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Benefit From the Asian E-Commerce Growth Story With Coupang

Coupang (NYSE:CPNG) stock has failed to impress investors after a healthy listing and highs of $69. Currently, CPNG stock trades 66% lower than the high at around $23. If I had to assign a reason for the correction, it would be growth concern…

Coupang (NYSE:CPNG) stock has failed to impress investors after a healthy listing and highs of $69. Currently, CPNG stock trades 66% lower than the high at around $23. If I had to assign a reason for the correction, it would be growth concerns. Further, cash burn also seems to be a factor that has depressed valuations.

Source: Ki young /


However, it seems to me that these factors are already discounted in the stock price. As a matter of fact, CPNG stock touched lows of $16.61 in January 2022. Currently, the stock is 38% higher than the lows. The strong bounce-back underscores my view that valuations are attractive.

This also seems to be the view of the broader analyst community. The median 12-month forward price target for CPNG stock from ten analysts is $31. This would imply an upside potential of about 34% from current levels.


So, what are the factors that can be catalysts for an upside?

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First and foremost, the e-commerce industry has positive tailwinds. Asian e-commerce (including Southeast Asia) growth is likely to outpace the rest of the world in the coming years. In 2019, Asia accounted for 57.4% of the global e-commerce market. This is likely to increase to 61.4% by 2024.

Coupang, as a leading South Korean company, is positioned to benefit from this. Furthermore, the company is spreading its wings beyond Korea.

Healthy Financial Metrics

Coupang’s growth has not impressed the markets. However, its growth has been decent and is likely to accelerate.


For third quarter (Q3) 2021, Coupang reported revenue growth of 48% on a year-over-year (YOY) basis to $4.6 billion. For the same period, the company’s earnings before interest, taxes, depreciation, and amortization (EBITDA) loss widened to $207 million. I don’t see that as a concern. On the contrary, there are several positives to talk about.

First, Coupang reported active customer growth of 20% on a YOY basis. Active customer purchases also broadened across the various product categories.


Further, for Q3 2021, the company reported net revenue per active customer of $276. On a YOY basis, the average revenue per user (ARPU) increased by 23%.

The widening of the EBITDA loss has been due to increased spending on product development, marketing and sales. As an example, advertising spending tripled in Q3 2021 YOY. This is a positive sign for the long-term.


Companies like Amazon (NASDAQ:AMZN) and Alibaba (NYSE:BABA), among others, have shown that the e-commerce business is a cash flow machine. Coupang, with sustained growth and operating leverage, is positioned for healthy cash flows in the coming years.


Strategies to Accelerate Growth

It is worth noting that as of September 2021, Coupang reported cash and equivalents of $3.9 billion. The company has an ample cash buffer to push for aggressive growth and navigate the cash burn period.

One strategy that the company has adopted for accelerating growth is international expansion. Some of the initial markets for expansion are Japan, Singapore and Taiwan.


On the flip-side, expansion will translate into wider EBITDA level losses in the coming quarters. The markets will not see cash burn as a major concern if top-line growth and active customers accelerate.

It is also very likely that Coupang will make inroads into the Southeast Asia market. Alibaba (through Lazada Group) and Sea Limited (NYSE:SE) have demonstrated the attractiveness of the Southeast Asia market. On the market growth potential, the Southeast Asia markets added 70 million new customers since the Covid-19 pandemic.


Concluding Views on CPNG Stock

Coupang has already expanded into the food and grocery delivery segment. The company is rapidly expanding its fulfillment center infrastructure for the grocery segment. Further, Coupang Eats has been the most downloaded mobile app for iOS in Korea in 2021.

With expansion within Korea and entry into new markets, the outlook is positive for Coupang. Once international investments start delivering results, CPNG stock is likely to trend higher.


Further, with sustained growth in average revenue per active customer, the long-term outlook for EBITDA and cash flows is positive.

On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.


Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modelling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.

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