Is Toss' 20 tril. won valuation reasonable?

The headquarters of Toss in southern Seoul / Yonhap

Major securities firms that have recently been preparing proposals to be selected as lead underwriters of Toss' IPO plan have assessed the financial super app company's corporate valuation of around 15 to 20 trillion won ($11-15 billion). But a growing number of criticis are pointing out that the valuation is exaggerated, considering the fintech firm's substantial losses.

According to the investment banking industry on Sunday, Viva Republica, the operator of the Toss app that has over 15 million monthly active users (MAU), is currently in the process of selecting lead underwriters for its IPO set for later this year or early next year by receiving underwriting proposals from major securities firms in Korea.

Given that securities firms generally apply a 20 or 30 percent discount when assessing a corporate valuation to determining the initial offering price, it means Toss' expected market capitalization after the IPO is estimated to be in the range of 12 trillion to 16 trillion won.

While it is generally accepted that the app-based fintech super company can be considered a successful decacorn with a valuation of over 10 trillion won, the proposed market value of 15 trillion to 20 trillion won presented by the securities companies is seen by the investment banking industry themselves as an exaggerated amount proposed solely for the benefit of the business.

In competitive bidding, it is common for securities firms that propose the highest valuation during the IPO underwriter selection process to attract the attention of companies with IPO aspirations. Consequently, the market often expresses skepticism regarding these inflated valuation figures.

In fact, there was a time when Viva Republica's corporate value approached up to 30 trillion won during the time of ample liquidity in the market, following the COVID-19.

However, with interest rates soaring afterwards, investor sentiment has waned and the current valuation marked at an online over-the-counter exchange platform for Toss' unlisted stocks stood at 8.8 trillion won, much lower than the securities firms' valuation. It is still slightly higher than Toss' Series G round investment round, when it attracted 530 billion won at the corporate valuation of 8.5 trillion won.

The key reason behind the market's hesitance in granting a higher valuation to Toss is the fintech giant's massive accumulated losses. Since its founding in 2013, Viva Republica has not recorded a net profit even once, despite increasing annual revenues. The company's annual losses have been piling up with the company recording another annual loss of 384 billion won in 2022.

It's true that both Toss Bank and Toss Securities have made a turnaround by posting annual net profits in 2023. Many market analysts like Baek Doo-san from Korea Investment also positively view the firm's outlook, saying "Toss Pay, a simple payment service, is experiencing rapid growth, indicating a promising future in the payment settlement sector."

Yet, it is expected that the overall market might begin to acknowledge the high corporate valuation for Toss only when it deals with its accumulating losses and really starts to show profitable figures.