Mercari (4385) FY2026 Q3 Earnings Report

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Executive Summary

Driven primarily by improved profitability in the Japan Business and the US Business turning profitable, the Company posted higher revenue and a substantial increase in profit, with profit growth significantly exceeding revenue growth. Revenue was ¥1672.9B (+16.1% YoY), Operating Income was ¥345.2B (+69.7%), Profit Before Tax was ¥346.6B (+60.0%), and Profit for the Quarter Attributable to Owners of the Parent was ¥194.3B (+65.6%). The Operating Margin improved by approximately 6.5pt to 20.6% from 14.1% in the same period of the previous year, reflecting strong operating leverage as SG&A expenses grew (+6.4%) at a rate below revenue growth. Meanwhile, Operating Cash Flow (OCF) was negative at ¥192.6B, resulting in a significant divergence between accounting profit growth and cash generation.

Factors Affecting Financial Performance

【Revenue】Revenue was ¥1672.9B (+16.1% YoY). By segment, the Japan Business generated ¥1313.8B (+17.5% YoY; 78.6% of total), the US Business generated ¥303.8B (+9.2%), and Other Businesses generated ¥55.3B (+25.7%). Within the Japan Business, Fintech recorded the highest growth at ¥363.3B (+26.9%), supported by the expansion of the domestic Marketplace as well as payment and crypto asset-related revenue.

【Profit and Loss】Operating Income was ¥345.2B (+69.7% YoY), while the gross margin improved to 73.8% from 71.7% in the same period of the previous year. Segment profit for the Japan Business was ¥399.9B (+52.8% YoY; 30.4% margin), making it the core contributor to consolidated profit, while the US Business turned profitable at ¥11.9B, improving from a loss in the same period of the previous year. However, the loss from corporate adjustments not included in the reported segments expanded to ¥67.1B, offsetting part of the profit increase. Income taxes were ¥152.6B against Profit Before Tax, representing a high effective tax rate of 44.0%. Net Income growth (+65.6%) exceeded Profit Before Tax growth (+60.0%) because the tax rate in the same period of the previous year was even higher. Both revenue and profit increased.

Segment Analysis

The Japan Business generated revenue of ¥1313.8B (+17.5% YoY) and segment profit of ¥399.9B (+52.8%), with a margin of 30.4%, improving by approximately 7pt from 23.4% in the same period of the previous year. The domestic Marketplace generated ¥949.5B (+14.0%), while Fintech generated ¥363.3B (+26.9%), driving growth. The US Business generated revenue of ¥303.8B (+9.2%) and segment profit of ¥11.9B, turning profitable from a loss of ¥0.5B in the same period of the previous year. It should be noted that the US Business recognizes delivery revenue on a gross basis, and ¥168.3B is included in the current period. Other Businesses generated ¥55.3B (+25.7%) and profit of ¥0.5B.

Key Financial Indicators

【Profitability】The Operating Margin improved by approximately 6.5pt to 20.6% from 14.1% in the same period of the previous year, while the Net Profit Margin improved by approximately 3.5pt to 11.6% from 8.1%. The gross margin expanded to 73.8% from 71.7% in the same period of the previous year.【Cash Flow Quality】OCF was negative at ¥192.6B, resulting in a negative ratio relative to Net Income of ¥194.0B, indicating that current-period profit was not converted into operating cash. The primary factor was an ¥823.3B increase in trade and other receivables.【Investment Efficiency】Annualized ROE was 21.5%, decomposed into Net Profit Margin × total asset turnover (approximately 0.33x) × financial leverage (approximately 5.6x). The high ROE reflects substantial reliance on financial leverage.【Financial Soundness】The Equity Ratio was 17.8%, slightly down from 18.3% in the same period of the previous year, while the debt-to-equity ratio remained high at approximately 4.6x. Current assets of ¥5918.1B exceeded current liabilities of ¥4260.4B, resulting in a current ratio of approximately 139%.

Cash Flow Analysis

OCF was negative at ¥192.6B, deteriorating significantly from positive OCF of ¥81.4B in the same period of the previous year. The primary factors were an ¥823.3B increase in trade and other receivables and a ¥535.0B increase in money trusts, resulting in working capital outflows substantially exceeding Net Income of ¥194.0B generated by the revenue increase. Meanwhile, a ¥380.9B increase in deposits received and a ¥455.0B decrease in guarantee deposits paid mitigated part of the cash outflow. Investing Cash Flow was negative at ¥281.6B, including expenditures for investment securities, intangible assets, and property, plant and equipment, as well as net deposits of ¥200.0B into time deposits. As a result, Free Cash Flow, combining OCF and Investing Cash Flow, was negative at ¥474.2B. Financing Cash Flow was positive at ¥536.4B, with a net increase in short-term borrowings of ¥333.6B and proceeds from bonds and long-term borrowings of ¥442.0B offsetting the funding shortfall from operating and investing activities. Cash and cash equivalents increased by ¥82.0B to ¥1552.3B. The fact that external financing was the primary source of the increase in cash is an important observation when assessing cash flow quality.

