Mercari: Initiating Coverage on Japan’s Top Online Flea Market Platform With JPY 3,600 Valuation

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.