Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Nearly 30 years of experience in the Korean/Asian equity research. Major sectors coverage include the following:
- Technology 
- Consumer 
- Special Situations/Deep Value Plays
- Tender Offers/M&As
- Holdcos/Stubs
- Asian Unicorns/Private Companies

Korea/Asia, Events, IPOs

Cafe24 Update: Risks Now Outweigh Rewards

Cafe24: A Compelling E-Commerce Growth Story at Attractive Prices

Equity Bottom-Up

<ul>
<li>
<a href="https://www.smartkarma.com/entities/shopify-inc-de74469e-4678-489b-9b50-a80a5790c5ef" target="_blank" data-smartkarma-citation="entities:25906:1" rel="noopener">Shopify Inc (SHOP US)</a> has been one of the best-performing stocks in the US stock market with its share price surging more than 190% YTD. A company called <a href="https://www.smartkarma.com/entities/cafe24-corp" target="_blank" data-smartkarma-citation="entities:25912:1" rel="noopener">Cafe24 Corp (042000 KS) is </a>the Korea's version of Shopify. Unlike Shopify, Cafe24's share price has declined by 34.5% during the same period. We believe that this extreme price divergence has become too excessive.</li>
<li>Shopify's market cap is now 78x higher than Cafe24's market cap. However, Shopify's sales are only 8.5x higher than Cafe24's sales (2019E). Shopify's sales growth is higher than Cafe24's. From 2018 to 2020, Shopify's CAGR sales growth is expected to be 38.5% whereas Cafe24's sales growth is expected to be lower at 24.1%. On a P/S basis (2020E), Cafe24 is currently trading at 2.6x whereas Shopify is trading at 21.3x. The difference in valuation based on P/E basis is even larger. Cafe24 is trading at a P/E of 25.4x (2020E) whereas Shopify's P/E is much higher at 402x (2020E). </li>
<li>After the disappointing 2Q19 result and revised down outlook, the company's sales and operating profit expectations have been reduced. Despite these lowered revisions, the overall sales and operating profit expectations over the next two years remain attractive. For example, the consensus expects the company's sales and operating profit to increase by 24.1% and 25.3% CAGR from 2018 to 2020, respectively. </li>
</ul>



Shopify Inc (SHOP US) has been one of the best-performing stocks in the US stock market with its share price surging more than 190% YTD. A company called Cafe24 Corp (042000 KS) is the Korea's version of Shopify. Unlike Shopify, Cafe24's share price has declined by 34.5% during the same period. We believe that this extreme price divergence has become too excessive.
Shopify's market cap is now 78x higher than Cafe24's market cap. However, Shopify's sales are only 8.5x higher than Cafe24's sales (2019E). Shopify's sales growth is higher than Cafe24's. From 2018 to 2020, Shopify's CAGR sales growth is expected to be 38.5% whereas Cafe24's sales growth is expected to be lower at 24.1%. On a P/S basis (2020E), Cafe24 is currently trading at 2.6x whereas Shopify is trading at 21.3x. The difference in valuation based on P/E basis is even larger. Cafe24 is trading at a P/E of 25.4x (2020E) whereas Shopify's P/E is much higher at 402x (2020E). 
After the disappointing 2Q19 result and revised down outlook, the company's sales and operating profit expectations have been reduced. Despite these lowered revisions, the overall sales and operating profit expectations over the next two years remain attractive. For example, the consensus expects the company's sales and operating profit to increase by 24.1% and 25.3% CAGR from 2018 to 2020, respectively. 


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