2022-04-24
(35 Pages, 42 graphs and tables)
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l Mercari needs to break the mould. While its grip on Japan’s online reuse market is solid, it has missed out key markets and important innovations, putting the company on the defensive;
l That said, we expect online reuse market to grow at a CAGR of 8.9% from 2021 to 2030, with online flea market to grow faster than auction and Mercari to gain market share;
l We initiate the stock with a HOLD and TP of JPY 3,486.
Reuse is still the bedrock of Mercari’s investment case
Founded more than a decade after the big platforms (SoftBank/Z Holdings and Rakuten), Mercari amassed 20mn monthly active users (MAU) in Japan, a country of 126mn, and 5mn in US. We estimate Japan’s online reuse market amounted to JPY1.58tn in 2021 and will grow to JPY3.39tn by 2030. We expect Mercari’s market share to rise from 35% to 46% over this period.
But is reuse a standalone segment of e-commerce?
We believe it will be, but so far it’s not. We find between 1/3 to 2/3 of GMV’s on Japan’s online reuse platforms are new goods, which means C2C and SME2B2C aren’t readily separable. Despite Mercari’s market leadership in online reuse, its overall market share in e-commerce in Japan is 2nd class.
Competition will rise in the near term
Reliance on new goods for growth means reliance on Chinese merchants, which is a double edge sword, as their maverick business practices often alienate native consumers. Further, ~50% of reuse GMV is auto, of which Yahoo! Japan Auction, part of Z Holdings, have a commanding share. Mercari has also missed market-shifting innovations, such as apparel reuse in US, consignment in apparel, and QR Code Payment in Japan.
Payment landscape change warrants more attention
Cash usage has been persistently high in Japan, until QR Code Payment introduced a replacement scenario. Leveraging market leadership in payment, Z Holdings is expanding across the e-commerce spectra and we believe its advantage will continue.
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