What happened
Shares of Coupang (CPNG 0.11%) jumped 25% on Thursday after it reported its Q1 earnings results. The Amazon-esque e-commerce company in South Korea put up solid growth numbers, outpacing overall e-commerce growth in its home market. As of 12:04 PM ET, the stock is up 23.6% on the day and was up as much as 37.5% at one point during trading hours.
So what
After the market closed on May 11, Coupang released its Q1 earnings results. Revenue grew 22% year over year (YOY) to $5.1 billion, or 32% on a constant currency basis (the Korean won is getting devalued versus the dollar right now). According to management, this means that Coupang is growing at multiples of the overall e-commerce market in South Korea, meaning it is taking market share from its competitors.
Image source: Getty Images.
In Q1, the company's gross profit grew 42% YOY with gross margins at 20.4%, a recent record for the business. Coupang is not yet profitable, with a net loss of over $200 million in Q1. This is something investors need to watch out for, but with strong growth and improving unit economics, I think management could turn profitable if it wanted to. It also has $3.4 billion in cash on its balance sheet from the record IPO last spring, giving it years and years of runway if it decides to continue operating at a loss.
With strong growth and the stock down 60% this year, it seems investors were too pessimistic about Coupang going into its results, and this is likely why the stock shot up so much today.
Now what
As of this writing, Coupang trades at a market cap of $21 billion. Over the past 12 months, it has generated $3.3 billion in gross profit, which I think is the best measure of profitability/unit economics right now given the company is operating at a heavy loss. This gives the stock a price-to-gross-profit ratio (P/GP) of 6.4, or right around the market average.
If you don't live in South Korea, it can be hard to get a grasp on Coupang's business and how it is doing compared to a business in your home market. But with 20%+ top-line growth, growing market share, and expanding gross margins, Coupang's business looks to be doing just fine right now and is on pace to be much larger five to 10 years in the future. At a P/GP around the market average, Coupang could be a buy right now, even after the 25% bump today.
