Mercari Inc

It is time, so we would like to begin. My name is Suzuki from the PR Division, and I will be the MC for today's session. First, let me introduce today's content. First, since Mercari has celebrated our 10th anniversary on February 1, 2023, our representative and CEO, Shintaro Yamada, would like to say a few words. Next, we would like to take you through our results for the second quarter for the fiscal year ending in June 2023. Then a Q&A session for the media will follow. We will be explaining how the Q&A session will go later on. Please refrain from recording and distributing the entire duration of today's session. Without further ado, I would like to welcome our CEO to the floor. Thank you for taking time out of your busy schedule to join us today. My name is Shintaro Yamada, and I'm the representative and CEO of Mercari. Mercari is a service that I created after I became aware of a problem when I traveled around the world. During my journey, I experienced firsthand the gap between advanced and emerging countries, and I realized that as resources on this planet are limited, it would be difficult for everyone to live comfortably as people in advanced countries do. However, after returning home and seeing how widespread smartphones have become, I began to think that if we can use the power of technology to smoothly circulate Earth's resources, we could help realize a society where everyone around the world can lead enriched lives. With this in mind, I launched Mercari in 2013. On February 1st, we celebrated our 10th anniversary. It is thanks to many people's support that we are here today. I would like to take this opportunity to sincerely and deeply thank all of our users as well as our partners, investors, and shareholders today. Thank you very much. Over the last decade, we have overcome many challenges and failures to grow dramatically. On the day that the service was released, we only had a couple hundred downloads, but now there are over 25 million monthly users across Japan and the U.S. And we have created a circular economy for goods that allows people to pass on something that they no longer need to others. Moreover, with the addition of Mercari shops in 2021, which enables everyone to start an online shop. Mercari evolved from a marketplace for individuals to a marketplace for everyone, including businesses and local governments. And with respect to FinTech, by providing our smartphone payment service, MerPay, we have made it more convenient for our users to use Mercari. But we also enable the use of Mercari and MerPay usage history for credit limit decisions, thereby providing a more convenient and inclusive financial service. And with the addition of our credit card business, Mercari, that we self-launched last November, the Mercari Group will continue to grow rapidly by taking advantage of our business synergy. Furthermore, by helping pass items that are so usable to others, Mercari is helping to reduce CO2 required to manufacture new items and thus can contribute to mitigating environmental impact. When we calculated our potential impact base on Mercari's most traded category, apparel, with our users in Japan and U.S. transacting on Mercari, we have found that approximately 480,000 tons of CO2 have been avoided per year. If we look at Japan, with people listing clothing on Mercari, we have prevented around 42,000 tons of apparel each year from being disposed of. This is approximately 8.8% of apparel being disposed of in Japan annually. As we have illustrated, Mercari has grown as a business, but it is steadily contributing to the realization of a circular economy. Miyakari has celebrated 10 years, but we are already undertaking new challenges looking ahead to the next decade. First is an ecosystem that will circulate both tangible and intangible values. Policies. First is an ecosystem that will circulate both tangible and intangible values, various values. Until now, Merakari has brought together people through technology to make physical transaction of goods more smooth. Going forward, we would like to partner with various companies and individuals to create an ecosystem that circulates tangible and intangible items such as buried yet attractive content. apologies, it's not working well for me. We would like to Create an ecosystem that circulates tangible and intangible items such as buried yet attractive content as NFTs and other digital assets partnering with various companies and individuals. With a wide range of values being circulated smoothly, Mercari would like to become an essential presence in the circular economy. Second is global expansion. Mercari has, from our early stages, aspired to become a global marketplace. Give us a second. Sorry, it's not working very well. I want to do this properly. So give me a moment, please. Give me a few minutes here. Can somebody take a look? This is not responding well. apologies, we are trying to rearrange the presentation. So please give us a few moments. Second is global expansion. Mercari has, from our early stages, aspired to become a global marketplace, and we will continue to prioritize strengthening our efforts in the U.S., but also be prepared to enter a third country should the opportunity arise. On the other hand, when we look across society, there are so many challenges that Mercari should be contributing to. In comparison to when we first launched, environmental issues have become even more serious. So, more so than ever, we need to make a shift away from mass production, mass consumption, and mass disposal. Furthermore, only a certain group of people are enjoying resources, and there still are people around the world that are having difficulties leading an enriched lifestyle. This reality has not changed. But as I mentioned before, with the help of technology such as blockchain and metaverse, anyone can freely buy and sell intangible things like time and