After listing in March 2021, Coupang (NYSE:CPNG) stock reached a high of $69. However, a sharp correction ensued afterwards, and now CPNG stock trades around $38. It seems to me that its current levels are an attractive entry point.
There are several factors that can support a rally in CPNG stock after its consolidation. The South Korean e-commerce giant’s price dip was tied to investors’ concerns about its growth potential. However, there is more clarity on that front now and as healthy growth sustains, the stock is likely to trend higher.
How CPNG Stock Stacks Up Against Its Competitors
Its competitor Amazon (NASDAQ:AMZN) has a strong global presence. Similarly, Alibaba (NYSE:BABA) has a big market share in China, but the company is accelerating its presence in Southeast Asia through Lazada.
Aggressive international expansion is also in the cards for Coupang as it strives to outpace its competitors. Coupang is initiating operations in Japan and targeting the Southeast Asian market with an entry into Singapore. This is likely to excite the markets as the company creates visibly sustainable growth.
It’s worth noting that 70% of Southeast Asia’s population is now online. In 2020, there were 400 million internet users in the region. It seems very likely that Coupang will expand into markets like Indonesia, the Philippines and Malaysia. This will provide ample scope for growth in the next few years.
Competition is also likely to intensify, but the Asian-Pacific market is big enough to absorb several players. Coupang seems positioned to survive and grow.
Cash Burn Is Not A Concern
In the first quarter of 2021, Coupang saw net revenue of $4.2 billion. This was 74% higher on a year-on-year basis. Furthermore, the company reported 21% growth in active customers to 16 million.
However, for the same period, the company reported EBITDA loss of $133 million. This would imply a large cash burn, but I don’t see this as a concern for two reasons.
First and foremost, the company is on a robust growth trajectory. With considerable investments in selling and customer acquisition, cash burn is likely. If growth in revenue and active customers continues, the markets will not see cash burn as a worry.
Coupang also reported cash and equivalents of $4.3 billion as of March 2021. The company has ample financial flexibility to sustain itself while burning cash. It will also allow Coupang to invest aggressively in international expansion.
The company also reported net revenue per active customer of $182 in Q1 2020. In the most recent quarter, its revenue per active customer surged to $262. If this momentum continues, the company is on track for healthy cash flows in the coming years.
Companies like Alibaba, Amazon and JD.com (NASDAQ:JD) have shown that the e-commerce business is a cash cow. Coupang is unlikely to disappoint.
Recently, there were reports that Coupang might soon announce “an online business specializing in office supplies and other consumer products.” The company is also looking at diversification of its business segments. If the news is indeed true, this will open up another growth opportunity for the company.
Concluding Views
The South Korean e-commerce market is expected to grow at a CAGR of 19.92% through 2025. As a market leader, Coupang is bound to benefit from this growth opportunity.
At the same time, Coupang seems to be spreading its wings in terms of its locations and and product offerings. This can ensure steady growth in active customers.
Considering these factors, CPNG stock seems attractive at current levels. I would not be surprised if the stock doubles in the next 12 to 18 months.
On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modelling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.
