SOURCE: Gmarket Inc.

November 08, 2006 16:00 ET

Gmarket Reports Third Quarter 2006 Financial Results

-- Third Quarter 2006 Revenues Increased to $43.5 Million (Won 41.2 Billion), a 125% Year-Over-Year Growth

-- Third Quarter 2006 Diluted EPS Increased to $0.11 (Won 109), From $0.003 (Won 3) in Third Quarter 2005

SEOUL, SOUTH KOREA -- (MARKET WIRE) -- November 8, 2006 -- Gmarket Inc. (NASDAQ: GMKT) ("Gmarket") announced today unaudited financial results for the third quarter ended September 30, 2006.

Gmarket reported total revenues of $43.5 million (Won 41.2 billion) for the third quarter of 2006, representing a 125% increase from total revenues of $19.3 million (Won 18.3 billion) in the third quarter of 2005.

The Company's gross merchandise value ("GMV"), which represents the total value of all items sold on Gmarket's website, increased by 103% to $604.6 million (Won 573.0 billion) from $298.3 million (Won 282.7 billion) for the same period in 2005. As a result, transaction fee revenues for the third quarter of 2006 were $27.6 million (Won 26.1 billion), representing a 73% increase from $15.9 million (Won 15.1 billion) for the same period in 2005.

Advertising and other non-transaction revenues for the third quarter of 2006 were $15.9 million (Won 15.1 billion), representing a 369% increase from $3.4 million (Won 3.2 billion) for the same period in 2005. The Company continued to increase its revenues from advertisements and listing fees, which primarily drove the growth in the Company's non-transaction revenues.

The gross margin for the third quarter of 2006 was 52.3% of total revenues, compared with 45.4% for the third quarter of 2005. The primary factors contributing to the improvement in gross margin were increased non-transaction revenues and efficiencies gained in cost of revenue items. During this quarter, we reclassified delivery service costs we incurred as cost of revenue which were part of sales and marketing expenses in the previous quarters.

Net income for the third quarter of 2006 was $5.7 million (Won 5.4 billion), compared to about $0.2 million (Won 0.2 billion) in the same period in 2005. Earnings per diluted share for the third quarter of 2006 increased to $0.11 (Won 109), from $0.003 (Won 3) in the same period in 2005. The weighted average number of diluted shares for the third quarter of 2006 increased to 49.8 million, reflecting the Company's initial public offering.

"We had continued growth and improved margins in the third quarter, while once again reaching record highs in GMV, registered users and monthly unique visitors," said Young Bae Ku, Chief Executive Officer of Gmarket. "Based on our strong performance towards the end of the third quarter, in particular, we expect this momentum to carry into the fourth quarter, which is also our seasonally strongest quarter."

During the third quarter of 2006, the Company's registered user base grew to over 10.1 million, a 10% increase from 9.2 million registered users in the second quarter of 2006. In addition, the Company had 17.1 million unique visitors, a 34% increase from 12.7 million unique visitors during the third quarter of 2005.

As of September 30, 2006, the Company had cash and cash equivalents of $41.6 million (Won 39.4 billion). The balance of cash on deposit increased to $128.7 million (Won 122.0 billion) from $51.6 million (Won 48.9 billion) at June 30, 2006, mainly due to the inclusion of net proceeds from the Company's initial public offering on the Nasdaq National Market on June 29, 2006. The Company added $84 million in net proceeds to the balance sheet after the issuance of American Depositary Shares to investors, the closing of which took place on July 5, 2006.

The Company reported $15.4 million (Won 14.6 billion) of cash provided by operating activities for the third quarter of 2006.

Investor Conference Call / Webcast Details

The Company's management will review detailed third quarter 2006 results on Wednesday, November 8, 2006 at 6:00 p.m. U.S. Eastern Time (8:00 a.m., November 9, 2006 in Seoul, Korea). A live webcast of the conference call will be available on Gmarket's website at www.gmarket.co.kr/IR/.

