Most investors have the same overarching goal: To grow their wealth. Some make bets on high-growth stocks like Amazon (AMZN -1.64%), which is up close to 10x in the last 10 years and over 100x since its initial public offering (IPO) in 1997. Many investors became millionaires by buying high-growth stocks like Amazon and holding for the long term.
So, what stock is the next Amazon? I think I might have an answer in the South Korean e-commerce platform Coupang (CPNG 0.35%). Here's why buying this recent IPO and holding the stock long-term might just help you retire a millionaire.
Coupang Q1 earnings: a cash flow inflection
Coupang operates an e-commerce marketplace similar to Amazon in South Korea. Like its North American counterpart, it built its own warehouses and delivery network to provide a vertically integrated offering. Because of this dense logistics network, Coupang can provide shoppers with same-day and next-day delivery on almost all orders, which improves its value proposition versus competitors. The e-commerce specialist also added even more selections through the Coupang marketplace like grocery and meal delivery, which expands its revenue potential from its South Korean customer base.
In 2023's first quarter, Coupang's growth continued to outpace overall South Korean retail spending, growing 20% year over year on a currency-neutral basis to $5.8 billion, which is impressive considering it grew 32% year over year in the same period in 2022.
This growth was driven by 14% year-over-year growth in revenue per active customer, which hit $323 on a constant-currency basis in the first quarter, showing the success Coupang had in expanding its product range to its existing customers.
While growth was solid, the most impressive part of Coupang's first quarter was its cash flow. Better profit margins and lower capital expenditures helped push free cash flow to $406 million in the quarter, versus a loss of $294 million a year earlier.
Part of this was also due to an increase in accounts payable to $162 million. Like Amazon, Coupang has a permanent working-capital advantage because it collects cash from customers at the time of purchase but doesn't pay the merchants who sold the products until later (likely within 90 days). This isn't cash it can keep forever or return to shareholders, but it gives its balance sheet much more flexibility, compared to other businesses, when making new investments.
Coupang saw growth in Taiwan, a pullback in Japan
With over $20 billion in annual revenue, Coupang still has plenty of room to grow as it tackles the $500 billion South Korean commerce market. But with only a small population in its home nation, management has already looked to expand to other Asian countries.
It invested in Japan but recently decided to exit that market as it wasn't seeing much traction with consumers. Incumbents like Amazon, which has a large presence in the country, and Rakuten were likely hard to make any inroads against.
But one country where Coupang is seeing strong returns is Taiwan. The island nation with just under 24 million people and high population density could be a perfect place to replicate Coupang's vertically integrated e-commerce network in South Korea, which also has a high population density.
Today, its international revenue is much smaller than its domestic revenue. But success in Taiwan -- and other Asian nations -- could keep Coupang's revenue growing at a high level for many years.
CPNG Net Income (TTM) data by YCharts. TTM = trailing 12 months.
Don't get caught up in Coupang's valuation
Just looking at net income, Coupang does not seem very profitable. Over the last 12 months, the company generated net income of just $208 million on $21 billion in sales, for a trailing price-to-earnings ratio (P/E) of 134. Yet smart investors know that a stock is not worth what it has earned in the past, but what it will earn in the future.
As Coupang scales up, management expects its profit margins to hit around 10% or higher as it gains operating leverage and grows high-margin opportunities like advertising. A 10% margin on $20 billion in revenue equates to $2 billion in earnings and $4 billion on $40 billion in sales. If the company can get anywhere near that number within the next few years (and potentially $10 billion net income on $100 billion in sales further into the future), it is almost certain that the stock will trade at a market cap much higher than its current value of $28 billion.
Of course, no investment comes with a guarantee, but it looks like Coupang has all the ingredients of a millionaire-maker stock for investors who plan to hold for the long term.
