Prospectus summary
Prospectus summary This summary highlights information contained elsewhere in this prospectus. This summary is not complete and does not contain all of the information you should consider before investing in our common stock. You should read the entire prospectus carefully before investing in our common stock, especially the risks of investing in our common stock discussed under “Risk factors” and our consolidated financial statements and their related notes included elsewhere in this prospectus.The company
We host the largest online trading platform in Latin America, called MercadoLibre and located at www.mercadolibre.com. We are market leaders in e-commerce in each of Argentina, Brazil, Chile, Colombia, Ecuador, Mexico, Peru, Uruguay and Venezuela, based on the number of unique visitors and page views during the first nine months of 2007. Additionally, we have recently launched online trading platforms in Costa Rica, the Dominican Republic and Panama. With a market of over 550 million people and a region with one of the world’s fastest-growing Internet penetration rates, we provide buyers and sellers a robust online trading environment that fosters the development of a large and growing e-commerce community. We offer a technological and commercial solution that addresses the distinctive cultural and geographic challenges of operating an online trading platform in Latin America.
We offer our users two principal services:
During the nine months ended September 30, 2007, visitors to our website were able to browse an average of over 3.9 million total listings per month, organized by country, in over 2,000 different product categories. We believe that we have achieved a critical mass of active buyers, sellers and product listings in most of the countries where we operate and that our business can be readily scaled to handle increases in our user base and transaction volume. At September 30, 2007, we had 23.3 million confirmed registered MercadoLibre users. For 2006, we had 1.7 million unique sellers, 4.4 million unique buyers and 13.8 million successful items sold. During the nine months ended September 30, 2007, we had 4.3 million unique buyers, 1.5 million unique sellers and 12.8 million successful items sold.
We generate revenues from the MercadoLibre marketplace from listing fees, optional feature fees, final value fees and online advertising, and from MercadoPago from commissions for use of the service.
We achieved gross merchandise volume (which is a measure of the total value of goods and services bought and sold on the MercadoLibre marketplace excluding motor vehicles, vessels, aircraft and real estate) of $1,075.1 million in 2006, an increase of approximately 76.9% compared to 2005. For the nine months ended September 30, 2006 and 2007, our gross merchandise volume was $746.3 million and $1,050.5 million, respectively, which represented an increase of 40.8%. For 2006, total payment volume was $89.0 million, an increase of approximately 131.2% over 2005. For the nine months ended September 30, 2007, total payment volume grew approximately 72.7% to $101.2 million from $58.6 million during the same period in 2006. Since we commenced operations in 1999, we have consistently generated higher annual revenues over the prior year, and since 2005 we have generated positive net income and cash from operations. For 2006, we recognized net revenues of $52.1 million, which represented a compounded annual growth rate of 102.8% from 2004 to 2006. For the nine months ended September 30, 2007, our net revenues were $58.2 million, which represented an increase of 59.1% compared to the same period in 2006. For 2006, our net income was approximately $1.1 million. For the nine months ended September 30, 2007, our net income was $4.4 million, which represented a growth of $5.1 million from a loss of $(0.8) million during the same period in 2006. The following table sets forth, for the periods indicated, some of our principal consolidated financial and operational indicators:
Market opportunity
We provide services to a region with one of the world’s fastest growing Internet penetration rates. We were one of the initial entrants into the Latin American e-commerce market. The region, which consists of South America, Central America, the Caribbean and Mexico, is home to over 550 million people, or approximately 8.6% of the world’s population. The International Monetary Fund estimates that Latin America’s combined annual gross domestic product in 2006 was greater than $2.9 trillion. Based on information released by InternetWorldStats.com, estimates for Internet penetration rates in Latin America at November 30, 2007 range from a high of 43.2% for Chile to 22.4% for Brazil and 8.2% for Panama, with an average penetration rate of approximately 21.5%. Between the end of 2000 and November 30, 2007, InternetWorldStats.com estimates that Latin America’s Internet user base increased approximately 577.3% with a compounded annual growth rate of 31.7%.
