Good day, ladies and gentlemen, and welcome to the MercadoLibre's Q2 2010 Earnings Conference Call. At this time, all participant lines are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to turn the conference over to company management. Please go ahead.

Welcome, everyone, to MercadoLibre's earnings release conference call for the quarter ended June 30, 2010. Company management presenting today are Marcos Galperín, Chief Executive Officer, and Hernán Kazah, Chief Financial Officer. This conference call is also being broadcast over the Internet and is available through the “Investor Relations” section of our website. I remind you that during the course of this conference call, we will discuss some non-GAAP measures. The reconciliation of these measures to the nearest comparable GAAP measures can be found in our second quarter 2010 earnings press release, available on our Investor Relations website. In addition, management may make some forward-looking statements relating to such matters as continued growth prospects for the company, industry trends, and product and technology initiatives. These statements are based on currently available information and our current assumptions, expectations and projections about future events. While we believe that our assumptions, expectations and projections are reasonable, in view of the currently available information, you are cautioned not to place undue reliance on these forward-looking statements. Our actual results may differ materially from those discussed in this call for a variety of reasons, including those described in the “Forward-Looking Statements” and “Risk Factors” sections of our 10-Q, 10-K and other filings with the Securities and Exchange Commission, which are available on our Investor Relations website. Now, let me hand the floor over to Marcos. Marcos Galperín: Thank you and welcome, everyone, to today's conference call. I would start us off today by discussing our second quarter performance, including some insights into market trends and how they compare to our business growth. I will also provide additional detail on certain product and service enhancements that we carried out during the quarter as part of our ongoing efforts to continuously improve online buying and selling experience. Then,…

Thank you. (Operator Instructions) Our first question is from Imran Khan with JPMorgan. Go ahead please.

Yes. Hi, it's Imran Khan from JP Morgan. Thank you so much for taking my questions. Couple of questions, gross merchandise volume per item was down 8%, obviously foreign exchange had an impact. Can you talk about what else drove that decline? And secondly, as a payment business mix shift towards processing and away from financing, should we expect take rates to go down and can you talk about the cross sell opportunity on financing as more people use Pago on pay on the Brazil site. Thank you.

Hi, Imran how are you? This is Marcos.

Hi, Marcos. How are you?

Very well. Thanks. With respect to the first part of your question, successful items which is perhaps some more pure measure of vibrancy on the marketplace has decelerated slightly. We believe mostly caused by the factors we mentioned on the call which were the World Cup. The fact that we did not have our cable and TV campaign during Q2 of 2010 whereas we did have it in Q2 of 2009 and the cable and TV campaign during 2009 had an impact on traffic and transactions. And the fact that many of improvements we did over a year ago to our platform have cycles, and we are focusing in our ground zero architecture. And therefore the upgrade that we did here in Q2 are not as significant as once that we did over a year ago, so mostly those were the causes of the deceleration. With reference to, that take rate part of your question, complement here that we will continue to have a financing part of the business in (inaudible) and the financing will continue to be paid for by the buyers.

Thank you. Our next question is from Gene Munster with Piper Jaffray. Go ahead please.

Good afternoon and congratulation. Question on the World Cup, you mentioned four dates, back to envelop, is that had 2% negative impact on revenue, is that math seems consistent, are you guys are calculating the impact? Marcos Galperín: Yes. That's more or less exactly what we are calculating, its around 2% negative impact, because of those days with lower activity than usual.

Okay. And then second is, you mentioned the new grounds, zero marketplace by year end, from the user perspective you talked about phones and tablets and other business applications or usage that will be a different marketplace from the user and will that be kind of one time, flip the switch or is it going to be a migration through different product categories? Thanks. Marcos Galperín: This is going to be a major transformation in our architecture both for the Marketplace and the Payment platform be noticeable on that market place platform first and the objective is to be more open, more flexible and more dynamic so that we can enable third party developer to develop, on top of our platform through the API and that we can better be present in the multiple new format that are increasingly popular and the mobile phones, the smartphones, so this will be on a phase by phase approach, it's not going to be a one time event, it's going to be a one-time change, but it's going to enable multiple changes going forward and it's also going to enable us to execute more rapidly and to do our rollout of the product upgrade more rapidly.

