Mercari Earnings: Margins Still Solid Despite Slowing Top-Line Growth; Shares Undervalued

We lowered our fair value estimate to JPY 2,800 from JPY 3,500 previously based on a more conservative outlook for the marketplace business in the medium term. Meanwhile, Mercari’s share price has fallen by about 40% since November 2023, which we believe is mainly due to market concerns that margins in the core marketplace business will deteriorate significantly in the next few years as gross merchandise value growth slows and returns on promotional spending worsen. However, we do not believe that marketplace margins will decline as much as the market fears and, therefore, believe Mercari’s shares are undervalued.