A lot of investors are looking for the next Amazon (AMZN -4.25%). With returns of 173,000% since its initial public offering and 1,776% returns over the last 10 years, long-term investors in the U.S. technology giant have gotten life-changing returns. If you can find younger companies with the opportunity to grow to the size of Amazon, there's a chance they could provide comparable stock returns as well. One company that fits this mold is Coupang (CPNG -0.63%), a South Korean e-commerce company with similar operating characteristics to Amazon.
Can Coupang be worth more than Amazon by 2030? Let's take a look.
What is Coupang?
Coupang is a vertically integrated e-commerce business that operates in South Korea. What this means is that, along with a first- and third-party e-commerce store, Coupang operates its own warehouses and delivery network. This is similar to how Amazon operates today, with its own delivery vans and cargo planes that you've probably seen out and about for the last few years. Even though Coupang is a much younger company than Amazon, founded in 2010, it went early to this vertically integrated model because of how little delivery infrastructure existed in South Korea.
With all this upfront investment in warehouses and delivery trucks, Coupang is able to offer a better value proposition to its customers, especially those who have its Rocket Wow membership (similar to Amazon Prime). Nearly 100% of orders on Coupang are eligible for next-day delivery, with most orders available for dawn and same-day delivery. The vertically integrated model helps Coupang offer an efficient packaging model, where reusable materials eliminate parcels and packaging on 75% of orders. It also offers frictionless returns -- users can tap a button on the Coupang app, leave their items outside their door, and a Coupang employee will pick them up.
This delivery advantage has helped Coupang gain a massive market share in South Korea. In 2017, it was estimated that Coupang had a 7.4% e-commerce market share in its home country. In 2021, that share is estimated to have risen to 15.7%.
A fast-growing and replicable model
Coupang still has a lot of room to grow its business in South Korea. At the end of the last quarter, it had 16.8 million active customers among South Korea's total population of around 52 million. A lot of these accounts may have multiple users, but there is still a ways to go for the company to get more people to buy stuff on the Coupang platform.
But where Coupang will really grow is in revenue per active customer, which is a metric it provides to show how existing users are increasing their dedication to the business over time. In Q3 of this year, revenue per active customer hit $276, up 23% year over year, a big contributor to Coupang's overall revenue growth of 48% in the period.
Two ways Coupang is expanding revenue per active customer is Coupang Eats and Rocket Wow grocery, its food and grocery delivery services. According to management, Coupang Eats is one of the most downloaded apps in South Korea this year. Unlike food delivery services that utilize third-party contractors, Coupang is able to leverage its existing delivery infrastructure and employees, which is likely why it grew so quickly.
The South Korean market is large, but if Coupang is going to surpass the size of Amazon, it will need to expand far outside its home market. It is already planning on doing so, with Singapore, Japan, and Taiwan as its first target markets. It will take a ton of capital investment to replicate Coupang's delivery/infrastructure advantages in new markets, but with $4 billion in cash and a proven model in South Korea, I think the chances of success in these new nations are high.
Passing Amazon in 10 years seems unlikely
There are a lot of reasons to be bullish on Coupang's growth prospects. However, anyone thinking this business can be larger than Amazon, which has a $1.7 trillion market cap right now, is not thinking reasonably. Let's take a look at the numbers to show why.
Over the last 12 months, Amazon generated $401 billion in revenue from all its businesses, excluding Amazon Web Services (AWS). This metric encapsulates the Amazon business lines most similar to Coupang's. The Korean company did around $17.1 billion in revenue over the last 12 months. In order to get to $400.8 billion in annual revenue, Coupang needs to grow its sales at a 37% compound annual growth rate (CAGR) over the next 10 years. While certainly possible, that is some rapid growth over a long period that will require strong and fast execution in Coupang's expansion markets. What's more, Coupang does not have an AWS equivalent, which many investors think accounts for more than $1 trillion of Amazon's $1.7 trillion market cap, due to how profitable the cloud infrastructure business is.
Taking all these factors into consideration, it is highly unlikely Coupang will be larger than Amazon by 2030. Could it reach the size of Amazon's retail business right now? Sure. Could it be a great investment for long-term shareholders? Definitely. But without an AWS-like profit machine, it is tough to envision Coupang being bigger than Amazon, no matter how well management executes its online retailing vision.