Coupang (NYSE:CPNG) is often called the "Amazon (NASDAQ:AMZN) of South Korea." It's the country's largest e-commerce company and maintains its lead with a "Rocket Delivery" service that delivers packages within a few hours or a single day.
Coupang went public this March at $35 per share and opened at $63.50, but only trades at about $40 a share today. The market's current distaste for growth stocks, Coupang's mixed earnings report in May, and a warehouse fire earlier this month all seemed to drag down the stock. Should investors still expect Coupang to generate Amazon-like gains in the future, or should they simply stick with Amazon instead?
How fast is Coupang growing?
Today, roughly 70% of South Koreans live within seven miles of a Coupang logistics center. Its entire infrastructure spans 30 cities, with a physical footprint equivalent to more than 400 football fields. That massive presence makes it tough for overseas challengers like Amazon to gain ground.
Coupang is expanding its ecosystem to maintain its lead. It delivers fresh groceries through Rocket Fresh and restaurant orders through Coupang Eats, and offers temp work opportunities through Coupang Flex. It even launched a streaming video platform called Coupang Play last December.
Coupang's revenue, which mainly comes from its retail services, rose 91% to $11.97 billion in 2020. Its number of active customers increased 18%, while its net retail sales per active customer surged 62%.
Like many other e-commerce companies, Coupang experienced accelerating growth during the pandemic. It remains unprofitable, but its net loss narrowed from $699 million in 2019 to $475 million in 2020.
In the first quarter of 2021, Coupang's revenue rose 74% year over year to $4.21 billion. Its total active customers increased 21% to 16 million, while its sales per active customer grew 44% to $262.
However, its net loss nearly tripled from $105 million to $295 million. On an adjusted EBITDA basis, its net loss more than tripled from $42 million to $133 million. Its gross margin actually expanded year over year, but an 80% jump in operating costs wiped out those improvements.
Coupang didn't provide any guidance, but it plans to increase its nationwide footprint by another 50% this year, which indicates its losses will continue to widen. Analysts expect its revenue to rise 61% this year as its growth slightly decelerates in a post-pandemic world, with another annual net loss.
Based on that forecast, Coupang trades at less than four times this year's sales. That makes it cheaper than other high-growth e-commerce companies like Sea Limited (NYSE:SE) and Pinduoduo (NASDAQ:PDD).
How fast is Amazon growing?
Amazon is growing slower than Coupang, but it's larger and more profitable. Its revenue rose 38% to $386.1 billion in 2020, with 38% growth at its North American business, 40% growth at its international business, and 30% growth at its Amazon Web Services (AWS) cloud infrastructure platform.
Amazon generates most of its revenue from its online marketplaces, which host more than 300 million active customer accounts and 200 million paid Prime subscribers. That ecosystem includes its first-party marketplace, third-party marketplace, brick-and-mortar stores (including Whole Foods), and grocery delivery services.
However, Amazon generates most of its profits from AWS, which collects higher-margin revenue than its lower-margin marketplaces. That's why its e-commerce business can continuously provide steep discounts, cheap hardware devices, new streaming content, and other digital perks to lock in its Prime members.
In other words, AWS subsidizes the growth of its marketplaces and enables it to generate higher profits than many other e-commerce companies. That's why its net income jumped 84% to $21.3 billion last year even after it spent billions of dollars on pandemic-related safety measures.
Amazon's stable growth continued in the first quarter of 2021. Its revenue rose another 44% year over year to $108.5 billion, and its net income more than tripled to $8.1 billion. Analysts expect its revenue and earnings to grow 27% and 34%, respectively, for the full year.
Based on those expectations, Amazon trades at 49 times forward earnings and less than four times this year's sales. Those valuations are cheap relative to its growth, and suggest it could still have room to run.
The winner: Amazon
Coupang is generating impressive growth, but I'm concerned about its widening losses. Its addition of new services like Coupang Play could boost its revenue, but it also highlights its growing need to aggressively boost its revenue per shopper as it saturates its home market.
Amazon remains the safer bet as the market punishes more speculative growth stocks. So until I see how Coupang fares over the next few quarters, I'll stick with Amazon as my top e-commerce stock.