Coupang, regarded by many as South Korea’s answer to Amazon AMZN, recently announced its IPO in New York in a move that may raise as much as $3.6 billion and value the company at around $51 billion. After experiencing years of sustained growth followed by its timely plans to go public, could Coupang’s ambitions be causing some restlessness at Amazon?
Coupang’s offering may well be the largest to list in 2021 and is likely to be the largest foreign initial public offering in the US since Alibaba in 2014. Although the listing may be seen as a bold move by the company, it’s a strategic attempt to take advantage of the option to list Class A and Class B shares simultaneously.
(Image: The Economist)
The listing comes at a time when Coupang is experiencing growth that’s rapidly accelerating. Having only been founded in 2010, the new valuation of $51 billion is a huge leap from its $2bn funding round from Softbank’s Vision Fund in 2018, which valued the company at around $9bn.
The Company That Fought Off Amazon in Korea
There have been plenty of comparisons between Coupang and eCommerce giants Amazon given that both companies are built on affordability, convenience, and fast delivery times. Even in terms of marketing, the slogan “How did we ever live without Coupang?” utilizes similar themes to Amazon’s focus on “customer obsession,” like delighting customers and eliminating pain points when it comes to shopping online. With over half of all Koreans having downloaded the Coupang app, it’s clear that the company’s approach is winning the trust of its market.
(Image: Pulse)
No company in Korea’s online retail market managed to develop at the rate of Coupang between 2019 and 2020 in terms of market share. Similarly to Amazon, Coupang’s founder and CEO, Bom Kim, quickly capitalized on the importance of controlling the delivery process. The company poured millions into building its own end-to-end logistics network - including 200 warehouses that span 20 million sq ft. across Korea, as well as trucks and thousands of delivery drivers.
Impressively, the company has stated that 70% of Koreans live within 10 minutes of a Coupang logistics center, making the last-mile delivery much easier to achieve. However, it’s worth noting that South Korea is one of the world’s most densely populated nations.
2020 also saw Coupang launch Dawn Delivery, a cutting-edge delivery service that promises to drop off items to customers by 7 am the next day provided that they place their order by midnight the day before. This represents a quality of service and level of output that even Amazon can’t currently match.
With Coupang making strides in dominating the South Korean retail market, the company’s IPO may indicate a readiness to expand into new markets - potentially taking their cutting-edge approach to eCommerce onto Amazon’s territory.
Weighing Up The Value of Coupang’s IPO
While Coupang’s next steps after the IPO aren’t immediately clear, the financial health of the company will be a welcome sight for prospective investors. Coupang recorded a gross profit of around $2 billion in 2020 - a significant 92.3% rise on the year before.
Elsewhere, operating loss has improved to $0.5 billion in 2020, smaller than the $0.6bn recorded in 2019 while the company’s net operating margin fell to -4.4% in 2020 from 10.3% in 2019. Cash from operations became positive in 2020, rising to $0.3bn in 2020 from $-0.3bn in 2019.
The revenue growth that Coupang has achieved in South Korea is higher than that of other companies operating in a similar mold to that of Amazon at a significantly smaller scale. Unlike LATAM and ASEAN regions which are growing from a low base, South Korea’s greater internet penetration and smartphone adoption can rival that of many western countries.
However, many of these ‘Baby Amazon’ companies recorded impressive gains on the stock market in 2020. The asset class may be unable to sustain their gains as the Covid-19 pandemic has brought forward revenue expectations for eCommerce by around three or four years. Despite this, it’s reasonable to expect that Coupang’s listing will be highly subscribed.
Could Coupang Go Global?
Coupang assesses the state of its competitors worldwide as a significant risk ahead of its IPO, alongside potential hurdles like operating costs and labor conflicts.
Domestically, Coupang has invested such vast amounts in its logistics network that it would be hard for new entrants to offer comparable services. However, the company’s overseas competitors are extremely resourceful in terms of financial muscle. For instance, in late 2020, Amazon purchased what may become a 30% stake in Korean eCommerce operator 11Street, which is majority-owned by SK Telecom.
Coupang assesses this risk by stating that “many of our competitors have, and potential competitors may have, competitive advantages such as longer operating histories, more experience in implementing their business plan and strategy, better brand recognition, popular offline locations, greater negotiating leverage, established supply relationships, significantly greater financial, marketing, and other resources.”
While Coupang may look to go international in the wake of its IPO, the company is wary that it doesn’t possess anywhere near the same levels of brand recognition and history that its major competitors have - making a more cautious overseas expansion more likely as the market begins to settle in the wake of Covid-19.
How to Invest in Coupang’s IPO
As one of the largest foreign initial public offerings to hit the US market since the 2014 arrival of Alibaba, Coupang’s listing may be an intriguing one for investors. However, for those looking to buy into South Korea’s innovative answer to Amazon, the path to IPO investing isn’t always a straightforward one.
The simplest way of investing in an IPO is to do so on the company’s website itself and look for the opportunity directly. Unfortunately, many businesses veer away from offering IPOs to the general public in favor of selling larger volumes in a single transaction to institutional investors.
Despite this, there are some companies available that allow individual investors to participate in various initial public offerings that would otherwise be difficult to access. In listing Coupang’s IPO for retail investors, Freedom Holding Corp. (FRHC), a NasDaq listed retail brokerage, offers a platform that enables users to apply to participate in multiple IPOs - including that of Coupang - however, the threshold for applications begins at $2,000.
Other more traditional organizations like Fidelity also allow users to participate, but only at a higher threshold of either $100,000 or $500,000 in household assets - depending on the terms of the IPO.
As Coupang looks to its IPO as a catalyst to build on the progress made from a prosperous 2020, it’s certainly worth investors taking a deeper look into the development of South Korea’s innovative ‘Baby Amazon.’
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