Mercari Inc

It is time, so we would like to begin Mercari's FY2025 four-year financial results presentation. Thank you for joining today's session, taking the time out of your business schedule to listen to our presentation. My name is Kyoko Kame. I will be the emcee today. First, I'd like to take you through the agenda for today. First of all, we will welcome Shintaro Yamada, CEO and Representative of the Executive Office of AmeriCorps, to take us through the four-year financial result presentation. And he will also talk about the progress made towards the three-year midterm plan. Afterwards, Senior Vice President of Corporate and CFO, Saruka Eda, will take you through the detailed results of FI 2025 as well as the FI 2026 forecast and business policy. We would like to start with a presentation from CEO Yamada. Thank you for joining Mercari's FY2025 Full Year Financial Results presentation today. I'm Shintaro Yamada, CEO and Representative Executive Officer of Mercari. Our group mission is to circulate all forms of value to unleash the potential in all people. We aim to create a world where anyone anywhere can do things they couldn't do before, pursue what they love, contribute to others in society, and lead a rich, authentic life. In short, a world where possibilities of all people are magnified. To achieve this, we are working to connect people around the world through technology, and by leveraging advanced technologies such as AI and blockchain, and we are building an ecosystem where all forms of value, both tangible and intangible, can circulate. This is the agenda for today. I will kick things off with a summary of the recent fiscal year, and then Eda will add some color later on. First, regarding the performance against our consolidated earnings forecast for FY2025. Core operating profit was 27.5 billion yen, significantly exceeding our forecast. On the other hand, revenue came in at 192.6 billion yen. While this fell short of our forecast due to a slowdown in the growth of the marketplace and U.S. businesses, it still marked the record high. Here is a summary of the recent fiscal year. With respect to progress, after announcing our basic policy of aiming for top-line growth accompanied by increased profits, all three of our core businesses, Marketplace, FinTech, and U.S., recorded profit growth, resulting in a record high consolidated profit. We also made progress in creating group synergies. For example, leveraging our C2C MAU-based cross-border transaction GNV exceeded 90 billion yen, and the number of Mercari issuances surpassed 5 million. In addition, we planted seeds for future synergies by launching new services such as Mercari Mobile and Mercari NFT. As for the challenges ahead, we recognize that the top-line growth rate has slowed. Furthermore, we are only halfway towards establishing a firm position as a safe and secure marketplace. In light of these challenges, we aim to drive top-line growth by becoming an AI-native organization and by strengthening the core product experience. We will explain the details of these initiatives shortly. Next, I will explain the progress of Mercari Group's medium-term strategy towards the fiscal year ending June 2025. We would like to start by stating that there have been no changes to the Group's mid-term strategy announced when we shared the FY2024 full-year financial results. In principle, we still aim to achieve top-line growth accompanied by profit growth with a double-digit CAGR in revenue and a CAGR of over 25% in core operating profit compared to FI 2024. This outlines the group and each core business's mid-term aspirations and areas of focus. These were originally presented when we shared the FY24 full-year financial results and have been partially updated to reflect the current situation. The underlying sections have been updated. We have illustrated Mercari Group's envisioned growth trajectory through to FY ending June 2027 using a stacked bar chart. Our goal is to achieve double digit revenue growth at the group level, driven primarily by strong growth in both marketplace and fintech. For marketplace, we will focus on three key initiatives. First, we will enhance the core C2C marketplace experience by leveraging AI to create a safe, secure, and user-friendly platform, thereby boosting transaction activity. Second, we will increase the supply of attractive products through B2C. By diversifying product offerings, we aim to improve convenience for domestic users. And third, we will expand global TAM through cross-border transactions with a focus on strengthening supply in high-demand categories such as entertainment and hobby. Next is expanding fintech revenue with a strong focus on our credit business. By advancing credit scoring models and deepening service integration, we will maximize customer usage opportunities and build a solid revenue base. Finally, for the U.S. business, returning to a stable growth trajectory is our top priority. This will in turn strengthen its contribution to the group's overall top-line growth. that the foundation of all these growth strategies is the organizational transformation into an AI-native company. At Mercari, we have actively promoted the adoption of AI technologies to enhance product quality and improve user experience, starting with the establishment of our dedicated AI team in 2017. In addition to hiring AI engineers in Japan, we have proactively recruited top-tier talent from overseas, including India, which is known for its high concentration of skilled engineers. We have incorporated AI into key product areas, such as listening experiences and product prevention. In 2021, we launched Mercari's proprietary AI-based credit scoring system, the first of its kind in the fintech