Coupang's (CPNG 1.25%) stock price surged 19% on May 12 following the release of its first-quarter earnings report. The South Korean e-commerce leader's revenue rose 22% year over year to $5.12 billion, or 32% in constant currency terms, but missed analysts' expectations by about $130 million.
However, Coupang's net loss narrowed from $295 million to $209.3 million, or $0.12 per share, which exceeded expectations by $0.16. On an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) basis, its loss narrowed from $133 million to $90.9 million.
Image source: Getty Images.
That bottom-line stabilization was encouraging, but Coupang's stock still trades nearly 70% below its IPO price from last March. Has this beaten-down growth stock become too cheap to ignore?
Coupang continues to grow in a post-lockdown market
Like many other e-commerce companies, Coupang's growth cooled off over the past year in a post-lockdown market. But in the first quarter, it still generated 22% growth on top of its 74% growth a year ago:
|
Metric |
Q1 2021 |
Q2 2021 |
Q3 2021 |
Q4 2021 |
Q1 2022 |
|---|---|---|---|---|---|
|
Revenue |
$4.21 billion |
$4.48 billion |
$4.64 billion |
$5.08 billion |
$5.12 billion |
|
Growth (YOY) |
74% |
71% |
48% |
34% |
22% |
Data source: Coupang. YOY = Year over year.
Coupang's number of active customers grew 13% year-over-year to 18.1 million during the quarter as its net revenue per active customer rose 8%. That also represented a slowdown from its previous quarters, but its sequential growth in active customers also improved over the past two quarters after suffering a sequential drop in the third quarter of 2021:
|
Metric |
Q1 2021 |
Q2 2021 |
Q3 2021 |
Q4 2021 |
Q1 2022 |
|---|---|---|---|---|---|
|
Active Customers (Millions) |
16.04 |
17.02 |
16.82 |
17.94 |
18.11 |
|
Growth (YOY) |
21% |
26% |
20% |
21% |
13% |
|
Net Revenues per Active Customer |
$262 |
$263 |
$276 |
$283 |
$283 |
|
Growth (YOY) |
44% |
36% |
23% |
11% |
8% |
Data source: Coupang. YOY = Year over year.
At the end of 2021, Coupang said its Rocket WOW subscription service -- which provides access to free next-day deliveries, early morning deliveries, free returns within 30 days, streaming videos on Coupang Play, food and grocery deliveries, and other perks -- had 9 million paid subscribers. That was up 50% from 6 million subscribers at the end of 2020.
Coupang didn't update those subscriber numbers during its conference call, but CEO Bom Kim said WOW was now "by far the largest paid subscription service in the market, with three or four times the number of paid members as the next largest e-commerce or retail membership program." That strategy, which closely mimics Amazon's (AMZN +0.55%) expansion of its Prime ecosystem, will likely widen Coupang's moat against its competitors and boost its long-term revenue per customer.
NYSE: CPNG
Key Data Points
Analysts expect Coupang's revenue to rise 24% for the full year, and to grow another 25% in 2023. Based on those expectations, Coupang trades at less than one time this year's sales.
By comparison, the Latin American e-commerce giant MercadoLibre (MELI 12.69%), which is growing faster than Coupang, trades at four times this year's sales. Amazon, which is growing slower than both overseas rivals, trades at two times this year's sales.
Its margins are finally expanding
The bears often claim Coupang's business model is unsustainable because it's pouring too much cash into its first-party logistics network, loss-leading WOW services, and integrated Coupang Pay fintech services platform.
But in the first quarter, Coupang's gross, adjusted EBITDA, and net profit margins all improved sequentially and year over year.
|
Metric |
Q1 2021 |
Q2 2021* |
Q3 2021 |
Q4 2021 |
Q1 2022 |
|---|---|---|---|---|---|
|
Gross Profit Growth (YOY) |
70% |
50% |
62% |
24% |
42% |
|
Gross Margin |
17.4% |
14.7% |
16.2% |
15.9% |
20.4% |
|
Adjusted EBITDA Margin |
(3.2%) |
(2.7%) |
(4.5%) |
(5.6%) |
(1.8%) |
|
Net Profit Margin |
(7%) |
(11.6%) |
(7%) |
(8%) |
(4.1%) |
Data source: Coupang. *Impacted by a fulfillment center fire.
During the call, CFO Gaurav Anand attributed that across-the-board expansion to its "operational excellence, supply chain improvements, (and) process improvements that we had seeded earlier in the quarter."
Bom Kim also noted that Coupang sold more higher-margin products during the quarter, and said the company was still on track to "achieve 7% to 10% or higher adjusted EBITDA margins in the long run."
In other words, economies of scale are finally kicking in for Coupang. About 70% of South Korea's population already lived within seven miles of Coupang's fulfillment centers at the end of 2020, but it still expanded its total infrastructure by 15 million square feet throughout 2021, which represented more expansion than its previous two years combined.
That spending spree alarmed investors, but it's now reaping the rewards. Therefore, Coupang could follow in the footsteps of other e-commerce giants like Amazon and MercadoLibre, which both bled red ink for years before their logistics investments paid off.
Analysts expect Coupang's adjusted EBITDA losses to narrow in 2022 and 2023 before turning positive in 2024, assuming that its scale continues to improve and it expands strategically instead of aggressively.
It's too cheap to ignore
Coupang is still a risky investment, but its expanding margins indicate the business isn't headed off a cliff. Its low valuation should also limit its downside potential in this challenging market for growth stocks, so investors looking for a deep value play should consider buying its beaten-down shares.
%sfr%}
