Coupang (NYSE:CPNG), the largest e-commerce company in South Korea, went public in March. The 11-year-old company priced its IPO at $35 per share, and the stock started trading at $63.50.
But that initial enthusiasm quickly faded. The stock closed at $49.25 on the first day, and is now only worth about $40. Expectations for slower growth in a post-pandemic market, a mixed earnings report in May, and concerns about its soaring expenses and widening losses all dragged down the shares.
Can Coupang impress the bulls again and generate millionaire-making gains over the next few years? Let's dig deeper to find out.
How Coupang conquered South Korea
Coupang was backed by big investors like SoftBank, Sequoia Capital, and BlackRock over the past decade, and their funds supported the expansion of its first-party logistics network across South Korea.
Today, Coupang's infrastructure spans across 30 cities, with a physical footprint of over 400 football fields. Approximately 70% of South Koreans live within seven miles of one of its logistics centers, which makes it tough for overseas challengers like Amazon (NASDAQ:AMZN) to crack the market.
Coupang's logistics network powers its Rocket Delivery service, which delivers packages within a single day. It also provides grocery deliveries via Rocket Fresh, restaurant deliveries via Coupang Eats, temp work opportunities on Coupang Flex, and streaming videos on Coupang Play.
Rocket Fresh and Coupang Play are exclusive features for Rocket WOW members, who also gain more shipping options, free returns for 30 days, and other perks for a flat monthly fee. WOW is similar to Amazon Prime, but Coupang hasn't revealed any exact subscriber numbers for the service yet.
How fast is Coupang growing?
Coupang's number of active customers grew 29% in 2019, 26% in 2020, and 21% year over year to 16 million in the first quarter of 2021.
South Korea has a population of 51 million, and Coupang estimates there are over 37 million online shoppers across the country. During last quarter's conference call, founder and CEO Bom Kim claimed its business remained "under-penetrated in almost every age category." That suggests Coupang sees a big opportunity to tap into a large addressable market of potential future customers.
Coupang's main competitors in South Korea include eBay's Gmarket, WeMakePrice, and Naver Shopping. Kim's statement suggests Coupang can continue growing by pulling shoppers away from those rivals.
In constant currency terms, Coupang's revenue rose 64% in 2019, jumped 93% to $12.1 billion on pandemic-related tailwinds in 2020, and grew 63% year over year to $4.2 billion in the first quarter of 2021. Analysts expect its revenue to rise 61% for the full year. Those are impressive growth rates for a stock that trades at less than four times this year's sales.
How profitable is Coupang?
Coupang is growing much faster than Amazon, but it's still burning money. Its net losses narrowed in 2019 and 2020, but nearly tripled year over year -- from $105 million to $295 million -- in the first quarter of 2021.
Coupang doesn't intend to break even anytime soon, since it's constantly expanding its ecosystem with new services. Instead, it claims its gross profit, which rose 92% in 2020 and 70% year over year in the first quarter of 2021, is a more "meaningful measure" of its improving scale.
Coupang expects its gross profit to "increase over the long term" as economies of scale kick in. As that happens, it might gradually balance out its operating costs with its revenue, which could pave the way toward sustainable profits. But that goal, which e-commerce giants like Amazon and China's JD.com eventually achieved after years of losses, remains a distant one for Coupang.
On the bright side, Coupang ended last quarter with $4.33 billion in cash and equivalents, so it can stay unprofitable for the foreseeable future without launching secondary offerings or accumulating more debt.
But can Coupang generate millionaire-making returns?
Coupang's growth rates and valuation suggest it could generate millionaire-making returns within the next few years.
However, its near-term growth relies heavily on its ability to increase its average revenue per active customer while expanding its market share in South Korea. Both of those efforts will require a lot of spending and loss-leading strategies, which could overshadow its robust sales growth.
If those domestic strategies hit a brick wall, Coupang could look overseas for more growth. It already expanded into Singapore shortly after its IPO, and it might enter other Asian markets over the next few years. However, challenging entrenched regional leaders like Sea's Shopee, the market leader in Southeast Asia and Taiwan, could be difficult and expensive to pull off.
I believe Coupang has a lot of growth potential, but it's still a very speculative investment. If it continues to lean into its strengths, tighten its grip on the South Korean market, then leverage its scale to narrow its losses, it could deliver multibagger returns for patient investors. However, I'd personally wait a few more quarters to see if those numbers are headed in the right direction.