space, which has now become a major contributor to the group's overall revenue. Since then, we have continued to enhance our products using AI and large language models, with AI playing an increasing significant role in driving business growth. This year, to accelerate AI utilization even further, we launched a 100-member AI task force. By fully embedding AI at the core of both our organization and products, we aim to transform Mercari into an AI-native company, establishing an even stronger and more sustainable competitive advantage. Since the use of AI has already become commonplace within our company, 95% of employees across the group are actively using AI tools. Furthermore, 70% of the code related to our product development is now generated using AI, resulting in a 64% year-over-year increase in development output per engineer, significantly accelerating development speed and improving productivity. Regarding product transformation, as mentioned earlier, we have already leveraged AI to improve user convenience. However, moving forward, we are not merely aiming to replace existing functions with AI or implement partial AI enhancements. Instead, we are putting AI at the core of the user experience, rebuilding a safe and secure platform, and evolving our services into something that anyone can naturally and intuitively use. On organizational reform, to rapidly build a work environment where employees and AI work together, we established the AI Task Force. We are conducting a thorough review of all business processes, such as business planning requirements, such as business planning, requirement definition, analysis, and decision-making, and will redesign them by December 2025 to be AI-first. This initiative will enable us to restructure our organization from scratch, allowing people to focus on judgment and creativity and achieve a highly productive work model. In this way, we are driving a company-wide transformation towards becoming an AI-native company. That concludes my part. Now I'll hand it over to Eda for the next section.

Thank you very much.

Next, we would like to have SVP and CFO, Sayaka Eda, to take us through the FI 2025 detailed results, as well as the consolidated forecast for FI 2026, as well as the business policy. Thank you. Good afternoon. My name is Eda. I'm the CFO. Today, I would like to start with giving you a financial overview of FI 2025. So in terms of achievement of our consolidated earning forecast, here is a recap of how the consolidated and individual business segments performs against guidance. Yamada mentioned this already, but the core operating profit reached $27.5 billion, exceeding the upper end of the forecast range. So this is a year-on-year growth of 47%. 46%, and this demonstrates that the group's earning power is steadily strengthening. On the other hand, we recognize that increasing top-line revenue growth remains a key challenge, and we increased this by 3%, landing at 192.6 billion yen. So this is a challenge. We recognize that we need to further improve the top-line revenue growth. In terms of... The performance by business segment, you can see this below. Marketplace, FinTech, and US, all three business segments achieved four-year profitability for the first time. In terms of the operating profit guidance, we achieved all of these guidance figures. However, in terms of growth rate, top line, Marketplace GMV growth rate, year-on-year, We were trying to achieve 10% year-on-year growth, but we landed at around 4%. So we need to continue to focus on top-line growth in FY26 and beyond. This is the trends in the consolidated results. In terms of revenue and co-operating profit, it has grown steadily over the last three years. The co-operating profit has grown significantly. So revenue and co-operating profit both, we have marked record highs in these two KPIs. So first starting, we would like to first start by taking a look back at the marketplace results. So we saw stable growth in C2C, and we aim to achieve overall marketplace GMV growth rate of around 10%, and adjusted core operating profit margin of 37% to 42%, driven by high growth in areas such as cross-border and B2C. And in terms of actual results, cross-border and B2C maintain high growth throughout the fiscal year, contributing to top-line growth of the marketplace overall. On the other hand, the impact of fraudulent activity which affected customer sentiment mid-year was minimized through switch response, resulting in a minimal GMV impact, but the full-year GMV growth rate was year-on-year 4%. In terms of adjusted core operating profit margin, including Mercari Hello, it was 38%, and excluding Mercari Hello, it was 43%. So we continue to achieve high profitability. With restricted Mercari Hello, we saw significant increases in crew registrations and partner sites. In April, the service began charging fees, so we're marking steady progress for Mercari Hello. This is a revenue increase in revenue for trends and marketplace for the full year as well as by quarter. These are the results or trends in adjusted core operating profit margin and profit cost composition. Marketplace. So if we look at the adjusted core operating profit, it might look a little bit low, but as I mentioned before, we continue to invest in Mercari Hello. It's still in its investment phase, and it's included in the marketplace. So Mercari Hello is impacting these results. And the operating profit margin, excluding Mercari Hello, remains strong at 43 percent and we will continue to maintain this high level of margin going forward moving on to the fintech business as we mentioned in the beginning of the fiscal year we initially plan to transition into a phase of continuous profit growth so we mentioned