After reporting earnings on May 7, shares of South Korean e-commerce juggernaut Coupang (CPNG +3.33%) dropped by more than 10% in a single day. Missing consensus earnings-per-share (EPS) estimates by one penny, Coupang spooked the market, bringing in a mere $5 million in net income versus $7.1 billion in sales.
However, underneath these headline figures hide a number of reasons for optimism, prompting Barclays analyst Jiong Shao to raise his price target from $25 to $32, implying around 41% upside in the company's shares over the next year or so.
Here's what those hidden figures show us and why I believe Shao could be proven correct.
Coupang's sneakily great quarter
While Coupang's generally accepted accounting principles (GAAP) sales grew by 23% year over year in Q1, its actual growth was even more impressive. Due to an accounting change made last year regarding its Fulfillment and Logistics by Coupang unit (FLC), Coupang's true revenue growth was 10 percentage points higher at 33%.
Accounting for these FLC accounting adjustments, this was the fourth consecutive quarter that the company's sales growth accelerated, rising from 20% year over year in Q1 of 2023 to 33% today. Powering this growth was a 17% rise in active customers to over 21 million, 70% unit growth from Rocket Fresh grocery delivery, and a 130% year-over-year increase in units processed via FLC -- highlighting growth from new and existing customers alike.
On the profitability side of things, Coupang's EPS would have been flat compared to last year if not for the integration of its Farfetch acquisition. While the new unit will temporarily weigh on the company's profit margins, management believes Farfetch should reach breakeven adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) by the end of the year.
Generating $2.4 billion in cash from operations and $1.5 billion in free cash flow over the last year -- compared to a market cap of $40 billion -- Coupang's one-quarter dip in earnings shouldn't outshine its quietly impressive sales growth rate.
