eCommerce IPO: Highlights from Korean GMarket's SEC Filing (GMKT)

Key details about the Gmarket IPO. Proposed ticker: (GMKT). Note that a piece of the company (approximately 10%) is being acquired by Yahoo! (YHOO). All excerpts are from the full SEC filing:

Company Description

We are a leading retail e-commerce marketplace in Korea offering buyers a wide selection of products at competitive prices and sellers a comprehensive and flexible sales solution. Our e-commerce marketplace is highly scalable and facilitates the sale of products in small or large quantities to a large number of potential buyers in a convenient, cost effective and secure manner. We derive our revenues primarily from transaction fees on the sale of products on our website as well as from advertising fees and others. Our e-commerce marketplace is located at www.gmarket.co.kr.

We believe we have developed an established and well-known brand name in Korea as evidenced by both our leading market position and rapid growth. We believe we are a leading retail e-commerce marketplace in Korea based on gross merchandise value, or GMV, which represents the total value of all goods sold on an e-commerce marketplace. Further, we believe we are currently a leader in Korea in terms of monthly unique visitors among e-commerce retailers. For the three months ended March 31, 2006, we had GMV of Won 469.15 billion (US$482.96 million) compared to total online retail sales in Korea of Won 3.15 trillion (US$3.24 billion). From January 1, 2003 through April 30, 2006, our GMV has grown 98.2% per year on a compounded annual basis, reaching a GMV of Won 168.00 billion (US$172.95 million) for the month of April 2006. From January 1, 2003 through April 30, 2006, average monthly unique visitors to our website has grown 113.1% per year on a compounded annual basis, reaching approximately an average of 15.3 million average monthly unique visitors for the four months ended April 30, 2006 and our registered users have grown 106.3% per year on a compounded annual basis during the same period, with over 8.6 million registered users as of April 30, 2006.

Key Financial Data
Note: Dollar rates are all at calculated in the filing at the rate of Won 971.4 to US$1.00, the noon buying rate in effect on March 31, 2006. On June 5th, the rate dropped to Won 942.7 to US$1.00. The company provided in the filing a summary of representative rates since 2001; the chart can be viewed here.

Revenue: Revenue is divided into transaction revenue and advertising revenue. The transaction portion has decreased as a percentage of sales from 85% in 2004 to 70% in the first quarter of 2006. Total 2005 revenues were $72.4 million, up close to five fold over 2004 sales. First quarter 2006 revenues were $29 million, just under 3X first quarter 2005 revenues. Gross margins grew from 40% to 47% between 2004 and 2005, and remained around that level in the first quarter of 2006.

Net Income: The company was in positive net income territory for the first time in 2005, when net income hit $5.24 million. It recorded a loss for the first quarter of 2005, and net income of just under $2 million for Q1 2006.

Cash: At the end of Q1, the company had approximately $70 million in cash, including $48 million cash on deposit.

Key Competitors

We compete directly with Auction.co.kr, an auction-based website operated by Internet Auction Co., Ltd., which is a subsidiary of eBay Inc., and Onket.com, an e-commerce marketplace operated by Daum Corporation, one of the leading Internet portals in Korea. We also compete against other online retailers, such as Interpark, our largest shareholder, GS Home Shopping, which operates two online retail websites, CJ Home Shopping and other online retail websites operated by some of the largest department stores in Korea, such as Lotte.com, Shinsegae.com and Hmall.com. We compete indirectly with Internet portals in Korea, such as Naver.com and Nate.com. Additionally, our competitors include traditional retailers and merchandisers, such as department stores, discount warehouses, direct retailers and home shopping channels.

Notable Issues To Watch For

Yahoo! (YHOO) has entered an agreement to acquire approximately 10% of the company's shares from Oak Investment affiliate Dutchco. Following the deal, Yahoo will have a seat on the board of the company. Internet portal operator Interpark Corp. holds 33% of the company, and Interpark Chairman Lee Ki-hyung holds 10.27 percent. Oak is the second largest shareholder with 29% of the company. Note that eBay (EBAY) is active in South Korea through its subsidiary Internet Auction Co. Ltd.

Korean eCommerce Industry

The Internet has emerged as a popular medium for conducting commercial transactions in Korea, in particular for retail e-commerce transactions. The ability to reach a large number of customers at a relatively low cost has made retail e-commerce an attractive sales and marketing channel. According to the Korea National Statistical Office, there were 4,335 online shopping malls that constituted the retail e-commerce industry in Korea accounting for a total GMV [Gross Merchandise Value] of approximately Won 10.7 trillion for the year ended December 31, 2005. The total GMV for the retail e-commerce industry in Korea was Won 7.7 trillion in 2004 and is estimated to become Won 14.6 trillion in 2008, according to the Korea Information Strategy Development Institute. GMV for the retail industry as a whole in Korea was Won 143.5 trillion in 2004 according to the Korean National Statistical Office and is estimated to become Won 168.7 trillion in 2008, according to Euromonitor International.

The evolution of the retail e-commerce industry in Korea is similar to that in the United States. The purchase and sale of goods between and among consumers and retailers have, until recently, been conducted at retail shops, department stores and discount stores. For buyers, these forums generally require face-to-face interactions and significant amount of time and effort in researching product attributes, product availability and prices. For sellers, such forums generally involve higher real estate, labor and inventory costs, with potential sales being limited by the number of outlets as well as hours of operation. We believe the Internet offers the opportunity to provide an alternative sales and marketing channel for sellers to reach a large number of buyers at a relatively low cost and without maintaining a physical store.

Management:
The CEO has a somewhat atypical Internet company background, having come from the oil industry:

Young Bae Ku has served as our chief executive officer and representative director since October 2001. Prior to assuming such position, Mr. Ku was our director in charge of business operations from March to October of 2001. Prior to joining us in October 2000, Mr. Ku led the development of Goodsdaq pilot service at Interpark Corporation from August 1999 to April 2000 and was responsible for business development in the United States for Interpark Goodsdaq Corporation from April to September 2000. Before joining Interpark Corporation, Mr. Ku led field operations in oilfield services for Schlumberger in Middle East and India from March 1991 to June 1999. Mr. Ku received a Bachelor’s degree in Petroleum and Mineral Engineering from Seoul National University.

Underwriters
Goldman Sachs, Cowen, Thomas Weisel