Dial-in details for the conference call are as follows:

US: +1 617 597 5326
Hong Kong: +852 3002 1672
Singapore: +65 6823 2164
U.K.: +44 (0) 207 365 8426
Korea: +82 00 308 13 1153

Password for all regions: Gmarket

A replay of the call will be available on November 8, 2006 at 9:00 p.m. U.S. Eastern Time (11:00 a.m., November 9, 2006 in Seoul, Korea) through midnight on November 15, 2006 U.S. Eastern Time (2:00 p.m., November 16, 2006 in Seoul, Korea) at www.gmarket.co.kr/IR/ and by telephone at +1 617 801 6888, with passcode 41972132.

Notes: (1) The Dollar amounts provided in this release are based on an exchange rate of Won 947.60 to US$1.00, which is the noon buying rate in effect on October 2, 2006 as quoted by the Federal Reserve Bank of New York. (2) GMV should not be construed as an alternative to revenues or any other measure of performance determined in accordance with U.S. GAAP. Other companies may determine GMV in a different manner to Gmarket.

About Gmarket

Gmarket Inc. is 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. Gmarket's 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. Gmarket's e-commerce marketplace is located at www.gmarket.co.kr.

Safe Harbor Under the Private Securities Litigation Reform Act of 1995

Certain statements in this filing on Form 6-K may include, in addition to historical information, "forward-looking statements" within the meaning of the "safe-harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements can generally be identified by the use of forward-looking terminology, such as "may," "will," "expect," "intend," "estimate," "anticipate," "believe," "project," or "continue" or the negative thereof or other similar words, although not all forward-looking statements will contain these words. These forward-looking statements are based on the Company's current assumptions, expectations and projections about future events. All forward-looking statements involve risks and uncertainties that may cause the Company's actual performance, financial condition or results of operations to be materially different from those suggested by the forward-looking statements, including, but not limited to, the Company's ability to diversify revenues; the Company's ability to compete effectively in a highly competitive industry; the Company's ability to anticipate and access technological developments in the Company's industry; the Company's ability to recruit and retain quality employees as the Company grows; the Company's ability to implement the Company's growth strategies; and economic and political conditions in and outside of Korea. Investors should consider the information contained in the Company's submissions and filings with the SEC, including the Company's registration statement on Form F-1, as amended, together with such other documents as the Company may submit to or file with the SEC from time to time, including on Form 6-K. The forward-looking statements speak only as of this filing on Form 6-K and the Company assumes no duty to update them to reflect new, changing or unanticipated events or circumstances.

                               GMARKET INC.
                          UNAUDITED BALANCE SHEET

(in millions of Korean Won and in thousands of US dollars)

                                       December     September   September
                                          31,          30,          30,
                                         2005         2006         2006
                                      -----------  ----------- ------------
                                       (Audited)
Assets
Current assets
  Cash and cash equivalents               W36,898      W39,444      $41,625
  Cash on deposit                          45,300      121,950      128,693
  Restricted cash                           2,100        5,800        6,121
  Accounts receivable, net                 16,244       27,406       28,921
  Other current assets                      2,517        4,078        4,304
                                      -----------  ----------- ------------
    Total current assets                  103,059      198,678      209,664
                                      -----------  ----------- ------------
Long-term financial instruments             5,260        5,000        5,276
Held-to-maturity securities                 4,000        4,000        4,221
Property and equipment, net                 8,188       11,574       12,214
Other assets                                  551        1,315        1,389
                                      -----------  ----------- ------------
Total assets                             W121,058     W220,567     $232,764
                                      -----------  ----------- ------------

