Mercari Earnings: Promotion Efficiency on Decline, Lowering Fair Value Estimate 3% to JPY 3,500

We lower our fair value estimate for Mercari to JPY 3,500 from JPY 3,600 previously based on a more conservative outlook for marketplace gross merchandise growth in the next five years. Despite doubling promotional spending, Mercari’s September-quarter marketplace gross merchandise value, or GMV, grew 11.6% year on year, below our estimated 16.1%. We tone down our medium-term marketplace GMV growth and operating margin assumptions as promotion efficiency appears to be declining with scale, partially offset by lower loss assumptions for the U.S. segment. We think the stock is currently fairly valued.