Logos on the facade of the shared headquarters of the Internet company Coupang and security company SentinelOne in the city of Mountain View in Silicon Valley, California, October 28, 2018.
Smith Collection | Cattle | Photo archive | Getty Images
Investors looking to buy shares in South Korean e-commerce company Coupang when it goes public in New York should consider whether the company has what it takes to be profitable in the future.
That is the advice that Daniel Yoo, head of global asset allocation at Yuanta Securities in Korea, gives to clients.
“What you really need to know is whether, in Korea’s business environment and e-commerce, they can generate a huge and profitable return on capital,” Yoo said on Thursday in CNBC’s “Street Signs Asia”.
Coupang is expected to debut on the New York Stock Exchange under the ticker “CPNG” later in the day, when US markets open.
The company said it had quoted 130 million shares at $ 35 each, raising $ 4.55 billion and valuing the company at about $ 60 billion. This makes Coupang the largest IPO in the United States this year and one of the 25 largest listings of all time in the United States, by size of business.
The price is also above the company’s most recent expected range, between $ 32 and $ 34 per share.
Market leader
Yoo explained that the valuation and price of the IPO probably increased because Coupang is the only e-commerce company in South Korea that showed a considerable gain in market share last year. He said the market size increased from 18.1% in 2019 to around 24.6% last year due to the coronavirus pandemic.
“Most of the other competitors have not really experienced any changes in terms of market share,” he said. Coupang’s rivals include eBay-owned Gmarket, WeMakePrice, Naver Shopping, among others.
“The fact is (Coupang is) becoming the largest e-commerce business in Korea and with 24% market share, I think, it may even increase further,” said Yoo. “It is possible that they can earn up to 30% + in the coming years.” This, he explained, would justify the increase in the company’s IPO price.
Coupang’s regulatory process showed that the company had losses over eight quarters through December 31. But a sharp jump in sales last year helped to reduce net losses from $ 770.2 million in 2019 to $ 567.6 million in 2020
Comparisons with Alibaba, Amazon
The company, whose prominent sponsors include SoftBank’s Vision Fund and Sequoia Capital, made comparisons with Amazon and Alibaba. These companies became tech giants after making their public debuts.
But Yoo said that the consumer markets in the United States and China are significantly larger than South Korea. So, even if Coupang manages 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 past decade.
South Korea’s e-commerce market is estimated to be worth $ 90.1 billion in 2020, with an annual growth rate of 22.3%, according to data analytics company GlobalData. It is expected to grow at a compound annual rate of 12%, to reach $ 141.8 billion in 2024.
Spending part of the IPO’s resources on building a strong 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 more than 100 service and logistics centers in more than 30 cities that provide next day delivery for orders placed before midnight. Coupang employs 15,000 drivers in South Korea for its deliveries and has branched out to other services, such as food and grocery delivery.