It's easy to lean on the proven and familiar when sizing up promising growth stocks. If you had to give an elevator pitch on Coupang (CPNG -4.08%) -- and that elevator was only going up one floor so you had just three seconds on the clock -- no one would blame you if you summed Coupang up as the Amazon (AMZN -0.26%) of South Korea.
It may seem like high praise for a somewhat underwhelming debutante. Coupang is starting to gain momentum -- closing above $40 on Tuesday for the first time in three weeks -- but this is still barely above the $35 price that it went public at three months ago.
Is Coupang really worthy of being tapped as the Amazon of South Korea? Take a closer look and you'll probably like what you see. In a few important ways it might be better than the world's leading online retailer. Let's take a look.
1. Coupang is growing faster
It's probably not a surprise to find that the smaller e-tailer is growing a bit faster than Amazon. Coupang is earlier in its growth cycle, but let's size up the top-line growth to illustrate the point.
Both companies saw growth accelerate in 2020 as the pandemic favored e-commerce over brick-and-mortar alternatives. Amazon was still stepping on the gas pedal in the first quarter of this year, but analysts see full-year growth decelerating to 27% for all of 2021.
Coupang is still growing considerably faster, and both stocks are trading at roughly the same top-line multiple. Coupang and Amazon are fetching enterprise values of 4.3 and 4.9 times trailing revenue, respectively.
It's not a fair comparison if you're Team Amazon here. Coupang isn't profitable right now. Amazon also dabbles in a lot of high-margin tech businesses. Coupang's gross margin of 17% is a far cry from Amazon at 40%. However, in terms of actual net sales growth Coupang clearly has a commanding lead here.
2. Coupang's doing a better job of serving its customers
This point is going to seem a lot more surprising than the first one. Amazon is a beloved brand known for its speedy order fulfillment, but it actually falls short of Coupang within its home turf. Coupang has roughly 100 distribution centers across South Korea, placing it within seven miles of 70% of the nation's population.
Coupang's fleet of drivers is a well-oiled machine. You may be able to get some Amazon items fairly quickly if you're a Prime member, but you have to get up pretty early in the morning to beat Coupang. Place a grocery order on Coupang before midnight and it will be left at your front door by 7 a.m. You're not likely to snag a return window that early with an overnight Amazon Fresh order.
Coupang also has a leg up on Amazon when it comes to returns. If you need to send back an item you can just leave it outside and let Coupang know. It doesn't even need to be repackaged. A Coupang delivery driver will grab it before the sun rises the next day.
3. Coupang can succeed where Amazon has failed
Amazon was early to throw in the towel as a third-party delivery service. Amazon Restaurants closed down two years ago, unfortunate timing given the boom that was about to take place in the wake of the pandemic.
Coupang has a strong hold on South Korea's most lucrative customers, reaching a third of the country's population with its Amazon Prime equivalent. It's true that Amazon has even better penetration in its home market, but Coupang's lead in tech and reach in South Korea is unmatched. Coupang shoppers are engaged, with the average active customer spending 44% more than a year earlier. Coupang won't always succeed with every service launch, but it's off to a strong start if it has succeeded in at least one niche where Amazon fell short.
Amazon is the undisputed top dog in the realm of internet retail stocks, and that's not going to change. However, don't let a ho-hum stock chart be your counterargument the next time someone says Coupang is the next Amazon. In some ways it's already better.