The Long Case for Gmarket: Korea's Online Marketplace

If you’ve noticed that I rarely cover international stock buys, that’s because I was waiting for TradeKing to receive my holdings transfer. My account is now live, so let’s get back to finding some great international stocks to buy.

Gmarket (GMKT): A Korean Marketplace

Gmarket is an online marketplace for Korean buyers and sellers, and is in direct competition with eBay’s (EBAY) subsidiary, Internet Auction (you have to translate the page). The stock went public in 2003, experienced a rough 2004, and has become especially profitable in 2006. Even though I already own holdings in eBay, I think Gmarket could be a possible takeover target because Yahoo! already owns a 10% stake in the company. So, let’s get down to analyzing this high flying Korean Stock.

Gmarket Company Report

Gmarket Inc. (GMKT) is a retail e-commerce marketplace in Korea offering buyers a selection of products and sellers a flexible sales solution. The Company’s commerce marketplace facilitates the sale of products in small or large quantities to a large number of potential buyers. Gmarket derives its revenues primarily from transaction fees on the sale of products on its Website, as well as from advertising fees and others. The Company’s e-commerce marketplace is located at www.gmarket.co.kr. Sellers are offered flexible listing options utilizing Gmarket’s five trading platforms and other services, including its Gmarket Sales Manager software program (GSM program), training and customer support and delivery services. Products listed for sale on the Company’s Website include apparel, beauty products, computers, electronics, furniture and jewelry and are coupled with product information, including pictures, product descriptions and customer reviews and commentary. (Source: MSN Money)

A Unique Business Model

Gmarket is not your typical auction site. While most auction giants like Amazon or eBay focus on single sellers and “store” sellers to drive sales and commission fees, Gmarket’s niche market is small to medium businesses.

The key to achieving our leadership has been our unique business model and effective targeting of the broadest seller segment, resulting in a tremendous selection of products available to our buyers. Our business focus has always been somewhat different from existing players in the market. Instead of focusing on large businesses or occasional sellers, we have focused on the needs of small to medium sized businesses. In Korea, this group of sellers has been the most active in adopting the Internet for their business and they have been the driving force of e-commerce market growth. Having captured this middle ground and achieving the critical mass of both buyers and sellers, we are well positioned to expand our seller base to large businesses as well as occasional sellers (Source: Gmarket Business Model)

Key Findings on Gmarket

Revenue grew to $51.6 million in Q4 2006, representing a 67% increase in revenue from $30.9 million in Q4 2005.

Gross Merchandise Volume, the key metric used to evaluate total value of all items sold, increased by 53% to $737.4 million in Q4 2006 from $480.8 million in Q4 2005.

Operating income grew to $6.6 million in Q4 2006, representing a 120% increase from $3 million for the same period in 2005.

Does Gmarket Make Money for Shareholders?

Amazingly, GMKT carries zero debt on their balance sheet, which is particularly impressive for an online marketplace still in its infancy. Retained earnings have increased nearly 1400% from Q1 2006 to Q4 2006, and Gmarket tripled their short term & cash holdings during the same period as well. Although companies like eBay have always been profitable, Gmarket is beginning to hit their stride, and I don’t see anything stopping them anytime soon, unless it involves a takeover.

Get On This Growth Train!

EPS are projected to grow at 34% over the next 5 years, well above my minimum requirement of 15% EPS annual growth. Also take into account that eBay has lost considerable market share to Gmarket. 68% of the Korean population are internet users (.pdf), the highest percentage in the world. Not only does Gmarket’s competitors have to worry about the highly competitive Korean e-commerce market, but Gmarket plans to expand its operations to Japan and China in the near future. Could this be the end to eBay’s domination over the Asian e-commerce market?

GMKT 1-yr chart