November 23, 2024

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Last month, the much-anticipated public listing of WeWork which failed has disappointed many market watchers. The estimated valuation of the company plummeted from $47 billion to $15 billion, while its maverick CEO Adam Neumann was ultimately forced to step down.

The plummeting valuation of WeWork and other emerging firms like Uber and Slack has raised concerns over SoftBank’s Vision Fund, a major investor in the world’s most hyped startups.

In South Korea, the uncertainty of Vision Fund has brought Coupang under the spotlight. The fund has so far invested 3.4 trillion won ($2.84 million) in Coupang. Thanks to the generous funding, the e-commerce firm carried out an aggressive strategy to attract customers with its differentiated services and earned a reputation as a market disrupter. 

SoftBank CEO Masayoshi Son(left) and Coupang CEO Kim Bom

Park Jong-dae, an analyst at Hana Securities said that Coupang is threatening other established online and offline commerce companies such as eBay Korea and E-mart.

“Coupang is expected to take up 10 percent of the total online e-commerce market share,” Park said.

According to a survey by Wiseapp, Coupang was the most used shopping app among Android users, with 113 million users in September.

The founder of Coupang once vowed to invest until customers could not live without Coupang. The strategy which the company has pursued while piling up losses is finally paying off. But the longevity of the cash-burning strategy depends on its endless funding power.

“Coupang has shown impressive growth since the second half of 2018, but it is not clear whether investors will continue to bet on an unclear business model that is still making losses,” said Lee Jin-hyeob, an analyst with Yuanata Securities.

In the past four years, Coupang has accumulated 3 trillion won in losses. But backed by aggressive investments, it has grown fast,

“Its major investor is facing uncertainty and Coupang may have to rethink its strategy and funding strategy for (its aggressive expansion),” said Lee Jin-hyeob, an analyst with Yuanata Securities.

Lee said funding from other financial investors might not be easy, given its piling losses.

It is unclear how much stake exactly Vision Fund owns in Coupang, but industry watchers estimate it to be up to 50 percent. While Vision Fund is the largest shareholder of Coupang, Kim Beom-suk holds management rights, according to the company.

When it invested 2.3 trillion won in Coupang, Vision Fund stipulated the sales and profits to meet a certain level. If the agreed milestone is not meet, the funding could stop.

That might hinder Kim’s vigorous investment plans sooner than expected.

Coupang’s revenue is expected to hit 10 trillion won. This compares with the combined revenue of G-market and Auction -- both eBay subsidiaries -- of 15 trillion won.

Vision Fund reportedly added drag-along rights to the contract, a protection mechanism for financial investors by which the majority shareholders can force the remaining shareholders to sell the entire company to a third party. Vision Fund could exercise its rights if Coupang’s IPO fails, according to market analysts.

By Park Ga-young (gypark@heraldcorp.com)