Is Coupang Stock a buy it now?

coupangit is (CPNG 16.41%) the stock price jumped 19% on May 12 after the release of its first-quarter earnings report. Revenue at the South Korean e-commerce leader rose 22% year-on-year to $5.12 billion, or 32% in constant currency, but beat analysts’ expectations. around $130 million.

However, Coupang’s net loss increased from $295 million to $209.3 million, or $0.12 per share, which beat expectations by $0.16. On an adjusted earnings before interest, tax, depreciation and amortization (EBITDA) basis, its loss fell from $133 million to $90.9 million.

Image source: Getty Images.

This stabilization in earnings was encouraging, but Coupang shares are still trading nearly 70% below their IPO price last March. Has this battered growth stock become too cheap to ignore?

Coupang continues to grow in a post-lockdown market

Like many other e-commerce companies, Coupang’s growth has slowed over the past year in a post-lockdown market. But in the first quarter, it still generated 22% growth on top of its 74% growth a year ago:

Metric

Q1 2021

Q2 2021

Q3 2021

Q4 2021

Q1 2022

Revenue

$4.21 billion

$4.48 billion

$4.64 billion

$5.08 billion

$5.12 billion

Growth (YOY)

74%

71%

48%

34%

22%

Data source: Coupang. YOY = year after year.

Coupang’s number of active customers increased 13% year-on-year to 18.1 million in the quarter, as its net revenue per active customer increased 8%. This also represented a slowdown from previous quarters, but its sequential active customer growth also improved over the past two quarters after suffering a sequential decline in Q3 2021:

Metric

Q1 2021

Q2 2021

Q3 2021

Q4 2021

Q1 2022

Active customers (millions)

16.04

17.02

16.82

17.94

18.11

Growth (YOY)

21%

26%

20%

21%

13%

Net revenue per active customer

$262

$263

$276

$283

$283

Growth (YOY)

44%

36%

23%

11%

8%

Data source: Coupang. YOY = year after year.

At the end of 2021, Coupang declared its subscription service Rocket WOW – which provides access to free next day deliveries, early morning deliveries, free 30-day returns, streaming videos on Coupang Play, food deliveries and groceries and other perks — — had 9 million paying subscribers. That was up 50% from 6 million subscribers at the end of 2020.

Coupang did not update those subscriber numbers on its conference call, but CEO Bom Kim said WOW is now “by far the largest paid subscription service in the market, with three or four times more paid members than the second largest e-commerce”. or retail membership program.” This strategy, which closely mimics Amazonit is (AMZN 5.73%) expanding its Prime ecosystem, will likely broaden Coupang’s moat against competitors and increase its long-term revenue per customer.

Analysts expect Coupang’s revenue to grow 24% for the full year and another 25% in 2023. Based on these expectations, Coupang is trading at less than once sales this year.

In comparison, the Latin American e-commerce giant MercadoLibre (MELI 9.96%), which is growing faster than Coupang, is trading at four times this year’s sales. Amazon, which is growing slower than its two overseas rivals, is trading at twice this year’s sales.

Its margins are finally widening

Bears often argue that Coupang’s business model is unsustainable because it pumps too much money into its first-party logistics network, loss-making WOW services and integrated fintech Coupang Pay services platform.

But in the first quarter, Coupang’s gross and adjusted EBITDA and net profit margins all improved sequentially and year-over-year.

Metric

Q1 2021

Q2 2021*

Q3 2021

Q4 2021

Q1 2022

Gross profit growth (YOY)

70%

50%

62%

24%

42%

Gross margin

17.4%

14.7%

16.2%

15.9%

20.4%

Adjusted EBITDA margin

(3.2%)

(2.7%)

(4.5%)

(5.6%)

(1.8%)

The net profit margin

(7%)

(11.6%)

(7%)

(8%)

(4.1%)

Data source: Coupang. * Impacted by a fire in a distribution center.

During the call, CFO Gaurav Anand attributed the overall expansion to its “operational excellence, supply chain improvements (and) process improvements that we seeded earlier in the quarter.”

Bom Kim also noted that Coupang sold more higher-margin products during the quarter, and said the company was still on track to “achieve adjusted EBITDA margins of 7% to 10% or more. long-term”.

In other words, the economies of scale are finally starting for Coupang. About 70% of South Korea’s population already lived within 11 km of Coupang’s distribution centers at the end of 2020, but it still expanded its total infrastructure by 15 million square feet throughout 2021, which was more expansion than his previous two years combined.

That spending spree alarmed investors, but it’s now reaping the rewards. Therefore, Coupang could follow in the footsteps of other e-commerce giants like Amazon and MercadoLibre, both of which bled red ink for years before their logistics investments paid off.

Analysts expect Coupang’s adjusted EBITDA losses to narrow in 2022 and 2023 before turning positive in 2024, assuming its scale continues to improve and expands strategically rather than ‘agressive.

It’s too cheap to ignore

Coupang is still a risky investment, but its expanding margins indicate that the company is not on the right track. Its low valuation should also limit its downside potential in this tough market for growth stocks, so investors looking for a deep value play should consider buying its battered stock.

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About Aldrich Stanley

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