Companies often struggle during the year after their IPOs. Investors have limited information when they buy shares early. If the company can’t manage expectations and post numbers that attract more investors, shares lose value.
Not surprisingly, the South Korean company Coupang (NYSE:CPNG) has experienced this type of slip since it started selling shares publicly on March 12, 2021. On that day, shares traded at about $48. By the end of the month, the price had fallen to about $43 per share. It continued a downward trend and the stock was trading recently down an additional 75%.
Despite the falling price, a growing chorus of bulls are shouting from the rooftops that this stock has serious potential. Does it?
Why Has Coupang’s Stock Struggled?
Let’s start by understanding what the company does. You can think of Coupang as the South Korean version of Amazon. It has the country’s largest e-commerce platform and robust infrastructure that typically ensures delivery within 24 hours. Other services from Coupang include video streaming and sports broadcasting.
The company has been operating since 2010. In preparation for its IPO, Coupang released a few years of financials that show growing revenues but negative net incomes.
In 2018, it generated $4.05 billion in revenue and a bottom line loss. Its 2021 financials show $18.4 billion in revenue, $3.1 billion in gross income, but a negative $1.5 billion in net income.
Coupang experienced rapid growth during the early and middle stages of the COVID-19 pandemic as more people turned to online shopping to avoid public spaces. Yet in spite of impressive growth in revenues (and memberships), Coupang’s stock has struggled to attract investors.
The losses are stacking up. Over the past several years, Coupang has spent tremendous amounts of money to keep up with consumer demand and stay ahead of competitors. So what are the catalysts that could re-ignite Coupang shares?
Reasons To Buy Coupang Now
It’s easy to forget that Coupang’s U.S. equivalent, Amazon, spent billions of dollars and many years of investment before becoming a profitable company. Early Amazon investors had to wait more than a decade to see a notable return. However, patient investors who bought Amazon stock before 2010 have enjoyed a 10x return since then.
Will Coupang manage to increase revenues fast enough to keep pace with demand? There are some indications that the company has made smart moves that could contribute to its long-term success.
Results from 2022’s first quarter show that Coupang has made significant strides. The company notes that its year-over-year (YoY) total net revenues increased by 22%, resulting in $5.1 billion. Its quarter-over-quarter (QoQ) total net revenues grew 3%. These numbers show excellent growth that could put the company on a path to dominating South Korea’s market and potentially expanding into new territories.
According to its financial reports, Coupang’s Product Commerce net revenues grew three times faster than South Korea’s product e-commerce segment. It managed to pull in $4.9 billion, up 20% YoY.
Other positive financials from Coupang show:
- 8% increase in total net revenues per active customer ($262 during Q1 2021 to $283 during Q1 2022).
- 13% increase in its number of active customers.
- 29% reduction in net loss (from $295 million in Q1 2021 to $209 million in Q1 2022).
- 32% reduction in adjusted EBITDA ($132.9 million in Q1 2021 compared to $90.8 million in Q1 2022).
The future looks promising for Coupang.
Should You Buy, Sell, or Hold Coupang?
Coupang is forecast to clock top line revenues of $22 billion for this fiscal year, $27 billion next year and $32 billion in 2024. Perhaps more significantly by 2024 operating profits are expected to move into the black. This year a loss of $771 million is expected, next year that loss should lessen to $268 million and by 2024 EBIT is expected to come in positively at $128 million.
When we ran the numbers the upside looks to be north of 22% based on a fair value calculation that pegs Coupang at $14.36 per share.