October started as a treat for investors. Now it's feeling like a trick. With many growth stocks resuming their slides it's easy to wonder if this is a good time to consider picking up some quality names at lower price points than before. Focus on quality names with promising business models and you should be rewarded over time.
Coupang (CPNG 1.16%) and DraftKings (DKNG 1.63%) are two compelling growth stocks. Let's take a closer look at what makes the South Korean e-tailer and the next-gen gambling specialist some of the top stocks to consider buying in October.
Image source: Getty Images.
Coupang
Coupang may not be a household name outside of South Korea, but it has a firm grasp on its home country's e-tail market. Striking first with broad stroke helps, and Coupang's more than 100 fulfillment centers across South Korea place it within 10 miles of 70% of the country's citizens. More than half of the country has the Coupang app. It's not just a matter of being big. Coupang is also efficient, as 99.6% of its orders are delivered within 24 hours. A merchandise or grocery order placed before midnight is typically delivered by 7 a.m., as Coupang has nailed the last-mile logistics with its own fleet of drivers who will also pick up any items you want to send back.
Like most e-commerce players, Coupang's growth has been slowing after accelerating early in the pandemic. When it reported second-quarter results over the summer, year-over-year growth clocked in at just 12% in U.S. dollars. However, that $5.04 billion in revenue -- yes, Coupang is that big -- is actually 27% on a constant currency basis. The strong dollar against foreign currencies is gnawing away at local growth metrics when reported to U.S. investors.
| Period | Revenue Growth (YOY) |
|---|---|
| FY 2019 | 51% |
| FY 2020 | 91% |
| Q1 2021 | 74% |
| Q2 2021 | 71% |
| Q3 2021 | 48% |
| Q4 2021 | 34% |
| Q1 2022 | 22% |
| Q2 2022 | 12% |
Data source: Coupang. YOY = year over year.
There were two welcome surprises in Coupang's report. The first refreshing sight is that margins are improving, and Coupang posted a much narrower-than-expected quarterly loss for the period. It was the e-tailer's first quarter of positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). The other surprise is that Coupang raised its guidance, something that you didn't see out of too many internet retail stocks this past earnings season. Coupang was projecting a $400 million EBITDA deficit earlier this year, and now it expects to be in the black on that front for all of 2022.
Coupang is still a broken IPO, trading for a little more than half of last year's $35 initial offering last year. However, unlike many growth stocks revisiting their recent lows, Coupang has more than doubled from the all-time low it hit in May. Wall Street's buying into the story. HSBC analyst Junhyun Kim initiated coverage of Coupang with a buy rating and a price target implying almost 50% more of near-term upside.
DraftKings
Another growth stock upgrading its guidance and steering clear of its May 52-week low is DraftKings. The online sports wagering specialist is currently fetching 40% more than its springtime bottom. DraftKings may have started as a platform for betting on fantasy sports, but that niche opened doors for partnerships with leagues, teams, and sports broadcasting networks. It's now a fast-growing giant in the lucrative online sportsbook market.
Revenue growth has been on a tear, accelerating sharply through the three previous years:
- 2018: 18%
- 2019: 43%
- 2020: 90%
- 2021: 111%
It saw year-over-year top-line gains slow to 37% in the first quarter of this year and 57% in the second quarter, but DraftKings boosted its full-year guidance after each of those reports. Things aren't perfect. Running a sportsbook finds it at the mercy of states to loosen online gambling restrictions. The stock has drifted lower this week as DraftKings concedes that a push to legalize gambling in California will fall short at the polls come November.
However, with a huge audience of 1.5 million unique paying customers -- up 30% over the past year -- and average revenue per user also climbing 30% over the past year, you don't want to bet against DraftKings.