We believe that the Latin American market presents a significant opportunity for an Internet-based marketplace provider. E-commerce platforms offer advantages of scale, information availability and accessibility to markets, which address many of the inefficiencies associated with traditional offline trading in Latin America, such as limited access to information, high number of parties in distribution chains, limited inventory, and obstacles to efficient communication and interaction between market participants.
Competitive strengths
We believe the following characteristics give us a competitive advantage in realizing the potential of our market opportunity:
marketplace also offers a fixed-price alternative to respond to the current preferences in the region for fixed-price listings. In order to address the specific needs of buyers and sellers of motor vehicles, vessels, aircraft, real estate and certain services, items for which buyers will typically require a physical inspection or specific types of interaction, we offer our users an online classified advertisements service that is dedicated to these items. To complement the MercadoLibre marketplace by providing an end-to-end service that facilitates the completion of transactions online, we have developed MercadoPago, which operates as an integrated payment platform that allows our users to make and receive payments efficiently and securely online. In order to meet the demand for product information by potential purchasers, we have launched product content sections on our platform that encourage user ratings and product reviews, and provide product catalogues and purchasing guides. To improve the efficiency of our MercadoLibre marketplace, we launched a relevance-based algorithm to sort listings, which provides users with a superior buying experience by matching supply and demand.
Business strategy
We seek to serve people in Latin America by offering an online marketplace and electronic payment service that can improve the quality of life of those who use it, while creating significant value for our stockholders. We serve our buyers by giving them access to a broader and more affordable variety of products and services than those available on other online and offline venues. We serve our sellers by allowing them to reach a larger and more geographically diverse user base at a lower overall cost and investment than offline venues, which enables them to build businesses. At the same time, we provide payment settlement services to facilitate such transactions. More broadly, we strive to turn inefficient markets into more efficient ones and in that process we generate value. To achieve these objectives, we apply the following strategies:
business and maintain our leadership by taking advantage of the expanding potential client base that has resulted from the growth of Internet penetration rates in Latin America. We intend to achieve these goals through organic growth, by entering into new countries and category segments, and, when possible and advantageous, through potential strategic acquisitions of key businesses and assets.
believe in treating our users with respect by applying a consistent set of policies that reinforce good online and offline behavior within our user community. We also seek to offer superior customer care in order to maintain the loyalty and satisfaction of our active user base.
Recent developments
In August 2007, we completed our initial public offering pursuant to which we sold 3,000,000 shares of common stock and certain of our selling stockholders sold 15,488,762 shares of common stock, resulting in net proceeds to us of approximately $49.6 million.
Acquisition of CMG
On January 22, 2008, we acquired 100% of the issued and outstanding shares of capital stock of CMG Classified Media Group, Inc., or CMG and its subsidiaries. CMG and its subsidiaries operate an online classified advertisements platform primarily dedicated to the sale of automobiles at www.tucarro.com in Venezuela, Colombia and Puerto Rico and real estate at www.tuinmueble.com in Venezuela, Colombia, Panama, the United States, Costa Rica and the Canary Islands. The purchase price for the shares of CMG and its subsidiaries was $19 million, subject to certain escrows and working capital adjustments.
Management changes
On January 23, 2008, Edgardo Sokolowicz, our Senior Vice President and Chief Technology Officer, informed us of his intention to resign from his position with us due to personal reasons as of March 31, 2008. His role will be divided into two separate positions, senior director of development and senior director of architecture and database pursuant to our succession plan.
On January 24, 2008, our board of directors elected Martin de los Santos as a new director. Mr. de los Santos was appointed as a Class II director and his initial term will expire after our annual meeting of stockholders in 2009. Our board of directors has affirmatively determined that Mr. de los Santos meets the definition of “independent director” under Rules 4200 and 4350 of the Nasdaq global market listing standards. Mr. de los Santos was appointed to the Audit Committee of our board of directors and Compensation Committee of our board of directors.
