Logos on the facade of the shared headquarters of Internet company Coupang and security company SentinelOne in Mountain View, California, in Silicon Valley, October 28, 2018.
Smith collection | Gado | Archive photos | Getty Images
Investors looking to buy stock of 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’s the advice Daniel Yoo, head of global asset allocation at Yuanta Securities, Korea, for clients.
“What you really need to know is whether in the business environment of Korea and e-commerce, they are able to generate a huge, profitable return on capital,” Yoo said on CNBC’s “Street Signs Asia Thursday.”
Later in the day, when US markets open, Coupang will debut on the New York Stock Exchange under the ticker “CPNG”.
The company said it priced 130 million shares at $ 35 each, raised $ 4.55 billion, and valued the company about $ 60 billion. That makes Coupang the largest IPO in the US this year and one of the 25 largest listings of all time in the United States, based on the size of the deal.
The price is also above the company’s most recent projected range of between $ 32 and $ 34 per share.
Market leader
Yoo explained that the valuation and IPO price are likely to have risen as Coupang is the only e-commerce company in South Korea to see a significant increase in market share last year. He said the market size has increased from 18.1% in 2019 to about 24.6% last year as a result of the coronavirus pandemic.
“Most of the other competitors really didn’t show any kind of change in terms of market share,” he said. Coupang’s rivals include Gmarket, WeMakePrice and Naver Shopping, which are owned by eBay.
“The fact is that (Coupang) is becoming the largest e-commerce company in Korea and I think a market share of 24%, it could go up even further,” said Yoo. “It is possible that they can gain as much as 30% + in the coming years.” That, he explained, would justify why the company’s IPO price has gone up.
Coupang’s legal filing revealed that the company was making losses for eight quarters through December 31. But a surge in sales last year helped narrow net losses from $ 770.2 million in 2019 to $ 567.6 million in 2020
Comparisons with Alibaba, Amazon
The company, which supports SoftBank’s Vision Fund and Sequoia Capital, among others, has made comparisons with Amazon and Alibaba. Those companies have become tech giants after making their public debut.
But Yoo said consumer markets in the US and China are significantly larger than South Korea. So even if Coupang is able to increase its market share, he said it is unlikely that the same kind of sales growth will take place as the other two companies in the past decade.
According to data analysis company GlobalData, the South Korean e-commerce market is estimated to be worth $ 90.1 billion in 2020 with an annual growth of 22.3%. That’s expected to grow at a compound annual rate of 12% to $ 141.8 billion by 2024.
According to Yoo, Coupang could spend part of the proceeds from the IPO to build a strong distribution platform in Korea.
The e-commerce company was founded in 2010 by Korean-American billionaire Bom Suk Kim and is headquartered in Seoul. It has more than 100 fulfillment and logistics centers in more than 30 cities that can deliver orders placed before midnight the next day. Coupang employs 15,000 drivers in South Korea for its deliveries and has expanded into other services such as food and grocery delivery.