that we will continue to To our credit balance, we wanted to transition to a phase of continuous profit growth, achieving core operating profit of over $3 billion. So in terms of actual results, we achieved both strong top-line and profit growth in the fintech business. The core operating profit significantly exceeded the initial target of $3 billion, ending at $4.5 billion. So a large contributor was the Merit Cards. As of July, we had issued more than 5 million Merit Cards, indicating a growing customer base in the credit domain. And year on year, the credit balance also grew by 32%. So the credit business continued to grow quite steadily. To grow even further, we want to... Increase revenues from both within and outside AmeriCard platform So we released AmeriCard in March and it's Been doing well, but we want to support our growth of our credit businesses Going forward and this is the full year results Revenue and core operating profit has grown steadily every year and And we are continuing to stack up on the profits, and we're continuing to see great performance of this business. And these are the quarterly results. As I mentioned before, in March, we released Merkar Gold. And the scope of transactions subject to deductions and point-related expenses from revenue has expanded. As a result, growth rate appeared low as 9% pre-adjustment and 70% post-adjustment. However, excluding the impact of this accounting treatment, growth would have been 19% pre-adjustment, 31% post-adjustment, maintaining a high level of growth. This is the core operating profit and advertising costs. quarterly trends. I mentioned that the Mercard Gold was launched and in the fourth quarter, we invested quite heavily in acquisition of new Mercard customers. However, we were able to achieve stable profit generation. This is a credit balance of the fintech business. so due to changes in credit limits for certain customers implemented in the second half of 2024 we landed at 248.1 billion and a collection rate in the fall some fall we in the fall we changed the credit limits of certain customers and in the third quarter the collection rate dropped temporarily in the third quarter, but it has recovered as expected in Q4. Moving on to the U.S. business. Initially, we had announced that we will commit to breaking even, and we aim to return to a growth trajectory. Actual results. In 2025, January 1st, Group CEO Yamada also assumed the role of U.S. CEO. So we changed the organizational structure. And as such, with a renewed focus on strengthening the core product experience, we started focusing our resources as well on the core product experience. And we also changed the fee model as such. we have started to see signs of improvement in GMB growth rate. In addition, to improve unit economics through product enhancements and marketing cost optimization, which we have continued to do, and we have also reviewed fixed costs, which has led to core operating profit of $900 million, achieving the first full-year profitability. Break-even has been achieved, and we have seen positive signs in GMV growth trends. Based on this progress, our goal is to continue the business and return to a growth trajectory as early as possible. So GMV improvement trends that I mentioned before. So FY20-24 March, we significantly changed the fee structure. It became variable a year and a half ago. We changed the feed structure, and there were a lot of positive and negative feedback. But in FY2025, first half, first and second quarter, GIV as a result, GMV growth rate in the first half of 2025 dropped significantly as a result and we changed the leadership thereafter and we're focusing now on the core product and also changed to a new fee model as well and then and we also strengthen counter measures against fraud use fraudulent use so we're seeing improvements, the recovery trends became particularly apparent in the fourth quarter. This is the full year US results. GMV and revenue, unfortunately, we're seeing a downward trend. over the last three years, but we were able to significantly improve corporate operating profit even under such circumstances, and we achieved our first four-year profitability this fiscal year. And these are the quarterly results. In the third quarter, we mentioned that we have booked profits, and we continue to do so in the fourth quarter. Moving on to the forecast and business objectives for FY26. Before presenting specific performance forecasts and business policies, we would like to explain the changes in our disclosure policy. First of all, until now, we have disclosed adjusted core operating profit which adjusts for internal transaction fees between marketplace and fintech but going forward we will disclose core operating profit without these internal adjustments to make our reporting simpler and more understandable the reasons behind this change include mainly two reasons even before this Payment methods other than MerPay have been used in Marketplace, and we have been paying external fees. And in comparison to those market standards, the internal fee rate has been reasonable. And with the introduction of MerCard over the last two years, the contribution of MerPay to the expansion of Marketplace transactions have become more evident. And because of these two reasons, we decided not to apply these internal adjustments. And in addition to enable continued investment and development that supports mid- to long-term growth, and to enhance productivity visibility and cost standardization and development, we will start capitalizing development-related labor costs. So... With this in mind, this is the consolidated financial forecast for FY26. For revenue, we estimate that it will be around $200 billion, $210 billion.

