Current:Home > Finance2 reasons the smartest investors are watching this stock, dubbed the "Amazon of Korea"-LoTradeCoin
2 reasons the smartest investors are watching this stock, dubbed the "Amazon of Korea"
View Date:2024-12-24 00:06:55
Investors in Coupang(NYSE: CPNG), South Korea's biggest e-commerce company, have had a challenging time over the last few years. The company went public on March 11, 2021, at $35 per share and closed at an all-time high of about $50 later that month. But in the subsequent months and years, it slowly gave up all those gains and more.
Still, despite the uninspiring stock performance, some of the most intelligent investors in the market are keeping a close eye on this company, and for good reasons.
Coupang just reported its first profitable year
The last few years have been a roller-coaster ride for Coupang. It all started when the pandemic hit in 2020, sending its already high growth rate to the stratosphere. Revenue jumped by 90% in 2020, and by 54% in 2021.
As its revenue rose, losses expanded sharply, too. Its net loss more than doubled from $697 million in 2019 to $1.5 billion in 2021. However, that was acceptable for investors, because they could see Coupang was investing heavily to acquire new users and improve its logistics infrastructure. They also expected its hyper-growth trajectory to be the new normal.
But the company's growth arc quickly shifted in 2022 as consumers largely resumed their brick-and-mortar shopping habits. That year, its revenue grew by just 12%. Investors were shocked and, understandably, sold off the stock.
Beyond that growth slowdown, there were other issues that Coupang had to deal with at this point. One of those was the rapid decline in the availability of easy money due to rising interest rates. This impacted all high-growth but loss-making tech companies such as Coupang. For example, Sea Limited -- the leading e-commerce company in South East Asia -- pivoted from a growth-at-all-costs strategy to one that emphasized survival and self-sufficiency. Coupang had to do the same.
Besides, investors also shifted their focus, moving away from loss-making businesses with potential and toward profitable and well-established companies. So Coupang had no choice but to change course to prove that its business model was sustainable (and could be profitable).
Fortunately, Coupang's move -- while resulting in slower revenue growth -- produced one huge positive: a massive decline in losses, which fell from $1.5 billion in 2021 to $92 million in 2022. The e-commerce business performed even better in 2023, growing revenue by 18% and reporting a $1.4 billion net profit.
Positioned to grow profits from here
Coupang reached a massive milestone in 2023 by proving its business model could be profitable at scale. Better still, there are good reasons to expect the company to keep growing its profitability for the foreseeable future.
The main driver of profitability growth will be revenue growth. While Coupang is already the largest e-commerce platform in South Korea, with a 25% market share, its share of the country's overall commerce market is less than 5%. Thus, it could rely on attracting new users and growing its existing users' wallet share to expand its market share over time. For instance, the tech company has leveraged its infrastructure and consumer base to launch new services like online groceries, food delivery, streaming, etc.
Even if it has exhausted its domestic opportunity, Coupang can still grow its overseas business thanks to its investment in the Taiwan market. While these efforts are still in their early days, this investment has demonstrated encouraging user and revenue expansion results.
Another vital aspect of Coupang's ongoing profit growth is to improve efficiency and operating leverage. Via its ongoing investment in the latest technology and infrastructure, the e-commerce company can ensure ongoing improvements in productivity across its supply chain.
Besides, as the company's scale grows, its unit fixed costs will fall as it handles more volume with a similar asset base. These operational improvements will result in higher margins and, ultimately, profitability. For perspective, Coupang's adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) margins have gradually improved over the years, going from negative 4.1% in 2021 to 4.4% in 2023. It has a long-term target margin of more than 10%.
What it means for investors?
Early investors in Coupang have suffered as the stock languished below its IPO price. Still, the "Amazon of Korea" has proven its viability and is well-positioned to grow its profits over time.
While it's not for everyone, investors with the proper risk appetite could consider adding this growth stock to their watch lists.
Lawrence Nga has positions in Sea Limited. The Motley Fool has positions in and recommends Coupang and Sea Limited. The Motley Fool has a disclosure policy.
The Motley Fool is a USA TODAY content partner offering financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY.
Should you invest $1,000 in Coupang right now?
Offer from the Motley Fool: Before you buy stock in Coupang, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Coupang wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than tripled the return of S&P 500 since 2002*.
See the 10 stocks
*Stock Advisor returns as of April 15, 2024
veryGood! (53549)
Related
- How many dog breeds are there? A guide to groups recognized in the US
- U.K. leader vows to ban American bully XL dogs after fatal attack: Danger to our communities
- Bill Maher postpones return to the air, the latest TV host to balk at working during writers strike
- CBS News team covering the Morocco earthquake finds a tiny puppy alive in the rubble
- Ex-Phoenix Suns employee files racial discrimination, retaliation lawsuit against the team
- Marilyn Manson pleads no contest to blowing nose on videographer, gets fine, community service
- Broncos score wild Hail Mary TD but still come up short on failed 2-point conversion
- Authorities search for F-35 jet after 'mishap' near South Carolina base; pilot safely ejected
- Democrat Cleo Fields wins re-drawn Louisiana congressional district, flipping red seat blue
- Julie Chen Moonves Says She Felt Stabbed in the Back Over The Talk Departure
Ranking
- Shawn Mendes quest for self-discovery is a quiet triumph: Best songs on 'Shawn' album
- Speaker McCarthy running out of options to stop a shutdown as conservatives balk at new plan
- Missing Maine man found alive after being trapped in his truck in a mud pit for two days
- Pope meets with new Russian ambassador as second Moscow mission planned for his Ukraine peace envoy
- American Idol’s Triston Harper, 16, Expecting a Baby With Wife Paris Reed
- Bioluminescent waves light up Southern California's coastal waters
- Former Colorado officer avoids jail for putting handcuffed woman in police vehicle that was hit by train
- Clinton Global Initiative will launch network to provide new humanitarian aid to Ukrainians
Recommendation
-
She's a trans actress and 'a warrior.' Now, this 'Emilia Pérez' star could make history.
-
2 adults, 2 children found shot to death in suburban Chicago home
-
Russell Brand accused of sexual assault, emotional abuse; comedian denies allegations
-
UAW membership peaked at 1.5 million workers in the late 70s, here's how it's changed
-
The state that cleared the way for sports gambling now may ban ‘prop’ bets on college athletes
-
Republicans propose spending $614M in public funds on Milwaukee Brewers’ stadium upgrades
-
Real Housewives of Orange County's Shannon Beador Arrested for DUI, Hit and Run
-
50 Cent reunites with Eminem onstage in Detroit for 'Get Rich or Die Tryin' anniversary tour