Mercari — Company History

A design premise: consumer-to-consumer trade completed on a phone

Yamada Shintaro graduated from Waseda University in 2000, founded Unoh, and sold the company to the American games firm Zynga in 2010. Wanting to build a business abroad, he left in 2012 and spent a little over six months travelling round the world; out of that came the idea of person-to-person trade as a mechanism for using resources without waste and making everyone better off, and on 1 February 2013 he incorporated Kozo Inc. (株式会社コウゾウ). He had found the consumer-to-consumer market interesting ever since launching Rakuten Auction as a student intern, and his aim was to create a market that was neither Yahoo! Auctions nor Amazon. Development began in WebView, but with smooth, responsive movement as the overriding priority the existing code was scrapped in April and rebuilt fully native; the Android version was released in July, the iOS version soon after.

In person-to-person trade Yahoo! Auctions had held an overwhelming position since the era when the personal computer was the main device, and Yamada read its design as one optimised for the PC and therefore for a limited set of people. Flea-market apps had been opened up in July 2012 by Fril, confined to women's fashion, and then by minne, specialising in handmade work — the genre-specific type came first, and by the spring of 2014 more than ten flea-market apps stood side by side. Mercari, arriving later, limited neither the product categories it handled nor the sex of the users it addressed; it put a fixed asking price rather than an auction at the base of the design, and completed listing, purchase and settlement inside the app. The operator sat between buyer and seller, holding the money until the buyer confirmed receipt and left a rating. More than half of users were women in their twenties and thirties, and clothing-related goods accounted for close to 40 per cent of items traded.

The front-loaded bet that put 97.6 per cent of revenue into advertising

Koizumi Fumiaki left mixi in June 2012 and joined Mercari in December 2013. From his time as executive director and CFO of mixi he brought two lessons — never lower the hiring bar even when hands are short, and never economise on investment at the moment that matters — and he read the flea-market app field he was entering as a winner-take-all market, in which being anything other than first made second place no different from hundredth. Within three months of joining, Koizumi was running a funding round, television-commercial production and the establishment of a customer-support base in parallel, and in March 2014 raised $13.7M (¥1bn) through a third-party allotment to Globis Capital Partners and others. From 10 May the company aired its first television commercial nationwide, save for a few areas, and overtook the earlier-moving Fril. Cumulative downloads passed five million in October and reached seven million in December.

In the year to June 2015 revenue was $34.7M (¥4bn) and advertising expenditure $33.9M (¥4bn) — 97.6 per cent of revenue poured into advertising. The following year the ratio was 55.7 per cent and the year after 64 per cent, so that advertising stayed above half of revenue for three consecutive years. The effect of that front-loading showed in user numbers: domestic downloads passed ten million in February 2015 and reached eighteen million in September. Nielsen's survey found that in August Mercari had 5.67 million smartphone users of auction and flea-market services, second behind Yahoo! Auctions on 15.89 million, and monthly gross merchandise value is thought to have reached something like $41.3M (¥5bn)–$57.8M (¥7bn) at its peak. Over the same period, funds raised by unlisted companies swelled to $1.3B (¥153bn) in 2015 on Japan Venture Research's tally, and the amount per company widened from around $225,620 (¥18m) in 2010–11 to more than $826,310 (¥100m).

A ¥120bn valuation, and operating losses that outlasted the listing

In March 2016 Mercari raised $76.7M (¥8bn) from Mitsui & Co., the Development Bank of Japan and others at a valuation of about $1.1B (¥120bn). Called Japan's foremost unicorn, chairman Yamada kept raising money while unlisted as a live option, but as users multiplied so did complaints of improper use, and he accepted that at the proper moment the company would have to list and become an institution answerable to society. Among his reasons for listing he cited the gap between a start-up's own sense of itself and the responsibility the world demanded of it, and a belated realisation on safety and security; what he was after, he said, was not stable growth but discontinuous growth of five or ten times. On 19 June 2018 Mercari listed on the Tokyo Stock Exchange's Mothers market, raising more than $543.5M (¥60bn), and named people, technology and overseas as its priority investments. The shares traded around ¥4,500 against an offer price of ¥3,000, and market capitalisation reached $8.5B (¥931bn) at the end of the year to June 2021 — yet operating profit had been in deficit since the founding, the company decided at the end of 2018 to withdraw from its British business, and the year to June 2019 was expected to bring the largest operating loss in its history.