Quality of Earnings

The increase in profit during the current period was primarily attributable to structural improvement at the Operating Income level. Net contribution from financial income of ¥8.7B and financial expenses of ¥7.3B was limited to ¥1.5B, while other income and expenses represented a net loss of ¥3.6B, indicating limited reliance on temporary non-operating gains and losses. Meanwhile, income taxes of ¥152.6B were recorded against Profit Before Tax of ¥346.6B, resulting in a high effective tax rate of 44.0% and limiting conversion into current-period profit. The greatest concern is the divergence between accounting profit and cash flow: as trade and other receivables increased by ¥823.3B, OCF was negative at ¥192.6B. The situation in which OCF is negative against Net Income of ¥194.0B is an important observation in assessing earnings quality, and the collection status of Fintech-related receivables and trends in credit losses will be key to improving accrual quality going forward.

Earnings Forecast and Guidance

Against the Full-Year revenue forecast of ¥2200.0B, Q3 cumulative revenue of ¥1672.9B represents a progress rate of 76.0%, approximately 1.0pt above the standard progress rate of 75%. Although the earnings forecast was revised during the current quarter, the dividend forecast was not revised. The provided data does not include Full-Year targets for Operating Income or Net Income, and therefore progress on the profit front is not evaluated.

Shareholder Returns

The Q2 dividend was ¥0 per share, resulting in a Payout Ratio of 0%. Share repurchases were also effectively zero, resulting in a Total Return Ratio of 0% when dividends and share repurchases are combined. Current-period Net Income of ¥194.0B was fully retained, and retained earnings improved from negative ¥30.1B in the same period of the previous year to ¥164.2B. Given the current no-dividend policy, an Equity Ratio of 17.8%, a debt-to-equity ratio of approximately 4.6x, and negative OCF, the allocation policy is consistent with prioritizing capital accumulation and liquidity preservation.

Risk Factors

1. Collection and credit risk related to trade receivables: Trade and other receivables totaled ¥3377.7B, up +32.6% YoY, and were the primary cause of the deterioration in OCF during the current period. The increase in receivables accompanying the expansion of the Fintech Business is a factor requiring close monitoring with respect to collectability and trends in credit losses.

2. High financial leverage: The debt-to-equity ratio was approximately 4.6x, while the Equity Ratio remained at 17.8%. Bonds and borrowings totaled ¥2458.9B on a combined current and non-current basis, in addition to customer deposits of ¥2567.9B, creating sensitivity to changes in funding market conditions and refinancing terms.

3. Negative OCF and reliance on external funding: OCF was negative at ¥192.6B, and Investing Cash Flow was negative at ¥281.6B, with funding supplemented by Financing Cash Flow of ¥536.4B. If funding operations continue to rely on borrowings, deleveraging may be delayed.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (it_telecom)

Profitability and Returns

Both the Operating Margin and Net Profit Margin significantly exceeded the industry median, placing the Company’s profitability among the upper tier of the industry.

Growth and Capital Efficiency

The revenue growth rate also exceeded the industry median, representing a growth pace positioned in the upper range of the IQR.

※Source: Compiled by the Company

Key Takeaways from the Earnings

1. The Operating Margin of 20.6%, Net Profit Margin of 11.6%, and annualized ROE of 21.5% all significantly exceeded the industry median. Improvement in the Japan Business margin (30.4%) and the US Business turning profitable were the primary drivers of earnings growth.

2. On the other hand, OCF was negative at ¥192.6B, creating a significant divergence from Net Income of ¥194.0B. The primary factor was an ¥823.3B increase in trade and other receivables. The fact that accounting profit growth was not converted into cash flow is an important observation when assessing earnings quality.

3. Under a policy of no dividends and no share repurchases, the balance among retained earnings, debt, and an Equity Ratio of 17.8% means that funding needs and liquidity management associated with the expansion of the Fintech Business will remain key structural areas of focus going forward.

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This report is an earnings analysis document automatically generated by AI through analysis of XBRL earnings release data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the Company based on publicly available earnings data. Investment decisions should be made at your own responsibility, after consulting professionals as necessary.

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