The price action for Coupang (CPNG) stock since its listing has been unimpressive. After making highs of $69 soon after going public, CPNG stock has corrected to its current levels of $23.27.
However, it’s worth noting that CPNG stock traded at all-time lows of $16.6 in January 2022. The stock has already witnessed a rally of over 40% from lows. I believe that the uptrend is likely to sustain itself, and I am bullish on the long-term growth story.
Let’s talk about the catalysts for a sustained reversal in stock sentiment.
Before any company-specific discussion, it’s important to note that the e-commerce model has proven to be a cash machine. Be it Amazon (AMZN) in the U.S. or Alibaba (BABA) in China, free cash flow growth has been robust with operating leverage.
This was important to mention at the onset because Coupang reported an adjusted EBITDA loss of $207 million for Q3 2021. On a year-on-year basis, EBITDA loss widened. However, this is unlikely to be a worry with Coupang still delivering healthy growth. Marketing and sales expense is likely to be higher as the company focuses on geographical expansion and active customer growth.
It’s also worth mentioning here that for Q3 2021, Coupang reported net revenue per active customer of $276. On a year-on-year basis, ARPU increased by 23%. This growth also underscores the view that Coupang is positioned for healthy cash flows in the next few years.
Growth Likely to Accelerate
One reason for Coupang stock correcting after its listing was growth concerns. However, it’s likely that the company’s top-line growth will accelerate in the coming quarters.
The first factor is growth in financial flexibility following the IPO. As of September 2021, Coupang reported cash and equivalents of $3.9 billion. This provides ample buffer for aggressive expansion.
The second factor is inroads in markets outside Korea. Some of the initial markets for Coupang include Japan, Singapore, and Taiwan. It’s possible that Coupang will invest in Southeast Asia.
Sea Limited (SE) has been focused on Southeast Asia, and the company’s top-line growth has consistently been above 100%. This is an indication of the potential the SEA markets hold. During the COVID-19 pandemic, the region added 70 million online shoppers. The key point is that Coupang has ample scope for accelerating growth by expanding in big Asian markets.
Further, Coupang’s growth is not limited to e-commerce. Through RocketFresh, the company has entered the grocery business.
For Q3 2021, the fulfillment center infrastructure for RocketFresh increased by 90% on a year-on-year basis. Similarly, Coupang Eats is a food delivery app. It has been the most downloaded mobile app for iOS in Korea for year-to-date 2021. These are segments that will support growth in the coming quarters.
From a stock price perspective, the following point is also worth noting: Chinese e-commerce companies have continued to face regulatory headwinds. There will continue to be portfolio re-allocation from investors bullish on the Asian e-commerce story. Coupang is likely to be one of the beneficiaries.
Wall Street’s Take
Turning to Wall Street, Coupang has a Hold consensus rating, based on one Hold rating assigned in the past three months. Coupang’s price target of $32 implies 37.5% upside potential.
Concluding Views
The South Korean e-commerce market is expected to swell to $242.2 billion by 2025. Coupang has a leading market share, and the company’s growth has outpaced industry growth. With a strong financial buffer to pursue aggressive investments, the Korean market will continue to support growth.
For the first nine months of 2021, Coupang reported revenue of $13.3 billion. This implies an annualized revenue potential of $17.7 billion. CPNG stock is therefore trading at 2.3x forward sales. The valuation looks attractive considering the growth trajectory and expansion plans.
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