Liabilities and Shareholders' Equity
Current liabilities
  Account payable to sellers             W 93,458     W 92,259     W 97,361
  Accounts payable                         10,859       13,375       14,115
  Deferred revenue                          2,180        3,348        3,533
  Other current liabilities                 4,428       10,051       10,607
                                      -----------  ----------- ------------
    Total current liabilities             110,925      119,033      125,616
                                      -----------  ----------- ------------
Accrued severance benefits                    428        1,157        1,221
                                      -----------  ----------- ------------
    Total liabilities                     111,353      120,190      126,837
                                      -----------  ----------- ------------
Commitments and contingencies                   -            -            -
Preferred shares, convertible               7,339            -            -
                                      -----------  ----------- ------------

Shareholders' equity
Common shares                               3,040        4,951        5,224
Additional paid-in capital                    518       86,203       90,970
Loan to employees for stock purchase         (389)           -            -
Retained earnings (Accumulated
 deficit)                                    (803)       9,223        9,733
                                      -----------  ----------- ------------
    Total shareholders' equity              2,366      100,377      105,927
                                      -----------  ----------- ------------
Total liabilities and shareholders'
 equity                                  W121,058     W220,567     $232,764
                                      -----------  ----------- ------------



                               GMARKET INC.
                      UNAUDITED STATEMENT OF INCOME

(in millions of Korean Won and thousands of US dollars, except per share
   data)

                                         Three Months Ended September 30,
                                        ----------------------------------
                                           2005        2006        2006
                                        ----------  ----------  ----------
Revenues
  Transaction fees                         W15,068     W26,109     $27,553
  Advertising and others                     3,220      15,097      15,932
                                        ----------  ----------  ----------
Total revenues                              18,288      41,206      43,485
Cost of revenues                             9,981      19,651      20,738
                                        ----------  ----------  ----------
  Gross profit                               8,307      21,555      22,747
Operating expenses
  Sales and marketing                        7,443      12,534      13,227
  General and administrative                 1,023       4,917       5,189
                                        ----------  ----------  ----------
    Operating income(loss)                    (159)      4,104       4,331
Other income (expense)
  Interest income                              321       1,684       1,777
  Others, net                                   27         435         459
                                        ----------  ----------  ----------
    Income before income tax expenses          189       6,223       6,567
Income tax expenses                              -        (802)       (846)
                                        ----------  ----------  ----------
Income before cumulative effect of
 change in accounting principles               189       5,421       5,721
Cumulative effect of change in
 accounting principles                           -           -           -
                                        ----------  ----------  ----------
Net income                                    W189      W5,421      $5,721
Accretion to preferred shares to
 redemption price                              (41)          -           -
Amount allocated to participating
 preferred shareholders                        (44)          -           -
                                        ----------  ----------  ----------
Net income applicable to common
 shareholders                                 W104      W5,421      $5,721

Earning per share - basic                       W4        W110       $0.12
Earning per share - diluted                     W3        W109       $0.11
Weighted average number of shares -
 basic                                  29,355,435  49,109,707  49,109,707
Weighted average number of shares -
 diluted                                30,641,193  49,798,911  49,798,911



                                          Nine Months Ended September 30,
                                        ----------------------------------
                                           2005        2006        2006
                                        ----------  ----------  ----------
Revenues
  Transaction fees                         W34,390     W70,122     $74,000
  Advertising and others                     7,361      36,282      38,288
                                        ----------  ----------  ----------
Total revenues                              41,751     106,404     112,288
Cost of revenues                            22,889      53,335      56,284
                                        ----------  ----------  ----------
  Gross profit                              18,862      53,069      56,004
Operating expenses
  Sales and marketing                       15,065      34,566      36,477
  General and administrative                 3,017      10,454      11,032
                                        ----------  ----------  ----------
    Operating income(loss)                     780       8,049       8,494
Other income (expense)
  Interest income                              763       3,245       3,425
  Others, net                                   27         436         460
                                        ----------  ----------  ----------
    Income before income tax expenses        1,570      11,730      12,380
Income tax expenses                              -      (1,723)     (1,819)
                                        ----------  ----------  ----------
Income before cumulative effect of
 change in accounting principles             1,570      10,007      10,561
Cumulative effect of change in
 accounting principles                           -          19          20
                                        ----------  ----------  ----------
Net income                                  W1,570     W10,026     $10,581
Accretion to preferred shares to
 redemption price                             (124)          -           -
Amount allocated to participating
 preferred shareholders                       (474)          -           -
                                        ----------  ----------  ----------
Net income applicable to common
shareholders                                  W972     W10,026     $10,581

