Coupang (CPNG +0.48%), the largest e-commerce company in South Korea, went public at $35 per share on March 11, 2021. It rallied to its all-time high of $50.45 just four days later, but it now trades 68% below that level at about $16.
Coupang initially dazzled the bulls with its explosive growth, but it lost its luster as that cooled off and rising rates compressed its valuations. Today, I'll explain why this out-of-favor growth stock deserves a second chance.
Image source: Getty Images.
An overlooked e-commerce giant
Before going public, Coupang built a massive first-party logistics network that placed fulfillment centers within seven miles of 70% of South Korea's population. It also expanded its Rocket Wow subscriptions, which bundled together faster deliveries, free returns, streaming videos, food and grocery deliveries, and other perks, much like Amazon's Prime membership.
Coupang's sticky ecosystem locked in its shoppers and widened its moat against domestic competitors like Naver, the top search engine, which operates its own e-commerce marketplace; and Shinsegae's Gmarket. It capitalized on that growth to expand into Taiwan in 2021, and it agreed to buy the British luxury online retailer Farfetch (FTCH +0.00%) for $500 million in December 2023. Those two moves could curb its dependence on the saturated South Korean market.
NYSE: CPNG
Key Data Points
Its revenue growth is accelerating again
Coupang's revenue surged 93% in 2020 as more people shopped online during the pandemic, then grew another 54% in 2021. But in 2022, it rose just 12%.
That slowdown was caused by inflationary headwinds for consumer spending, and currency headwinds that reduced its reported growth by 14 percentage points for the full year. Its number of active customers only grew 1% to 18.1 million at the end of the year, compared to its 21% growth in 2021 and 26% in 2020.
That deceleration convinced many investors that Coupang's high-growth days were over, and its stock dropped far below its initial public offering (IPO) price. But over the past three quarters, its growth in revenue and active customers accelerated again. Its net revenue per active customer also continued to grow at a steady rate as it gained more customers.
|
Metric |
Q3 2022 |
Q4 2022 |
Q1 2023 |
Q2 2023 |
Q3 2023 |
|---|---|---|---|---|---|
|
Revenue growth (YOY) |
10% |
5% |
13% |
16% |
21% |
|
Active customer growth (YOY) |
7% |
1% |
5% |
10% |
14% |
|
Net revenue per active customer growth (YOY) |
3% |
4% |
8% |
5% |
7% |
Data source: Coupang. YOY = Year over year.
It attributes that acceleration to the growth of its new fashion and beauty categories, the rising use of its food delivery platform Coupang Eats, the expansion of its fulfillment network with new merchant services, and its growth in Taiwan.
Analysts expect its revenue to have a compound annual growth rate (CAGR) of 15% from 2022 to 2025. That's impressive for a stock that trades at a multiple of 1 with next year's sales. Amazon, which is expected to grow its revenue at a CAGR of 11% from 2022 to 2025, still trades at 2.5 times next year's sales.
Coupang's margins are stabilizing and expanding
As Coupang's growth slowed down, it reined in its spending and diluted its fulfillment costs. It also expanded its third-party marketplace to curb its dependence on its lower-margin first-party marketplace.
Those efforts stabilized its gross and adjusted margins for earnings before interest, taxes, depreciation, and amortization (EBITDA) over the past year. It expects its adjusted EBITDA margins to exceed 10% over the long term.
|
Metric |
Q3 2022 |
Q4 2022 |
Q1 2023 |
Q2 2023 |
Q3 2023 |
|---|---|---|---|---|---|
|
Gross margin |
24.2% |
24% |
24.5% |
28.1% |
25.3% |
|
Adjusted EBITDA margin |
3.8% |
4% |
4.2% |
5.1% |
3.9% |
Data source: Coupang.
But more importantly, Coupang has stayed profitable on the basis of generally accepted accounting principles (GAAP) for the past five consecutive quarters. Those rising profits counter the bearish notion that Coupang's business model is unsustainable.
Analysts expect its adjusted EBITDA to grow at a CAGR of 147% from 2022 to 2025 as economies of scale kick in. Investors should take those estimates with a grain of salt, but they're stellar for a stock that trades at 19 times next year's adjusted EBITDA.
Coupang's stock could double in a warmer market
Coupang still has room to grow, and it could easily surpass analysts' expectations as it closes its acquisition of Farfetch, expands into more overseas markets, and adds more perks to its Rocket Wow ecosystem.
When that happens, its stock could easily double and rally back toward its IPO price -- but it would still be cheap relative to its long-term growth potential. Simply put, investors who can stomach a bit of near-term volatility should take a much closer look at Coupang.
