Coupang (CPNG -0.52%) posted its second-quarter report on Aug. 8. The South Korean e-commerce leader's revenue rose 16% year over year to $5.8 billion and exceeded analysts' expectations by $140 million.
It generated a net profit of $145 million, which improved from its net loss of $75 million a year earlier and represented its fourth consecutive quarter of profitability on the basis of generally accepted accounting principles (GAAP). Its GAAP earnings per share (EPS) of $0.08 also cleared the consensus forecast by $0.03.
Those headline numbers looked solid, but Coupang's stock only rose slightly after the report and remains nearly 50% below its initial public offering (IPO) price of $35. Will this oft-overlooked e-commerce stock finally return to its debut price over the next 12 months?
Image source: Getty Images.
Accelerating revenue growth with expanding margins
When Coupang went public in March 2021, the bulls were dazzled by its rapid growth, its expansive first-party logistics network (which placed fulfillment centers within seven miles of 70% of South Korea's population), and the stickiness of its Rocket Wow subscriptions. These subscriptions provide faster delivery options, free returns within 30 days, access to streaming videos, food and grocery deliveries, and other perks for a monthly fee.
The bears claimed Coupang's growth would cool off as it saturated the South Korean market, while intense competition from Naver -- the top search engine in South Korea, which also sells products online -- would make it tough to turn a profit. They also expected Coupang's loss-leading overseas expansion and new Wow perks to compress its margins.
For a while, it seemed like the bears were right. After growing its revenue by 54% in 2021, Coupang's sales only rose 12% to $20.6 billion in 2022. But if you look back at the quarterly results over the past year, you'll see that its year-over-year growth in revenue and active customers actually accelerated again in the first half of 2023 as its revenue per active customer continued to rise. Its margins for gross and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) also expanded and enabled it to generate consistent profits under generally accepted accounting principles (GAAP) over the past year.
|
Metric |
Q2 2022 |
Q3 2022 |
Q4 2022 |
Q1 2023 |
Q2 2023 |
|---|---|---|---|---|---|
|
Revenue growth (YOY) |
12% |
10% |
5% |
13% |
16% |
|
Active customers growth (YOY) |
5% |
7% |
1% |
5% |
10% |
|
Net revenue per active customer growth (YOY) |
7% |
3% |
4% |
8% |
5% |
|
Gross margin |
22.9% |
24.2% |
24% |
24.5% |
28.1% |
|
Adjusted EBITDA margin |
1.3% |
3.8% |
4% |
4.2% |
5.1% |
Data source: Coupang. YOY = Year-over-year.
Coupang attributed that acceleration to higher spending from all its customer cohorts, the robust growth of its newer fashion and beauty categories, the expansion of its higher-margin third-party marketplace, the rising usage of its food delivery platform Coupang Eats, and its entry into Taiwan -- where it became the country's most downloaded mobile app in the second quarter. It also continued to strengthen its logistics and fulfillment network with new merchant services.
Where will Coupang's stock be in a year?
Coupang didn't provide an outlook for the rest of the year, but it reiterated its long-term guidance of achieving an adjusted EBITDA margin of at least 10%. For the full year, analysts expect its revenue to rise 17% to $24 billion as its adjusted EBITDA rises eightfold to $959 million (which would give it an adjusted EBITDA margin of about 4%). On a GAAP basis, they expect it to generate a net profit of $556 million, compared to a net loss of $92 million in 2022.
Take those estimates with a grain of salt, but they suggest Coupang's prospects will brighten as the macro environment improves and economies of scale kick in. If that happens, the stock looks cheap at 1 times this year's sales.
To put that into perspective, Singapore's Sea Limited (SE 0.05%), which competes against Coupang in Taiwan with its Shopee marketplace, trades at nearly 2 times this year's sales but is only expected to generate 5% sales growth in 2023. eBay (EBAY 1.32%), which once competed against Coupang in South Korea before divesting that unit in 2021, is expected to generate just 4% sales growth this year and trades at about 2 times that forecast.
Based on those comparisons, Coupang's stock could easily double and return to its IPO price -- but still be considered a bargain at 2 times this year's sales. In other words, Coupang's stock could head a lot higher over the next 12 months.
