#33 - Mercari

C2C used goods marketplace.

Mercari - (TYO: 4385)

Mercari is a used goods marketplace with operations in Japan and the United States.

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Please note that this article does not constitute investment advice in any form. This article is not a research report and is not intended to serve as the basis for any investment decision. All investments involve risk and the past performance of a security or financial product does not guarantee future returns. Investors have to conduct their own research before conducting any transaction. There is always the risk of losing parts or all of your money when you invest in securities or other financial products.


Industry Overview

There are a lot of companies that seem to be consumer to consumer (C2C) marketplaces focused on used goods. There’s two categories I’d put these competitors in. Either these companies are broad marketplaces focused on everything ranging from vehicles to fashion or are a marketplace focused on a specific niche such as clothing, fashion, jewelry, or luxury.

Listed below are some of the more broad marketplaces that I’ve come across. I’m sure there are many others.

There are other substitutes besides these online marketplaces. There are neighborhood garage sales, flea markets, or simply selling things on eBay (I guess eBay is the original C2C marketplace).

Business Overview

Mercari is a C2C marketplace where consumers can buy and sell used goods. Mercari is akin to Facebook marketplace but the marketplace is Mercari’s main business whereas for Facebook, it’s not. Mercari has a handful of business lines, but the two major business lines are the C2C marketplace and Merpay. Merpay is a mobile payment service that can be used on Mercari or at more than 2 million stores nationwide. I think this is similar to other businesses that have a payments revenue line like Shop Pay, Apple Pay, etc.

Mercari’s two primary markets are Japan and the United States. Mercari might not be a familiar name because its listed on the Tokyo Stock Exchange. Of course, if successful, Mercari will likely look to expand internationally into Europe or the rest of Asia, but there are likely even more regional competitors now and definitely by then.

Mercari’s business model is straightforward. Mercari takes a 10% fee from the buyer on top of the purchase price. If the buyer purchases something worth $100, Mercari will collect an additional $10 on top of the $100 purchase. Merpay seems to be a way to pay on the Mercari marketplace and through other vendors.

Total Addressable Market

I don’t think companies in this industry run the risk of running out of room to expand within the core business line of being a C2C marketplace. Where companies may feel pressure is running into other marketplaces that run specific verticals. For example, TheRealReal might expand into other areas of fashion and might compete more closely with other C2C fashion marketplaces like Poshmark or Depop.

Mercari runs this risk but it seems to be a greater risk. Mercari might struggle to make a dent in fashion (probably the largest resale market) if there are so many fashion focused C2C marketplaces. Therefore Mercari will always be competing with some marketplace that has a specific niche focus. If all of the large resale categories have a winning and scaled competitor, what right does Mercari have to win eyeballs on both the supply and demand side?

The definition and scope of Mercari’s total addressable market is the resale market which potentially has tens if not hundreds of billions of GMV across all categories. The risk isn’t runway, it’s execution.

Competitive Advantages

  • Marketplace

    If Mercari is able to become the dominant C2C marketplace for used goods, then it’ll have a strong sustainable competitive advantage because that’s where both supply and demand will accrue and Mercari can continue to monetize its business model.

    The downside is that of course there are larger companies like eBay, Facebook, and Amazon that could become serious about competing with Mercari and other marketplaces.

  • Brand / Trust

    There’s a lot of issues with trust surrounding these used goods marketplaces. I’ve used some of these websites before and there are some sketchy people who don’t seem to be super trustworthy. Mercari seems to have a strong emphasis on safety at least from reading its investor presentations and looking through its website.

    I think if Mercari truly believes in trust and safety for both buyers and sellers, that it could be a differentiating factor relative to other competitors. If both buyers and sellers are most comfortable using Mercari, then that’s where buyers and sellers will meet which will lead to network effects and more emphasis on safety and security.

    I’m thinking Mercari could be the “Zappos for used goods” meaning Zappos is the most trusted platform and therefore will win in this space.

Financials

I decided not to break out a full financial picture for Mercari. Mercari doesn’t list out all of its important metrics like GMV, MAU, or other relevant financial figures in an easy to use template or chart.

If you want to get a sense of the growth of this business, check out this presentation from Mercari’s Q3 2021 earnings call.

What’s Interesting

  • Attractive business model

    I think marketplaces are a great business model. These businesses often have the best and most sustainable competitive advantages. Can’t really go wrong investing in a basket of marketplace business models in my opinion.

    I think Mercari might be a company to keep an eye on for the future to see if competition is not a threat and if Mercari can really prove out its value proposition and its winning position over current and future competitors.

  • Overlooked international business?

    Mercari isn’t the most popular business on Twitter or in the news, but it’s also not unheard of. If Mercari were to be listed in the US it’d be a much more popular business I think.

    Anyway, why is this interesting? Well I think if investors can find international companies with a proven business model, strong competitive advantages, and strong growth before others, then obviously they’ll do well assuming all those points are in place.

Future Questions

  • Facebook marketplace?

    I don’t understand why or how Facebook marketplace doesn’t crush some of these competitors. If you’re a marketplace that just focuses on being a broad general marketplace, what’s your advantage over Facebook marketplace?

    One reason I could see is that people want their social graph and them selling their possessions being separate. Similar to Facebook’s attempt at launching a dating product and competing with Match Group. Not sure though.

    I do see more vertical focused marketplaces like TheRealReal being successful (not TheRealReal specifically) but that business model of being a vertical focused used goods marketplace being successful.

    If you’re a bull on Mercari or other general C2C marketplaces, I’d love to hear the thesis on why Facebook doesn’t win this space.

Conclusion

I think Mercari is a good business to continue to study. I’m more interested in learning and talking with others about why Mercari might win over Facebook marketplace or if Facebook marketplace completely crushes any competitors.


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