Logos on the facade of the shared headquarters of Internet company Coupang and security company SentinelOne in the city of Mountain View, California, on October 28, 2018.
Smith Collection | Gado | Archive Photos | Getty Images
Investors who want to buy shares of South Korean e-commerce firm Coupang when they go public in New York should consider whether the company has what it takes to be profitable in the future.
This is the advice that Daniel Yoo, head of global asset allocation at Yuanta Securities, Korea, has for clients.
“What you really need to know is whether, in Korea’s business environment and e-commerce, they can generate a huge profitable return on capital,” Yoo told CNBC’s “Street Signs Asia” on Thursday.
Coupang will have to debut on the New York Stock Exchange under the “CPNG” marker later on the day the U.S. 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 United States this year and one of the 25 largest lists of all time, depending on the size of the offering.
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 listing price increased probably because Coupang is the only e-commerce company in South Korea that showed a considerable gain in market share last year. He said its market size increased from 18.1% in 2019 to close to 24.6% last year due to the coronavirus pandemic.
“Most of the other competitors didn’t really show any change in terms of market share,” he said. Coupang’s rivals include Gmarket, WeMakePrice, Naver Shopping, owned by eBay.
“The fact is that (Coupang is becoming Korea’s largest e-commerce business and has a 24% market share, I think it could even increase further,” Yoo said. they can actually earn up to 30% + in the next few years. ”That, he explained, would justify why the company’s IPO has risen.
Coupang’s regulatory filing showed the company suffered losses for eight quarters through Dec. 31. But a sharp jump 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, among its prominent sponsors, includes the Vision Fund of SoftBank and Sequoia Capital, has made comparisons with Amazon and Alibaba. These companies have become great technicians after making their public debut.
But Yoo said consumer markets in the U.S. and China are significantly larger than South Korea. Therefore, even if Coupang is able to increase its market share, he said it is unlikely that the same kind of sales growth will occur as the other two companies saw in the last 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 analysis firm GlobalData. This is expected to grow at a compound annual rate of 12% to $ 141.8 billion in 2024.
Investing some of its IPO revenue to build a solid 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 headquartered in Seoul. It has more than 100 logistics and compliance centers in more than 30 cities that offer next day delivery for orders placed before midnight. Coupang employs 15,000 drivers in South Korea for their shipments and has branched out into other services such as grocery and food delivery.