Year-on-year growth will be around 49%.

So although the revenue growth forecast for FY26 is expected to remain in single digits, there is no change to our midterm policy of targeting double-digit CAGR through growth driven by fintech and cross-border transaction towards FY2027. The core operating profit we estimate will be $28 to $32 billion. This too, the CAGR target of 25% for core operating profit remains essentially on track. So the three-year CAGR target of 25% remains unchanged. And if we look at just FY26, revenue, core operating profit, these are expected to accumulate with a second half weighting. Due to office relocation and increased investment in AI, an increase in cost for the year is expected. However, we will make sure to achieve our guidance. Moving on to the business objectives, for FY26, is a foundational year to prepare for growth beyond FY27, the third year of a midterm plan. While keeping our guidance in mind, we will make essential investments for future growth alongside product-related initiatives. Of course, we're going to achieve top-line growth, accompanied by profit. And of course, we want to achieve group synergies as well. That remains unchanged, and this is the goals or objectives per business. Marketplace core operating profit guidance. So we have shared the absolute figures for fintech in the U.S., and likewise for marketplace, we believe showing actual figures will be easier to understand. Therefore, we have changed the disclosure actual figures, absolute numbers rather than a percentage. On the other hand, we continue to consider operating profit margin an important indicator of operational efficiency, and we will remain committed to improving margins over the midterm. The further details will be provided on the following pages. This is for Marketplace. While giving top priorities to strengthening the core product experience, we will focus on enhancing cross-order transactions to lay the foundation for accelerating GMV growth beyond FY2027. For FY26, we forecast GMV growth of 3-5% and a core operating profit of 32-36 billion yen. 2025 core operating profit was 30.5 billion, so we plan to further improve the operating profit. Key focal areas include strengthening the core product experience, and the second is cross-border transactions. With respect to enhancing the product's core experience, there's mainly two areas. aspects establish a safe and secure environment so fraud fraudulent use is a issue for the entire industry but we will leverage ai technology to detect and score suspicious activity identify frauding users and strengthen strict measures including account restrictions and legal actions so we would like to strengthen these measures to eliminate counterfeit goods we have established the Mercari Authentication Center and expanded the range of items covered by authentication so that we can provide an environment where users can purchase high-priced products safely. In the event of a problem, even with these measures, As long as users follow proper usage guidelines, we will offer full compensation under certain conditions, either for the purchase amount or sales proceeds, ensuring a safe and worry-free environment for our users. Regarding UX, this is a second point. We are going to utilize AI. Until now, our shopping experience is based on search, but we are promoting a cross-category discovery-based shopping experience that eliminates a need for keyword search. We will improve the customer experience by expanding anonymous delivery, which was an option that was already offered, but we would like to make sure that it can be used in many different scenes now and offer new delivery services as well. Another key driver of Marketplace is cross-border transactions. Mercari's cross-border transaction has grown from $6 billion in FY 2022 to 90 billion, 15-fold by FY 2025, now accounting for approximately 8% of the total marketplace GNV. And 60% of the total cross-border GNV is contributed by toys, figures, and merchandise, with particularly high demand for Japan original items such as anime and manga-related merchandise. So the global entertainment and hobby category market was worth approximately $70 trillion in 2023, with Japanese IP holding nearly 25% share. The market is expected to continue to expand towards 2030, so it is a market with great potential. In FY25, we launched our cross-border business in Hong Kong and Taiwan. And we aim to further increase the number of countries covered by Mercari's cross-border operations and improving the UI UX. At the same time, we will respond to strong international demand for Japanese entertainment and hobby products, not only through consumer transactions, but also by increasing business listings. So these are some of the initiatives we would like to implement. Moving on to Merkari Hello. Since April, partner-side fee collection has begun, aiming to improve profitability while pursuing further growth within disciplined investment parameters. So this has not changed. Moving on to FinTech Business Objective. We would like to establish a foundation for becoming the preferred product in everyday payment and credit scenes. We will continue in the profit growth phase, aiming for core operating profit of $5 to $7.5 billion. In