TOKYO—Japanese flea-market app Mercari Inc.’s valuation soared to $6.5 billion on its first day of trading, as investors celebrated the eBay Inc. rival’s debut in a country that is nearly bereft of influential technology startups.
Shares in Mercari closed up 77% over the offering price after the company raised ¥130.5 billion ($1.2 billion) through its initial public offering on the Tokyo Stock Exchange’s Mothers market for startup companies. It was Japan’s biggest tech IPO since messaging app Line Corp. listed in July 2016 and the largest IPO in Japan this year.
Rare Unicorns
Japan accounts for a fraction of venture capital and doesn't have many valuable startups.
Global investment in venture companies by country
Japan
U.S.
China
Others
$160
billion
140
120
100
80
60
40
20
0
’14
’11
’15
’16
2010
’12
’13
’17
Source: VentureSource
Mercari’s app allows people to buy and sell mostly used goods such as jeans, handbags and games. It has been a hit in its home market, drawing many young people who have become accustomed to penny-pinching in the nation’s long economic doldrums. Mercari takes a cut of each sale.
“In an era overflowing with things, there’s less premium on ownership,” said Yutaka Suzuki, senior researcher at the Distribution Economics Institute of Japan. He said young consumers tend to sell their possessions as soon as they grow tired of them.
Now Mercari hopes to carve out growth in the U.S. and U.K. with features that it says differentiate it from rivals. Sellers can remain anonymous and buyers don’t have to pay until they confirm the item has arrived.
But in the U.S., Mercari’s growth has been stymied by bigger marketplaces such as eBay and Craigslist. Volume remains relatively low compared with Japan, where delivery in urban areas is fairly inexpensive and Mercari has tapped a dense network of convenience stores to help people ship easily.
“In many ways, Japan is another planet,” said John Lagerling, head of Mercari’s U.S. operations. The company has negotiated lower shipment fees from United Parcel Service Inc. and FedEx Corp., and it is advertising more on YouTube and on the radio, he said. “How we do in the U.S. and in the U.K. will determine how we do in the rest of the world.”
Mercari logged a net loss of ¥4.2 billion in the 12 months ended June last year on ¥22 billion in revenue, dragged down by losses in the U.S.
In Japan, Mercari’s growth stems from its easy-to-use mobile app, which uses its database to automatically complete postings from just a smartphone photo.
“I can post with just a photo, and neither I nor the seller has to share an address,” said Shingo Fuchigami, a 31-year-old web producer. He said he began selling when he moved into a home with less storage and has sold hundreds of dollars’ worth of products such as videogame software after he is done playing with it.
Ease of use helped Mercari get a leg up on Yahoo Japan Corp., the nation’s top web portal, which has long provided people a platform to unload used goods. Craigslist and eBay aren’t widely used in Japan.
Investors are betting that secondhand apps like Mercari will help people around the world deal with closets full of unused items. Mercari’s shares shot up to ¥5,300 on Tuesday, from the IPO price of ¥3,000, giving the company a market capitalization of ¥717 billion, or about $6.5 billion.
Startups with valuations of more than $1 billion—so called unicorns—are a rarity in Japan, the world’s third-largest economy, despite easy money from the Bank of Japan, government subsidies and corporate efforts to incubate ventures.
With the stock-exchange listing of Mercari, only one unicorn remains in Japan, according to research firm CB Insights. That is machine-learning developer Preferred Networks Inc., with a valuation of $2 billion. By comparison, China has 71 unicorns and the U.S. has 115, according to CB Insights.
Although growing, investment in Japanese ventures came to less than 2% of the amount venture capitalists and others invested in startups in the U.S., and less than 3% of the amount Chinese ventures received last year, according to Venturesource.
Mercari’s opening-day performance puts it on par with some of Japan’s best-known names by market capitalization, roughly equaling Nikon Corp. and convenience-store operator Lawson Inc.
“We want to do away with throwing out things,” said Mercari Chief Executive Shintaro Yamada. “I think we fill a universal need.”
Write to Mayumi Negishi at mayumi.negishi@wsj.com and Takashi Mochizuki at takashi.mochizuki@wsj.com