Should Investors Buy Coupang IPO?
2020 was a record year for initial public offerings (IPOs). Not only did hundreds of companies go public in the past year. Many stocks that went public saw their stock prices doubling on their first day of trading. Now, it appears that 2021 is getting off to a similar start. With all the buzz going around the IPO stocks, investors have been looking for an upcoming IPO stock that could deliver tremendous returns when it rings the bell on the New York Stock Exchange. The company is expected to go public on March 11.
South Korean e-commerce giant Coupang filed for IPO on March 5. It revealed rapid growth and narrowing losses as it gears up for a public listing in the U.S. stock market. According to an amended S-1 filing, Coupang expects to price its IPO between $27 to $30 per share. It may raise up to $3.6 billion. This would make it one of the largest Asian IPO since China’s Alibaba (NYSE: BABA) went public in 2014.
For investors who missed the train with BABA stock when it was trading at double digits, could Coupang IPO be your next best bet? Should you be interested in adding this e-commerce stock into your portfolio, it’s worth digging deeper before placing a bet.
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Is Coupang Just Another E-commerce Stock?
Founded in 2010, Coupang has grown over the past decade to become one of the three largest private-sector employers in South Korea. Founded by Korean businessman Bom Suk Kim, the company is headquartered in Seoul. The company aspires to be the Amazon (NASDAQ: AMZN) of South Korea, establishing an end-to-end e-commerce logistics network that provides free next-day delivery 365 days a year. You could say the company is best known for a customer-obsessed e-commerce platform.
But it would be rather simplistic to just say that Coupang is the Amazon of South Korea. The Generalist summarized Coupang as a mix of Amazon, Instacart, and DoorDash (NYSE: DASH) with a pinch of PayPal (NASDAQ: PYPL). Seen through this lens, you can begin to see how the company plays a role in multiple facets of the lives of South Korean consumers. It’s also worth mentioning that the company has strong backings from SoftBank Vision Fund, which currently holds a 39.4% stake in the company. Other investors include BlackRock and Sequoia Capital.
Instead of listing in its home market, South Korea, the company decided to list its shares in the NYSE. Many believe that listing in New York offers a considerable valuation premium. Not to mention it has a deeper, more liquid market and allows uneven voting rights. Another reason for favoring overseas listing is because Koreans don’t ascribe high valuations to loss-making companies like Coupang. To put things in context, if the company proceeded to go public in the Korean stock market, it would probably have only fetched a maximum valuation of $10 billion, as opposed to $50 billion in the U.S. stock market.
Rapid Growth Is Apparent From Its Strong Financials
The company’s revenue totaled $12bn in 2020, up by 90.8% from 2019. While there may be a pandemic boost in 2020, Coupang has compounded revenue at 60% a year from 2016 to 2020. Net revenues per active customer rose to $256 in the fourth quarter of 2020, up from $161 a year earlier. The active customer base climbed to 14.85 million in 2020. That represented a significant increase from 11.79 million in 2019 and 9.16 million in 2018. The company’s net loss narrowed to $474.9m in 2020, from $698.8m in 2019 and $1.1bn in 2018.
Whether all this adds up to a $50 billion valuation is another question. Some believe that Coupang’s future may depend on its ability to become a super-app, similar to its Asian counterparts such as WeChat and Line. The company will also need to fend off advances from domestic rival, Naver.
The company also sees strong potential for further expansion. That is because South Korea is home to one of the largest and fastest-growing e-commerce opportunities globally. The country’s total e-commerce spend could grow to $206bn by 2024, from $128bn in 2019. That implies a compound annual growth rate (CAGR) of approximately 10 percent, according to a report from Capital.com. And as Coupang continues to snap up market share, it may be looking at a huge growth runway ahead.
Bullish Market Environment For High Quality Tech IPOs
Over the past year, it has been a very bullish market environment for high-quality tech IPOs globally. This will also likely have a major positive impact on the Coupang IPO. With so many IPO stocks seeing their prices doubling on their first day of trading, it makes a perfect venue for scalpers and traders alike to make a healthy profit on the first day of trading. Apart from Coupang IPO, the long-awaited Roblox IPO is slated to take place on March 10, one day before the South Korean e-commerce company.
Coupang announced to the world its IPO plans just a couple of weeks ago. But what could make Coupang raise its own IPO valuation by nearly $20 billion just in a span of a few weeks? Could it be the bullish sentiment earlier this year? On the flip side, would the recent weaknesses among tech stocks pose a risk to the Coupang IPO? Considering the volatility we have in the stock market today, it seems we shouldn’t take anything for granted. Of course, we are not saying that things will be bleak. But we should be especially cautious before jumping into any expensive names.
Coupang seems to be on track to have a valuation of more than $50 billion. Thanks to major backing from Softbank and other investors, the company has been able to aggressively snatch market share from its competitors in South Korea. Its focus on user experience has resulted in cohorts of loyal customers. The strong sales growth and upside in nascent business segments make a strong case for the Coupang IPO. Now that the company has raised its value from $30 billion earlier this year to nearly $50 billion, investors have to take note that the steep premium price tag could take away the potential price appreciation from CPNG stock at least in the near term.