Shares of South Korean e-commerce leader Coupang (CPNG -0.52%) rallied 32.3% in February, according to data from S&P Global Market Intelligence.
Coupang stock entered February on a low note, having dropped since the start of 2024. However, the company's fourth-quarter earnings brightened the mood, with the e-commerce company showing impressive growth and profit expansion.
Expectations-trouncing results
In the fourth quarter, Coupang delivered 23% revenue growth, along with adjusted (non-GAAP) earnings per share of $0.08, up 167% year over year. Both figures beat analyst expectations, sending shares upward in the aftermath.
Diving under the layers of Coupang's earnings, the core business was even more impressive. The core Product Commerce segment, which is general e-commerce in South Korea, grew 21%, with adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) margins of 7.1%, a 1.9-percentage-point increase over the last year's fourth quarter.
That's actually a significantly higher EBITDA margin than the 4.5% margin for the total company. But that's because Coupang's developing offerings, including international e-commerce, food delivery, online streaming, and fintech offerings, are still generating growing losses. While the developing offerings' adjusted EBITDA loss grew from $55 million a year ago to $150 million, revenue for these businesses grew significantly, at 105% year over year.
That high growth rate is certainly a promising sign that these new offerings are succeeding in the marketplace.
Coupang's got a lot of growth potential at a reasonable valuation
On the conference call with analysts, Coupang management pointed out it still has a very small share of total retail sales in its core market of South Korea, and an even tinier share in the new market of Taiwan, leaving a long runway for growth even outside its developing ventures.
Coupang also recently expanded into luxury e-commerce with the vulture acquisition of Farfetch, the distressed luxury retail e-commerce company that buckled under the weight of a severe China slowdown and high debt load last year.
Coupang was essentially able to buy the entire company for $500 million, even though Farfetch was on track to deliver about $4 billion in gross merchandise volume last year. Since Coupang has its own e-commerce infrastructure, it believes it can cut a significant amount of costs from Farfetch to make it self-funding beyond Coupang's initial investment.
We'll have to see if that works out. After all, Farfetch's difficulties stemmed from the challenges of selling luxury goods online, which hasn't really changed just because Coupang owns the asset. However, Farfetch had a fair amount of debt for its size and seemed highly mismanaged -- hence, why it needed a rescue. In contrast, Coupang has a strong balance sheet with $5.2 billion in cash and just $800 million in debt. And Coupang earned an impressive $1.8 billion in free cash flow in 2023, which looks set to expand in 2024.
At a market cap of just $33 billion, Coupang's stock trades at just 18.3 times trailing free cash flow. That seems like a bargain price for a company growing and expanding margins at the rate Coupang is -- even after February's surge.
