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February 17, 2021
On Feb. 12, South Korean ecommerce company Coupang released its S-1 in anticipation of an IPO on the New York Stock Exchange. The company is expected to seek a valuation around $50 billion, which would make it the largest U.S. IPO by a foreign entity since Alibaba went public in 2014.
Coupang hasn't yet disclosed its target listing date or share price.
What Does Coupang Do?
Coupang was founded in 2010 by Bom Kim. Prior to founding Coupang, Kim interned at the New Republic, worked for Boston Consulting Group and launched a magazine geared toward Harvard alumni. Kim decided to drop out of Harvard Business School to start a digital commerce company in Korea. That company began as a Groupon clone but eventually pivoted into ecommerce.
Coupang has since grown into the largest ecommerce company in Korea. It operates a vast logistics network with more than 15,000 full-time drivers. Over 70% of the Korean population lives within 7 miles of a Coupang logistics center.
In some ways, Coupang's logistics make even Amazon look slow and inefficient (though, to be fair, Korea is 1% the size of the U.S.). Coupang offers free next-day delivery on items purchased before midnight. Customers leave reusable containers outside their doors, so most packages are delivered without an additional cardboard box. And customers can make returns just by leaving items outside their homes and notifying Coupang via mobile app.
Coupang has leveraged its vast ecommerce business to expand into related sectors including meal delivery, online grocery fulfillment, payment processing and digital advertising. These new business segments have largely been successful, but altogether they accounted for less than 10% of total revenue in 2020.
Coupang only serves the Korean market, which is on track to become the world's third-largest ecommerce market before the end of the year. Coupang had 14.8 million active customers at the end of 2020, suggesting it still has ample room to grow in the nation of nearly 52 million people. Notably, in the growth strategies section of its S-1, Coupang lists growth initiatives within Korea but doesn't mention the possibility of international expansion.
There's a reason investors are so eager for this IPO: Coupang's revenue nearly doubled between 2019 and 2020, now at $12 billion.
Coupang isn't yet profitable, though it has managed to lessen losses over time. In 2018, for instance, Coupang posted a net loss of $1.1 billion, while in 2020 that loss shrank to just $475 million.
What Could Go Wrong?
Three factors stand out from Coupang's risk section: competition, operating costs and labor conflicts.
Coupang has invested so much in its logistics network that it would be difficult for a new entrant to offer comparable services. But unfortunately for Coupang, its overseas competitors have extremely deep pockets. In November 2020, Amazon purchased what could become a 30% stake in Korean ecommerce operator 11Street, which is majority-owned by SK Telecom.
- Coupang writes in its S-1: "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."
- It's also important to understand that Coupang doesn't enjoy the same domestic protectionist policies that allowed Alibaba to thrive in the absence of U.S. Big Tech. Coupang writes: "Some of our competitors control other products and services that are important to our success, including credit card interchange, Internet search, and mobile operating systems. Such competitors could … make it difficult for customers to utilize our apps or websites, or change pricing, availability, or the terms or operation of service related to their products and services in a manner that impacts our competitive offerings."
Coupang is unique in the ecommerce space in that it operates an end-to-end logistics network. This strategy transformed Coupang into one of the top three private sector employers in Korea — the company's workforce doubled to 50,000 employees over the span of 2020, and it plans to double again by 2025.
- Coupang cites the risk that it never gets the associated operational costs under control: "If we do not expand and operate our fulfillment and delivery infrastructure successfully and efficiently, or there are delays in the expansion of our fulfillment and delivery operations, we could experience excess or insufficient fulfillment and delivery capacity in one or more locations, an increase in costs or impairment charges, or other adverse impacts."
And much like Amazon, Coupang has drawn scrutiny for the working conditions in its warehouses.
- During the pandemic, Coupang continued to operate a windowless warehouse, even after workers tested positive for COVID-19, according to an investigation from Rest of World. By the end of the outbreak, 84 workers from that particular warehouse contracted COVID-19.
- Coupang writes of potential ramifications from such incidents: "We have been and will continue to be subject to inspections, investigations, disputes, and litigation relating to these labor and employment laws and regulations."
- Difficult working conditions have also led to "higher than average turnover" for Coupang's fulfillment roles. The company says that the higher turnover, combined with "an overall tightening of the labor market and an emerging trend of shortage of labor supply," could affect its bottom line.
- Some employees have also unionized, and Coupang says unionization efforts could hurt their business.
Who Gets Rich?
SoftBank owns approximately 38% of Coupang, according to The Wall Street Journal. Coupang didn't disclose the ownership stakes of its shareholders in the S-1, but Greenoaks Capital Management, Sequoia Capital and BlackRock were all early investors.
What People Are Saying?
- "It's been sought after by virtually every major company as an acquisition target for a long time — Amazon, Alibaba and the like." —Andrew Ross Sorkin gave his initial thoughts on the Coupang IPO as news broke during Squawk Box filming.
- "Referred to internally as 'spreaders of happiness,' Coupang Men were the spiritual ambassadors of the company. To win over female customers in their 20s and 30s — a key demographic — Coupang Men handed out flowers and handwritten cards, snapped photos of packages to confirm delivery, and would know not to ring the doorbell at homes with babies." —Max Kim wrote in an excellent piece about the Coupang warehouse COVID-19 outbreaks from November 2020.