Market Capitalization: $34.1B
Enterprise Value: $31.7B
Price: $19.02 (4/9/24)
What the Company Does
Dubbed the “Amazon” of Korea, Coupang is the leading e-commerce retail and logistics provider in the country. The company has over 100 fulfillment centers in Korea, with 70% of the nation living under 7 miles from a Coupang fulfillment center, enabling rapid delivery. In addition to selling owned inventory, Coupang sells advertising and goods from third-party merchants. It also provides restaurant ordering and delivery service through its Eats segment, while Coupang Play is a content-streaming service.
Why We Own It
Coupang is the leading player in a large addressable market with numerous growth levers at a compelling price. The company only holds a single-digit market share of Korea’s commerce market, which is expected to grow at a 4% compound annual growth rate (CAGR) from $483B in 2023 to $563B in 2027. Active customers increased 16% in 2023 to 21MM customers, while revenue per active customer rose 6%, as active customers and revenue per active customer have grown at CAGRs of 16% and 18%, respectively, between 2019 and 2023. International expansion is also ramping, as Coupang’s revenues and customers in Taiwan more than doubled in the last two quarters of 2023, with management adding that the growth and level of adoption witnessed so far in Taiwan exceeds what was seen in Korea. Additionally, management believes it can leverage prior insights from experience in Korea to scale profits more quickly in Taiwan. Further scaling of the logistics business, which doubled volumes in 4Q23 and grew participating merchants 80% over the prior year’s quarter, should also eventually serve as a margin tailwind when excluding abnormally high new merchant acquisition costs. Management expects annual Adjusted EBITDA margin expansion going forward, building off a company record margin of 4.4% in 2023, aiming to achieve 10% or higher over the long term, with similar levels of free cash flow.
Shares appear relatively inexpensive versus e-commerce peers (AMZN, MELI, BABA, ETSY, EBAY, SE, JD, and Naver) given CPNG’s superior growth profile, as analysts are forecasting CPNG to grow Earnings Before Income, Taxes, Depreciation, and Amortization (EBITDA) at a 35.1% CAGR from 2023-2026, more than double the peer group median’s expected growth. CPNG trades at a forward (FY25 consensus) Enterprise Value/Sales (EV/Sales) multiple of 1.0x, a 55% discount to the peer group median multiple, and a level that historically marked a bottom for Amazon.
How Management Allocates Capital
Management follows a disciplined capital allocation approach, opting to invest only when they have conviction that the potential opportunities can reach meaningful scale with moat-like returns. The top priority remains investing in organic growth and market share by delivering moments of “wow” for customers. CPNG has a low-risk balance sheet with cash exceeding total debt by nearly $2.5B, which, along with ramping free cash flow, should provide ample funding for the company’s future operational needs as well as financial flexibility for opportunistic M&A. CEO Bom Kim is a value-creator and heavily aligned with shareholders, owning over 10% of the company.
