Facade logos at the joint headquarters of the internet company Coupang and the security company SentinelOne in the city of Mountain View, California, in Silicon Valley, October 28, 2018.
Smith Collection | Gado | Archive Photos | Getty Images
Investors wishing to buy shares of South Korean e-commerce company Coupang when it goes public in New York should consider whether the company has everything it needs to be profitable in the future.
This is the advice that Daniel Yoo, the head of global asset allocation at Yuanta Securities, Korea, has for clients.
“What you really need to know is whether or not they can generate a huge and profitable return on capital in Korea’s e-commerce business environment,” Yoo said on CNBC’s “Street Signs Asia” on Thursday.
Coupang will debut on the New York Stock Exchange under the “CPNG” check mark later in the day when the US markets open.
The company said it was priced at $ 130 million at $ 35 a piece, raising $ 4.55 billion and valuing the company at about $ 60 billion. This makes Coupang the largest IPO in the US this year and one of the 25 largest listings of all time, depending on the size of the transaction.
The price is also above the company’s most recent estimated range of $ 32 to $ 34 per share.
Market leader
Yoo explained that the valuation and the price of the IPO have probably increased, as Coupang is the only e-commerce company in South Korea that recorded a significant gain in market share last year. He said its market size increased from 18.1% in 2019 to about 24.6% last year due to the coronavirus pandemic.
“Most of the other competitors did not show any changes in market share,” he said. Coupang’s rivals include eBay-owned Gmarket, WeMakePrice, Naver Shopping.
“The fact is that (Coupang is becoming) Korea’s largest e-commerce business and its 24% market share, I think, could even grow even more,” Yoo said. “They may actually be able to earn up to 30% + in the next few years.” This, he explained, would justify why the company’s IPO price has risen.
Coupang’s regular filing showed that the company suffered losses during eight quarters until December 31. But a sharp increase in sales last year helped reduce net losses from $ 770.2 million in 2019 to $ 567.6 million in 2020
Comparisons with Alibaba, Amazon
The company, whose fund supporters include Vision Fund and Sequoia Capital of SoftBank, made comparisons with Amazon and Alibaba. These companies became technological thieves after making their public debut.
But Yoo said consumer markets in the US and China are significantly larger than South Korea. So, even though Coupang is able to increase its market share, he said he is unlikely to see the same type of sales growth that the other two companies have seen in the last decade.
South Korea’s e-commerce market has an estimated value of $ 90.1 billion in 2020, with an annual growth rate of 22.3%, according to data analysis firm GlobalData. It is expected to grow at a compound annual rate of 12% to reach $ 141.8 billion in 2024.
Spending part of its IPO revenues on building a powerful distribution platform in Korea could benefit Coupang, according to Yoo.
The e-commerce company was founded by Korean-American billionaire Bom Suk Kim in 2010 and is based in Seoul. It has over 100 fulfillment and logistics centers in over 30 cities that ensure next-day delivery for orders placed before midnight. Coupang has 15,000 drivers in South Korea for its deliveries and has expanded into other services, such as food and food delivery.