However, the company might be on the road to unlocking new growth opportunities, with plans to move into Singapore, Japan, and possibly Malaysia sometime soon. Here’s what we know about Coupang’s expansion plans and what it could mean for the stock going forward. Since its founding in 2010, Coupang has become a dominant force in South Korean commerce, largely thanks to its lightning-fast delivery speeds. Coupang has expanded its market share throughout the pandemic, nearly doubling its revenue in 2020 to $12 billion, according to company filings. Although the stock has gone on a roller-coaster ride, Coupang continues to execute and grow its Asian e-commerce vision. Let’s discuss where Coupang might be (the stock and the investment classes and online training business) five years from now.
I can see them testing new business lines over time and becoming something more than just a company that’s focused on this back and forth e-commerce with bond prices rates and yields customers. Looking to the stock, Coupang now trades at a market cap of $29.6 billion. Although these estimates are bullish and will require Coupang to execute at a high level, the potential bodes well for shareholders who plan to hold for the long term. While these revenue numbers are looking strong, Coupang has low gross margins, at 17.4% last quarter, which puts a low ceiling on its profit margin potential. It will also need to make billions in capital investments over the next few years to build out its end-to-end logistics network in these new markets.
Coupang was also able to grow quickly thanks to South Korea’s very high internet penetration rate of 96% and relatively high gross domestic product per capita. In addition, its logistics infrastructure benefits from the country’s geography. In just the last year, Coupang has expanded to become much more than an e-commerce business.
“The moats from scale are quite strong in a market like South Korea because you’ve done something right to win over the South Korean consumer,” he added. Boot Barn says its larger U.S. footprint is helping to propel sales forward. The company, which now has 321 stores, reported a 12.4% increase in year-over-year net sales. However, what Coupang hasn’t done yet is grow much internationally. The company made reference in its S-1 to the fact that it wants to expand abroad, and Lee has found some evidence that Coupang is working on building a presence in China.
Japan has a much larger population than South Korea, with 126 million citizens, and Tokyo is the largest urban area in the world with a total population of around 38 million people. This could be a huge opportunity for Coupang if it can make inroads within the Japanese market. Malaysia isn’t as rich of a country as Singapore or Japan, but it has a fast-growing urban center in Kuala Lumpur with a population of 8.2 million. Notably, Goodwater’s research found that shoppers are more likely to return and spend money on Coupang than other e-commerce sites — not just compared to its South Korean competitors, but also other major e-commerce players around the world. Based on dollar retention rate (or the amount of money a group spends each year after they first use a platform), Coupang customers return and spend more money than shoppers on eBay, Etsy, Walmart or Alibaba in the U.S.
Let’s also say gross margin expands to the low end of its long-term guidance of 27%. In year five, the company will generate about $56 billion in revenue and $15 billion in gross profit. That is compared to $18.4 billion in revenue and only $3.0 billion in gross profit in 2021. The top e-commerce company in South Korea, Coupang (CPNG -5.70%), has gone on a wild ride since making its public debut a little over a year ago.
In December, Coupang launched a video-streaming service called Coupang Play, the company’s equivalent of Prime Video. The company has also honed plans to build out a livestream shopping business. Second, investors need to track gross margin and how much it can expand over the next few years. In 2021, gross margin was only 16.0%, down from 16.6% the previous year. But long term, management expects that metric to reach a range of 27% to 32%. Margin expansion will be vital to Coupang eventually generating sustainable earnings for shareholders.
Those investments allowed Coupang to balloon into a 50,000-employee business in 11 years. It is interesting to see, one of the risks that I noted was the acquisition of customers. But active customers only grew 18% in 2020, and they provided zero color about why active customer growth slowed nearly in half year-over-year, during the time period when I guess I would have expected it to grow. Maybe I’m missing something in the picture, maybe I should be able to draw some conclusions there that I’m just simply overlooking. But that was one of the big questions I had still lingering over my head coming out of this S-1.
More recently, rumors have come out that the company wants to move into Japan and Malaysia as well. These three countries look like good fits for Coupang to replicate its business model. Singapore is a small but densely populated area, similar to Seoul, South Korea. It is a lot smaller than Coupang’s home country, with a population of only 5.7 million people versus South Korea’s 51.7 million.
This is due in large part to Coupang’s heavy investment in logistics. When the company was founded in 2010, there were no major third-party logistics providers in South Korea comparable to UPS or FedEx in the U.S. Coupang had to build its own infrastructure and now has 100 fulfillment and logistics centers in 30 cities and 15,000 delivery drivers. In its short life, Coupang — which started as a kind of Groupon for South Korea before expanding to an e-commerce marketplace within its first three years — upended competition in the country. The company quickly raised $300 million in 2014, largely from U.S. investors, followed by $3 billion in 2015 and 2018 from SoftBank.
Overtime that can hurt the operating margin of a business like this. It would be nice in future quarters to see the breakout of that spend. They’re not obligated to provide it, but it’s something I wonder. Of course, you can always track gross profit and operating margin just from the topline numbers every quarter and get a sense from those big aggregate numbers.
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