Why Coupang Stock Rocketed 25% Higher on Thursday

What happened

Shares of Coupang (CPNG -0.15%) rocketed 25% higher on Thursday after the South Korean e-commerce company reported strong third-quarter earnings. Coupang showed strong growth and margin expansion compared with a year ago, making investors optimistic about the company's prospects. As of 12:29 p.m. ET, the stock is up 22.5% on the day.

So what

On Nov. 9, Coupang reported its earnings for the three months ending in September. Revenue was up 27% year over year in constant currency (adjusted for the devaluing of the South Korean won), to $5.1 billion in the period. More importantly, gross profit grew 64% year over year to $1.2 billion, with gross margins expanding to 24.2%, up 8 percentage points from a year ago. This rapid margin expansion helped the company achieve a positive net income of $91 million in the quarter, which likely impressed investors as the company is still investing heavily for growth.

These growth initiatives include a few different things. First, the company is continually expanding its vertically integrated e-commerce and delivery business. Over the first nine months of this year, Coupang has invested $700 million in capital expenditures, much of this going to new warehouses and logistics infrastructure. This vertical integration gives Coupang a competitive advantage and is why the company dominates the South Korean e-commerce market. In the quarter, active customers grew 7% to 18 million and spending per active customer grew 19% year over year in constant currency.

Outside of its core e-commerce offering in South Korea, the company is investing in Coupang Play (its video streaming service), fintech initiatives, and international expansion in markets like Japan and Singapore. These growth initiatives bring in minimal revenue today but show Coupang's innovative corporate culture. This year, management expects the company to spend around $200 million on these new projects.

Now what

With the stock up, Coupang now trades at a market cap of $35 billion. As it's the leading South Korean e-commerce company, management thinks there is a massive spending tailwind it can go after over the next few years. Coupang already generates $5 billion in revenue a quarter, so it would be no surprise to see it reach $50 billion in annual revenue within the next few years.

If margins keep expanding along with solid revenue growth, Coupang stock can do well for investors over the next few years. Don't think you've missed the boat because of today's price bump.