services and contents. and we are already seeing signs of such new possibilities. With the change in the environment, Mercari Group's business domains are expanding, but to become an even more essential presence for society, we believe it is important to clarify once again what kind of value we will provide. Therefore, we have come up with a new group mission that we would like to announce today. circulate all forms of value to unleash the potential in all people. This is our new group mission. There are still uncovered values such as things experienced by people around the world. And it is also true that there are a lot of people around the world who seek such value. By bringing people together, through technology, people around the world together through technology, and creating an ecosystem that circulates tangible and intangible values, we hope to unleash the potential in all people. By realizing such an ecosystem, we hope that everyone, regardless of background, will be able to do what they desire, something they haven't been able to do before, contribute to other people and society, and live an enriched lifestyle. This is the kind of world we would like to realize. Mercari has celebrated our 10-year anniversary, but we have only begun a journey towards a great mission to circulate all forms of value to unleash the potential in all people. Going forward, we will continue to take on bold challenges without fear or failure, striving to be a company that unleashes the potential in all people around the world. That is it from me. Thank you very much. Thank you very much. That concludes our message from the CEO. Next, we would like to take you through our results for the second quarter for the fiscal year ending in June 2023. Please give us a few moments to get ready. The results briefing material is available for download on our site. You can also download the official photographs of today's briefing session from this URL. The photos will be uploaded around 5.30. Let us begin a results briefing for the second quarter for the fiscal year ending in June 2023. Our Senior Vice President of Corporate and CFO Sayaka Eda will take us through the results. Thank you. Good afternoon, everyone. Thank you for taking part in the FY2023 second quarter results briefing. I am the CFO of Mercari, Eda. I will take you through the results of this quarter. Here is the agenda for today. First, let us introduce a financial summary. Here are the progress and highlights of this quarter. With respect to our consolidated results, we have started investing in our credit card business since November last year to maximize our group synergy. But we have continued to focus on our – in relation to that, we have been investing in the new customer acquisitions. But we have also continued to focus on our existing marketplace, fintech business and US business, thereby booking the group's highest ever sales as well as third consecutive profitable quarter. On the third quarter onwards, we will be making greater investments than the second quarter as a group, but we will continue to operate our existing businesses while balancing growth with profit. The growth of the marketplace GMV in Q2 was 10% year-on-year, and we are, for the most part, on track. And as a result of disciplined investment and establishment of a lean business foundation, the adjusted operating margin increased to 42%. On the other hand, especially in the first quarter, We had a major update to the Mercari app and we injected a lot of engineering resources for this update. There was a delay in the product updates and POCs that we have implemented in the first half of the year. but these POCs will start contributing to the second half of the year. But in order to actually make sure that these POCs will work, we want to continue with the examination with our experiments. So our target of 10 to 15% GMV for the full year, that we will be facing higher hurdles, but we will continue to strive towards hitting our target. With regards to FinTech, We launched our credit card business on November 8th to achieve further growth in the promising credit business. We have rolled out this service gradually, and we have invested in acquiring new credit card users as well. But the existing credit business is providing a profit base, so we booked unadjusted operating profits in Q2 as well for the FinTech business. Although we expect to invest more in Q3 than Q2, we will continue to make disciplined investments. Moreover, over the mid to long term, we expect top line growth for this business and intend to further strengthen our profit base. In the U.S., due partially to our continuous marketing and branding efforts to drive awareness, The MAU increased 1% year-on-year. Against a four-year target of 0% to 10% GMV growth, we are underachieving due to the long-term impact from inflation. Thus, the business environment will continue to be harsh in the second half as well. So we would like to revise the initial targets. We will be revising our four-year target while keeping an eye on the business environment, and we will be announcing these targets after the third quarter. We will continue to focus on product initiatives to deliver mid- to long-term growth, review costs, and balance growth and profitability to minimize losses in the second half. Next here are the KPIs for each segment. The GMV of our marketplace grew by 10% year-on-year to 254.8 billion yen, and the adjusted OP was up 16 points year-on-year to 42%. Thus, our profitability has improved drastically. With regards to fintech, MerPay users grew to 14.58 million. Moreover, we have disclosed the credit balance and loan collection rate for the credit service MerPay is providing. MerPay is providing a lump sum payment as fixed amount payment as well as smart money. So these all three services are included in the credit balance. And due to steady growth, the credit balance was $92.3 