Mercari Earnings: Growth-Focused but Still Cost-Conscious; Shares Undervalued

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.