{"url_path":"/sec/meli/10-q/2026/item-3","section_key":"item-3","section_title":"Item 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK","topic":"sec","document":{"doc_type":"10-Q","doc_date":"2026-05-08","source_url":"https://www.sec.gov/Archives/edgar/data/1099590/0001099590-26-000017-index.html","accession_number":"0001099590-26-000017","cik":"0001099590","ticker":"MELI","issuer_name":"MERCADOLIBRE INC","edgar_url":"https://www.sec.gov/Archives/edgar/data/1099590/0001099590-26-000017-index.html","primary_entity_key":"0001099590","primary_entity_name":"MERCADOLIBRE INC"},"word_count":2324,"has_tables":true,"body_markdown":"ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK\n\nWe are exposed to market risks arising from our business operations. These market risks arise mainly from macroeconomic instability and the possibility that changes in interest rates and the U.S. dollar exchange rate with local currencies, particularly the Brazilian Real, Mexican Peso and Argentine Peso due to Brazil’s, Mexico’s and Argentina’s respective share of our revenues, may affect the value of our financial assets and liabilities.\n\nWe are also exposed to market risks arising from our LTRPs. These market risks arise from our obligations to pay employees cash payments in amounts that vary based on the market price of our stock.\n\nForeign currencies\n\nWe have significant operations internationally that are denominated in foreign currencies, primarily the Brazilian Real, Mexican Peso, Argentine Peso, Colombian Peso and Chilean Peso, subjecting us to foreign currency risk, which may adversely impact our financial results. We transact business in various foreign currencies and have significant international revenues and costs. In addition, we charge our international subsidiaries for their use of intellectual property and technology and for certain corporate services. Our cash flows, results of operations and certain of our intercompany balances that are exposed to foreign exchange rate fluctuations may differ materially from expectations and we may record significant gains or losses due to foreign currency fluctuations and related hedging activities.\n\nWe use foreign currency exchange forward contracts and cross currency swaps to protect our foreign currency exposure from changes in foreign currency exchange rates. These hedging contracts reduce, but do not entirely eliminate, the impact of foreign currency exchange rate movements. We designate these contracts as cash flow and fair value hedges for accounting purposes. The derivatives’ gain or loss for cash flow hedges is initially reported as a component of accumulated other comprehensive loss. Cash flow hedges are subsequently reclassified into the consolidated statements of income in the financial statement line items in which the hedged item is recorded in the same period the forecasted transaction affects earnings. The derivatives’ gain or loss for fair value hedges is reported in our consolidated statements of income in the same line items as the change in the value of the hedged item due to the hedged risks.\n\nAs of March 31, 2026, we hold cash and cash equivalents, restricted cash and cash equivalents, short and long-term investments in local currencies in our subsidiaries, and have receivables denominated in local currencies in all of our operations. Our subsidiaries generate revenues and incur most of their expenses in the respective local currencies of the countries in which they operate. As a result, our subsidiaries use their local currency as their functional currency except for our Argentine subsidiaries, whose functional currency is the U.S. dollar due to the inflationary environment. As of March 31, 2026, the total cash and cash equivalents, restricted cash and cash equivalents denominated in foreign currencies totaled $14,049 million, short-term investments denominated in foreign currencies totaled $491 million, long-term investments denominated in foreign currencies totaled $719 million and accounts receivable, credit card receivables and other means of payments and loans receivable in foreign currencies totaled $19,238 million. To manage exchange rate risk, our treasury policy is to transfer most cash and cash equivalents in excess of working capital requirements into U.S. dollar-denominated accounts in the United States and to enter into certain foreign exchange derivatives, such as currency forwards contracts and cross currency swaps, in order to mitigate our exposure to foreign exchange risk. As of March 31, 2026, our U.S. dollar-denominated cash and cash equivalents, restricted cash and cash equivalents and short-term investments totaled $2,574 million and our U.S. dollar-denominated long-term investments totaled $977 million.\n\nFor the three-month period ended March 31, 2026, we had a consolidated gain on foreign currency of $6 million. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of operations— Other income (expenses), net” for more information.\n\n54 | MercadoLibre, Inc.