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Mercari faces $110m loss after failing to spark joy in US

Heavy promotional spending weighs down online flea market operator

Online flea market operator Mecari is betting on mobile payments as a way to encourage sellers to turn around and spend their proceeds.

TOKYO -- Not even the popularity of de-cluttering guru Marie Kondo could tidy up the financial mess at Japanese online flea market Mercari, whose losses have widened on heavy spending to promote its U.S. business.

The company -- which sees the U.S. market as crucial to its growth -- is likely to report a group net loss of about 12 billion yen ($111 million) for the year ended in June, sinking deeper into the red from the year-earlier 7 billion yen loss.

This would mark a second straight annual loss for the Japanese e-commerce unicorn that listed on the Tokyo Stock Exchange last June.

While more Americans are purging their homes, inspired by the "Tidying Up with Marie Kondo" reality show, Mercari is struggling to sign up U.S. users.

Mercari is one of Japan's top online marketplaces for secondhand goods, but its U.S. operation must contend with established players like eBay.

So the company has been spending heavily on promotions for its app, aiming for $100 million in monthly gross merchandise sales in the U.S., a rough threshold for swinging into the black.

In Japan, Mercari is focused on developing a new cashless payment service. Thanks to an aggressive advertising campaign, the Merpay service signed up over 2 million users in a little more than four months since its February launch. Merpay aims to expand its merchant network to 2 million locations by year-end from 1.35 million at present.

To gain reach in the increasingly crowded Japanese market for cashless payments, Mercari has tied up with chat app Line and mobile carrier NTT Docomo to add more merchants.

Both Mercari's U.S. operations and the Merpay business apparently suffered another year of operating losses. With mobile payment investments set to rise in the current fiscal year, the company faces the prospect of an even bigger annual loss.

The Japanese marketplace app remains the group's core business, likely earning an operating profit of around 8 billion yen in the just-end fiscal year, up from the year-earlier 7.4 billion yen.

Gross merchandise sales are estimated to have surged more than 40% on an influx of appliances, leisure goods and other big-ticket items. This jump grew faster than the increase in users and lifted Mercari's transaction fee income.

Mercari expects mobile payments to create synergy with its marketplace app, envisioning users spending proceeds from online transactions at convenience stores and other brick-and-mortar outlets. It also intends to use a wealth of payment data to branch out into marketing and other businesses.

Since its IPO last year, Mercari has "kept focused on the larger growth in the medium to long term rather than on short-term profitability," said founder Shintaro Yamada, the chairman and CEO.

The question is how to get investors to buy into this plan. Mercari's stock ended Thursday at 2,678 yen a share, below its initial offering price of 3,000 yen and roughly 60% off the 6,000-yen peak marked immediately after the IPO. Uncertainty over the outlook for its U.S. business and mobile payment service is weighing on the share price.

For the first time in June, more analysts recommended investors either hold or sell its stock than those who rated the company a "buy," according to data compiled by QUICK FactSet.

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