Earning per share - basic                      W38        W268       $0.28
Earning per share - diluted                    W33        W262       $0.28
Weighted average number of shares -
 basic                                  25,787,868  37,356,009  37,356,009
Weighted average number of shares -
 diluted                                29,760,523  38,268,494  38,268,494




                               GMARKET INC.
                    UNAUDITED STATEMENT OF CASH FLOWS

(in millions of Korean Won and thousands of US dollars)

                                          Three Months Ended September 30,
                                           -------------------------------
                                             2005       2006       2006
                                           ---------  ---------  ---------
Cash flows from operating activities:
  Net income                                    W189     W5,421     $5,721
  Adjustments
Depreciation and amortization                    297        816        861
Stock-based compensation expense                  31        231        244
Provision for bad debt                            11         63         66
Provision for severance benefits                 125        359        379
Cumulative effect of change in accounting
 principles                                        -          -          -
Deferred tax assets                                -        202        213
Provision for loyalty program reserve            477      1,199      1,265
    Changes in operating assets and
     liabilities
  Accounts receivable                         (2,237)    (7,081)    (7,472)
  Amounts payable to sellers                  20,237     13,457     14,201
  Accounts payable                             2,630       (707)      (746)
  Deferred revenue                               434        251        264
  Other current assets                          (294)       511        539
  Other assets                                     9         28         29
  Other current liabilities                      127       (106)      (112)
  Payment of severance benefits                   (3)       (30)       (31)
                                           ---------  ---------  ---------
Net cash provided by operating activities     22,033     14,614     15,421
                                           ---------  ---------  ---------
Cash flows from investing activities:
  Increase in cash on deposit, net           (11,400)   (73,000)   (77,037)
  Increase in restricted cash, net              (900)         -          -
  Increase in long-term financial
   instruments, net                              (30)       (30)       (32)
  Purchase of held-to-maturity securities     (4,000)         -          -
  Purchase of property and equipment            (844)    (1,588)    (1,675)
  Decrease (increase) in other current
   assets                                          -          -          -
  Increase in other assets, net                  (60)       (15)       (15)
                                           ---------  ---------  ---------
Net cash used in investing activities        (17,234)   (74,633)   (78,759)
                                           ---------  ---------  ---------
Cash flows from financing activities:
  Issuance of common shares, net                 694     79,611     84,013
  Decrease (increase) in loan to employees
   for stock purchase                           (388)       173        182
                                           ---------  ---------  ---------
Net cash provided by financing activities        306     79,784     84,195
                                           ---------  ---------  ---------
Net increase in cash and cash equivalents      5,105     19,765     20,857
                                           ---------  ---------  ---------
Cash and cash equivalents
Beginning of year                             16,319     19,679     20,768
                                           ---------  ---------  ---------
End of period                                W21,424    W39,444    $41,625
                                           ---------  ---------  ---------


