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E-commerce

Coupang’s business model put to test as shares fall below IPO price

Analysts say investors may need to approach Coupang for the long term, like role model Amazon

By Sep 10, 2021 (Gmt+09:00)

Coupang founder and CEO Kim Bom-seok
Coupang founder and CEO Kim Bom-seok

Coupang Inc., widely seen as the South Korean version of global e-commerce giant Amazon.com, has closely followed the US company’s business model: use most of its profit as seed money for growth and expansion.

The strategy worked and Coupang has become the first Korean company to directly list on the New York Stock Exchange in March, with its market capitalization once exceeding 100 trillion won ($100 billion).

The loss-making company’s strategy, however, is being put to the test as its stock is hovering below its initial public offering price of $35.

Its shares were trading at $31.35 on the New York exchange as of Sept. 8, after falling to a low of $29.65 earlier this month. Coupang’s market cap has dwindled to 63 trillion won.

A Coupang official said the recent weak performance was due to the stock lockup release that began on Aug. 13.

“There’s no problem at all in our company fundamentals. The recent share price correction is temporary, caused by an imbalance in supply and demand of the shares,” he said.

Some analysts on Wall Street say Coupang is undervalued, with Bank of America Merrill Lynch and Goldman Sachs presenting Coupang’s target price at $55 and $61, respectively.

But critics say the Korean e-commerce company should show investors that it can make a profit while pursuing its growth strategy at the same time.

“Coupang’s relatively high valuation when it went public in the US and its aggressive expansion strategy could work as a stumbling block to its share price rise,” said Korea Investment & Securities analyst Kim Myung-joo.

Coupang listed its shares on the NYSE in March
Coupang listed its shares on the NYSE in March

OVERSEAS EXPANSION

Coupang founder and CEO Kim Bom-seok said in June he is resigning from all his positions in Korea, including his role as the board chairman, to instead concentrate on his other roles such as the CEO and board chairman of the NYSE-listed Coupang Inc.

In Korea, Coupang Corp. is the second-largest e-commerce player, following market leader Naver Corp.

Industry watchers say Kim’s move is aimed at focusing more on overseas ventures, expanding particularly in the Southeast Asian market.

Sources said Coupang is keen to enter Taiwan and Japan, densely populated island nations with decent road infrastructure.

“Coupang is testing the launch of quick commerce using motorbikes in Taiwan and Japan. The company has seen the rising need for a quick delivery among Taiwanese consumers and is preparing to launch something similar to the same-day Rocket Delivery service it is doing in Korea,” said an investment banking industry source close to the matter.

According to a Taiwanese media report, Coupang recently set up its second logistics center in Taipei to expand its delivery service in the capital.

Taiwan’s e-commerce market is currently dominated by local player PChome Inc. and Singapore-based Shopee Pte Ltd.

SoftBank Group founder Masayoshi Son (left) is a key investor in Coupang
SoftBank Group founder Masayoshi Son (left) is a key investor in Coupang

In Japan, Coupang has also set up a local entity and kicked off a pilot service in Tokyo.

SoftBank Group founder Masayoshi Son owns more than a third of Coupang through SoftBank Vision Fund after investing about $3 billion in the Korean company.

In Singapore, Coupang has already set up Coupang Asia Holdings Pte Ltd.

Coupang’s start of a delivery service in Singapore in April marks its first overseas entry in its 11 years of operation.

Analysts said Coupang wants to use Singapore as a springboard and a test bed to tap into the Southeast Asian market with around 650 million people.

The total annual transactions in the Southeast Asian e-commerce market, according to the e-Conomy SEA 2020 report co-published by Google, Temasek and Bain & Company, reached $62 billion last year, up 63% from 2019. The report projects the market will expand to $172 billion by 2025.

Coupang believes that its same-day or next-morning delivery service, common in Korea, will also work in Singapore and other Asian markets.

LONG-TERM INVESTMENT

Analysts said investors may need to approach Coupang shares as a long-term bet as it may take time for the company to turn profitable just like its role model Amazon.

Amazon made its first profit in 2002, 13 years after its launch. Its operating profit margin barely rose above the 5% mark until it posted a profit margin of 5.33% in 2018.

Coupang's trademark same-day 'rocket delivery' service
Coupang's trademark same-day 'rocket delivery' service

Coupang said in August its second-quarter sales surged 71% on year to $4.5 billion, its highest-ever quarterly revenue.

But its net loss widened to $518.6 million, partly affected by higher costs related to its warehouse fire in June.

In its IPO prospectus filed with the US securities authority earlier this year, CEO Kim said he aims to grow Coupang into a company that survives one hundred years and more.

Write to Dong-hui Park at donghuip@hankyung.com

In-Soo Nam edited this article.

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