Stock Review: Gmarket GMKT

Gmarket Inc. GMKT is a retail e-commerce marketplace in Korea. They offer the buyers a wide range of products to choose among. The potential buyers can also get hold of products in small or large quantities, thus providing the desired flexibility. Sellers are provided with flexible sales solutions. Sellers can utilize Gmarket’s trading platform, training and customer support system and delivery services. Popular products listed for sale includes apparel, beauty products, computers, electronics, furniture and jewelry. These products are coupled with product information, including pictures, product descriptions and customer reviews and commentary. (Source: Google Finance)

Business Summary
Gmarket has revolutionized the collectibles market by bringing together buyers and sellers internationally in a huge, never-ending yard sale and auction. Large international companies, sell their newest products and offer services using competitive auctions and fixed-priced storefronts. Regional searches of the database make shipping slightly more cheaper.

Gmarket does not handle the goods, nor does it transact the buyer-seller payments, except through its subsidiary shopping mall credit. Just like newspaper ads, sellers rely on the buyers’ good faith to make payment, and buyers rely on the sellers’ good faith to actually deliver the goods intact. To build trust, Gmarket maintains, rates, and publicly displays the post-transaction feedback from all users, whether they buy or sell. The buyer is encouraged to examine the sellers’ feedback profile before bidding to rate their trustworthiness. Sellers with high ratings generally have more bids and garner higher bids. Gmarket also has a significant affiliate program. (Source: Investopedia)

There has also been controversy regarding items put up for bid that violate ethical standards. However Gmarket tries to resolve these issues by removing the auctions that violate its terms of service within a short time frame.

Revenue
Gmarket primarily generates revenue from transaction fees on the sale of products from their website. Additionally they earn money from advertising fees and affliate programs.

1-Year Technical Chart

The chart shows that the last 4 quarter earnings have been up, and Gmarket has been able to live up to the analyst expectation.

Key Stats
Gmarket’s market capital stands at $960 million, with decent EPS of 0.45 and a bit higher P/E of 43.13 and an excellent 5 year PEG of 1.23. The 52 week range was 12.28 – 28.00 with current price at 19.92. The average 3 month trading volume was around 717k shares. Dividend lovers will be disappointed since Gmarket does not pay any dividend as of now. Institutional investors own 14% stakes in the company.

  • Profitability
    • Profit Margin (ttm): 12.10%
    • Operating Margin (ttm): 10.41%
  • Management Effectiveness
    • Return on Assets (ttm): 6.12%
    • Return on Equity (ttm): 33.56%
  • Income Statement
    • Revenue (ttm): $188.28 million
    • Revenue Per Share (ttm): 4.161
    • Qtrly Revenue Growth (yoy): 69.60%
    • Qtrly Earnings Growth (yoy): 246.20%
  • Balance Sheet
    • Total Cash (mrq): $199.07 million
    • Total Debt (mrq): 0
    • Total Debt/Equity (mrq): N/A
  • Cash Flow Statement
    • Operating Cash Flow (ttm): $59.92 million

mrq = Most Recent Quarter (as of 31-Mar-07)
ttm = Trailing Twelve Months (as of 31-Mar-07)
yoy = Year Over Year (as of 31-Mar-07)

Wall St Consensus vs. Performance

For fiscal year 2007, analysts estimate that GMKT will earn $0.65. For fiscal year 2008, analysts estimate that GMKT’s earnings per share will grow by 25% to $0.81.

Analyst Recommendations

Of the total 6 companies following GMKT, 6 analysts currently publish recommendations. 1 analyst has a BUY rating, 3 have BUY/HOLD rating, and 2 have HOLD rating.

Industry OutLook

The general analyst opinion on internet retail industry is neutral. Despite favorable growth prospects for online retail sales, caution is recommended. Reason being ongoing price reductions in response to increasing competition, notable shipping costs due to high fuel prices, and growing marketing expenses is a concern. A technology research firm projects that worldwide e-commerce spending will increase from $295.4 billion in 2004 to $1.1 trillion in 2009, amounting to average annual increases of 30%.

Conclusion: Gmarket’s e-commerce business is growing by leaps and bounds in Korea. Gmarket offers a strong combination of convenience, selection, information and value compared to off-line competitors. Number of internet users in Korea is ranked number one in the world, which provides higher business activity for Gmarket. Gmarket’s advanced technology has made e-commerce transactions easier to complete and more reliable and secure. Their revenue model is working out very well, with more and more international advertisers adding to their list. Gmarket’s P/E, EPS and PEG are all very well priced, with zero debt, profit margin of 12% and ROE of 33%. Overall analyst recommendation is 2.2/5.0, all in all making it an attractive long term play.