If you’re like the founder of Korean e-commerce behemoth Coupang, Bom Kim, you shouldn’t wait around for a fancy graduate degree if opportunity strikes. Even if that degree comes from Harvard’s prestigious MBA program. Less than a decade since dropping out, Kim has turned his company into South Korea’s most valuable startup. Not surprisingly, there’s much anticipation for an initial public offering of Coupang stock.
And that’s always been the intention for the organization, according to various sources. The latest rumors indicate that a Coupang IPO will occur sometime next year.
From my understanding, though, that hasn’t been set in stone yet. Nevertheless, speculative demand will likely be huge considering the interest that the company garnered during multiple rounds of private investing.
Indeed, one of the investors of Coupang stock is Softbank’s (OTCMKTS:SFTBY) Vision Fund, which as of October 2019 invested $2.84 billion. That will probably go a long way in assuaging investor concerns about the Coupang IPO.
As well, the new normal hasn’t turned out to be the unmitigated disaster many of us were thinking it might be. Don’t get me wrong – I’m not downplaying this crisis, unlike some folks. Instead, I’m noting the interesting dichotomy that we’re seeing play out.
For instance, the personal saving rate in the U.S. skyrocketed to nearly 34% this past April. It’s still at ridiculous heights at nearly 18% according to the latest read. Of course, this isn’t surprising given consumer fears about an unprecedented economic shock.
At the same time, millions of Americans have turned to speculating in the markets during the pandemic. With priorities like this, Coupang stock should perform well here.
Coupang Stock Is on Every E-commerce Player’s Radar
But it’s not just outrageous speculation that supports the case for Coupang stock and its potential public offering. Simply, the underlying company has succeeded in a hotly contested Korean market, a market that even the great disrupter Amazon (NASDAQ:AMZN) has failed to gain momentum.
At first, such statements sound unbelievable, perhaps ridiculous. However, two factors are at play here. First, Kim immediately recognized that most Korean consumers wanted quick and convenient delivery. Therefore, he responded quicker than his rivals. Second, most people in Korea live in major metropolitan areas, thereby on paper eliminating much of the problems associated with the last-mile delivery.
In short, the costliest leg of a shipped product’s journey is the proverbial “last” mile. Because before a product can get to your doorstep, it must fight through multiple inconveniences, such as widespread addresses. But due to the high population density of South Korea, delivery vehicles don’t have to log as many miles. According to a CNBC report:
Coupang’s logistics investments have paid off, as 99.3% of orders placed on its site are delivered within one day, the company said. Coupang now delivers 3.3 million items each day, up from an average of 2.2 million units per day at the end of 2019.
And that 99%-plus statistic is rather credible when you consider this fact: Seoul has a population of nearly 10 million in a country with a population of 51.3 million. In other words, nearly one-fifth (19.4% to be more precise) of Koreans live in one city.
I’ve checked other developed countries throughout the world – for you Formula 1 fans, I’m not talking about the Principality of Monaco – and I’m not aware of any nation where one city has anywhere close to 19% of the total population.
Serious Risks to the Coupang IPO
While the above sounds like a compelling opportunity to dive into Coupang stock once it’s available for public or even private investing, here’s the harsh reality: it’s not without its issues and it has several of them.
First, investors should be somewhat skeptical about the last-mile delivery narrative supposedly supporting Coupang stock. Yes, Koreans mostly live in high-density urban population centers. Therefore, the package drop-off points are closer together, but that only eliminates one pressure point.
Remember, heavily populated urban centers create another logistics pressure point, mainly congestion. Forget the political correctness: Asian countries are notorious for traffic. And that could really eat into total time spent on deliveries. Plus, drones may not be a viable option because many Koreans in urban centers live in high-rise apartments.
Second, Coupang stock needs to be tied to an international narrative at some point. Because here’s the deal – the company is burning cash like Samuel L. Jackson’s favorite word. According to a report from Korea JoongAng Daily, Coupang suffered operating losses of $940 million in fiscal year 2018.
Put another way, even with the advantages of high-density drop-off zones and utterly dominating the home market, it’s badly losing money. That wouldn’t be a problem initially but, Korea being a relatively small market, if Coupang doesn’t have a viable international roadmap, these mounting losses are worrisome.
Third, Softbank has supported some credible hits – think insurance app Lemonade (NYSE:LMND) – and some misses, such as WeWork. As you know, WeWork’s attempt to go public was a disaster. Thus, investors may scrutinize the profitability potential of any company seeking a public debut.
That could really bite into the Coupang IPO with a very conservative valuation.
An Intriguing Company That’s Worth Watching Closely
Undoubtedly, Bom Kim has launched a national unicorn. With Coupang, the company has made Amazon rethink its Asian ambitions. As well, its home market of South Korea is already the seventh-largest e-commerce market in the world. And estimates indicate that it could surpass Japan, taking over the third-largest market.
However, you don’t want to dive into a potential Coupang IPO with the blinders on. Sure, the underlying company has many positives. But fundamental sustainability is still an important discussion here. So, if you decide to play – when you’re able to play – do so carefully.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.