\n\n[Table of Contents](#i84f3433ca70e43aba43b2c42eb8a2df8_7)\n\nForeign currency sensitivity analysis\n\nThe table below shows the impact on our net revenues and financial income, cost of net revenues and financial expenses, operating expenses, other income (expenses), net, income tax, net income and equity for a positive and a negative 10% fluctuation on all the foreign currencies to which we are exposed to at the moment of translating our financial statements to U.S. dollars for the three-month period ended March 31, 2026:\n\n(10)% (1)\nActual\n10% (2)\n\n(In millions)\n\nNet revenues and financial income$9,826 $8,845 $8,043 \n\nExpenses (3)\n(9,107)(8,234)(7,520)\n\nIncome from operations719 611 523 \n\nOther income (expenses), net and income tax expense\n(204)(194)(185)\n\nNet Income$515 $417 $338 \n\n  \n\nTotal Shareholders’ Equity$8,110 $7,281 $6,603 \n\n(1) Appreciation of the subsidiaries’ local currency against U.S. Dollar.\n\n(2) Depreciation of the subsidiaries’ local currency against U.S. Dollar.\n\n(3) Includes cost of net revenues and financial expenses and operating expenses.\n\nThe table above shows an increase in our net income when the U.S. dollar weakens against foreign currencies because of the positive impact of the increase in income from operations. On the other hand, the table above shows a decrease in our net income when the U.S. dollar strengthens against foreign currencies because of the negative impact of the decrease in income from operations.\n\nBrazilian segment\n\nConsidering a hypothetical increase (depreciation) of 10% of the Brazilian Real exchange rate against the U.S. dollar on March 31, 2026, the reported local currency net assets in our Brazilian subsidiaries would have decreased by approximately $434 million with the related impact in Other Comprehensive Income. Additionally, we would have recorded a foreign currency gain amounting to approximately $9 million in our Brazilian subsidiaries regarding our non-functional currency net asset position, exposed to exchange rate effects.\n\nMexican segment\n\nConsidering a hypothetical increase (depreciation) of 10% of the Mexican Peso exchange rate against the U.S. dollar on March 31, 2026, the reported local currency net assets in our Mexican subsidiaries would have decreased by approximately $317 million with the related impact in Other Comprehensive Income. Additionally, we would have recorded a foreign currency loss amounting to approximately $83 million in our Mexican subsidiaries regarding our non-functional currency net liability position.\n\nArgentine segment\n\nIn accordance with U.S. GAAP, we have classified our Argentine operations as highly inflationary since July 1, 2018, using the U.S. dollar as the functional currency for purposes of reporting our financial statements. Therefore, no translation effect has been accounted for in other comprehensive income related to our Argentine operations since July 1, 2018. Argentina’s inflation rate for the three-month periods ended March 31, 2026 and 2025 was 9.4% and 8.6%, respectively.\n\nWe use Argentina’s official exchange rate to account for transactions in our Argentine segment, which as of March 31, 2026 and December 31, 2025 was 1,382.00 and 1,455.00 Argentine Pesos, respectively, against the U.S. dollar. During the three-month periods ended March 31, 2026 and 2025 Argentina’s official exchange rate against the U.S. dollar decreased 5.0% and increased 4.1%, respectively. The average exchange rate for the three-month periods ended March 31, 2026 and 2025 was 1,417.8 and 1,057.0, respectively, resulting in an increase of 34.1%.\n\nConsidering a hypothetical increase (depreciation) of 10% of the Argentine Peso exchange rate against the U.S. dollar on March 31, 2026, the effect on non-functional currency net asset position in our Argentine subsidiaries would have been a foreign exchange loss amounting to approximately $43 million in our Argentine subsidiaries.\n\nSee Note 2 – Summary of significant accounting policies - Foreign currency translation - Argentine currency status and Argentine exchange regulations” of our unaudited interim condensed consolidated financial statements for further detail on the currency status and the exchange regulations of our Argentine segment.\n\n55 | MercadoLibre, Inc.\n\n[Table of Contents](#i84f3433ca70e43aba43b2c42eb8a2df8_7)\n\nInterest\n\nOur earnings and cash flows are also affected by changes in interest rates. These changes could have an impact on the interest rates that financial institutions charge us prior to the time we sell our credit card receivables and on the financial debt that we use to fund Mercado Pago and our lending operations as well as expanding our logistic capacity. As of March 31, 2026, Credit card receivables and other means of payments, net totaled $8,134 million. Interest rate fluctuations could also impact interest earned through our lending solution. As of March 31, 2026, loans receivable net of the allowance for doubtful accounts from our lending solution totaled $10,735 million. We use future contracts to hedge the interest rate exposure of our asset-backed loan portfolio originated in Brazil for $406 million of notional amount. Interest rate fluctuations could also negatively affect certain of our fixed rate and floating rate investments comprised primarily of time deposits, money market funds and sovereign debt securities. Investments in both fixed rate and floating rate interest earning products carry a degree of interest rate risk. Fixed rate securities may have their fair value adversely impacted due to a rise in interest rates, while floating rate securities may produce less income than predicted if interest rates fall.