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Japanese unicorn Mercari eyes overseas push after June 19 IPO

Listing to value the flea market app as high as $3.2bn

Mercari founder and Chairman Shintaro Yamada says the flea market app had its sights set overseas from the beginning.

TOKYO -- Mercari's application to list on the Tokyo Stock Exchange was approved Monday, giving the flea market app provider a channel to fund its pursuit of new avenues of growth.

The company plans to raise about 50 billion yen ($456 million) from its June 19 initial public offering on the Mothers market, which would make it the largest debut on a startup-focused board since Jupiter Telecommunications brought in about 87 billion yen from its Jasdaq listing in March 2005.

Mercari plans to offer 18.15 million shares, eyeing an offering price of 2,200 yen to 2,700 yen each, and may sell more depending on demand. These figures would put its market capitalization as high as 360 billion yen, or $3.2 billion, handily beating Mixi's roughly 290 billion yen valuation to top the Mothers market.

The company has drawn investor interest as one of the few fast-growing names in the consumer-to-consumer space. Its eponymous app has racked up 70 million downloads in Japan since its 2013 launch, and a focus on mobile has helped it outpace rivals such as Yahoo Japan's auction service.

Mercari has rolled out an array of more specialized apps since last year, including a marketplace for books, CDs and DVDs, as well as an appraisal feature for brand-name goods. It has leveraged its base of more than 10 million monthly users to expand into less tangible areas as well, including skill-sharing and car-sharing. The company sees such services as central to future growth.

Getting the talent needed to implement this shift will be essential. Mercari is actively recruiting engineers in Japan and abroad, looking to expand its current development team of 100-plus people to several times that size. "We're aiming for 1,000 engineers within three years," said Chairman and CEO Shintaro Yamada, who established the company.

Mercari is also building up its overseas operations. Front-loaded promotional and advertising outlays in the U.S. and elsewhere were a major factor in the company's reported 3.4 billion yen loss for the nine months through March.

Yamada expanded the Mercari service into the U.S. in its second year, declaring that he had his sights set on foreign markets from the get-go. He handed over the role of president in April 2017 to former Mixi Chief Financial Officer Fumiaki Koizumi, who leads the company from the U.S. Mercari also poached John Lagerling from Facebook's management team that June.

But Mercari's transaction value is 15 times higher in Japan than in the U.S., where it remains relatively obscure and faces stiff competition from established players such as eBay. The company revamped its branding in March, including changing its main logo color from red to purple to better stand out from rival apps. It will continue pouring money into advertising.

Expanding abroad has proven a tricky task for Japanese internet startups more broadly. E-commerce giant Rakuten at one point operated in nearly 30 countries, but bowed out of the majority of these markets by 2016. Mobile game companies DeNA and Gree shut down overseas development bases by last year. Chat app provider Line has tried to gain traction elsewhere, but remains largely confined to Japan, aside from footholds in a few other Asian markets. All of these companies entered foreign markets only after succeeding domestically, leaving them lagging behind entrenched competition.

Mercari faces issues closer to home as well. It originally submitted its IPO application last summer, eyeing a listing around year-end, possibly on the TSE's first section. But reports of illegal or otherwise improper product listings, such as instructions for obtaining computer viruses and books or other items containing concealed 10,000-yen bills, left the bourse wary. The Financial Services Agency, a financial watchdog, also warned that a feature allowing sellers to put money they earn toward future purchases could run afoul of Japanese law.

After consulting with institutions including Daiwa Securities, the main underwriter on the IPO, Mercari expanded its customer support staff, which handles inquiries and watches for problematic listings, to about 400 -- up 70% from a year earlier. The company also introduced an artificial-intelligence-based system to spot counterfeit items.

"Mercari won't grow until we build a future where people can buy and sell securely," Koizumi said.

A public listing will expose Mercari to shareholder scrutiny. Though the risk posed by fraudulent or illegal listings will become that much greater, the company also cannot afford to lose the boldness that has powered its growth.

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