Company / Analytics

Analytics, 12 March 2021

E-commerce giant Coupang following IPO - outlook

Shares of South Korean e-commerce giant Coupang jumped as much as 84% on Thursday following the company’s debut. Shares began trading at an intraday high of $63.98 before paring gains and closing at $49.25 on Thursday, from the $35 IPO price. Coupang is regarded as the Amazon of South Korea and was backed by among others SoftBank which ripped a windfall out of the IPO. But does the company have what it takes to be profitable in the future?

About Coupang

Based in Seoul, Coupang is South Korea’s answer to Amazon. The company was founded in 2010 by Bom Kim, a Harvard graduated who has since expanded its footprint to Silicon Valley, Shanghai, and Seattle.

The company has more than 100 fulfillment and logistics centers in over 30 cities that provide next-day delivery for orders placed before midnight. It employs 15,000 drivers in South Korea for its deliveries and has branched out into other services such as food and grocery delivery.

Coupang IPO

Backed by SoftBank, Coupang priced 130 million shares at $35 each, above the marketed range of $32-$34, raising $4.6 billion in the enlarged offering. The first-day spike gave the company a market capitalization of $84.5 billion. Coupang’s IPO is the so far this year and the largest on a US exchange since Uber raised $8.1 billion in 2019. The offering surpassed dating app Bumble’s Wall Street IPO, which raised more than $2 billion last month. It’s also one of the biggest listings ever by an Asian company on a US exchange, according to Dealogic. The

Coupang and its existing shareholders planned to sell 120 million shares at a lower price range of $27-$30 but had to increase the volume and price of the offering, signaling strong demand from investors.

Who is backing Coupang?

SoftBank Group is Coupang’s largest shareholder, with a 35% stake in the firm. SoftBank first invested $1 billion in Coupang back in 2015 when the firm was just a start-up valued at about $5 billion. Then, in November 2018, SoftBank’s Vision Fund invested another $2 billion in the company in a deal that valued Coupang at $9 billion.

On Thursday, SoftBank racked up a roughly $33 billion gain on paper through the IPO debut, the latest sign of a dramatic turnaround for its $100 billion Vision Fund.

Does Coupang have what it takes to be profitable in the future?

Investors should always consider the outlook and future value of a financial product. For Coupang, what investors should understand is whether, in the business environment of Korea and e-commerce, can they be able to generate a huge, profitable return on capital. Here are a few things to consider:

Market leadership

Coupang’s large IPO and valuation is pegged on the fact that it is the only e-commerce company in South Korea that showed a sizeable gain in market share last year. Coupang’s market size rose from 18.1% in 2019 to about 24.6% last year, supported by the coronavirus pandemic which contributed to significant growth in South Korea’s e-commerce market.

Most of its competitors – such as eBay-owned Gmarket, WeMakePrice, and Naver Shopping – did not show any changes in terms of market share.

Most Asian analysts believe the company could gain as much as 30%+ over the next few years. This, for example, might have justified the increase in the company’s IPO price.

Growth Potential

In 2019, Coupang turned in revenues of $11.97 billion in 2020, a 90.7% increase from 2019. Still, net losses continue to be an issue. Coupang lost $474.9 million in 2020 according to its S-1 prospectus filing. But a sharp jump in sales last year helped narrow net losses from $770.2 million in 2019 to $567.6 million in 2020.

Some of the losses are due to Coupang’s aggressive expansion in delivery and logistics operations. The company put 70% of South Korea’s population within a seven-mile radius of its distribution centers after a costly buildout.

In an interview with CNBC, Coupang’s CEO Bom Kim said investors have been “aligned and unwavering” in supporting his company’s “long-term strategy to build real value for customers.”

Comparisons with Alibaba & Amazon

Coupang has drawn comparisons with Amazon and Alibaba which became tech behemoths after making their public debuts. While these comparisons are justified, the consumer markets in the U.S. and China are significantly larger than in South Korea. This means that even if Coupang manages to expand its market share, it might not see the same kind of sales growth Amazon and Alibaba 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 analytics firm GlobalData. This is expected to grow at a compounded annual rate of 12% to reach $141.8 billion in 2024.

Coupang could benefit from spending some of its IPO proceeds on building out a strong distribution platform within Korea. CEO Bom Kim told analysts that the IPO gives them the ability and opportunity to continue to make really, big investments. According to its CEO, the company has no plans to enter the US market or expand outside of Korea.

Should you buy Coupang Stock?

As discussed above, the outlook for CPNG stock looks promising given the rapidly expanding e-commerce market in South Korea, Coupang’s market leadership, and growing market share.

The stock looks poised to rise as investors rush to e-commerce stocks as the coronavirus pandemic has prompted a shift to online shopping. This optimism is evident across e-commerce stocks: Amazon, eBay, JD.com, and Pinduoduo which have risen 62, 53, 113, and 293 percent, respectively, in the past year.

There’s no doubt that the future of e-commerce is bright as households embrace the convenience of shopping from home. But Coupang is more than just an e-commerce company. It also offers food and grocery delivery, and the company has taken advantage of the growing traffic to its site by selling ads. In its IPO filing, Coupang estimates that the advertising market opportunity will grow to $14 billion in 2024 from $12 billion in 2019.

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