In April 2017 Mercari split the roles, leaving management of the Japanese business to president and COO Koizumi and giving chairman and CEO Yamada the overseas side. Recruitment did not go through job-change agencies: about 90 per cent of mid-career hires came through employee referrals and direct applications from the careers website, and the management team took on people from the Ministry of Foreign Affairs, Mitsubishi Corporation and Goldman Sachs Japan. In October 2018 forty-four foreign-national graduates joined, twenty-nine of them from the Indian Institutes of Technology. In April 2017 listings of cash proliferated — five ¥10,000 notes offered at ¥59,500 — and Endo Toshihide, director-general of the Financial Services Agency's supervisory bureau, told the House of Representatives Committee on Financial Affairs that an operator might fall within the brokerage of money lending. Mercari deleted the cash listings and added them to the prohibited items in its terms, then in December of that year tightened the registration of personal identity information and shortened the period for which sale proceeds could be held. After listing, the company addressed its organisational problems on the engineering side by moving the system towards microservices.

The American business that ran up ¥18.1bn of losses

A US subsidiary was established in January 2014, and in September the American version began operating with no fees. Chairman Yamada judged the American market to be at least four times the size of Japan's, and a success there a foothold for Europe and Asia. In the United States, Craigslist had been part of daily life for more than twenty years, and Yamada also named eBay as a competitor. In June 2017 John Lagerling, formerly an executive at Google and Facebook, joined; the logo was changed from red to blue and the line The Selling App. adopted. Yamada saw the causes of the stagnation as internal: it was hard to win recognition through television commercials, and the service itself had not been built out far enough. Developing in Japan and only later sending Japanese staff over to the field did not work either. The company booked valuation losses on shares in subsidiaries of about $93.3M (¥10bn) in the year to June 2018 and about $56.9M (¥8bn) in the second quarter of the year to June 2023 in its non-consolidated accounts; both were eliminated on consolidation, but the valuation losses relating to the American business reached a cumulative scale of roughly $128.8M (¥18bn).

In Japan television commercials had lifted recognition all at once, but in the United States, where terrestrial broadcasting is not nearly so strong, the same method did not carry. At home, Mercari established the payments and finance subsidiary Merpay in November 2017, and Yamada sketched the order of things: let the proceeds earned on Mercari be spent online and in shops on the street, then extend into services built on user data and credit information. In 2019 gross merchandise value in the domestic flea-market business fell below the preceding quarter's figure for successive quarters, and Yamada admitted that measures had leaned towards activating buyers while work on the seller side had been neglected. On the merger of Yahoo and LINE he observed that pursuing scale was one way to fight, but that building a good service and earning users' support was the royal road. In September 2021 PayPal Holdings of the United States acquired the deferred-payment company Paidy for $2.7B (¥300bn).

Turning flea-market proceeds into credit

In November 2017 Mercari established Merpay as the subsidiary responsible for its new payments and finance business, and in February 2019 began offering the Merpay smartphone payment service. It handled the deferred-payment product Merpay Smart Payments from the early days, and from 2020 extended it to instalments at an annual rate of 15 per cent. In a survey Merpay ran among 800 people aged eighteen to fifty-nine, 31 per cent had used deferred payment. In December 2021 the US Consumer Financial Protection Bureau, worried about the swelling of debt, opened a simultaneous inquiry into five companies including PayPal and Klarna. With competitors mounting sales-promotion campaigns on the scale of ten billion yen, Merpay said it would confine itself to a disciplined level of investment judged on cost-effectiveness. It withdrew from Merchari, the bicycle-sharing service started in the city of Fukuoka in February 2018, and switched to a structure fighting on two pillars: the founding flea market and payments.