billion and the loan collection rate was 98%. The MEU for the U.S. business grew by 1% year-on-year to $5.16 million, and the GMV decreased by 12% year-on-year. to $270 million. And this is the consolidated net sales and operating income by segment. So please take a look. Next, moving on to the financial highlights. The consolidated net sales in Q2 has increased to a record level due to steady growth focus on marketplace. It grew by 18% year-on-year to 44.2 billion yen. We booked operating profits for three consecutive quarters by prioritizing and disciplining our investments. And for this quarter, it was 2.7 billion yen. We have made steady progress in Q2 with regards to fraud countermeasures, and as explained previously, we expect the impact to return to normal levels in the second half of the fiscal year. Next, the number of employees decreased by 64 Q1Q. to 2,184. Taking into consideration external conditions, we have implemented a more selective hiring policy as a group. Thus, the number of employees has decreased. However, we will continue to selectively hire mainly engineers to establish a lean business foundation. For the marketplace, this is the progress for Q2. For the marketplace, we have said increasing the number of listings through strengthened collaboration between C2C and B2C businesses as our business policy this fiscal year, and by focusing on new user acquisition and strengthening listings, the MAU has increased, and as a result, the GMV grew by 10%. Furthermore, by making disciplined investments and building a lean business foundation, our adjusted OP increased to 42%. In Q1, we nearly completed major updates to the Mercari app. Thus, we began... We have been able to make quick improvements to our service, and thus we have begun POCs of various initiatives that will contribute to growth over the mid to long term. By strengthening listings and improving personalization capabilities, we are focusing on initiatives and investments that will consistently produce results over the mid to long term. and we will also continue to focus on improving features of our B2C business. Murasaki Sports and other outlet items are doing well, so we have begun expanding our merchant base to include large-scale businesses that have a high affinity with Mercari shops. This is the GMV and MAU for the marketplace. We have began acquiring new users through referral campaigns, and we have also strengthened listing through offline initiatives such as Merkari workshops. As a result, we marked record high MAU, which grew by 780,000 to 21.53 million. GMV has grown by 10% year-on-year as per our expectations, as I mentioned earlier. With respect to net sales, The second quarter tends to be our high season for our C2C business, and thus it has grown in line with the increase in GMV. So we grew by 90% year-on-year to 26.3 billion yen, and I will explain the adjusted OP on the next page more in detail, but as you can see, it is growing steadily. The cost structure for each quarter is shown here. The cost structure for Q2 has changed since from the latter half of last year, we have begun making investments selectively focusing on areas that provide sustainable impact. By focusing on these areas, year on year, the promotion cost ratio has decreased significantly. Furthermore, because fraud-related expenses have decreased as we expected, commission fees have decreased or improved, and the adjusted OP increased to 42%. Regarding fintech, we have focused on promoting circular finance by strengthening group synergy, and these efforts are progressing smoothly. In order to further accelerate the well-performing credit business, we announced our entry into the credit card business and began gradually rolling out our merit card from November 8th. We have phased our service provision, but it is now available 100%, and the number of members, which is an important KPI, has grown strongly from the onset, so we are off to a great start. In time with the launch of our service, we have begun investing to acquire new users and encourage usage. But the credit business that we have been promoting since two years ago is providing a solid profit base. Thus, we have booked unadjusted operating profit in Q2 as well. We believe that by growing this business, we will be able to create and maximize group synergy over the mid to long term, and that we can further strengthen our profit base. To do so, it is important that more people utilize AmeriCard, so we will keep an eye on user trends and re-examine our service and investment plans with flexibility and continue to acquire new users by making appropriate investments. Furthermore, as I mentioned before, MeritPay's credit service has been growing steadily and thus the credit balance has surpassed 90 billion yen in total. And by utilizing unique criteria for setting the credit limit, such as behavior and Mercari and MerPay, our loan collection rate is 98%. Hence, the business is experiencing healthy growth. In the field of crypto, we are promoting the development of services utilizing blockchain technology, and we plan to release a new service that will enable users to purchase Bitcoin using their sales proceeds this coming spring. The payment and credit businesses are growing steadily, and net sales and also sales outside AmeriCorps have both increased. As mentioned earlier, investments have increased in relation to the launch of AmeriCorps. Therefore, the adjusted OP decreased Q1-Q, but we booked profits in Q2 as well. We do plan to further increase investment in Q3 in comparison to Q2. Here is a list of services MerPay provides. Regarding payment, we have enabled ID and code payments and provided virtual cards, and we have also launched a new credit card. Moreover, with respect to credit cards, Moreover, with respect to credit, we offer smart payments such as fixed amount payment and lump sum payment and smart money, which is a