Domestic Players Unlikely to Enjoy Lofty Valuations
The author is an analyst of NH Investment & Securities. She can be reached at jy.lee@nhqv.com. -- Ed.
Online retail players to go public
Thus far, no pure online retail players have gone public in Korea, as the market is fragmented and the majority of firms are in the red amid heated competition. That said, a few leading companies stand out, with economies of scale helping to boost their profits sufficiently enough for them to go public, in our view. Under the circumstances, we foresee that Coupang, TMON, and 11st will go public down the road.
Domestic players unlikely to enjoy lofty valuations due to fragmented domestic market
Even if these companies go public, however, they are unlikely to enjoy valuations as lofty as those enjoyed by Amazon (US) and Alibaba (China), given that the domestic market is so fragmented. While NAVER and Coupang are considering venturing into each other’s fields, they have their own distinct product categories and services, and heavy investment is unlikely at NAVER (to completely internalize logistics)or at Coupang (to transform into a comprehensive platform player), given that the domestic market is not big enough to justify such large-scale investment. In 2019, the domestic retail market (excluding auto/parts and fuel) was sized at US$321.6bn, which pales in comparison to the US’s US$4,214.1bn (excluding auto/parts and fuel and service) and China’s US$5,280.5bn (excluding auto/parts and fuel).
Offline retail stocks to be neglected
Share price momentum at offline players is likely to deteriorate, as investor appetite is shifting from offline to online companies. In the US, Amazon’s upsurge since 2015 has widened its share price gap with offline companies to seven times. While Amazon’s share price has surged 939% since 2015, offline companies’ average share price has climbed 50% (a level which would not have been possible if it were not for re-ratings at offline companies conducting online businesses and strong share price rallies for firms running new types of businesses (eg, dollar stores)). Since 2015, the share price gap between Amazon and department store players has widened to a whopping 53 times. While Amazon’s share price has surged 939%, department store operators’ average share price has fallen 80%.