order to make this possible, there are three ways that we will make this possible. First, we would like to increase the number of merit cards. So we would like to increase the number of MerPay users and enable the use of MerCard in various different scenes and promote making MerCard the user's main card and encourage per-user spending. In addition to in-house development, We would like to pursue future expansions through partnerships with external partners to enhance customer convenience. If I can go in more detail, as I mentioned, increasing the number of MerCard users. As of July, over 5 million MerCards have been issued, and we aim to continuously grow membership, focusing on our 18 million verified customers. Next, increasing per-user spending. We will increase usage of MerCard in daily payment and credit scenarios by increasing higher credit limits, providing higher credit limits and stronger external payment incentives, and by expanding the scope of installment payment options. We will also utilize our partnerships to pursue agile feature expansion in collaboration with... We issued a press release today, but in collaboration with CoinCheck, we aim to increase the number of tradable crypto assets to expand trading volume and diversify revenue sources. Currently, tradable crypto assets include Bitcoin, Ethereum, and XRP. Through this partnership with Coincheck, we expect to enable transactions with a broader range of cryptocurrencies in the near future. Moving on to the U.S. business objectives. In FY25, we broke even, and we aim to achieve positive results You're on your GMV growth by enhancing the core product experience and clearly differentiating ourselves from competitors in key focus categories. Strengthening core product experience. This is common to the Japanese marketplace, but we will leverage AI to enhance UI UX and bolster fraud prevention measures. delivering an unmatched level of ease of use and security. Differentiation through category strategy. In Mercari's key category of fashion, we are implementing competitive differentiating services. So we will... In the fashion category is our biggest category, especially the lower price and fashion category. And so in this category, we want to make sure that we can differentiate ourselves. So we want to implement competitive shipping plans. And we're currently under implementing a POC, but we want to introduce fashion item exchange programs and other initiatives to expand the fashion category. And successful initiatives from the fashion category will be applied to other categories so that we can build a trusted marketplace where users can list items stress-free and discover great deals with ease. Next, moving on to, lastly, the capital allocation policy or financial policy. Over the last three years, we have steadily accumulated profits, and as we transition into a profit growth phase, We expect retained earnings to return positive in FY2026 assuming progress continues as planned. In this line, we would like to reiterate our current thinking on capital allocation. In terms of the internal reserve levels, especially the credit business, but as the fintech business continues to expand, we plan to... Gradually build up our equity base to ensure stable funding capabilities. We want to remain competitive in this business. So we aim to improve boost financing efficiency. So we aim to improve external credit ratings to enhance capital efficiency. and prioritize debt financing for credit operations. So CAS, excluding these internal reserves, so that's on the right. So we are a growth company. So we will prioritize capital allocation that contributes to long-term profit growth. This includes investment in existing businesses, new growth opportunities such as M&A and share repurchases. From the standpoint of flexibility in agile decision-making, we will prioritize share buybacks over dividends. So we will prioritize share buybacks over dividends as our primary form of short-order returns.

Lastly,

We have announced this as well. This is part of our announcement today, timing disclosure of corporate income tax. Mercari Inc., which operates a U.S. business, has distributed dividends to the parent company from its capital surplus. This decision was made as part of our capital policy following a reduction in the required capital under relevant U.S. regulations and achieving profitability and securing continuous stable operations of the U.S. business. As such, McBarton has distributed dividends to the parent company from its capital surplus. As a result, part of the valuation loss on shares of affiliated companies which had previously been added back for tax purposes has now been recognized. Accordingly, we recorded a corporate income tax benefit of $8.3 billion in the consolidated financial results of FY25. The dividend amount was determined based on the reduced regulatory capital requirement and in consideration of financial soundness. Additional dividends may be implemented in or after FY26 depending on future financial conditions. This concludes FY2026, Mercari's, sorry, this concludes Mercari's FY2025 financial results presentation. Thank you. This is Mirkari's FY25 full-year financial result presentation. Thank you very much for joining us today.