What happened
Shares of South Korean e-commerce company Coupang (CPNG -0.52%) rose 27.4% in February, according to data from S&P Global Market Intelligence.
Unfortunately for investors, Coupang rallied last month purely based on better-than-expected reports from other e-commerce companies, such as Amazon, which topped expectations early in the month. That led to optimism for Coupang through the month leading up to its own earnings report on March 3.
However, Coupang's earnings and revenue came up short of expectations, sending shares down in recent days and erasing all of February's gains.
So what
After a difficult January that saw many high-growth, money-losing tech stocks like Coupang plummet, the stock bounced back in February. It should be noted that even after February's big bounce, its share price was still below where it was to start the year. The culprit for the January decline was fear over inflation, which some believe could cause a spike in interest rates. Higher interest rates threaten to lower the value of future earnings.
While February marked a nice bounce-back on Amazon's better-than-feared earnings, Coupang has given back basically all those gains on the back of its recent earnings report. In the fourth quarter, revenue grew 34% to $5.1 billion, which was below expectations. Net losses expanded to $405 million, for a net loss per share of $0.23, which was also below expectations. It probably also didn't help that management guided for an adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) loss of "less than" $400 million for the upcoming year, letting investors know they'll have to wait longer for profitability. That said, that would be an improvement over this year's $747.6 million adjusted EBITDA loss.
Those figures clearly concerned investors, as the stock plummeted more than 17% on Friday, the day after the March 3 earnings report.
Image source: Getty Images.
Now what
At around $21 per share, Coupang is now 40% below its inital public offering (IPO) price of $35. But has the sell-off been overblown?
The market is in an unforgiving mood right now. But on the conference call with analysts, Coupang's management explained that it faced capacity constraints as it ramped up its platform in 2021 amid surging demand, due to outbreaks of COVID-19 variants. Labor constraints likely held back growth while biting into gross margins.
However, over time, those problems should be worked out. Management has already stated that its gross margin is on track for a sequential improvement of 2.5 percentage points over Q4 2021; the company is turning toward managing efficiency, after scrambling to increase capacity over the past two years of COVID.
Management also says its core e-commerce business is actually profitable, and companywide losses are due to hypergrowth initiatives such as Eats (restaurant delivery), Play (streaming video), and fintech and international growth initiatives. Starting next quarter, the company even plans to break out its profitable core segment and newer initiatives separately. That may calm the nerves of those fretting about profitability.
There are many growth stocks that have been de-rated to attractive valuations, and it looks like Coupang may be another. It's on my list of potential buys if the market corrects further.
