Many investors have made a fortune owning Amazon (AMZN 3.43%) stock. The e-commerce and cloud computing giant is now one of the largest companies in the world, sporting a market capitalization of $1.45 trillion. Shares are up over 30x in the last 10 years and up 1,000x since going public in the late 1990s, providing life-changing returns for those who bought and held for the long term.
Investors will likely do well holding on to their shares of Amazon, but it will be near-impossible for the stock to go on the same run for the next 25 years as it has for the last 25, due to the law of large numbers. But what about the next Amazon? Is there another innovative e-commerce stock for investors to buy, perhaps with a smaller market cap in a country where Amazon doesn't operate?
In fact, there is, and it just went public in 2021. It's name is Coupang (CPNG -0.52%).
What is Coupang?
Founded in 2010, Coupang can be aptly described as the South Korean Amazon. The company aggressively built out its e-commerce platform in Korea with a focus on its own internal delivery services and warehouses in order to give it a leg up on the competition. This allows the company to offer same-day and dawn delivery (meaning by 7 a.m. the next morning) for the vast majority of its items. Like Amazon, it has a subscription bundle for its shoppers, which it calls Rocket WOW. There were 11 million Rocket WOW subscribers as of management's last update, which is over 20% of the South Korean population.
With this superior value proposition, Coupang has steadily grown its market share in South Korean retail and is now the leading e-commerce marketplace in the country. For the 12 months ending in March, the company generated $21.3 billion in revenue, up 77% since 2021, even with major foreign currency headwinds with the South Korean won depreciating against the U.S. dollar. When the U.S. dollar goes up in value versus the won, it makes Coupang's revenue growth in U.S. dollars lower, all else equal. For reference, this meant that in the first quarter, Coupang's revenue grew 13% year over year in U.S. dollars but 20% year over year in local currency.
CPNG Revenue (TTM) data by YCharts
Better margins than Amazon Retail
Coupang has an advantage over e-commerce operators such as Amazon that do business in large countries like the United States and Canada: South Korea is a small country geographically. This means less driving time and denser warehouse nodes, which lead to better unit economics and better outcomes for shoppers.
For example, in Q1 of this year, Coupang's product commerce segment -- which excludes some of its other offerings in food delivery and financial technology -- had a 5% adjusted earnings margin. It took Amazon many more years and hundreds of billions in e-commerce sales to reach these profit numbers, and this is with Coupang still reinvesting heavily to grow its operations.
Over the long term, Coupang thinks it can hit a 10%-plus adjusted profit margin. Management also thinks there is a gigantic market opportunity to go after just in its home market, with the South Korean retail sector expected to do $547 billion in sales in 2026. Coupang's trailing revenue only makes up 3.8% of these projected industry sales, meaning that the company has a long runway to grow if it can continue taking market share.
Is the stock cheap?
Coupang is difficult to value. On the one hand, the stock looks expensive if you look at its trailing earnings. With $208 million in trailing 12-month net income, shares trade at a price-to-earnings ratio (P/E) above 150, compared to its market cap of $32 billion. This is much more expensive than the S&P 500 average of 26.
But if you squint and take management's guidance to heart, the numbers paint quite a different picture. Assuming Coupang can double its revenue over the next five years and reach its 10% adjusted earnings margin, the company would be doing $4.26 billion in annual earnings five years from now. That would give it an adjusted P/E of just 7.5 based on its current market cap and indicates that investors will value that stock at a much higher price if these estimates are met.
While it can be risky to hold a stock whose business operates internationally and trades at a high P/E, Coupang looks like a company with multi-bagger potential. I think investors will do just fine buying shares of this South Korean technology company and holding for the long term.
