Mercari’s shares surges by 100% on market debut

According to CB Insights, Mercari is one of Japan’s two unicorns. On its market debut its market cap touched $7.4 billion. The other unicorn is Preferred Networks Inc, an IT startup.

On Tuesday, the share prices of Mercari Inc, a flea market app operator, jumped by 100% in their stock market debut in Tokyo and hit their daily limit. The development signals strong investor appetite for the Japanese unicorn which is bent on a U.S. expansion.

Mercari’s shares surged to 6,000 yen in early afternoon trade in Tokyo, valuing the startup at $7.4 billion. The jump in market cap made Mercari the most valuable firm on the Tokyo bourse’s Mothers market for startups.

Mercari’s popular smartphone app allows users to trade used items online. With 71 million downloads in Japan alone, Mercari has 10.5 million active users in the country.

Mercari takes a commission when the used goods change hands. It expects its sales to jump by 62% to $325.93 million (35.8 billion yen) in 2018-2019.

Mercari shares look very expensive, said Masayuki Otani, chief market analyst at Securities Japan.

Although Mercari’s app is still growing and is popular in Japan, it is likely to face more competition in its home market from companies such as Start Today Co Ltd and Rakuten Inc which also offer used-goods services.

In its IPO earlier this year in Japan, Mercari raised $1.2 billion with the majority of its shares bought by overseas investors.

Although Mercari is profitable at home, its U.S. operations, led by John Lagerling, a former Facebook executive, are in the red.

Its U.S. expansion dragged it to a net loss of 4.2 billion yen in the last financial year through June 2017, with a further loss of 3.4 billion in the nine months to March as the company committed funds to improving its brand recognition through advertising.

“We can’t be successful globally without success in the U.S.,” said Shintaro Yamada, the company’s founder and CEO.

With Japanese consumers shedding their inhibition of buying and selling used goods, Mercari’s popularity in Japan has soared. It is set to join the ranks of Fast Retailing Co Ltd by appealing to consumers’ economizing instincts.

Mercari’s app has outperformed rivals thanks to its focus on mobile users, who can, through just a few taps, trade goods with one another. Mercari’s app also provides anonymity to its privacy conscious users.

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