South-Korean eCommerce company Coupang (NYSE:CPNG) went public on March 11, raising $4.6 billion in its initial public offering (IPO). Dubbed, “The Amazon of South Korea” CPNG stock will open this morning at around $43.50.
Due to the pandemic-induced tailwinds, its revenues rose more than 90% from 2019 to roughly $12 billion.
With a wide economic moat, it could become an excellent long-term investment; however, after its overpriced IPO, it’s unwise to invest in CPNG stock at this time.
The company’s management initially priced the shares at $27 to $30. After seeing the immense investor enthusiasm, though, its value was bumped to $35.
On its first trading day, CPNG popped 40% to $49.25, taking its market capitalization past $84 billion. Its forward price to sales ratio is more than 4.5X, which is significantly high for a non-software company.
Its unique competitive advantages will justify such a valuation down the road, but not right now.
A Closer Look at Coupang
Coupang is an eCommerce platform that operates in South Korea. Like other eCommerce companies, customers can buy an array of products with expedited shipping. The company was founded in 2010 by Harvard drop-out and current CEO Bom Kim. It has since become the leading player in the South Korean market.
It has similarities with eCommerce giants such as Amazon (NASDAQ:AMZN) offering a Wow membership and Rocket Delivery like Amazon Prime.
These services provide several benefits to their users, including same-day and next-day deliveries. It goes a step further with “Dawn Delivery,” offering deliveries of items ordered before midnight within seven hours.
A unique element of Coupang is its vast logistics network. Instead of opting for courier services such as FedEx (NYSE:FDX), the company built its own network. It was an arduous process, but Coupang now possesses 25 million warehouse spaces across 30 cities in South Korea. Additionally, it employs more than 15,000 drivers.
In addition to the traditional eCommerce products, Coupang offers deliveries of other products, including groceries and restaurant food.
the Coupang Eats and Rocket Fresh platforms have enjoyed great success in the market, similar to DoorDash (NYSE:DASH).
Its MyStore offering enables small businesses to sell on its platform. If you take all this together, the company is a unique combination of DoorDash, Amazon, and FedEx. Therefore, it has perhaps the most well-rounded supply chain in the eCommerce world.
Coupang is likely to enjoy a lot of success, even after the Covid-19 induced tail-winds fade away. The Korean market has several players in the eCommerce realm. Coupang, being the most prominent player, has only a 24.6% market share. Therefore, it has a lot of room to expand in the future by expanding its services and improving existing operations.
At the same time, the company needs to branch out into other services. Coupang’s investors may have ignored one key element in its Amazon comparisons: Amazon Web Services. Amazon’s cloud service has generated billions in revenues and has been one of its fastest-growing segments.
Therefore, Coupang may have to think about offering such a service among others to come closer to Amazon’s robust business model. Regardless, the company has several growth opportunities ahead of it, which will continue to buff up its stock in the future.
Bottom Line on CPNG Stock
There’s a lot to love about CPNG stock. Coupang has several competitive advantages in the growing eCommerce scene in South Korea.
It has enjoyed great success of late and is likely to continue even in the post-pandemic world. However, it needs to evolve, adding other services which further expands its revenue sources.
At this time, the stock is a bit too pricey. It’s best to wait for a pull-back before investing in CPNG stock.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.