Concerns over a worsening cash flow at South Korea’s top e-commerce operator Coupang are escalating amid mounting losses linked to its aggressive investments to expand its service.
A recent report by Hana Investment Securities forecast that Coupang would log an operating loss of about 400 billion won ($320 million) for 2015.
An industry source told The Korea Herald that the loss was much bigger, hovering at around 500 billion won.
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| Coupang CEO Kim Bom |
Yet, the company is pushing for a plan to inject 1.5 trillion won into increasing the number of its delivery personnel and logistics centers nationwide by 2017, continuing the move that began in 2014.
Industry watchers say Coupang’s exorbitant spending in scaling up its exclusive “Rocket Delivery” service and logistics system may be difficult to sustain in the long run.
Six years into its launch, Coupang is perceived as a success case in Korea’s tech start-up industry, growing from a small “daily deal” start-up into the country’s leading source for bargain deals.
Marking the country’s largest-ever Internet investment, Coupang secured $1 billion from SoftBank Corp. in June of last year. The Japanese investor reportedly saw high potential in Coupang’s exclusive delivery system — free delivery within 24 hours by Coupang’s own deliverymen for purchases over 9,800 won.
Despite its shining achievements, analysts have begun to cast doubt on Coupang’s ability to stay afloat, as it continues to spend beyond its earning capabilities.
Coupang’s losses are higher than expected,” said Hana Financial Securities analyst Park Jong-dae in the recent report. “It’s running out of capital at a quick pace,” citing that the firm has likely already used up more than half of the $1 billion injected by Softbank.
Further concerns were raised last month when a local news outlet reported that Coupang planned to sell off two of its prized logistics centers in an attempt to secure new funds. The firm has officially denied the claims.
Meanwhile, Coupang CEO Kim Bom is determined to build up his company as Korea’s undisputed No. 1 e-commerce operator at all costs.
The company continues to abide by its position that “the losses in question were expected and in line with its larger investment agenda,” dismissing concerns over its financial stability.
Citing cases like Amazon and Alibaba, which also posted losses in the beginning stages of their business, Kim said in a recent media interview that the preliminary losses are simply a “part of tracking toward its end goal,” expressing confidence in its projected returns.
Yet, critics point out that Coupang’s calculations may not pan out as planned, given competing e-commerce operators and mega local retailers, including E-mart, are bent on containing Coupang’s success.
E-mart recently announced that it would offer customers “the lowest prices among all retailers” in Korea, starting with diapers and powdered baby formula, which are also Coupang’s best-selling products.
Coupang, which took up just 5.4 percent of the local e-commerce market in 2015, must “secure a significantly larger portion of the market in order to overturn its losses when the market’s overall scale increases in the future,” Park said.
Amazon reportedly dominates about 35 percent of today’s U.S. e-commerce market while Alibaba dominates about 80 percent of its respective market in China.
By Sohn Ji-young (jys@heraldcorp.com)