                                           Nine Months Ended September 30,
                                           -------------------------------
                                             2005       2006       2006
                                           ---------  ---------  ---------
Cash flows from operating activities:
  Net income                                  W1,570    W10,026    $10,580
  Adjustments
Depreciation and amortization                    726      2,182      2,302
Stock-based compensation expense                  81        608        642
Provision for bad debt                            23         63         66
Provision for severance benefits                 383        778        821
Cumulative effect of change in accounting
 principles                                        -        (19)       (20)
Deferred tax assets                                -       (403)      (426)
Provision for loyalty program reserve          1,302      4,377      4,619
    Changes in operating assets and
     liabilities
  Accounts receivable                         (6,928)   (11,225)   (11,845)
  Amounts payable to sellers                  36,704     (1,199)    (1,265)
  Accounts payable                             3,612      2,516      2,656
  Deferred revenue                               926      1,168      1,232
  Other current assets                        (1,308)    (1,258)    (1,328)
  Other assets                                     -         46         48
  Other current liabilities                      348      1,246      1,316
  Payment of severance benefits                 (551)       (49)       (51)
                                           ---------  ---------  ---------
Net cash provided by operating activities     36,888      8,857      9,347
                                           ---------  ---------  ---------
Cash flows from investing activities:
  Increase in cash on deposit, net           (25,700)   (76,300)   (80,519)
  Increase in restricted cash, net            (1,200)    (3,700)    (3,905)
  Increase in long-term financial
   instruments, net                              (90)       (90)       (95)
  Purchase of held-to-maturity securities     (4,000)         -          -
  Purchase of property and equipment          (3,596)    (5,554)    (5,861)
  Decrease (increase) in other current
   assets                                         (5)        47         50
  Increase in other assets, net                 (418)      (771)      (813)
                                           ---------  ---------  ---------
Net cash used in investing activities        (35,009)   (86,368)   (91,143)
                                           ---------  ---------  ---------
Cash flows from financing activities:
  Issuance of common shares, net                 694     79,668     84,073
  Decrease (increase) in loan to employees
   for stock purchase                           (246)       389        410
                                           ---------  ---------  ---------
Net cash provided by financing activities        448     80,057     84,483
                                           ---------  ---------  ---------
Net increase in cash and cash equivalents      2,327      2,546      2,687
                                           ---------  ---------  ---------
Cash and cash equivalents
Beginning of year                             19,097     36,898     38,938
                                           ---------  ---------  ---------
End of period                                W21,424    W39,444    $41,625
                                           ---------  ---------  ---------




                               GMARKET INC.
                  UNAUDITED SUPPLEMENTAL OPERATING DATA

                                -------------------------------------------
                                 1Q 2005    2Q 2005    3Q 2005    4Q 2005
                                ---------- ---------- ---------- ----------
GMV
(in billions)(1)                   W146.58    W206.63    W282.68    W444.96
                                ---------- ---------- ---------- ----------
Registered Users(2)              3,473,605  4,468,150  5,632,350  7,191,356
                                ---------- ---------- ---------- ----------
Average Monthly Unique
 Visitors(3)                    11,240,000 11,493,000 12,716,000 14,024,000
                                ---------- ---------- ---------- ----------


                                --------------------------------
                                 1Q 2006    2Q 2006    3Q 2006
                                ---------- ---------- ----------
GMV
(in billions)(1)                   W469.15    W543.75    W572.95
                                ---------- ---------- ----------
Registered Users(2)              8,310,737  9,238,701 10,110,874
                                ---------- ---------- ----------
Average Monthly Unique
 Visitors(3)                    15,179,000 16,543,000 17,051,000
                                ---------- ---------- ----------

1. Represents the aggregate value of all products sold on the Company's website for the period. GMV is commonly used in the e-commerce industry to measure a company's operating performance as transaction fees depend in part on GMV. GMV should not be construed as an alternative to any measure of performance determined in accordance with U.S. GAAP. Other companies may determine GMV in a different manner to Gmarket.

2. Registered Users include both buyers and sellers who have registered with the Company as of the end of the period.

3. Average monthly unique visitors represents the average number of monthly unique visitors to the Company's website during the period, measured and announced by Metrix Corporation, a Korean Internet research company. Other research companies' results may differ.

Contact Information

  • Contacts

    Paul J. Lee
    Gmarket Inc.
    +82-2-3016-4372
    Email Contact

    In the U.S.

    David Pasquale
    The Ruth Group
    +1-646-536-7006
    Email Contact