Mercari (4385.JP) – Note on Withdrawal from UK

On December 18, 2018, Mercari announced it will withdraw from UK market.

At a meeting of its Board of Directors held on December 18, 2018, Mercari, Inc. (the “Company”) decided to dissolve and liquidate Mercari Europe Ltd and Merpay Ltd, our subsidiaries in the UK.

As mentioned in my Mercari initial analysis, UK operation basically could be ignored based on how the company reported in its earnings release. The decision is not a surprise.

In the UK market, the Company established Mercari Europe Ltd in November 2015 and has leveraged the knowledge possessed by the Mercari Group to expand the Mercari C2C marketplace service in the UK. However, since the business did not scale as quickly as we hoped, the Company has decided to dissolve and liquidate its subsidiaries Mercari Europe Ltd and Merpay Ltd.

While the company stated the rationale behind the decision was that the business did not scale as quickly as it had hoped, the fact is that Mercari Europe Ltd spent 3 years and around GBP 11 million in customer acquisition costs, infrastructure and other fixed costs but the marketplace was almost not gaining any traction in terms of monetization. According to Nikkei Asian Review, unlike versions in Japan and US where the app adopts rake monetization, the UK version is free to use. This might provide some insights for entrants who want to challenge Mercari’s C2C marketplace leading position in Japan.

Mercari EU

The good news is that while the successful experience in Japan didn’t help the company penetrate the UK market, it does help them make timely decision to abandon the market and stop loss at a controllable level. The company probably concluded that marketplace would not go anywhere without even more aggressive customer acquisition and user subsidy. Then it became a resource allocation question. It is a safer bet to concentrate resources on a market with some traction hoping the marketplace can speed up to reach critical mass.

While the loss to be incurred from discontinued operation in UK is relatively small compared to Mercari’s market cap and cash raised in IPO, the stock price performance has been quite weak. What concern investors most might not be extraordinary loss incurred but the prospect of Mercari’s global expanse plan, how much cash it has to burn for US operation to reach critical mass and whether the unit economics in US is healthy enough for the operation to be profitable at scale under fierce competition.

Mercari Stock Price

Per Mercari’s announcement, it adopts different approaches to planning, development, operations, and marketing for each region. This means while the monetization methods in Japan and US are similar, the path to reach critical mass might be quite different.

If I were the investor, apparently my focus will be on US operation in next earnings release assuming Japan operation is on track and market dynamics doesn’t change significantly.

*    *    *

Potential strategy and timing for entrant targeting Japan market:

  • Different monetization method (free to use with advertising)
  • Users subsidy
  • Category focus
  • Community focus & communication facilitation (as this is not a rake model)
  • Timing: when Mercari US is scaling up and other competitors in the market react aggressively

*    *    *

~ Materials ~


Notice Regarding the Dissolution and Liquidation of Overseas Subsidiaries and Recognition of Extraordinary Loss

~ My Related Posts ~

Mercari (4385.JP) – Initial Analysis

Entering a market where existing platforms have network effect working

~ Corporate Event ~

FY2019.6 Q2 Financial Results Announcement(15:00 JST)


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