Dubbed the “Amazon of Korea,” investors who got in at the IPO price for CPNG stock have done quite well for themselves.
As with many highly-anticipated IPOs, Coupang soared on its debut. It was up as much as 80% intraday on its first day of trading. While that is a massive spike, it’s worth mentioning that the amount of investor interest around this IPO made such a spike likely.
Those hoping for a continuation of this momentum in the following days and weeks have been disappointed. Coupang initially soared from its IPO price of $35 to as high as $69, only to fall back down to around $45.
Thus, investors who missed out on the IPO now have the potential to pick up CPNG stock at a 35% premium to its IPO price. That’s still a 35% premium, but a heck of a lot better than paying the 100% premium this stock demanded not that long ago.
Let’s take a look at whether or not this is a good idea.
Valuation Spoils the Party for CPNG Stock
Coupang is a difficult company to value. It’s not making money despite a rather impressive year-over-year revenue growth rate of approximately 90%. The company brought in $12 billion last year, suggesting a price/sales multiple of 6.7 based on its current market capitalization of roughly $80 billion.
Now, that’s not incredibly high when one compares this stock to fast-growing Alibaba (6.1-times sales). Investors will also note Amazon (NASDAQ:AMZN) has a price/sales multiple of 4.4, but it’s a much larger and more mature business.
So, what’s the big deal? It looks fairly valued based on its growth rate, right?
Generally speaking, yes. However, when one looks at the company’s gross margin of 16%, this valuation multiple looks a little less rosy. To put that in perspective, Amazon’s gross margin is around 40%, while Alibaba’s is at 43%. It’s going to have to produce roughly 2.5-times as many sales to get to the same level of profitability over time.
Now, Coupang has spent a lot of money building out its logistics infrastructure and its delivery network in Korea. That’s not cheap, and these are investments many believe will provide greater margins over time.
It’s also a company that generated positive cash flow of around $300 million from its operations last year.
However, the company’s problem is that it just can’t compare with the U.S./China equivalent e-commerce play right now on the basis of valuation. In other words, there’s no real value-based reason for owning this company over Amazon or Alibaba for those eager e-commerce investors out there. At least not at this price.
Yes, I do think Coupang’s numbers are likely to improve over time. It’s hard to use backward-looking data to assess what the future will hold. However, if forced to choose between the three, my pick today is Alibaba.
In my view, Coupang is an intriguing play. Any company that earns the title “the Amazon of ____” deserves a look.
However, I do think there are some valuation concerns with this company at these levels. I think near the company’s IPO price, which is the direction this stock is headed, it might make sense as a long-term holding.
In the e-commerce space, I’ve placed my bet on Alibaba right now. It’s a company that’s not growing as fast as Coupang, but it’s growing extremely profitably in the largest e-commerce market in the world. Korea’s a great market, but it’s also 6-times smaller than the U.S. and 26-times smaller than China.
For those looking to spread their bets across all three, I think they’re all great picks. However, I do think Coupang is being assessed against its competitors. And on that basis, it’s expensive at these levels.
Disclosure: On the date of publication, Chris MacDonald held a LONG position in NYSE:BABA.