And from a unit perspective will they be or they just go to the typical Mercado site on a computer will they be able to see the difference? Marcos Galperín: Well, they would be able to see many difference, it's in the sense that many of their product upgrade that we would like to be doing take us today more time to do and to roll out. So the space of change on our market place on the web will be significantly factored on what it is today.

Okay, one just final quick question. Growth in Argentina at 34% versus 47 in Q1, is there anything going on there, anything related to probably in the Pago anymore insight on that trend? Hernán Kazah: MercadoPago in Argentina is growing very rapidly and we are very excited with how it is going and the feedback we are getting from sellers and buyers. So clearly probably it is having a positive impact on the business overall. The overall growth going from 47 to 34%. Is there anything, in particular, in Argentina that we should be aware of? Marcos Galperín: No. In terms of transaction growth, that wasn't the case. I mean we are happy with the way that the business is evolving in Argentina.

Thank you. Our next question is from Marianne Wolk with Susquehanna. Go ahead, please.

Yes. I want to understand the seller economic changes related to the Pago rollout in Brazil a little bit better. It sounded like you were raising the cost to the seller by about 150 basis points. I want to understand, is that true in each category? And that's a much bigger step-up in cost than the step-up you had I think; you said 50 basis points in Argentina over the last few quarters. So just wondering how the sellers are reacting to that big step-up in cost, and are you seeing the same sort of favorable reaction to that? And then my second question with regard to the spending for the new Marketplace's Ground Zero architecture. You've had flat R&D for the last few quarters. Can you talk about how much money you're going to have to invest in this architecture, and where we are in the rollout of the platform? Thanks very much. Hernán Kazah: Hello, Marianne. Yes, all you've mentioned around MercadoPago is true. What we've done in Brazil was basically we eliminated the MercadoPago processing fees that buyers were paying, and now we have only one single fee that is a Marketplace fee. To compensate for the revenue we are not getting any longer from MercadoPago fees, we increased MercadoPago, MercadoLibre's marketplace fees by 150 basis points. As you pointed out that's more than what we've increased fees in Argentina because payments in Brazil has a much higher penetration, so as to compensate those revenues we needed to increase those fees at a higher level. This fees that we are getting from sellers, this is very early. We launched this mid-July; its positive and we made this change because we think this is the way for us to expand MercadoPago's penetration on the marketplace and also for us to improve buyers and sellers experiences on the site. So we are definitely happy with the results we saw in Argentina. We think that we are going to replicate those results in Brazil and that going forward we will do more of this, expanding the penetration of MercadoPago in the countries where today we have it and also running out this branded model into new countries. With regards to your second question about ground zero initiatives and how much we are investing in technology, in R&D, that's an area where we are investing ahead of revenue growth. So we are increasing the percentage of money that we allocate there in terms of revenues and we will continue to do that. So far we are happy with how that is evolving and we think that within the investments we are currently doing we will be able to accomplish the changes we want to have in the platform.

Can you just give us a sense of where you are in that investment cycle? Have you been investing in this for some time or is this is a new investment that we should expect in the third quarter and how long should it last? Marcos Galperín: This is part of the continuous investment that we do in technology and the most significant expense items there is people, basically engineers. So as we've been saying in the last few releases, we'd be investing in having more engineers, we've been growing the size of that team and that's why it's allowing us to get into this big initiative that we're doing now.

Thank you. Our next question is from Robert Ford from Bank of America. Go ahead please.

Good afternoon everybody and congratulations on the quarter. Marcos I had a question, maybe Hernán with respect to the transfer pricing for the Pago. You know I was just curious as to why your transfer price in Brazil 3.5% of total payments volume and Argentina at 6%? Hernán Kazah: Hi Bob, this is Hernán. Basically, what we're doing is bundling pricing as you will note. So we have to make decision how to allocate those revenues between the marketplace and the payments business. What we're doing is on the one hand, all the revenues that we collect as financing fees are definitely allocated 100% to MercadoPago and the other fees that today is bundled fees; we're allocating them between the two segments based on cost basis and also on margin. And given that Argentina has smaller operation, obviously it cost their have a higher impact than in Brazil where we have a larger operation. And also in Brazil MercadoPago makes some money out of financing fees that we do not have in Argentina. So part of this saving the MercadoPago is providing, is one reason why we didn't move the combined fees even higher was that we were able to able to compensate a little bit of that by increasing this lightly the margins that we have on the financing side of MercadoPago. But you're right that we will move prices on the one hand 6% and on the other hand 3.5%, part of that is volume, part of that is MercadoPago in Brazil had a financing business and part of that is because what we think is right pricing point for this.

