COUPANG (NYSE: CPNG) In mid-February, the stock reached $25 in $25 trading, falling to $20 in early April, while the market reacted negatively to President Donald Trump’s tariffs. However, as of this writing, it's priced at $28.45, which hasn't seen this level since the end of 2021.
The South Korea-based e-commerce and technology company has been developing its market share in its domestic market and has begun successfully expanding to another country. However, even if Kugan’s market capitalization is now over $51 billion, there is still enough stock running room for the rest of the decade.
Korean shoppers are flocking to Coupang. It has more than 20 million accounts in the country and has a population of 52 million, many of which represent families with multiple people. Why has the platform seen so many successes? Because Coupang has built an incredible e-commerce transportation system.
It offers same-day delivery, as well as overnight delivery before 7am for ordering the previous day's midnight order. Just leave the item in a Coupang reusable package outside the door and process the proceeds. It offers much better free delivery of grocery and food delivery services Amazon manage. All of this includes a cheap monthly subscription to its Rocket WOW plan, which also includes a streaming video service.
Through scale, automation and brute force efficiency, Coupang is able to deliver this incredible shopping experience while still generating positive cash flow.
The company has revenue of $31 billion over the past 12 months, and the company has generated $1 billion in free cash flow. This is because of currency neutrality in the last quarter, with revenue up 21% year-on-year, while revenue up 31% year-on-year.
South Korea's annual retail spending totals billions of dollars, so the company has plenty of room to continue to expand its domestic market.
Management did not stop in South Korea. It recently launched the Coupang e-commerce model in Taiwan and has achieved great success. Taiwan's business unit revenue rose 78% year-on-year to $1 billion last quarter.
While the segment is unprofitable today, Taiwan is a wealthy and densely populated country of about 23 million people – in many ways a similar market, similar to South Korea, where customers will likely soon appreciate the coupang model.
Last quarter, what Taiwan and Cougang called the “development products” division lost $168 million in adjusted EBITDA (revenue before interest, taxes, depreciation and amortization), a headwind for its consolidated profits. However, I think these expansions will bring long-term advantages to Coupang. Management can pool some of its profits in Korean e-commerce to build scale in Taiwan, and ultimately should have economic characteristics similar to its own domestic market.
This expansion adds tens of thousands of dollars to Coupang's addressable market, and Taiwan is the second country to launch its e-commerce platform so far.
I believe the party has just started using Coupang stock. Its Korean e-commerce sales should maintain steady growth in the coming years, while Taiwan will bring explosive growth.
In addition to the appeal to investors, South Korean winners have been appreciating the dollar and the dollar lately, which will make Coupang's revenue and profits have a greater impact on U.S. investors.
The company also received a bargaining deal when it acquired the Farfetch luxury shopping platform due to bankruptcy. Its products should be very suitable for the Korean market, which is spent on fashion and luxury goods.
Adding everything together, I think Coupang had $50 billion in revenue by the end of this decade, and eventually reached $100 billion in annual sales. Management guides its profit margins to reach about 10%, which is equivalent to $100 billion in revenue.
If the company generates $10 billion in annual revenue, Coupang's market value is likely to be close to $200 billion or more. That would be around 20 price-to-earnings ratio (p/e), which is not the multiple of return that investors expect.
Today, its market capitalization is just over $50 billion, so the stock has acquired 300% or more in the next five years. Given this, the stock looks like a long-term investor buy, even this spring so far.
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John Mackey, former CEO of Amazon's subsidiary Whole Foods Market, is a member of the board of directors of Motley Fool. Brett Schafer holds positions at Amazon and Coupang. Motley Fool has a place and recommends Amazon. Motley Fool recommends Coupang. Motley Fool has a disclosure policy.
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