Coupang: comparisons with Amazon have been greatly exaggerated

Wall Street has pitched Coupang to US investors as South Korea’s answer to Amazon. The ecommerce company is expected to secure a valuation north of $60bn when it lists on the New York Stock Exchange on Thursday, making it the biggest US listing so far this year. But the comparison is overly generous.

The listing is another win for SoftBank, one of the largest investors in Coupang. The Vision Fund set up by the Japanese tech group has already flipped from an annual loss to a record quarterly profit thanks to a mega listing from DoorDash and Uber’s rising share price. 

Markets have warmed to the sorts of capital-burning tech companies operating in the real world that the Vision Fund backs. But this does not mean the companies have hit on a magic formula for profitability. The idea that Coupang could become a trillion-dollar company such as Amazon is based on flimsy numbers. 

Similarities between the two include a leading market share of online sales in their home market, complaints about poor labour practices, heavy investment in distribution and an expectation that online sales will continue to rise after the pandemic. Like Amazon, Coupang is expanding into groceries and has an interest in food delivery. 

The central difference is funding. Amazon turned free cash flow positive eight years after it was founded. It used its own cash flow to fund its expansion. Coupang is more than a decade old and still relies on external investment to keep the lights on. It reported negative free cash flow of $182.5m last year. That puts it at the mercy of capital markets.

Losses are narrowing, which is always a good sign. But these could rise again if rivals opt to invest heavily in attempts to take market share in South Korea’s notoriously competitive online retail sector.

Coupang succeeded in increasing its share of South Korean ecommerce from 18 per cent to just under 25 per cent last year amid the pandemic. But Amazon had an estimated 47 per cent share of the US market last year, according to Statista. It expects Amazon’s share to reach 50 per cent this year. Amazon changed the way in which Americans shop. Coupang has not. Why then is Coupang valued at a five times multiple of trailing sales — higher than that of Amazon? The comparison is a flawed one.

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