[Click eStock] "Coupang's US Listing Effect... Naver Target Price Up 26%"

[Asia Economy Reporter Ji Yeon-jin] Korea Investment & Securities announced on the 15th that it is raising the target price of Naver's (NAVER) commerce division by 26% to 540,000 KRW, reevaluating its value following Coupang's listing on the U.S. stock market.

Jung Ho-yoon, a researcher at Korea Investment & Securities, stated, "It is evident that Coupang's listing will have a positive impact on Naver's corporate value," adding, "The value of Naver's commerce division estimated by our firm is about 16 trillion KRW, which is only 58.8% of the estimated transaction amount of 27 trillion KRW in 2020. Considering that Coupang's market capitalization is more than four times its 2020 transaction amount, it can be judged that Naver's commerce division is significantly undervalued in comparison."

Coupang recently made a successful debut on the U.S. stock market. Coupang's IPO price was set at $35, and on the 11th, it closed at $49.25, up 40.7%. Its market capitalization reached approximately $88.6 billion. This has increased the likelihood of a reevaluation of the domestic e-commerce market's value, and Naver Shopping is also being reassessed.

In the domestic e-commerce market, Naver and Coupang hold different positions. Coupang mainly secures users by selling products at low prices through direct purchasing and has widened the gap with other open market operators by increasing customer loyalty through membership and Rocket Delivery (same-day delivery) logistics competitiveness. Coupang's users increased by 62.1%, from 9.16 million in 2018 to 14.85 million last year, and the average spending per customer more than doubled from $127 to $256, confirming that its strategy has been effective.

On the other hand, Naver maintains its role as a platform. Naver Shopping displays products from Smart Store, a service Naver provides for small business owners, as well as products from external individual shopping malls and other open markets such as Coupang, 11st, and Gmarket. Naver receives advertising fees or sales commissions of about 2% from these sellers. The 2020 transaction amount of Naver Shopping is estimated to be about 27 trillion KRW, of which 17 trillion KRW is from Smart Store transactions, and the remainder is from external shopping malls.

The winners and losers in the domestic e-commerce market are becoming increasingly clear. Although Coupang continues to operate at a loss, its sales have grown at a compound annual growth rate (CAGR) of 63.5% since 2017, based on a large number of loyal customers. Naver also increased its 2020 sales by 37.6% by building cooperative relationships rather than competing with other operators through its platform position. Both companies significantly outperformed the domestic e-commerce market growth rate of 19.1% in 2020.

In contrast, eBay Korea's 2020 sales growth rate was 18.7%, 11st's was 2.8%, and Wemakeprice's sales decreased by 17.0%, all underperforming the overall market growth rate.

Currently, Naver Shopping's monthly active users (MAU) are estimated to exceed 20 million, while Coupang's MAU was 14.5 million in 2020 and is rapidly catching up. If Coupang's user base continues to grow and it secures enough loyal customers, there is a possibility that the cooperative relationship could break down, such as Coupang no longer exposing its products on Naver Shopping as it did in the past.

However, the growth driver of Naver Shopping is Smart Store. In the fourth quarter of last year, Naver's Smart Store transaction amount recorded high growth of 76% year-on-year, and in December, it grew by 91%.

Naver is also focusing on nurturing Smart Store by providing mid-interest loans and various software tools necessary for store operations to Smart Store sellers. Efforts to increase customer loyalty are ongoing, including Plus Membership, strengthening logistics competitiveness through cooperation with CJ Logistics, and expanding product lineups through Brand Store.