Mercari Earnings: Cutting Fair Value Estimate by 16% Due to Weaker Marketplace Growth Prospects

We cut our fair value estimate for Mercari to JPY 2,340 from JPY 2,800 previously after lowering our mid to long-term top-line growth assumptions for marketplace and fintech segments. Although we had already lowered our gross merchandise value growth assumption following the previous earnings release, we are trimming our growth forecasts again, as the sluggish growth in monthly active users for the past few quarters casts further doubt on the effectiveness of future marketing strategies and highlights concerns about the lack of a fundamental growth driver for the company outside of its traditional marketplace business. Following the massive postearnings selloff, we believe that Mercari’s shares are undervalued as the market is overly pessimistic about Mercari’s margin expansion, which we believe is achievable through cost discipline and monetization of the fintech segment. Moreover, despite slowing market growth, we believe Mercari’s leadership position in the flea market application can protect its take rate of about 10% over the longer term. However, we acknowledge that Mercari’s shares lack near-term catalysts, and more visibility is needed on whether top-line growth can be revitalized through better marketing strategies and new business initiatives.