Coupang's US Stock Soars After Membership Price Hike...Examining Its Corporate Governance [Business & Issues]

⑮Is Native E-commerce Coupang a Korean Company?
Coupang, a Fully American Company in Terms of Ownership
Started Not as Startup 'Flip' but from a US Company
Raises Membership Fees in Korea... Will Profit Structure Improve?

[Image source=Yonhap News]

South Korea's leading e-commerce company Coupang is increasing the financial burden on domestic consumers with a sudden membership fee hike, while the stock price of Coupang's U.S.-listed parent company has surged sharply in a short period, sparking controversy. It has become difficult to avoid criticism that the price increase burden was placed on Korean consumers to easily improve the profitability of the U.S. parent company and boost its stock price. Although Coupang's Korean branch, the actual business entity, is called a 'native e-commerce' as the market leader, it maintains a complete U.S. corporate structure in terms of governance.

Called the No. 1 native e-commerce in Korea... but governance is that of a U.S. company

On March 11, 2021 (local time), Kim Beom-seok, Chairman of Coupang's Board of Directors, is taking a commemorative photo in front of the New York Stock Exchange (NYSE) in the United States to celebrate Coupang's listing on the New York Stock Exchange.
[Image source=AP·Yonhap News]

The stock price of Coupang Inc., the parent company of Coupang listed on the New York Stock Exchange, has risen more than 22% this month. On the 13th, when Coupang Korea announced a 58% increase in the monthly membership fee, expectations for Coupang's profitability improvement grew, causing the stock price to surge sharply in a short period.

The possibility that U.S. shareholders influenced Coupang to consider raising membership fees to improve profitability is high. Since September last year, U.S. Coupang Inc. shareholders have filed a class-action lawsuit claiming the stock price was too low, putting Coupang in a position where it needed to find a breakthrough to improve profitability. Although Coupang's stock price reached an intraday high of $69 on its listing day, March 11, 2021, it stagnated afterward and remained in the $10 range until early this month.

In terms of governance, Coupang Inc., the U.S. headquarters, owns 100% of the shares of the Korean branch, making it a U.S. company. Major shareholders of Coupang Inc. include SoftBank Vision Fund (23.9%), Chairman of the Board Kim Beom-su (10.1%), and Morgan Stanley (6.9%). The board of directors is composed of Korean-American Chairman Kim and other key American directors. Although Chairman Kim is not the largest shareholder of Coupang Inc., he was granted Class B common shares with differential voting rights equivalent to 29 times those of ordinary shares at the time of listing, giving him 76.7% of the voting rights. Thus, the governance structure itself is that of a complete U.S. company.

Called a startup 'flip' strategy textbook... but started at U.S. headquarters

Coupang achieved an operating profit of over 600 billion won last year, marking its first annual profit in 14 years since its founding in 2010. The photo shows Coupang headquarters in Songpa-gu, Seoul, on the 28th. Photo by Jinhyung Kang aymsdream@

Some view Coupang's listing on the U.S. stock market as an example of startups adopting a 'flip' strategy to receive U.S. venture capital (VC) investment. The flip strategy refers to a company that originally established and operated a corporation in Korea, then set up a branch in the U.S. aiming for U.S. VC investment, and through share exchanges between the two entities, converted the U.S. branch into the parent company and the Korean headquarters into a 100% subsidiary.

However, Coupang actually started with the U.S. parent company Coupang Inc. first attracting investment and then establishing and operating the Korean branch. Chairman Kim founded Forward Ventures LLC, the predecessor of Coupang Inc., in the U.S. in July 2010, and later established Forward Ventures LLC, the predecessor of Coupang, in Korea. Coupang was originally the name of a social commerce service but changed its company name from Forward Ventures to Coupang in 2017.

The reason the business entity could be established in Korea after setting up the investment-attracting company in the U.S. is presumed to be because Chairman Kim, after graduating from Harvard University, worked as a consultant at Boston Consulting Group (BCG) and built connections in the U.S. investment industry. Since its establishment, Coupang has successfully attracted large-scale investments from global VCs, including $1 billion (about 1.38 trillion KRW) from Japan's SoftBank, $300 million from the BlackRock consortium, and $100 million from U.S. Sequoia Capital.

Was the aggressive membership fee hike the best option?

Although Coupang's significant membership fee increase may help improve profitability and boost stock prices, concerns are rising that its market dominance could weaken as competitors aggressively seek to attract members amid forecasts of massive member churn.

Immediately after Coupang announced a 58% increase in the monthly membership fee from 4,990 KRW to 7,890 KRW, competitors such as Naver and Kurly offered '3 months free membership,' while Gmarket and Auction reduced annual fees by more than 80%, launching membership discounts. They started aggressive marketing campaigns anticipating the possible departure of Coupang's 14 million members.

The rapid growth of Chinese e-commerce platforms like AliExpress and Temu is intensifying competition further. Last month, AliExpress had 8.87 million domestic users, more than quadrupling in two years. Temu's users also surged 42.8% in one month to 8.29 million last month.

Even if Coupang uses the membership fee increase to improve profitability, its low operating profit margin, which has remained in the 1% range for a long time, and accumulated deficit of $4.383 billion (about 6.063 trillion KRW) mean that fundamental structural improvements may take time.