South Korean e-commerce and logistics company Coupang (CPNG -1.30%) had its initial public offering (IPO) during the height of the bull market in 2021. It quickly surpassed a market capitalization of $75 billion, making it one of Wall Street's largest IPO stocks that year.

But sometimes, the bigger they are, the harder they fall. The stock has slipped 65% and has been an epic disappointment thus far.

This doesn't mean Coupang isn't worth your attention; there are some excellent aspects of the business that could still translate to long-term returns for shareholders. 

Delivering top value to its customers

Coupang has focused on maximizing the e-commerce customer experience since its founding in 2010. Based in South Korea, it has more than 100 fulfillment centers, placing 70% of the South Korean population within seven miles of a logistics center. That means delivery of millions of products within hours of order placement, and more than 99% delivered within a day.

There is some similarity between how the founder and CEO Bom Suk Kim operates Coupang and how Jeff Bezos built Amazon. Bezos wrote in his 2016 shareholder letter that he wants Prime to be "such a good value, you'd be irresponsible not to be a member." It sounds familiar to Coupang's corporate motto: "How'd I ever live without Coupang?" It doesn't sound like a coincidence, and there's nothing wrong with that -- Coupang's had success.

CPNG Revenue (TTM) Chart

CPNG revenue (TTM). Data by YCharts. TTM = trailing 12 months.

Coupang is approaching $20 billion in annual revenue, the vast majority of it derived from its primary e-commerce business. Gross profit is growing, too, but Coupang still burns cash, losing $1.1 billion over the past year as it reinvests every dollar for growth.

Long-term growth questions

The limitations of the Korean market are a potential hurdle to Coupang's long-term growth. South Korea is very well versed in technology, with virtually all households accessing the internet. The e-commerce business can grow by adding new members or by members spending more. The company grew revenue by 12% year over year in the second quarter by increasing its member numbers by 5% while boosting member spending by 7%.

South Korea has a population of almost 52 million, and Coupang has 17.8 million members. Once you subtract children from that population figure and consider how many households might be using one account, it seems possible that the South Korean market might not have much penetration potential left.

Coupang has begun expansion efforts, launching in Japan and Taiwan last summer, and it will take time to see how much traction it gets there.

Taking lessons from Amazon

Going back to the Amazon playbook, Coupang is attaching new services to its business. You can think of the e-commerce business as a tool to acquire customers. Make the e-commerce membership a must-have, and then cross-sell more-profitable products and services to your members.

Coupang has online grocery, food delivery, streaming, and payment services. But these totaled just $160 million in the second quarter, or 3% of total revenue, so there's a lot of work to do on that front.

This is a promising company that must build on a strong e-commerce service to grow and move toward turning a profit. Going public in a bull market pumped the stock to an excessive valuation but that cooled as the stock declined.

You can see below that the stock now trades at a price-to-sales ratio of 1.5, a discount to its possible role model in Amazon. One could argue that Amazon's profitability and possession of cash cow Amazon Web Services (AWS) warrants that premium valuation, and I think that's very fair.

Coupang might deserve a lower valuation because of the question marks around its long-term growth. But the stock could be a rewarding long-term holding if the company answers those questions by successfully expanding in Japan and Taiwan and growing its add-on services.

CPNG PS Ratio Chart

CPNG P/S ratio. Data by YCharts.

Long-term investors can certainly buy today and do well over time; just don't get carried away. Don't let emotions stress you into making a rash decision. Consider a dollar-cost-averaging strategy to slowly accumulate shares and let the company prove its execution quarter after quarter.