Brilliant Coupang Has a Less-Than-Brilliant Price Tag

Due to the dramatic rise and integration of e-commerce, it’s no surprise that many companies have set their crosshairs on Amazon (NASDAQ:AMZN). Despite multiple attempts at its dethroning, Amazon remains the benchmark of dominance and consistency. In that context, online retailer Coupang (NYSE:CPNG) seems doomed to be another face in the crowd. Still, CPNG stock has a mixture of pros and cons that the patient investor may want to consider.

The Coupang campus in Silicon Valley, California.

Source: Michael Vi / Shutterstock.com

First, the good news. Coupang recently had its initial public offering, and early investors received a very nice return. As our own Muslim Farooque stated, “management initially priced the shares at $27 to $30. After seeing the immense investor enthusiasm, though, its value was bumped to $35.” Later, on its public market debut, CPNG stock jumped to $49.25, garnering a market capitalization of over $84 billion.

Sentiment remains strong following some shedding of the intense speculation on opening day. As of today, CPNG stock is around $47.26.

Personally, I’m not surprised with the IPO pop. In September of last year, I covered Coupang when it was an equity crowdfunding offer. Back then, I mentioned among several bullish catalysts two factors that give CPGN stock a distinct advantage.

First, Coupang is focused on cornering the South Korean e-commerce space. By leveraging intimate knowledge of Korean consumer culture and customs, Coupang can more effectively block out potential foreign competitors.

Second, I stated that “most people in Korea live in major metropolitan areas, thereby on paper eliminating much of the problems associated with the last-mile delivery.” Statistically, nearly one-fifth of Koreans live in Seoul. With such centralized demand, Coupang is able to deliver next-day or same-day services for select products through its Rocket Delivery network.

Also, let’s not forget that SoftBank (OTCMKTS:SFTBY) is a major backer of CPNG stock. That helps to explain much of the retail investor sentiment. However, Coupang isn’t without its warts, which you also need to assess before making a decision.

CPNG Stock May Be (Significantly) Overvalued

On surface level, the high population density of Seoul – indeed, of many East Asian metropolitan areas – appears to be a cash cow. By setting up logistics operations in a centralized location, products can ship out quickly and effectively. Sure, there’s a massive traffic problem, but that could be mitigated with drone deliveries.

The problem with this thinking though is that drones are great in theory, but maybe not in practicality. Perhaps they might work in more rural areas where you don’t have as many packages to and fro. But drones buzzing daily in a congested metropolitan area could be too much.

More significantly, despite Coupang operating on home turf and enjoying a cultural wall against foreign competition, it doesn’t have much to show for it on the books. When I wrote my private investing piece, a Korean newspaper reported that the company suffered operating losses of $940 million in 2018. According to Gurufocus.com, the loss was a bit higher at $1.05 billion.

Admittedly, this is nitpicking. But the main point is that Coupang’s spending and expenses may begin to wear on stakeholders. In 2020, Coupang rang up $11.97 billion in revenue, up nearly 91% from a year prior. Yet net income loss was only pared down 32% to $475 million from a loss of $699 million.

The answer to this could be international expansion to other East Asian cities. Given saturated competition in China, a natural target is Japan. SoftBank CEO Masayoshi Son vaguely hinted at such, though SoftBank later clarified that it was considering the Coupang-like business model, not that Coupang will launch in Japan.

Even if that were on the table, South Korea and Japan have a dicey relationship at best. If it weren’t for North Korean nuclear warheads, the two nations would probably never see eye to eye.

How Big Is South Korea?

Frankly, I don’t see Coupang breaking into the Japanese market for a myriad of reasons, geopolitics being a chief obstacle. I also don’t see the firm being competitive in China because the Chinese already have several platforms at their disposal.

The Southeast Asian market may be an opportunity for CPNG stock. As I wrote for Benzinga, digital integration is booming in this lucrative region, with a possible internet penetration of 70%.

Here’s the problem with lucrative markets – everybody else wants in. Indonesian e-commerce firm Tokopedia will likely launch its IPO soon. Also, I pegged Sea Limited (NYSE:SE) as a potential Amazon peer. These companies understand Asian consumer culture as well and enjoy significant brand recognition in their key regions.

This leaves Coupang to depend largely on South Korea’s e-commerce market. That’s not a bad gig, considering Coupang’s explosive revenue growth. But it appears that CPNG stock is richly priced, even if its ambitions were to go perfectly according to plan.

Therefore, I’d wait for a better price. Coupang is attractive, but not necessarily at this level.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.


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