Outlook for Fiscal year 2007
Based on currently available information, we estimate net revenues of between $26.0 million and $27.0 million for the three months ended December 31, 2007. We anticipate our operating income margin, defined as income from operations as a percentage of net revenues, for the three months ended December 31, 2007, will decrease compared to operating income margin for the three months ended September 30, 2007.
As of the date of this prospectus, neither the review of our consolidated financial statements for the three months or year ended December 31, 2007 nor the audit as of and for the year ended December 31, 2007 has been completed, and therefore these results are subject to significant adjustments. Although our financial statements for the three months ended December 31, 2007 are not yet available, the information above reflects our preliminary estimates based on currently available information. This information, however, should not be relied upon as being necessarily indicative of future results. As we have not completed closing our books and records, we have not prepared financial statements for the three months or year ended December 31, 2007. Accordingly, management and the board of directors have not completed their review of the financial statements or the information presented above as of or for the three months ended December 31, 2007.
The estimates set forth above may be subject to further adjustments, which adjustments could be material and result in significant changes. As a result, the final financial results could be different than as set forth above and those differences could be material. Our consolidated financial statements for the year ended December 31, 2007 will not be available until after this offering is completed, and consequently will not be available to you prior to investing in our common stock. We do not intend to update or otherwise revise these estimates to reflect future events and do not intend to disclose publicly whether our actual results will vary from our estimates other than through the release of actual results in the ordinary course of business. For additional information regarding the various risks and uncertainties inherent in these estimates, see “Forward-looking statements” and “Risk Factors” in this prospectus. You should read the foregoing also in conjunction with “Management’s discussion and analysis of financial condition and results of operation. The estimates set forth above have been prepared by, and are the responsibility of, our management. You should not put undue reliance on these estimates. Neither our independent registered public accounting firm nor any other public accounting firm has reviewed or audited the estimates set forth above, and accordingly, Price Waterhouse & Co. S.R.L. does not express an opinion or any other form of assurance with respect thereto. The Price Waterhouse & Co. S.R.L. report included in this prospectus relates to our company’s historical financial information for prior periods. It does not extend to the estimates provided above and should not be read to do so.
Our corporate information
We are a Delaware corporation incorporated on October 15, 1999. Our registered office is located at 15 East North Street, Dover, Delaware. Our principal executive offices are located at Tronador 4890, 8th floor, Buenos Aires, Argentina, C1430DNN. Our telephone number is +54 11 5352-8000 and our website is located at www.mercadolibre.com. Information contained on our website shall not constitute, or be deemed incorporated as, a part of this prospectus.
The offering
Except as otherwise noted, the number of shares of our common stock to be outstanding after this offering (i) includes 2,600 shares of our restricted common stock awarded to our outside directors, which is subject to the vesting requirements described in “Compensation discussion and analysis—Director compensation,” and (ii) excludes 144,174 shares reserved for future issuance upon exercise of outstanding options and 298,437 shares available for future awards under our stock option plan. See “Compensation discussion and analysis—Our stock and stock option plans” and note 11 to our audited consolidated financial statements, and note 8 to our unaudited condensed consolidated financial statements.Summary financial and other data
The following summary financial data at December 31, 2005 and 2006 and for the years ended December 31, 2004, 2005 and 2006 have been derived from our audited consolidated financial statements and their related notes included elsewhere in this prospectus. The following summary financial data at December 31, 2004 have been derived from our audited consolidated financial statements for that year, which are not included in this prospectus. The following summary financial data at September 30, 2007 and for the nine months ended September 30, 2006 and 2007 have been derived from our unaudited condensed consolidated financial statements included elsewhere in this prospectus. These statements include all normal recurring adjustments that management believes are necessary to fairly present our financial position, operating results and cash flows. Operating results for the nine months ended September 30, 2007 are not necessarily indicative of the results that may be expected for the year ended December 31, 2007 or for any other period.
The following summary financial and other data is qualified by reference to and should be read in conjunction with “Capitalization,” “Selected financial and other data,” “Management’s discussion and analysis of financial condition and results of operations” and our consolidated financial statements and related notes thereto included elsewhere in this prospectus.