Can SSG.COM IPO succeed despite mounting losses?

SSG.COM, the e-commerce brand of South Korea’s retail giant Shinsegae Inc., reported its second-largest operating loss in the second quarter as it spent more on marketing to increase new customers. That is a move to raise its corporate value by ramping up revenue at the expense of profitability as it plans an initial public offering next year, the industry sources analyze.

SSG.COM, split off from E-Mart Inc., logged 349.5 billion won ($296.6 million) in sales on a consolidated basis during the second quarter, up 12% on-year, but its operating loss nearly doubled to 26.5 billion won from a year earlier. Compared to the first quarter, the deficit widened nearly 10 times. The loss in the April-June period was the worst since the last quarter of 2019 when it reported a loss of 36.2 billion won. Higher marketing costs for various sales events hurt the company’s profitability, analysts said.

Thanks to the aggressive marketing, its transaction value rose 19% in the second quarter from a year earlier, slightly faster than 14% expansion in the previous three months. The increase, however, fell short of a 25% growth in South Korea’s overall online shopping market size during the April to June quarter and a 22% rise in the first.

FIGHT AGAINST COUPANG

Given the US-listed giant Coupang Inc.’s dominant positions in South Korea, it will be tough for competitors including SSG.COM to expand market shares, industry sources said. Coupang’s sales surged 71% on-year to $4.5 billion (5.2 trillion won) in the second quarter, reporting a quarterly revenue of more than 5 trillion won for the first time.

Despite a net loss of $518.6 million due to its warehouse fire in June, Coupang maintained a strong growth momentum with increasing transaction values and active users thanks to healthy demand for its new services such as food delivery. In addition, the industry’s competition intensified as rivals including Kurly Inc. and Oasis Corp. joined the race with plans of stock market listings in 2022.

SSG.COM plans to focus on raising sales ahead of its IPO in 2022. It aims to nearly treble an annual gross merchandise value (GMV) to 10 trillion won by 2023 from 3.9 trillion won last year. It is set to ramp up delivery capacity to 150,000 cases from 135,000, a target to be achieved by end-2021. Next year, it also plans a fulfillment service, a warehouse that prepares and ships customers’ orders.

NEEDS TO RAISE TRANSACTION VALUE

Considering Coupang was valued at two to three times of its transaction value when it was listed, SSG.COM needs to lift the GMV to 5 trillion won this year for the industry to assess the company’s corporate value at 10 trillion won.

The brokerage industry currently estimates SSG.COM’s corporate value at around 2.5 trillion won based on its recent transaction value and cash flow. But a value of Kurly, which runs South Korea’s grocery delivery service Market Kurly, was estimated at 2.5 trillion won with a transaction value of 1 trillion won. So, some speculated SSG.COM’s value will exceed 10 trillion won.

SSG.COM’s value is expected to depend on how much synergy it can generate with eBay Korea that E-Mart bought for 3.4 trillion won earlier this year, the investment banking industry sources said. SS.COM’s transaction value is forecast to jump to 24 trillion won, given eBay’s 20 trillion won. Its total asset will also double to 4 trillion won from 2 trillion won, exceeding Coupang. In addition, it would be another key factor to expand a market share in the online shopping sector through a strategic alliance with Naver Corp.

SSG.COM is scheduled to receive bid proposals from brokerage houses later this month to select IPO managers. Among foreign houses, Credit Suisse, JPMorgan and Citigroup Global Markets Securities are expected to compete, while local brokerages such as KB Securities Co., Samsung Securities Co., Mirae Asset Securities Co. and NH Investment & Securities are likely to join the race. Morgan Stanley and Goldman Sachs may not participate in the deal due to a conflict of interest as they were underwriters for Kurly’s listing in the US, which was canceled.

“There will be an e-commerce war in the IPO market since 11st Street is expected to select managers soon,” said an IB industry source, referring to the SK Telecom Co.’s online shopping platform.

Write to Ye-Jin Jun at ace@hankyung.com
Jongwoo Cheon edited this article.