Big Deal: SoftBank invests $1bn in Coupang

Japan-based telecommunications and internet company SoftBank’s agreement on Wednesday to invest $1bn in Coupang, the largest mobile commerce company in South Korea by revenue, illustrated the firm’s e-commerce expansion strategy in Asia.

Coupang offers a diversified e-commerce service that is best known for its rapid delivery capabilities. Because it operates an end-to-end fulfilment service, the company can often deliver orders made in the morning later the same day for no extra charge.

The company is also growing rapidly. Chief executive Bon Kim told Forbes it is on course to sell more than $3bn of goods in 2015, up from $1.8bn last year, and its direct retail revenues have more than tripled in the past six months.

The $1bn increased Coupang’s total funding to about $1.5bn since it was founded in 2010, and the valuation at which SoftBank invested is more than double that at which Coupang raised $300m in December 2014. Its investors also include BlackRock Private Equity Partners, Wellington Management Company, Greenoaks Capital Management, Rose Park Advisors, Sequoia Capital and LaunchTime.

SoftBank will acquire a 20% stake in Coupang through the investment, and sources told Forbes that Coupang’s e-commerce business model was a big part of its appeal to the Japan-based firm.

SoftBank already owns stakes in some of Asia’s largest e-commerce companies, most notably in China-based Alibaba. It invested $20m in Alibaba in 2000, and when its portfolio company went public in September 2014 its 32% stake was worth almost $75bn after the first day of trading.

In addition to the value of any possible exit, SoftBank’s share of Alibaba heralded a longer term strategy, illustrated in November by founder and CEO Masayoshi Son, who said the company would seek to take stakes of between 30% and 40% in Asian internet companies.

SoftBank was an early entrant in corporate venturing, forming early-stage fund SoftBank Capital in 1995, and it has picked up stakes in a reported 1,300 companies including online media companies Huffington Post and Buzzfeed, wearable product maker Fitbit and mobile game developer Zynga.

In addition to early-stage investing, it also owns about 35% of internet company Yahoo Japan and 80% of US-based telecommunications network Sprint, but it has made several mega-scale investments in e-commerce companies in the past year, indicating that its long-term aims are more diversified.

Many of those investments have taken place in India, the world’s second largest nation by population and one of the fastest growing e-commerce markets in the world.

SoftBank paid $627m for a 30% stake in diversified e-commerce company Snapdeal in October 2014, followed by $210m for a stake worth around 20% in car rental and taxi service Ola later the same month, and will reportedly be among the investors in a $400m round that will value Ola at about $3bn.

SoftBank also invested $70m for a 30% stake in real estate portal Housing.com in November, and was reportedly set to provide a nine-figure sum for One97 Communications, the owner of online payment service Paytm, before negotiations fell apart in late 2014.

The company has however also been active elsewhere in Asia, paying $250m in December 2014 to become the largest shareholder of Malaysia-based taxi hailing app provider GrabTaxi and leading a $600m round for China-based ride sharing service Kuaidi Dache in January this year.

SoftBank’s interest in the market is understandable, as onlookers generally agree that much of commerce worldwide is set to move online, and particularly into mobile, in the next few years. Amazon and Uber may dominate much of western e-commerce, but Asian markets tend to be both big and relatively uncrowded, which is why it makes logical sense to invest early in what could end up being the dominant players in each market.

Asia is also notable becaue language and regulatory differences have acted as barriers to to entry into each market. Coupang for instance has been able to claim the lion’s share of the e-commerce market in South Korea partly because Amazon has not yet entered the country, which is why taking stakes in home-grown companies makes sense.

Should SoftBank be able to take substantial stakes in each country’s largest online retail and taxi hailing companies, it could end up being in effect the world’s largest e-commerce company.

According to a Bloomberg Business report in November, the $114bn value of its investments is already significantly larger than its $82bn market cap, and SoftBank’s core expertise in internet service provision would also help to form a route to a more diversified product offering.

Although Alibaba, Tencent and Baidu all originated as different services, they have alll grown into general internet companies through a series of large investments in e-commerce, digital media and app infrastructure companies. SoftBank, an older company than any of those, appears to have plotted a similar course to its future.