In November 2022 Merpay began offering Mercard, a credit card using its own AI underwriting based on a user's record on Mercari. Deferred-payment balances are lending to users, and at the end of the year to June 2023 the allowance for doubtful accounts stood at $38.4M (¥5bn) while accounts receivable rose by about $251.9M (¥35bn) year on year. Operating cash flow turned negative in the year to June 2022 and widened to minus $262.6M (¥37bn) in the year to June 2023. Points returned to cardholders worked: revenue per user rose by 50 per cent on average, and the payment fees the group had been paying to outside parties were held down. Fintech revenue in the year to June 2024 grew to $203.3M (¥31bn), one and a half times the previous year, and Mercari set out a plan for core operating profit of ¥10bn or more from the fintech business in the year to June 2027.

The next bet: an economic sphere reaching beyond goods

In December 2021 Mercari began issuing NFTs using match footage, jointly with the Pacific League of Japanese professional baseball. Fushimi Shingo (伏見慎剛), a director of Mercoin, said that a marketplace dealing in goods had come to feel, with the arrival of NFTs, that it needed to cover digital assets too, and pointed to the pleasure of receiving flea-market proceeds in crypto-assets. Mercoin, established in April 2021, began a service in March 2023 allowing bitcoin to be bought and sold with Mercari proceeds. With thirty registered crypto-asset exchange operators in the market, Mercoin's account numbers stood at three million at the end of December 2024, the largest of any, and more than 80 per cent of its users were beginners in crypto-assets. Nakamura Keita (中村奎太), president of Mercoin, said the mass adoption the company had aimed at from the start was beginning to take shape. In June 2022 Mercari moved to the Tokyo Stock Exchange's Prime market in the restructuring of the market segments.

In March 2024 Mercari launched Mercari Hallo (メルカリハロ), through which users can find somewhere to work in their spare time, and on the 28th of the same month introduced Eco Mercari Bin (エコメルカリ便), a flat-rate delivery service at ¥730, about 30 per cent cheaper than the major carriers. Ota Asami (太田麻未), executive officer and CEO of Work, set out a new vision of circulating value in the form of time and skill, and said the company had decided to enter the spot-work market in answer to a society short of labour and looking for flexible ways of working. Ota named as the group's strengths the fifteen million users who had completed identity verification and the membership base of a flea-market app used by more than twenty-two million people a month. The market leader, Timee, listed on the Tokyo Stock Exchange's Growth market on 26 July that year at a market capitalisation of $1.0B (¥157bn), and the market as a whole had reached seventeen million users in May. Mercari Hallo had five million registered users and 50,000 partner companies in just under three months. In August of the same year cross-border trading was opened so that buyers in Taiwan could purchase listings in Japan.

In September 2023 Mercari moved from a company with a board of corporate auditors to a company with nominating and other statutory committees. The American business saw gross merchandise value fall below the same quarter of the previous year for ten consecutive quarters, and the year to June 2024 brought $913m, down 10 per cent year on year, with the cumulative adjusted operating loss since the year to June 2017 swelling to close to $500m. At the beginning of June 2024 local headcount was cut to about half, and the management took responsibility through reductions in their own pay. Yamada, the CEO, looked back and said there had been a misreading in the plan to strengthen investment and reach profitability through growth; admitting a shortfall in his own ability as a manager to move an organisation of two thousand people boldly, he raised the internal slogan Back to Startup. With investors questioning the company's interest in generating profit, Mercari disclosed a full-year earnings forecast at the start of a financial year for the first time. In the year to June 2024 revenue was $1.2B (¥187bn), gross merchandise value in the domestic flea-market business passed ¥1trn for the first time, and the company recorded its first two consecutive profitable years since listing.