Coupang (NYSE: CPNG) is the largest e-commerce player in South Korea and is diversifying outside of its core offering. It was founded in 2013 by current CEO Bom Suk Kim and is the largest Asian company to go public since Alibaba in 2013. After a successful IPO with the stock shooting up and e-commerce booming, is it a good buy?
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The bull case for Coupang:
The South Korean economy is the 12th largest globally and represents one of the fastest-growing e-commerce opportunities in the world with a mobile penetration rate of 96%. In 2019, total e-commerce spend was $128 billion and is forecast to grow to $206 billion by 2024 at a CAGR of roughly 10%. Both the size of the market and the growth in e-commerce provide a runway for growth.
Coupang is founder-led and has high insider ownership, with Kim owning roughly 10% of the stock and has a 79% approval rating on Glassdoor. The company also has a modest 3.9 stars out of 5 on Glassdoor, indicating a good company culture.
Coupang’s mission is to create a world where customers wonder, “How did we ever live without Coupang?”. Korean culture is known for “ppalli ppalli”, or getting things done fast, and Coupang aims to benefit by providing a convenient and customer-centric service for its customers with end-to-end vertical integration, owning its inventory, logistics, and fulfillment. It provides “same-day” and “dawn” delivery where orders placed before midnight arrives at 7 am. This is possible due to its dense population, with 70% living within 7 miles of a logistics center.
In 2019 Coupang has launched a subscription membership, ‘Rocket WOW’, similar to Amazon Prime, for $2.50 a month, offering free delivery and other benefits. Rocket WOW has grown significantly now comprising 32% of active customers, which means there is room for expansion. It has also launched grocery and food delivery, currently making up less than 8% of total revenue with its grocery leveraging the existing logistics network. Another minor part of the business is a fintech arm that could be leveraged and provides another opportunity for growth as Korea is “relatively light” on e-payments.
It is yet to report as a publicly listed company, but in 2020 it reported revenue growth of 93%, accelerating significantly from 55% in 2019 to $11.97 billion. Coupang has more than quadrupled revenue in the last three years, and its net loss has also halved to reach $500 million in 2020. The company has a large customer base with 14.8 million customers as of Q4 2020, with net revenue per active customer increasing by 59% year-over-year (YoY) to $256. Management is also intent on increasing free cash flow while limiting shareholder dilution.
The bear case for Coupang:
Coupang has 14 million active users, and Korea has a population of 51 million, demonstrating its large market share. Although this is positive, it will need to maintain growth due to the high penetration and declining population. This may be difficult, particularly with the lack of international expansion. Kim stated in a recent interview, they remain “laser-focused on the Korean market”. There are also question marks given the business model and the scalability of the company if it were to try to enter other markets.
Although it dominates the Korean market, several other players are vying for market share. Korean internet giant Naver recently teamed up with retailer Emart to take on Coupang, and eBay also has a competing platform in Korea. Other giants such as Amazon also pose a threat, and despite its dominance, Coupang is not yet profitable and has a high valuation with a market cap of $78 billion.
Lastly, there is a lot of hype surrounding IPO’s, and at MyWallSt, we tend to wait at least two quarters before buying a stock. This allows for the excitement to die down and to look at the fundamentals of the public company.
Quickfire round:
Is Coupang publicly traded?
Yes, Airbnb is a publicly-traded company after it went public on the New York Stock Exchange on Thursday, March 11, 2021.
Where is Coupang headquartered?
Coupang is headquartered in Seoul, South Korea.
Does Coupang pay dividends?
No, nor does it anticipate paying dividends in the foreseeable future.
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