Escalating Compliance Costs And Fierce Competition Will Crush Growth

Key Takeaways

• Slowing growth, escalating costs, and intensifying competition threaten Mercari's profitability and undermine its long-term revenue outlook.
  
• Demographic changes and regulatory challenges are likely to structurally limit future marketplace volume and growth opportunities.
  
• Transformation into an AI-native organization, global expansion, and fintech growth position Mercari for improved margins, enhanced profitability, and strong long-term shareholder returns.

Catalysts

Plans, develops, and operates Mercari marketplace applications in Japan and the United States.

• Despite the company's ambitious investments in AI-native transformation and product enhancements, revenue growth has consistently slowed, with core marketplace gross merchandise value growth landing at just 4 percent last year and projected to remain at a subdued 3 to 5 percent, threatening the realization of double-digit top-line growth goals and undermining future revenue expectations.
  
• As Mercari intensifies its focus on expanding overseas and growing cross-border transactions, it faces escalating compliance costs and operational risks from heightened regulatory scrutiny, especially around privacy, data protection, payment systems, and cross-border trade, which is likely to erode net margins and add earnings volatility.
  
• While the fintech segment has delivered profit growth via Mercard adoption, further expansion will make Mercari increasingly dependent on persistent high customer acquisition and retention costs, tightening competition, and regulatory headwinds in the payments and crypto spaces, all of which are likely to compress future profitability.
  
• Intensifying competition in consumer-to-consumer resale from specialized niche platforms and global e-commerce entrants will pressure market share and create a structurally more challenging environment for Mercari to sustain its growth trajectory, ultimately placing long-term revenue and earnings at risk.
  
• Demographic shifts, including the aging of the user base in Japan-Mercari's largest market-will gradually shrink the pool of active buyers and sellers, putting a structural drag on platform volume and top-line growth potential for years to come.

Mercari Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Mercari compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Mercari's revenue will grow by 5.2% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 13.6% today to 11.1% in 3 years time.
• The bearish analysts expect earnings to reach ¥24.8 billion (and earnings per share of ¥150.86) by about August 2028, down from ¥26.1 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 16.5x on those 2028 earnings, up from 13.5x today. This future PE is lower than the current PE for the JP Multiline Retail industry at 17.9x.
• Analysts expect the number of shares outstanding to grow by 0.36% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.98%, as per the Simply Wall St company report.

Mercari Future Earnings Per Share Growth

Risks

• Mercari's ongoing transformation into an AI-native organization has already produced a sustained lift in development efficiency, resulting in a 64 percent year-over-year increase in development output per engineer, which could lead to faster product enhancements, cost efficiencies, and thus improved operating margins and long-term profit growth.
  
• Cross-border transactions have expanded dramatically from 6 billion yen in fiscal year 2022 to 90 billion yen in fiscal year 2025, now representing 8 percent of total Marketplace GMV, and management forecasts continued demand for Japanese entertainment and hobby goods globally to remain robust, which could fuel stronger-than-expected revenue growth over the next several years.
  
• The Fintech segment, anchored by the growing adoption of Mercard, continues to see rapid expansion in both user base and credit balances, with core operating profit significantly exceeding targets and management outlining a clear strategy for monetization, which can materially support group earnings and margin expansion.
  
• The U.S. business, despite past growth challenges, achieved its first full year of profitability in 2025 driven by improved unit economics, streamlined costs, and new leadership, indicating that operational turnaround and future revenue contribution from international operations could exceed bearish expectations.
  
• Strong capital discipline, a shift in capital allocation prioritizing share buybacks, and a plan to build a larger equity base for the expanding credit business all point toward sustained financial strength and flexibility, creating upside potential for earnings per share and shareholder returns over the long-term.

Valuation

• The assumed bearish price target for Mercari is ¥1952.22, which represents two standard deviations below the consensus price target of ¥2778.33. This valuation is based on what can be assumed as the expectations of Mercari's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ¥3500.0, and the most bearish reporting a price target of just ¥1800.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be ¥224.2 billion, earnings will come to ¥24.8 billion, and it would be trading on a PE ratio of 16.5x, assuming you use a discount rate of 8.0%.
  
• Given the current share price of ¥2141.0, the bearish analyst price target of ¥1952.22 is 9.7% lower.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.