflect all of the amounts associated with our results of operations as determined in accordance with U.S. GAAP. These non-GAAP financial measures should only be used to evaluate our results of operations in conjunction with the most comparable U.S. GAAP financial measures.
We believe that reconciliation of these non-GAAP measures to the most directly comparable GAAP measure provides investors an overall understanding of our current financial performance and its prospects for the future.
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Adjusted EBITDA
Adjusted EBITDA is a non-GAAP financial measure that represents our net income, adjusted to eliminate the effect of depreciation and amortization charges, interest income and other financial gains, interest expense and other financial losses, foreign currency losses, net, income tax expense and equity in earnings of an unconsolidated entity. We have included this non-GAAP financial measure because it is used by our Management to evaluate our operating performance and trends, make strategic decisions and the calculation of leverage ratios. Accordingly, we believe this measure provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our Management. In addition, it provides a useful measure for period-to-period comparisons of our business, as it removes the effect of certain items.
The following table presents a reconciliation of net income to Adjusted EBITDA for the period indicated:
Years ended December 31,
2023 2022 2021
(In millions)
Net income $ 987 $ 482 $ 83
Adjustments:
Depreciation and amortization 524 403 204
Interest income and other financial gains (723) (265) (138)
Interest expense and other financial losses 378 321 229
Foreign currency losses, net 615 198 109
Income tax expense 569 298 149
Equity in earnings of unconsolidated entity (3) — 9
Adjusted EBITDA $ 2,347 $ 1,437 $ 645
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Net debt
We define net debt as total debt which includes current and non-current loans payable and other financial liabilities and current and non-current operating lease liabilities, less cash and cash equivalents, short-term investments and long-term investments, excluding foreign government debt securities restricted and held in guarantee, securitization transactions and equity securities held at cost. We have included this non-GAAP financial measure because it is used by our Management to analyze our current leverage ratios and set targets to be met, which will also impact other components of the Company’s balance sheet, cash flows and income statement. Accordingly, we believe this measure provides useful information to investors and other market participants in showing the evolution of the Company’s indebtedness and its capability of repayment as a means to, alongside other measures, monitor our leverage based on widely-used measures.
The following table presents a reconciliation of net debt for each of the periods indicated:
December 31,
2023 2022
(In millions)
Current Loans payable and other financial liabilities $ 2,292 $ 2,131
Non-current Loans payable and other financial liabilities 2,203 2,627
Current Operating lease liabilities 166 142
Non-current Operating lease liabilities 672 514
Total debt 5,333 5,414
Less:
Cash and cash equivalents 2,556 1,910
Short-term investments (1)
1,191 1,120
Long-term investments (2)
81 245
Net debt $ 1,505 $ 2,139
(1) Excludes foreign government debt securities restricted and held in guarantee.
(2) Excludes investments held in VIEs as a consequence of securitization transactions and equity securities held at cost.
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FX neutral
We believe that FX neutral measures provide useful information to both Management and investors by excluding the foreign currency exchange rate impact that may not be indicative of our core operating results and business outlook.
The FX neutral measures were calculated by using the average monthly exchange rates for each month during 2022 and applying them to the corresponding months in 2023, so as to calculate what our results would have been had exchange rates remained stable from one year to the next. The comparative FX neutral measures were calculated by using the average monthly exchange rates for each month during 2021 and applying them to the corresponding months in 2022.The table below excludes intercompany allocation FX effects. Finally, these measures do not include any other macroeconomic effect such as local currency inflation effects, the impact on impairment calculations or any price adjustment to compensate local currency inflation or devaluations.
The following table sets forth the FX neutral measures related to our reported results of the operations for years ended December 31, 2023, 2022 and 2021:
Year ended December 31,
As reported FX Neutral Measures As reported Percentage Change
2023 2022 Percentage Change 2023 2022
(In millions, except percentages)
Net revenues $ 14,473 $ 10,537 37.4 % $ 17,694 $ 10,537 67.9 %
Cost of net revenues (7,267) (5,374) 35.2 % (8,577) (5,374) 59.6 %
Gross profit 7,206 5,163 39.6 % 9,117 5,163 76.6 %
Operating expenses (5,383) (4,129) 30.4 % (6,700) (4,129) 62.3 %
Income from operations $ 1,823 $ 1,034 76.3 % $ 2,417 $ 1,034 133.8 %
Year ended December 31,
As reported FX Neutral Measures As reported Percentage Change
2022 2021 Percentage Change 2022 2021
(In millions, except percentages)
Net revenues $ 10,537 $ 7,069 49.1 % $ 11,291 $ 7,069 59.7 %
Cost of net revenues (5,374) (4,064) 32.2 % (5,694) (4,064) 40.1 %
Gross profit 5,163 3,005 71.8 % 5,597 3,005 86.3 %
Operating expenses (4,129) (2,564) 61.0 % (4,478) (2,564) 74.6 %
Income from operations $ 1,034 $ 441 134.5 % $ 1,119 $ 441 153.7 %
See Note 2 – Summary of significant accounting policies – Foreign currency translation – Argentine currency status and macroeconomic outlook and Argentine exchange regulations of our audited consolidated financial statements for further detail on the currency status and the exchange regulations of our Argentine segment.
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