\n\nAs of March 31, 2026, our short-term investments amounted to $1,973 million and our long-term investments amounted to $1,696 million. Our short-term investments can be readily converted at any time into cash or into securities with a shorter remaining time to maturity. We determine the appropriate classification of our investments at the time of purchase and re-evaluate such designations as of each balance sheet date. See Note 3 – Cash, cash equivalents, restricted cash and cash equivalents and investments of our unaudited interim condensed consolidated financial statements for further detail on our restricted investments.\n\nFluctuations of the interest rate could also have a negative impact on interest expense related to our Loans payable and other financial liabilities, as a portion of these instruments is subject to variable interest rates. As of March 31, 2026, our Loans payable and other financial liabilities which accrue interest based on variable rates amounted to $7,110 million, while our Loans payable and other financial liabilities, which accrue interest based on fixed rates, amounted to $2,817 million. We have entered into swap contracts to hedge the interest rate fluctuation on part of our Loans payable and other financial liabilities for a total of $593 million notional amount, $471 million of which have been designated as hedging instruments in fair value hedges. See Note 10 – Loans payable and other financial liabilities and Note 11 – Securitization transactions of our unaudited interim condensed consolidated financial statements for further detail. Considering a hypothetical increase of 100 basis points in the interest rates, the reported charge to the interim condensed consolidated statements of income for the three-month period ended March 31, 2026 would have increased by approximately $19 million with an impact of $17 million in Cost of net revenues and financial expenses and $2 million in Interest expense and other financial losses.\n\nSee Note 13 – Derivative instruments of our unaudited interim condensed consolidated financial statements for further detail on derivative instruments.\n\nEquity price risk\n\nOur board of directors, upon the recommendation of the compensation committee, approved the 2021, 2022, 2023, 2024, 2025 and 2026 Long Term Retention Programs (the “2021, 2022, 2023, 2024, 2025 and 2026 LTRPs,” respectively), under which certain eligible employees have the opportunity to receive cash payments annually for a period of six years. In order to receive the full target award under the 2021, 2022, 2023, 2024, 2025 and/or 2026 LTRPs, each eligible employee must remain employed as of each applicable payment date. The 2021, 2022, 2023, 2024, 2025 and 2026 LTRP awards are payable as follows:\n\n■the eligible employee will receive 16.66% of half of his or her target 2021, 2022, 2023, 2024, 2025 and/or 2026 LTRP bonus once a year for a period of six years, with the first payment occurring no later than April 30, 2022, 2023, 2024, 2025, 2026 and 2027, respectively (the “2021, 2022, 2023, 2024, 2025 or 2026 Annual Fixed Payment,” respectively); and\n\n■on each date we pay the respective Annual Fixed Payment to an eligible employee, he or she will also receive a payment (the “2021, 2022, 2023, 2024, 2025 or 2026 Variable Payment”) equal to the product of (i) 16.66% of half of the target 2021, 2022, 2023, 2024, 2025 and/or 2026 LTRP bonus and (ii) the quotient of (a) divided by (b), where (a), the numerator, equals the Applicable Year Stock Price (as defined below) and (b), the denominator, equals the average closing price of our common stock on the NASDAQ Global Select Market during the final 60 trading days of 2020, 2021, 2022, 2023, 2024 and 2025 defined as $1,431.26, $1,391.81, $888.69, $1,426.11, $1,944.47 and $2,094.65 for the 2021, 2022, 2023, 2024, 2025 and 2026 LTRPs, respectively. The “Applicable Year Stock Price” shall equal the average closing price of our common stock on the NASDAQ Global Select Market during the final 60 trading days of the year preceding the applicable payment date.\n\nAs of March 31, 2026, the total contractual obligation fair value of our outstanding LTRP Variable Payment obligation subject to equity price risk amounted to $664 million. As of March 31, 2026, the accrued liability related to the outstanding Variable Payment of the LTRP included in Salaries and social security payable in our consolidated balance sheet amounted to $39 million. The following table shows a sensitivity analysis of the risk associated with our total contractual obligation fair value related to the outstanding LTRP Variable Award Payment subject to equity price risk if our common stock price per share were to increase or decrease by up to 40%:\n\n56 | MercadoLibre, Inc.\n\n[Table of Contents](#i84f3433ca70e43aba43b2c42eb8a2df8_7)\n\nChange in equity price in percentageAs of March 31, 2026\n\nMercadoLibre, Inc Equity Price2021, 2022, 2023, 2024, 2025 and 2026 LTRP Variable contractual obligation\n\n(In millions, except equity price)\n\n40%2,432.51 930 \n\n30%2,258.76 863 \n\n20%2,085.01 797 \n\n10%1,911.26 730 \n\nStatic (1)\n1,737.51 664 \n\n(10)%1,563.76 597 \n\n(20)%1,390.01 531 \n\n(30)%1,216.26 465 \n\n(40)%1,042.51 398 \n\n(1) Present value of average closing stock price for the last 60 trading days of the year preceding the applicable payment date."}