With Coupang (NYSE:CPNG) stock continuing to enter new markets and expand its logistics business, I still believe it will perform very well in the medium-term as well as in the long term.
Moreover, the shares will likely soon get a boost from the increased risks facing Chinese e-commerce giants, especially Alibaba (NYSE:BABA).
As I predicted back in April, Coupang is rapidly expanding beyond its home market of South Korea. Most notably, the company has recently entered two sizeable new markets: Japan and Taiwan. It also launched its business in the smaller nation of Singapore.
In Japan, Coupang has a disadvantage, as it’s facing off against Amazon (NASDAQ:AMZN). On the other hand, Coupang has two important advantages there.
First, Tokyo is a very large, densely populated market, making it well-suited and likely profitable for large e-commerce companies.
Second, the giant Japanese investment bank, Softbank (OTC:SFTBY), owns a roughly 33% stake in Coupang. Of course, Softbank knows the Japanese market very well, and its connections in the country are likely to be very helpful to Coupang.
A Closer Look at CPNG
In his July 14 column on CPNG stock fellow InvestorPlace contributor Josh Enomoto wrote that the infrastructure in Japan is similar to that in South Korea, making Coupang’s learning curve in Japan easier.
Enomoto is concerned that the historic rivalry between Japan and Korea will hurt Coupang’s business in Japan, but I think that the vast majority of young and middle-aged people in modern democracies are not focused on historical rivalries.
In Taiwan, Coupang’s largest competitors will be Alibaba’s taobao.com and Southeast Asian e-commerce company Sea (NYSE:SE). As I’ll explain below, Alibaba is likely to be very distracted in the coming months and may even have to sell its Taiwan business.
Meanwhile, Sea has limited resources, as it only has $6 billion of cash and doesn’t seem to have access to large amount of funds from a huge shareholder, as Coupang does. Similarly to Coupang, Sea is expanding to many new markets.
Like Tokyo, Singapore is a densely populated city (it’s both a single city and a country), although Singapore has 6 million people, versus Tokyo’s 14 million.
More importantly, entering Singapore will allow Coupang to both learn about Southeast Asia and enhance its name recognition and reputation in the region.
Alibaba’s Pain Is Likely To Help Coupang
As I noted in a recent column on Alibaba, the Chinese government has meaningfully punished Alibaba in recent months, illustrating that “the ruling Chinese Communist Party does indeed have a problem with the e-commerce giant.”
Given the latter point, I expect the regulatory crackdown by Beijing on Alibaba to continue for some time.
That development is likely to be beneficial for Coupang in two ways.
First, in markets such as Taiwan, where Alibaba and Coupang compete, the Chinese company is likely to have less money to spend on marketing, while its top executives will probably be somewhat distracted. Moreover, Beijing could even force Alibaba to leave some of its foreign markets. giving Coupang reduced competition in some countries.
Second, many U.S. investors are likely to abandon Alibaba and other large Chinese e-commerce companies, such as JD.com (NYSE:JD), amidst the Chinese government’s crackdown on Alibaba and other large tech companies. Some of those investors will probably see CPNG stock as a good, alternative, Asia-based e-commerce name in which to invest.
Profitability Isn’t a Problem
Some other columnists have pointed to Coupang’s lack of profitability as a reason to be cautious about or avoid CPNG stock.
Since expanding to new markets isn’t cheap and the margins on e-commerce aren’t gigantic, I’m unsurprised by that situation.
Yet importantly, Coupang’s gross profit has climbed steadily, rising from $1.03 billion in 2019 to $1.99 billion in 2020 and $2.29 billion in the 12 months that ended in March 2021.
As the company stops entering new markets costs are bound to fall. As its selling volumes rise, I expect Coupang’s bottom line to surge as it benefits from economy of scale.
Another factor that will probably help its bottom line is the expansion of its logistics business, as logistics tend to carry higher profit margins than e-commerce.
What’s more, as Coupang’s entrance into new markets and the expansion of its logistics business continues, the company’s top-line growth will greatly accelerate. Regardless of whether the company is profitable, that acceleration should make investors much more bullish on CPNG stock.
The Bottom Line on CPNG Stock
Coupang’s expansion into Japan, Taiwan and Singapore looks poised to succeed.
Meanwhile, the e-commerce giant and CPNG stock are likely to benefit a great deal from the regulatory problems facing Alibaba and its peers.
Finally, Coupang is well-positioned to be profitable over the long term, while the acceleration of its revenue growth in the medium-term should lift its shares.
In light of all these points, I recommend that longer-term growth investors buy CPNG stock.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.