Amazon (AMZN 3.43%) has put up record stock returns since going public in the late 1990s. Shares are up 99,000% on an all-time basis even after a huge drawdown in 2022, which is more than 100x the returns you would have gotten by investing in the S&P 500 over that time period.
The e-commerce pioneer has ridden the consumer transition from in-person to online shopping and has become one of the world's largest companies in the process. But Amazon is not the only e-commerce stock.
If you want to buy other e-commerce stocks to ride this global retail transition, look no further than Coupang (CPNG -0.52%), which recently had its initial public offering. Here's why it is my favorite e-commerce stock to buy right now.
What is Coupang?
Coupang is a vertically integrated e-commerce business based in South Korea. Since starting a little over a decade ago, the company built up a huge delivery and logistics network across its home nation that is unmatched by any local competitors.
With 42 million square feet of logistics space and 70% of the Korean population within seven miles of a logistics center, Coupang is able to deliver packages in just 12 hours, which is actually significantly better than Amazon.
This logistics infrastructure gives Coupang tons of optionality, allowing it to expand into new products and services. It now offers fresh groceries, restaurant delivery, and rapid delivery (orders that get there in under an hour) for some of its customers.
On top of this, it has pulled some strategies from the Amazon playbook by offering a premium subscription service for dedicated customers, with a video streaming service attached to it.
And management is making investments internationally in places including Japan and Taiwan and has a new fintech application called Coupang Pay, although both these projects are a small part of the business today.
Top-line growth plus margin expansion
Through this integrated platform, Coupang has been able to consistently gain market share within the growing South Korean e-commerce industry, which is a recipe for rapid revenue increases. From 2017 to 2021, its market share in South Korea grew from 7.4% to 15.7% and is likely close to 20% today when looking at the numbers it put up in 2022.
In the third quarter of 2022, the last quarter we have publicly available financial results for, Coupang's revenue grew 27% year over year in constant currency to $5.1 billion. The company has now generated $20 billion in trailing-12-month revenue.
With the South Korean e-commerce market projected to expand rapidly and hit $291 billion in annual spending by 2025, Coupang has plenty of room to grow if it can keep gaining market share from the competition.
Coupang is not generating much in net profit but is showing strong gross margin expansion, which means its unit economics are getting better as it scales up. Last quarter, its consolidated gross margin expanded by 8 percentage points year over year to 24.2%. Over the long term, management expects to hit 27% to 32% gross margins and 7% to 10% in adjusted profit margins.
But is the stock cheap?
As I write this, Coupang has a market cap of $29.5 billion. The company is still unprofitable on a net income basis, making it difficult to value at the moment. However, we can make some forward estimates if we take management's financial projections at face value.
If Coupang has 20% of the South Korean e-commerce market in 2025, revenue will be around $58 billion that year. Assuming the company can reach 7% profit margins, that equates to $4 billion in 2025 adjusted earnings.
Adjusted earnings are not the perfect metric, but even so, $4 billion in earnings a few years out compared to a current market cap under $30 billion looks pretty darn cheap. That would put the stock at an adjusted price-to-earnings ratio (P/E) of just 7.4.
While still a risky stock to own given its history of unprofitability, Coupang has a fantastic track record for growth and looks to have a promising future. Which is why it is my favorite e-commerce stock to buy right now.