It's great. Thank you. And then my second question has to do with your fees in Argentina and I understand that you're penetration information on transactions with them effective May 1st, if I am not mistaken? And I was curious as to whether or not this new (inaudible) goes into effect in November would be something that they expect from you or is that expected to come from your Pago service. Marcos Galperín: No that is moving along and its information that we are providing to tax authorities and we are connected to them through this electronic invoicing system and we don't anticipate any issue in that regard.

And then just to confirm, you've been exchanging information effect May 1st, right, in Argentina? Marcos Galperín: No, it's going to be September.

Thank you. (Operator Instructions) our next question is from Jordan Rohan with Stifel Nicolaus. Go ahead please.

Congratulation on the quarter guys. If I heard correctly, you are talking about a take rate being higher despite the elimination of insertion fees and it move to paid placement. It seems really promising. Can you comment on the coverage ratio or the percentage of your listing's pages where merchants have already used paid listings, isn't this something that can expect to go up from a very low number today to something pretty significant in the future, so that it would way more than offset the insertion fees that have been eliminated? Thank you. Marcos Galperín: All right Jordon, it has been long process, it's not something that has changed one quarter to the next. We've been removing listing fees by introducing, fine value the only listings more recently in some countries completely free listings. And in those listings where we still have some upfront fees, those fees are in the form of placement fees that they pay to have those listing with more prominence on the site and not so much just for the write off of listing. So, we still have lots of outcome fees as Marcos mentioned in his remarks. A significant part of our portions, our revenues are still coming from that. It just to be 50-50, so 50% of that is coming from fees and 50% from final value fees, now its more like 70-30, 75-25. So more fine value fee loaded. But still with some significant portion of our revenue is coming from these upfront fees.

And one follow up… Marcos Galperín: In terms of listing Jordan approximately 20 to 30% of the listings based on sort of placement fees and they make up approximately 70% of the GMV.

Great. I have one follow-up on you talked directionally and maybe I just missed this when you were discussing the MP3 change in Brazil but have you seen the penetration of Pago in Brazil start to hitting to the 30% level since you shifted the model to merchant pay, it has to be in 20 some trying to just get some directional commentary on where its headed already? Marcos Galperín: Yeah, MercadoPago in Brazil was penetrated, they were close to 30% we've just launched the new product we are happy with the results we're seeing there. So we do expect that penetration to grow up but we will talk in more detail about that in our next earnings release.

Thank you. Our next question is from Steve Weinstein with Pacific Crest. Go ahead please.

Hi, thanks. Just got a couple questions on Pago, the first one is understanding to try to increase the final value fees they compensate for the great adoption of Pago, first how often are you evaluating that and realistically how often do you think you can raise fees I assume you don't want to be raising fees every month and so there is some exposure to the model as that occurs, but I would like to get your feedback on that? And then I have a little difficulty hearing parts of call so forgive if I have heard this wrong but it sounded like the financing part of revenue is declined to 1.5% I wasn't sure if that was reflective of things that you were doing to try and pass more value to consumers or if that was just a function of things happening in the market via lower interest rates or fees from the vendors that allowed you to pass that through. If I can get some clarification there, I'd appreciate it. Marcos Galperín: Hi, Steve. So with regards to your question about how often we will be able to move final value fees to keep on compensating for the growth that we expect to have in MercadoPago plant, so far we can tell you that in Argentina, we first increased prices when we launched the bundling MercadoPago with Mercado delivery system and recently we did the second move in that direction within that. As long as we are increasing fees because we're offering a better alternative about its service to buyers and sellers we are going to be able to do that. If you look at what other market place in the world charge for these combined solution of offering a market place with payments, we think that…

Thank you. I am showing no further questions at this time. I would now like to turn it back over to management. Marcos Galperín: Okay. Thanks everyone for your time and for your questions and we look forward to speaking to you in the next quarter. Thank you very much. Bye-bye.

Ladies and gentlemen, thank you for your participation. That concludes the conference. You may disconnect and have a wonderful day.