E-commerce is one of the best hunting grounds for potential long-term investments, partly because it is still a relatively young and growing industry. From Amazon to Mercadolibre to Shopify, many long-term stock winners have come from the online retailing industry. But even though all three of these e-commerce stocks look set to succeed this decade, investors should be on the lookout for other potential winners to add to their portfolios.

Enter Coupang (CPNG -1.30%). The online retailer is running a similar playbook to Amazon but in South Korea, and is gaining market share rapidly within the country. 

Coupang just put up another solid financial result for the second quarter of this year. Here's why it is my favorite e-commerce stock right now. 

Coupang saw revenue growth and margin expansion in Q2

Coupang reported earnings on Aug. 10 after the market close. Revenue was up 27% year over year on a constant currency basis (excluding the appreciation of the South Korean won to the U.S. dollar) to $5 billion. This is compared to the broad South Korean e-commerce market only growing 6% year over year in the quarter. What this tells me is that Coupang continues to gain market share among e-commerce shoppers in its home nation, something it has done every quarter since going public in 2021.

Perhaps even more impressive was Coupang's margin expansion in the quarter. E-commerce is notoriously a tough business to crack, and Coupang has been no exception, with gross margins at low levels (especially during the pandemic). In the second quarter, gross margin expanded 250 basis points from Q1, driven by continued scale and the growth of higher margin offerings like advertising on its marketplace. The company's gross margin was 23% in Q2, leading to an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) profit of $66 million.

With this margin expansion, management updated its full-year adjusted EBITDA guidance to positive instead of the previously expected $400 million loss. This is a great sign that Coupang's comprehensive strategy is working. 

Coupang has long-term targets and market opportunity

Coupang runs a similar strategy to what Amazon does. It has a vast selection of products on its marketplace (both from itself and third-party sellers), a premium subscription service for fast shipping, its own logistics and delivery network, and an advertising segment. With this model, Coupang believes it can continue winning market share of e-commerce in South Korea. By 2025, the e-commerce industry is expected to hit $291 billion in the country. With "only" $18.4 billion in revenue generated in 2021, Coupang has a long way to gain market share in its home market. This indicates to me revenue can continue growing at a high rate for many years to come.

But what about profitability? In its fourth-quarter 2021 investor presentation, management guided for gross margin to hit 27% to 32% and an adjusted EBITDA margin to hit 7% to 10% over the long term. When these targets will actually be achieved is unclear, but the company continues to make progress as evidenced by the recent quarterly results. Based on its 2021 revenue number, Coupang would have generated $1.3 billion in adjusted EBITDA if it hit the low end of its long-term guidance.

Coupang's valuation checks out

As of this writing, Coupang has a market cap of $33 billion. The company has not generally been profitable, making the stock hard to value, but let's go through some future scenarios to see what investors are buying right now. If Coupang can continue gaining market share in South Korea and grow revenue by 20% a year, revenue will be $38 billion in 2025. At a 7% adjusted EBITDA margin, that equates to $2.66 billion in annual profit, or a forward adjusted price-to-earnings (P/E) ratio of 12.6. It will take a lot of execution for Coupang to hit these targets, but I think the stock will do well if they are reached. 

Is the stock still slightly expensive right now? Probably. But with such an immense market opportunity and a proven strategy to win market share vs. competitors, Coupang looks like a great e-commerce stock to own for the long term.