HomeMarket News Coupang: A Once-in-a-Decade Opportunity? Coupang: A Once-in-a-Decade Opportunity?

Coupang: A Once-in-a-Decade Opportunity? Coupang: A Once-in-a-Decade Opportunity?

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Wall Street’s lukewarm welcome to Coupang’s $500 million acquisition of Farfetch seems to have painted the company’s stock pricing with caution. Despite being the premier e-commerce force in South Korea within just over a decade, a 70% decline in stock performance since its 2021 IPO dramatically contrasts with an ever-burgeoning business territory. Nevertheless, could this discrepancy embrace a splendid a once-in-a-decade opportunity for investors?

Allow me to dismantle this conundrum and elucidate on why Coupang’s current value proposition at near-all-time-low valuations may warrant a closer inspection from the judicious investor’s lens.

Leading the e-commerce charge in South Korea

Fortifying its stronghold, Coupang caters to over 20 million active users, exemplifying a robust 14% growth compared to last year and encompassing approximately 40% of South Korea’s populace. The company operates through two core business segments:

  • Product commerce (97% of sales): Coupang’s foundational operational domain subsumes internal e-commerce sales, third-party merchant sales, Rocket Fresh (grocery delivery), and advertising. This segment culminated in an adjusted EBITDA of $1.4 billion over the past year with an adjusted EBITDA margin of 6%.
  • Developing offerings (3% of sales): An evolving division, inclusive of Coupang Eats (restaurant ordering and delivery), Coupang Play (content streaming), international sales (chiefly Taiwan), and financial technology. This sector exhibited an adjusted EBITDA loss of $371 million for the last twelve months, offset by a margin of -57%.

Embracing these twofold units, Coupang has orchestrated a comprehensive suite of amenities that have facilitated the enlistment of over 11 million users to its subscription program, Rocket WOW. At less than $50 annually, a WOW membership furnishes an array of benefits including Coupang Eats, prompt grocery delivery, no-cost returns, one-day delivery, complimentary delivery on Rocket-tagged products, and access to Coupang Play.

Although several services, such as Coupang Eats and Play, are yet to attain profitability, they play a pivotal role in the organization’s growth trajectory. For instance, patrons engaging with Coupang Eats expended nearly double the amount compared to non-participants, underscoring the division’s role as a loss leader to propel heightened engagement and retention among members.

Significantly, Coupang’s latest foray into Taiwan might have contributed to the seemingly worrisome adjusted EBITDA loss in the smaller segment. Gauging the rapid adoption of Rocket Delivery, poised to be the most downloaded app in Taiwan by 2023, illustrates the burgeoning customer demand in that region’s market.

Triggering a perceptible market unease, Coupang’s $500 million Farfetch acquisition appears to have sent its stock plummeting over 20% at one juncture. However, scrutinizing the risk-reward balance of this deal offers a sagacious perspective that investors may appreciate.

The Farfetch deal isn’t a death knell

Primarily, the Farfetch acquisition will not induce financial ruin at Coupang. The company holds a burgeoning cash asset nearing $5 billion, rendering the $500 million venture into Farfetch comparably modest. Additionally, Coupang netted $429 million and $1.8 billion in net income and free cash flow (FCF) correspondingly, during the past year.

Conversely, the foundering company presents substantial upside potential for Coupang, a crucial factor given South Korea’s remarkable per capita spending on luxury goods. Notably, Farfetch’s revenue exceeded $2 billion in the last fiscal year, while concurrently commanding a market capitalization of $24 billion.

Farfetch’s platform, housing over 3,400 brands patronized by 4 million consumers, could serve as an innovation arena for Coupang’s founder and CEO, Bom Kim. Sequestered from the crucible of financial distress, Coupang’s impending fourth-quarter earnings might offer intriguing insights into its post-Farfetch strategy and growth prospects.

Rising margins and nearly all-time low valuation

Unquestionably, Coupang exhibits a pattern of rising margins that not only sustains its Farfetch undertaking but also heralds a potentially lucrative investment opportunity at present pricing.

CPNG Gross Profit Margin Chart

CPNG Gross Profit Margin data by YCharts

Laudably scaling over the past two years, as Kim forecasted, the company commences to harvest the fruits of hefty capital investments in erecting its logistical network in South Korea. Leveraging the unique geographic advantage of South Korea’s 14-fold higher population density compared to the United States could potentially confer Coupang outsized profitability upon nearing peak efficiency.

CPNG EV to EBITDA Chart

CPNG EV to EBITDA data by YCharts

The cherry on top for potential investors lies in Coupang’s enterprise value-to-EBITDA ratio, lingering near all-time lows. With Kim envisioning the company’s EBITDA margin of 3.5% escalating to 10% or beyond over the long haul, Coupang’s current valuation appears modest given its growth prospects and operational streamlining.

Should you invest $1,000 in Coupang right now?

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