Just a few years ago, Bill Ackman’s reputation had hit a low point. Between a long, unsuccessful campaign against Herbalife (NYSE:HLF) and numerous other troubled investments, and Ackman’s star had dimmed. Now though, with a series of big wins, including a home-run investment in Chipotle (NYSE:CMG), Ackman is back. He added another score to his ledger with the recent initial public offering (IPO) of Coupang (NYSE:CPNG) stock.
Ackman was an investor in Coupang from the very beginning. The site launched in 2010 and has transformed the South Korean e-commerce market with its laser focus on fast free delivery.
It got its moment to shine during the pandemic, with its sales growing nearly triple-digits year-over-year.
Ackman took advantage of Coupang’s rise to make a surprising move. Ackman decided to donate his entire CPNG stock stake, which was 26.5 million shares of stock, to charity. Although the breakdown wasn’t made public, his own foundation was among the charities. That is to say, he believes in the stock enough to not completely abandon it.
That’s a more than $1 billion charitable gift, at least based on Coupang’s market price since it has started trading. So is Ackman cashing out at the top on Coupang? Not necessarily. In fact, there is still reason to like CPNG stock going forward.
Coupang: South Korea’s E-Commerce Giant
As of 2020, Coupang has already become the largest e-commerce player in South Korea. That’s a great place to be. South Korea is the 4th largest economy in Asia and the 12th largest globally. Additionally, Coupang cites data that South Korea is one of the fastest-growing e-commerce markets in the world.
And as Coupang explains in its prospectus, it has built an overwhelming infrastructure base in South Korea:
“70% of the population lives within 7 miles of a Coupang logistics center. Our operational infrastructure spans over 25 million square feet across over 30 cities, a footprint of over 400 football fields in a country that is 1% the size of the US geographically. Coupang has the largest [business-to-consumer] logistics footprint as compared to other product e-commerce players in Korea.”
This is an interesting and laudable approach. In many countries, we’ve seen e-commerce companies expand quickly, but with limited capital investment. This leaves the market vulnerable to newer players.
Witness Sea’s (NYSE:SE) Shopee platform, which is overtaking MercadoLibre (NASDAQ:MELI) in some South American markets despite MercadoLibre having a decade-long first-mover advantage. But MercadoLibre never established an unassailable logistics advantage, leaving it vulnerable to more nimble entrants.
Coupang, by contrast, is seeking to ensure that it will dominate South Korea and not let any rivals disrupt its position. To that point, Coupang is already the third-largest employer in all of South Korea.
Some investors might prefer a broader focus, however, having a huge market share in one key market may be preferable to being a struggling number-two or -three player in a larger number of countries.
Valuation is a major concern for CPNG stock here. The stock is going for nearly 7x price/sales, which is awfully steep for a pure online retailer.
You can make a case for higher price/sales ratios on companies such as Amazon (NASDAQ:AMZN) that have extensive businesses in addition to retail. However, 7x for Coupang seems rich in a world where other e-commerce leaders, like China’s JD.com (NASDAQ:JD) trade for just 1-2x sales.
Another big concern with Coupang is that it primarily services just South Korea. South Korea is a relatively small country and has an essentially flat population growth rate. This means that the market likely won’t grow much over time. ‘
Coupang already serves nearly 30% of South Korean consumers as is, so the total addressable market isn’t necessarily all that large, at least not without international expansion.
Finally, it’s worth considering that tensions periodically flare between North and South Korea and this often causes sharp corrections in the South Korean market. This could hit CPNG stock at some point.
CPNG Stock Verdict
Bill Ackman is good at picking winners, and it looks as if he chose another good one in Coupang. In just 11 years, Coupang went from a start-up to a market leader in its country.
The question now is one of valuation. Skeptics can point to Ackman’s donation as a sign that CPNG stock has become overvalued in the short run. This is a reasonable viewpoint at the present time.
Over the long term, however, there’s a good chance that Coupang will continue to grow quickly and reward its shareholders. Coupang’s focus on South Korea appears to have set it up as one of e-commerce’s long-term favorites.
On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.