Coupang (CPNG) is an e-commerce company. The company sells apparel, electronics, footwear, food products, furniture, nutritional supplements, and other products, mostly in South Korea.
Coupang is often referred to as “the Amazon (AMZN) of South Korea,” however it also has its own unique features. Due to the population density of South Korea, and the logistical operations that Coupang has developed, over 95% of items are delivered the following day.
The company claims that 70% of its customers actually live within 10 miles of a logistics center. This could prove to be conducive to higher retail margins than Amazon, which must deliver across vast distances.
I am neutral on CPNG stock. (See CPNG stock charts on TipRanks)
Opportunities for Expansion
Coupang is backed by SoftBank (SFTBF), which has extensive ties to Japan.
Given the constraints of operating only in South Korea, the Japanese market would be a dream expansion opportunity for Coupang. That’s not to say that South Korea is undesirable. The country has a very tech-savvy culture, and the ecommerce market is strong and growing each year.
However, the market in Japan is several times larger, albeit with more competition. With Softbank’s backing, Coupang has entered Malaysia, Singapore, and now Japan.
Massive Revenue Growth
Coupang is in high-growth mode with revenues increasing 72.7% for the first six months of 2021 as compared to 2020. This is impressive, especially since the COVID-19 pandemic pushed e-commerce sales higher in spring of 2020.
According to the company, Q2 2021 was the 15th consecutive quarter where sales increased 50% over the same period in the prior year.
As a retail company, Coupang has high costs of goods sold. For this reason, ii is helpful for investors to focus on growth in gross profit, and then examine the income statement down from there.
Gross profit was up 50% in Q2 2021 compared to Q2 of 2021. However, the company experienced a massive warehouse fire during Q2 2021. This reduced gross profit by $158 million due to the inventory lost. Were it not for the one-time item, gross profit would have increased a robust 86% for the same period.
Significant Risks
The company is not yet net profitable, and likely will not be for several years as it scales operations. One issue that will need to be addressed is the rapid increase in general and administrative expenses.
These increased 119% year-over-year in Q2 compared. Because of this, the company’s net loss has grown larger despite the revenue and gross profit gains.
The Japanese market has serious competition already entrenched within, including Amazon, and it will be difficult for Coupang to makes serious inroads there.
Further, there have been reported issues with Coupang’s labor practices. Obviously, for a consumer driven company, it cannot afford to have a damaged reputation.
Stock Pullback May Make for Attractive Entry Point
CPNG stock has traded as high as $69 after its early 2021 IPO. Since that time it has been in a steady downtrend.
At the writing of this article it trades below $29. It is difficult to predict when this downtrend will end, and the dip under $30 may be a buying opportunity, albeit with caution indicated.
It may take a catalyst, such as expansion announcement, increased guidance, or an earnings beat to trigger a reversal. Coupang is estimated to release Q3 earnings in early November 2021.
Wall Street’s Take
Wall Street analysts are quite bullish on CPNG stock, with a Strong Buy consensus rating, based on three Buy ratings, and one Hold.
The average CPNG price target is $43.33. This implies 53.3% upside potential from current levels of trading. Analysts are fairly aligned in their targets, with $46 per share as the high price target, and $40 per share as the low target.
Summary
There is much to be positive about with Coupang. Revenue growth and expansion are two examples of this. Gross profit is also growing even faster than revenue which is great news for margins.
The flip side is that the company’s net loss is widening, and the stock price is in a persistent downward trend. Coupang is a stock to watch, and perhaps nibble at incrementally, however the company must show positive trends in Q3 earnings to warrant a bullish call.
Disclosure: At the time of publication, Bradley Guichard had a position in CPNG.
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