Edited transcript

One of the recent names that’s entered our top 10 holdings in Japan is Mercari. Mercari is the leading platform for buying and selling secondhand goods in Japan.

Mercari has built a very strong network effect in Japan and a sustainable competitive advantage. Essentially, what you have is a group of buyers that go to Mercari for items.

As that increases, you have an increasing number of sellers who see it as an appealing marketplace to sell their items. As the sellers increase and the diversity of products increases, you get more buyers. As the leading platform, this creates a very positive flywheel effect or network effect.

One of the really interesting ways that Mercari enhances its flywheel is to make things easier for the sellers to go on the platform.

It actually accounts for 5% to 10% of home deliveries in Japan, because it provides a very efficient system of picking up, or collecting from drop-off points, the items that have been sold. It also offers cleaning and repair services to make it easier.

One of the unique aspects to Japanese culture is it provides anonymity. In Australia, as demonstrated by the movie The Castle, we’re quite happy to call someone up for a quote on jousting sticks, only to tell them they’re dreaming.

The reality in Japan is that’s unlikely to occur very often. There’s a very strict social protocol.

What Mercari provides is a really interesting platform of exchange. It unlocks this culture of not having classified ads, but reducing clutter and selling off items to others who find them appealing. And that’s something that I think is going to drive a material, new, incipient trend in Japan.

In addition to that, what we’ve seen is Mercari having success in taking its model to the US, which we don’t think is valued in the current share price. We’ve also seen Mercari enter into agreements in Asia.

And what’s interesting from an Australian perspective, you may remember Australia often in the past bought a lot of used Japanese-specification cars.

That flow of Japanese consumed high-end products being sold off to other Asian economies we think is a very interesting tie-in to the rising middle class in Asia.

We look at Mercari and see these strong network effects in Japan and the ability to use the cashflow they’re generating there to invest overseas in the US and in Asia.

They’re also using their really strong network of buyers to now offer business to consumer marketing on their platform.

So you can go on the platform, search for used goods, and next to those responses you’ll also see new goods if you can’t find what you want for the right price.

This to us is a really interesting opportunity to invest in a company that we don’t think is being valued for its domestic opportunity set, let alone the upside optionality we feel comes from these overseas and business to consumer expansions.

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