Company Reports

We believe that Mercari’s March-quarter results were not as bad as the market had feared. Mercari’s share price has been declining for about six months, as investors have been concerned about 1) slowing growth in domestic marketplace gross merchandise value, or GMV, and 2) larger losses in financial technology and other businesses due to upfront investments. However, Mercari’s GMV increased 8% year on year, as better-than-expected average revenue per user, or ARPU, largely offset slowing growth in monthly active users, or MAU, which has struggled due to temporary issues. In addition, our conversation with the company after the results gave us more confidence that Mercari will remain disciplined on cost control and is unlikely to ramp up promotional spending. Overall, we believe Mercari’s results were solid and addressed most of the market’s concerns. We maintain our fair value estimate for narrow-moat Mercari at JPY 2,800 per share and believe its shares are undervalued.

Japan's online consumer-to-consumer secondhand goods trading market is about JPY 2.2 trillion (roughly 28.9% of total used goods value). The market is further split into two segments: auction (JPY 1 trillion) and marketplace applications, or apps (JPY 1.2 trillion). Mercari is the top platform of the latter, with over 70% market share, and 22 million monthly active users. Its main competitors in the market are Rakuma and Yahoo Flea Market, with 5 million MAU each. Mercari charges sellers a 10% take rate on the platform, much higher than its competitors' 5%-6%, because of access to a much larger buyer base and superior turnover speed.

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.

Japan's online consumer-to-consumer secondhand goods trading market is about JPY 2.2 trillion (roughly 28.9% of total used goods value). The market is further split into two segments: auction (JPY 1 trillion) and marketplace applications, or apps (JPY 1.2 trillion). Mercari is the top platform of the latter, with over 70% market share, and 22 million monthly active users. Its main competitors in the market are Rakuma and Yahoo Flea Market, with 5 million MAU each. Mercari charges sellers a 10% take rate on the platform, much higher than its competitors' 5%-6%, because of access to a much larger buyer base and superior turnover speed.

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.

Japan's online consumer-to-consumer secondhand goods trading market is about JPY 2.2 trillion (roughly 28.9% of total used goods value). The market is further split into two segments: auction (JPY 1 trillion) and marketplace applications, or apps (JPY 1.2 trillion). Mercari is the top platform of the latter, with over 70% market share, and 22 million monthly active users. Its main competitors in the market are Rakuma and Yahoo Flea Market, with 5 million MAU each. Mercari charges sellers a 10% take rate on the platform, much higher than its competitors' 5%-6%, because of access to a much larger buyer base and superior turnover speed.

We are initiating coverage on Mercari, the leading online flea market platform in Japan, with a fair value estimate of JPY 3,600 and a narrow moat rating. Mercari has over 22 million monthly active users with approximately JPY 1 trillion in gross merchandise value per year and 70% market share in the online flea market platform market. In the overall online used-goods trading market, Mercari accounts for approximately 40% market share. Prior to Mercari’s launch, the online used-goods trading market was dominated by Yahoo Auction, but Mercari has successfully carved out a new market by catering to casual users’ needs and quickly gained popularity as a first mover. Mercari differentiates itself from its competitors by having the largest number of active users, quick turnover of products, and accurate price suggestions for sellers. These are very appealing traits for the consumer-to-consumer used goods trading market due to the limited quantity of products and price discoverability. By leveraging these features, which constitute Mercari’s strong network effect, we expect the company to achieve higher-than-expected long-term growth, benefiting from the growth in online penetration of the used-goods trading market and the expansion of a more casual user base. We believe Mercari’s shares are undervalued.

Japan's online consumer-to-consumer secondhand goods trading market is about JPY 2.2 trillion (roughly 28.9% of total used goods value). The market is further split into two segments: auction (JPY 1 trillion) and marketplace applications, or apps (JPY 1.2 trillion). Mercari is the top platform of the latter, with over 70% market share, and 22 million monthly active users. Its main competitors in the market are Rakuma and Yahoo Flea Market, with 5 million MAU each. Mercari charges sellers a 10% take rate on the platform, much higher than its competitors' 5%-6%, because of access to a much larger buyer base and superior turnover speed.