There has been an uptick in U.S. macro-economic risk in the past few weeks. Issues such as potential inflation and an increase in taxes could bring down stocks in the broader U.S. market in the future. So, given these recent increases in United States-specific risks, investors should consider diversifying their holdings by buying international stocks. Coupang (NYSE:CPNG) and CPNG stock could be one such solution.
A recent initial public offering (IPO), Coupang is a good choice for investors given the fact that it’s a high-growth company in the lucrative South Korean e-commerce market. And, after a massive price increase post-IPO, CPNG stock has come back down. This gives investors an opportunity to scoop up some shares.
Today, the stock trades for a little under $40. Here’s why you should consider it as a potential buy.
Coupang Is Growing Fast in a Competitive Market
The South Korean e-commerce industry is highly competitive, with no company having a dominant position. Of course, this is unlike the U.S., where Amazon (NASDAQ:AMZN) is by far the largest and most dominant while other players occupy niche spaces.
For South Korea, though, there are multiple online retail market players due to a lower barrier to entry. The logistics infrastructure in the country is well-developed and residential areas are much denser. This allows players to enter the market without the need for heavy capital expenditures. Apart from Coupang, other major industry players include Naver Shopping, Gmarket (which is owned by Ebay (NASDAQ:EBAY)), Wemakeprice and TMON.
However, economies of scale will eventually give an advantage to larger companies. Therefore, investors should look out for the names that are starting to take more and more market share. I believe Coupang could fill this role in Korean e-commerce. In 2020, it was the only South Korean player with a “sizable gain in market share,” growing from 18.1% in 2019 to 24.6%.
On top of this, Coupang grew its total revenues to $12 billion last year, a 93% increase year-over-year (YOY). This coincided with the growth of its active customer base by nearly 26%, from 11.8 million in 2019 to 14.8 million. As such, the company’s growth wasn’t primarily due just to increased usage and order value but also to a healthy increase in users.
Like across most of the world, the Covid-19 pandemic has accelerated the long-term trend of e-commerce in Korea. This means that the total addressable market (TAM) for e-commerce has grown substantially in 2020. South Korea has a well-developed market most recently valued at $90.1 billion. Plus, that number is expected to continue growing at a 12% compound annual growth rate (CAGR). Because of that, it seems there are plenty of revenue opportunities ahead for Coupang.
Certain Competitive Advantages
There are more reasons to like CPNG stock, however — namely, the specific factors that will help it increase its market share.
I believe Coupang has certain advantages that could allow it to win over the long term. For example, the company has an integrated e-commerce and logistics system that allows for a superior customer experience.
Part of Coupang’s “Rocket Delivery” service includes same-day delivery for certain fresh items and next-day delivery for almost all of its orders. It also includes pick-up for return items. Altogether, the company claims to have the fastest delivery service in the Korean e-commerce market.
CPNG’s key competitive advantage is its strong logistics network. The company’s “operational infrastructure spans over 25 million square feet across over 30 cities.” This puts 70% of the population within seven miles of a Coupang logistics center.
Moreover, Coupang can continuously build upon this logistics advantage, such as by expanding into areas like food delivery. The company’s existing food delivery service, Coupang Eats, currently accounts for “17.1 percent of the food delivery market.”
Investor Takeaway
All in all, Coupang could be great for investors looking for a high-growth company that’s unaffected by U.S.-specific issues. Plus, this company is even more attractive because its management is continuously innovating to improve customer experience. CPNG has been growing rapidly these last few years. I don’t think there’s reason to believe it will stop anytime soon.
CPNG stock hasn’t taken off yet, but it’s becoming clear that this name is solidifying its position in the Korean e-commerce market. I consider this stock a buy.
On the date of publication, Joseph Nograles did not have (either directly or indirectly) any positions in the securities mentioned in this article.
