Logos on the facade at the headquarters of the internet company Coupang and the security company SentinelOne in the city of Silicon Valley, 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 company Coupang when it becomes known in New York should consider whether the company has the need to be profitable in the future.
This is the advice given to clients by Daniel Yoo, Head of Global Asset Allocation at Yuanta Securities, Korea.
“What you really need to know is whether they can deliver a huge, profitable return on capital in the business environment of Korea and e-commerce,” Yoo said on CNBC’s Street Signs Asia on Thursday.
Coupang will launch under the tick ‘CPNG’ on the New York Stock Exchange later in the day when US markets open.
The company said it priced 130 million shares at $ 35 a share, raising $ 4.55 billion and valuing the company at about $ 60 billion. This makes Coupang the largest trade show in the US this year and one of the top 25 largest deals of all time, by trade size.
The price is also higher than the company’s most recent expected range of between $ 32 and $ 34 per share.
Markleier
Yoo explained that the valuation and IPO price were likely to rise because Coupang is the only e-commerce company in South Korea that showed a significant increase in market share last year. He said the market size increased from 18.1% in 2019 to about 24.6% last year due to the coronavirus pandemic.
“Most other competitors have really shown no changes in market share,” he said. Coupang’s competitors include Gmarket, WeMakePrice, Naver Shopping and eBay.
“The fact is that (Coupang) is becoming the largest e-commerce company in Korea and has a market share of 24%, I think, it could rise even further,” Yoo said. “It’s possible they could actually achieve as much as 30% + over the next few years.” This, he explained, would justify why the price of the company’s IPO rose.
The Coupang government dossier showed that the company sustained losses for eight quarters through December 31st. But a sharp increase in sales last year dropped net losses from $ 770.2 million in 2019 to $ 567.6 million in 2020.
Comparisons with Alibaba, Amazon
The company, among which SoftBank’s Vision Fund and Sequoia Capital are the main supporters, drew comparisons with Amazon and Alibaba. These companies became technological fields after making their debut in public.
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, it is unlikely to see the same kind of sales growth as the other two companies over the past decade.
The data analysis firm GlobalData has an estimated value of $ 90.1 billion in 2020 with an annual growth rate of 22.3%. It is expected to grow at a compound annual rate of 12% and reach $ 141.8 billion by 2024.
According to Yoo, part of the exchange proceeds could be spent on developing a strong distribution platform in Korea.
The e-commerce business was founded in 2010 by Korean-American billionaire Bom Suk Kim and is headquartered in Seoul. There are more than 100 fulfillment and logistics centers in more than 30 cities that offer next day delivery for orders placed before midnight. Coupang employs 15,000 managers in South Korea for its deliveries and has branches in other services such as food delivery and groceries.