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Mercari aims to build global platform, like Amazon, Google

Investors throw weight behind startup with world outlook

Mercari co-founder and CEO Shintaro Yamada at a news conference in Tokyo on June 19 (Photo by Ken Kobayashi)

TOKYO -- After landing Japan's largest IPO of the year, flea market app Mercari said it wants to build a connected commerce platform across the U.S., Europe and emerging markets.

"[Mercari will] go into countries all over the world, and let people make transactions across borders," said founder and CEO Shintaro Yamada at a media conference on Tuesday. He said U.S. tech giants Amazon, Facebook and Google are among his role models.

The bold statements by Yamada, serial entrepreneur-turned-billionaire, were a rare display of ambition in Japan's  conservative corporate culture. This is especially so, given that Mercari's earnings are hardly comparable to those of the tech giants he mentioned. Mercari reported a net loss for the fiscal year ended June 2017 at 4.2 billion yen ($38.2 million), although revenue nearly doubled to 22 billion yen.

Yet, analysts say his pursuit of global success was key to the unprecedented ascent of Mercari. The five-year-old startup ended its first day of trade with a market capitalization of 717.2 billion yen, comfortably placing it as the largest company on the Tokyo Stock Exchange's Mothers board. The company's stock ended at 5,300 yen, up 77% from the offer price of 3,000 yen.

"Mercari has been extremely popular among retail investors, who are familiar with the brand and like its growth strategy," said Tomoichiro Kubota, senior market analyst at Matsui Securities. "Its large market cap also means institutional investors are adding the stock to their portfolios."

Mercari's smartphone app acts as the middleman connecting sellers and buyers for all kinds of goods, including toilet paper cores and nearly depleted bottles of perfume. Since its debut in 2013, user-friendly features like shipping anonymously has proved popular, racking up 71 million app downloads in Japan as of March 2018.

Domestically, Mercari is starting new services to utilize its commerce platform, such as payment services and bike-sharing.

While its rapid growth was mainly thanks to domestic success, Mercari was an early mover abroad. It launched a U.S. version of the app in 2014, which has racked up 37.5 million downloads, and hired former Facebook Vice President John Lagerling as chief business officer last year. The company has since expanded into the U.K., and Yamada said that he is considering the rest of Europe as the next market to tackle.

The long term goal of global expansion would be to make services available in developing countries, which is more challenging due to the lack of basic infrastructure. Yamada, who came up with the idea of Mercari as a way to improve people's standards of living after traveling around the world, emphasized that he wants to "spend decades to make it happen."

The company decided to go public now as "Mercari became a significant service" and requirements including governance and security met the standard, Yamada said.

Industry observers are now turning their focus on whether Japan, which lacks technology giants like Amazon of the U.S. and China's Alibaba Group Holding, can churn out more prospective startups. Mercari was one of only two unicorns -- private companies worth $1 billion or more -- in Japan, alongside artificial intelligence software developer Preferred Networks, according to CB Insights. In comparison, there are more than 120 in the U.S. and around 60 in China.

Momentum is growing. According to research company Japan Venture Research, Japanese unlisted startups raised about $2.5 billion, about 20% above the previous year and marking the highest over the last 10 years. Still, this is a fraction of the $70.8 billion invested into Asia's venture-backed companies in 2017.

Mercari still needs to defy a lackluster track record of Japanese tech companies in overseas markets. For example, messaging app LINE hasn't been able to keep up with the likes of Facebook's Messenger and WhatsApp, and its stock price hovers below the closing price on its July 2016 debut.

Yamada acknowledged that the future remains uncertain in the rapidly changing online commerce industry. "Augmented reality and virtual reality are the next devices that could change consumer-to-consumer experiences," he said.

The company is now investing in research, in areas such as artificial intelligence, blockchain and virtual reality, which can be used to improve services or to prepare for technological shifts. "In this age [companies] cannot survive if we can't differentiate from other services with technology," said Yamada.

Yamada also believes that the company can match leading tech companies of the U.S. and China, pointing out that strong demand and profitability make these companies more advanced. "When we start making strong profits in the U.S. and Europe, we would be able to strengthen research," he said.

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