Last week was a big one for Coupang (CPNG -0.52%). The Korea-based e-commerce platform reported its full-year earnings and saw its stock pop more than 10% after putting up strong growth and profitability in the fourth quarter. Taking a longer view, the stock is way below its high-water mark set back in 2021, off 62% from all-time highs as of this writing.
Coupang is still under $20 a share and looks like a bargain for investors at these prices. Here's why you should consider adding this e-commerce upstart to your portfolio in 2024.
CPNG Total Return Level data by YCharts.
Vertically integrated competitive moat in e-commerce
Coupang began in South Korea as a competitor to Groupon but quickly pivoted around 10 years ago to build an e-commerce platform based on Amazon's success. Like its North American counterpart, Coupang has built its own delivery network and fulfillment warehouses to vertically integrate its operations and offer services to third-party merchants. It also has a Prime-like subscription bundle called Rocket WOW that offers free shipping, free returns, and other discounts for Coupang's services.
This strategy has worked wonderfully in the densely populated South Korean region. In 2023, Coupang generated $24.4 billion in revenue, up 20% year-over-year on a constant currency basis. It has 14 million Rocket WOW subscribers and 21 million active customers, making up a huge portion of the roughly 50 million people living in South Korea. Coupang continues to gain market share by growing faster than the South Korean retail market and e-commerce sector. It is likely doing so because of its vertical integration and the superior value proposition it can offer shoppers.
South Korean retail spending is estimated to be around $500 billion each year. While Coupang is not a player in every subset of this market, its broad-based e-commerce platform and services hit a good chunk of it. With around $25 billion in annual revenue, there is plenty of room for Coupang to double or even triple that amount this decade if it continues to gain share in its home market.
Replicating success in Taiwan (but faster)
After seeing enormous success in Korea, Coupang is now moving to new countries. First up is Taiwan, which Coupang officially entered in October of 2022. According to management, the last two quarters have seen a doubling of revenue and customers. The region is now growing faster than South Korea was at the same time post-platform launch.
Taiwan is a geopolitically risky market, but it is densely populated with 23.5 million people who could use an e-commerce platform such as Coupang. This won't drive growth in the immediate future, but it can become a meaningful part of this business within the decade. The Developing Offerings segment -- which houses the Taiwan operations -- saw revenue grow over 100% year over year in the fourth quarter of 2023. Investors should expect more rapid growth from this segment in the years to come.
The stock is cheap if you focus on the long term
In 2023, Coupang generated operating earnings of $473 million. Compared to a market capitalization of $34 billion, you might think the stock looks expensive, even with the company's revenue growth potential. But this is understating Coupang's margin potential at scale and is why there is an opportunity for long-term-focused investors to buy shares today.
Coupang is guiding its consolidated operations to have approximately 10% profit margins at maturity. This is reasonable for a vertically integrated e-commerce operator. Applying a 10% margin to the $24.4 billion in 2032 revenue, Coupang's profits would jump to $2.4 billion. That would bring its price-to-earnings ratio (P/E) to a much-cheaper-looking 14.
And it doesn't look like Coupang's revenue growth is going to slow down anytime soon. If Coupang can compound its revenue to $50 billion each year, this company is well on its way to $5 billion in annual earnings. I think the stock will likely be much higher in five to 10 years under this scenario. Have patience and stay the course; there are a lot of good years ahead for Coupang.
