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On Thursday, JPMorgan initiated coverage on Mercari , Inc (TYO:4385:JP) (OTC:MRCIF), a Japanese e-commerce company, with a Neutral rating and a price target of JPY2,600. The firm recognized Mercari’s consistent double-digit sales growth since its inception. However, it noted that significant upfront investments had resulted in operating losses until the fiscal year ending in June 2020.
In August 2024, Mercari’s management announced a new medium-term plan. The plan aims for continued double-digit sales growth and a compound annual growth rate (CAGR) of at least 25% in core operating profit from the fiscal year starting in June 2024 to the fiscal year ending in June 2027. This strategy includes maintaining some level of upfront investment.
JPMorgan analysts believe that Mercari’s goals also indicate an effort to improve the company’s equity ratio as it expands its fintech operations. They pointed out that Mercari’s core businesses exhibit high marginal profitability, ranging from 50% to 70%, projected for the fiscal years from 2026 to 2028. The analysts suggest that even if there is a slowdown in top-line growth, Mercari is likely to achieve its profit growth targets.
The report also mentions that approximately half of the expected operating profit growth from the fiscal year 2026 to 2028 is attributed to reduced losses in the fintech segment. However, JPMorgan cautions that Mercari’s management might increase investments again to boost sales growth, which justifies the Neutral stance.
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