Coupang (CPNG 17.96%), South Korea's biggest e-commerce company, began trading on the New York Stock Exchange on March 11 through an IPO that raised $4.6 billion.
While Coupang is relatively unknown in the U.S., its IPO grabbed a lot of attention -- and for good reasons. For one, Coupang's debut was the biggest by a foreign company since Alibaba Group Holding's (NYSE: BABA) 2014 IPO. Like Alibaba, Coupang has serious backing from Japanese tech conglomerate SoftBank Group (SFTB.Y 0.05%). With a 28.7% stake in Alibaba and a 35.1% stake in Coupang, SoftBank is the biggest investor in both companies.
There's no doubt that with Coupang, Softbank wants to crown another king of e-commerce. But can Coupang live up to the hype? Let's take a closer look.
1. Coupang's killer advantage
Investors familiar with the e-commerce industry know that besides a wide range of products, low prices, and great service, a solid technological and logistical infrastructure is key to winning market share.
As the pioneer in e-commerce, Amazon has long had this all figured out. While it's famous for providing a wide selection of low-priced products across almost every category, Amazon also built out its own back-end infrastructure early on. In recent years, it also invested heavily into its own logistics network. With these things in place, the e-commerce company guarantees a superior shopping experience for its customers: low prices, a huge selection, speedy delivery, and great service.
Coupang has taken a similar path in building up its dominance in South Korea. Launched in 2010, it was late to the party as there were established global and local e-commerce players, including one owned by eBay. Yet, according to Coupang, no major logistics provider in Korea provides reliable next-day delivery at scale or delivers every day of the week. If the young company can deliver products quickly, and cheaply, it could stand out from the crowd.
So with SoftBank's backing, Coupang spent billions of dollars and years of time building Korea's biggest end-to-end delivery network. This includes over 100 logistics centers in 30 cities, thousands of delivery vehicles, and 40,000 workers who deliver millions of items every day. According to the company, 70% of Korea's population lives within seven miles of a Coupang logistics center. This extensive network powers Coupang's "Rocket" e-commerce delivery service, which it says is the fastest in Korea.
Through the Rocket service, the company guarantees free, one-day delivery on millions of items -- something it says none of its rivals can offer. This service is available for all Coupang customers, subject to their spending a certain amount of money. "Rocket Wow" -- Coupang's version of Amazon Prime -- takes it a step further. For less than $2.50 a month, Rocket Wow subscribers get free delivery with no minimum spend, as well as free returns. They can opt for same-day delivery, or "dawn delivery" -- where subscribers place an order by midnight and receive shipments by dawn. Rocket Wow subscribers also gain access to Rocket Fresh -- Coupang's online grocery service -- and Coupang Play, a video streaming service launched in 2020. Nearly a third of Coupang's 14.8 million active customers have signed up for Rocket Wow since Coupang launched it in 2019.
It would be expensive and risky for a rival player to try and copy what Coupang has done, especially when this business model has not yet proven profitable. But Coupang has the backing of Softbank, which has the financial firepower -- and connections -- to help it execute on its ambitious plans. As long as Coupang can continue to wow its customers, it remains on track to become the Amazon of South Korea.
2. It has room to expand
So far, Coupang's strategy appears to be working. Revenue nearly tripled from $4.05 billion in 2018 to $11.97 billion in 2020. Over that period, Coupang grew its customer base from 9.16 million to 14.85 million -- roughly 30% of Korea's population. That scale allows Coupang to secure lower prices for its goods, which it can pass on to consumers. This, in turn, drives its customers to spend more on the platform. Coupang's revenue per customer rose 59% in 2020 and 27% in 2019.
Despite its dominance, Coupang thinks it can expand beyond online retail to capture Korea's grocery, food delivery, and travel markets. Leveraging the company's existing infrastructure, Coupang launched an on-demand food delivery service in 2019. Coupang Eats is now the largest online food delivery service in Korea by transaction value, according to Coupang's IPO prospectus. Coupang is proving it has the chops to succeed beyond online retail.
But the road to success won't be all easy. For one, Coupang's rivals are not sitting still. According to a report in Korea JoongAng Daily, Naver -- one of Coupang's biggest competitors -- plans to roll out same-day or next-day delivery soon. eBay also plans to sell its Korean e-commerce operations, which could hand market share to one of Coupang's many peers. To stay one step ahead of its rivals, Coupang is investing billions of dollars to expand its delivery infrastructure. It plans to add 50,000 workers in Korea by 2025 -- doubling its workforce. If Coupang can keep executing just as well as it has, it has a real shot of not only sustaining but expanding, its market share over time.
Is the stock a buy?
Coupang seems to be on track to become the Amazon of South Korea thanks to its relentless focus on delighting its customers, as well as its competitive advantage driven by its scale and logistics infrastructure.
Still, I think investors should not rush into the stock. It would be better to monitor from the sidelines, at least for the next few quarters. That would give investors a better idea of Coupang's ability to sustain its growth rate and retain its market share. After all, if the company is going to be the Amazon of South Korea, investors will have plenty of time to buy shares, months or even years from now.