Zozo Earnings: Competition Intensifies but Stock Still Attractive

Zozotown’s June-quarter gross merchandise value, or GMV, growth was weaker than expected, due to a later-than-usual change to summer wear in Japan because of a cooler April-May, as well as intensifying competition with both physical and e-commerce platforms amid declining customer spending motivation on durable goods. We are maintaining our GMV growth forecasts but lowering our operating margin projections to 31.7% from 33% previously, as we expect Zozo to have higher advertisement spending for the midterm as the company is keen on maintaining high GMV growth. As a result, our fair value estimate is lowered to JPY 3,400 from JPY 3,500 previously. Nonetheless, we still view Zozo as an attractive e-commerce stock as it is still generating much higher returns than its peers, because of its high take rate based on superior customer access and comprehensive brand service.