small sum consumer loan service that allows people to borrow small amounts. From FY 2021, two years ago, Membrane has been focusing on the credit business. and on strengthening our profitability and building a profit base that focuses on the credit business, responding to the needs of MerPay users to make payments in installments. Our credit balance, mainly for fixed amount payments, is growing steadily, and our loan collection rate as of FY2023 Q2 is high at 98%. We have gradually rolled out the MerCard from November, and going forward we will maintain and improve our loan collection rate while further growing our credit business. With the help of TV commercials and customer acquisition campaigns, a number of users are growing at a good pace. Since we have just rolled out the service and are implementing various campaigns, We would like to refrain from sharing detailed KPIs, but when we compare the behavior before and after users sign up for the MeriCard, the ARPU tends to be higher after they sign up. By providing MeriCard, we aim to strengthen the profitability of MeriPay in the future, contribute to the growth of MeriCard's GMV, and reduce processing fees for payments. In order to do so, it is essential to acquire even more users and encourage usage. We will make disciplined investments and aim to make larger contributions to the business next fiscal year and beyond so that we can realize a circular economy. We have made steady efforts to verify users to ensure a safe and secure environment and 87.2, 87.5% of our users are now verified. 0.4 points increase Q and Q. This is important to realize a safe and secure environment we envision and to provide an excellent user experience We believe that this can provide a smooth user experience when the users are verified for our credit service, and we believe this is also contributing to the steady growth of our credit business as well. In the U.S., the MAU and the number of listings have grown, and our recognition as the easiest and safest selling app has also improved. However, the GMB fell below our expectations. The external and business experiments remain uncertain, impacted by inflation and other factors. Thus, we will be revising our financial year target of zero to 10% GMB growth. We are currently setting the new targets whilst keeping an eye on the business environment, which we will announce in the second half of the fiscal year. In order to reactivate purchase behavior, we have updated our product and implemented measures to promote purchases. You will see how effective these measures that we implemented in the second quarter are and further strengthen our efforts going forward. We will continue to focus on product initiatives and review expenses to minimize losses. Here are the GMV and MAU for the U.S. With respect to the MAU, we have gained a certain level of awareness, and by acquiring new users through targeted campaigns, the number of users has grown to 5.16 million, increasing 1% year-on-year. On the other hand, we are facing higher hurdles this quarter since our GMV grew by 17% same quarter last fiscal year. And combining that with the rise in prices due to inflation, prioritization of consumer spending on necessities and discounts offered by retailers with surplus inventory, we continue to see declining trends in purchasing as the GMV decreased by 12%. To address our key challenge of reactivating purchase behavior, We are promoting purchases and mitigating the burden on buyers. Some of these measures have already been implemented. During the latter half of the year, we will update these measures and fully roll out point reward systems, increase repeat purchases, and improve convenience with bulk delivery options to promote purchases so that we may optimally balance listings and purchases. As the GMV growth rate declined, this is the net sales and adjusted operating income, but as the GMV growth rate declined, the net sales also decreased 12% year-on-year. We have continued to make disciplined investment, prioritizing mid- to long-term growth. The environment will remain difficult in the second half of the fiscal year, so we will further review our costs and minimize losses. Lastly, with respect to our ESG activities, we would like to give you a progress update. We aspire to be planet positive to help solve environmental issues through our business, help people share Earth's limited resources across generations, and enable people to create new value. Through our businesses, we want to be involved in creating values that contribute to solving social and environmental issues and also to establish a management foundation necessary for sustainable growth. To this end, we have identified five material topics, as you can see here. We will aim to achieve sustainable business growth by maximizing opportunities and mitigating risk for each topic. As part of the action plan to become planet positive, we are focusing on local empowerment. We are accelerating our efforts, working with local governments across the country, mainly on easy usage, promoting reuse, education, and donations. As an example of our undertaking in Q2, on October 24, Mercari and Sozo announced a partnership with Nishinomiya City Hyogo Prefecture to conduct a pilot test where the city of Nishinomiya will sell reusable items collected as trash, big or small, or items brought in by its citizens on Mercari shops. There is hope that this will reduce the cost required to dispose of such trash and enable the city to use the proceeds from Mercari shops for its activities. Moreover, in January this year, we received the FY 2022 award for being a great example of regional revitalization SDGs public-private collaboration. Therefore, our activities have been praised by the national government. We will continue to become planet positive by executing a wide range of action plans. This concludes our results briefing session for FY 2023.