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Coupang Stock Has Risks Well Beyond Its Shaky Balance Sheet

If you want exposure to the growth of e-commerce in Asia but distrust China’s government, you want Coupang (NASDAQ:CPNG) stock.

The Coupang (CPNG stock) campus in Silicon Valley, California.
Source: Michael Vi / Shutterstock.com

At almost $35 per share the company has a market cap approaching $63.5 billion on 2020 revenue of almost $12 billion, up 90% from a year earlier. 

On a price-to-sales basis, that’s close to China’s Alibaba (NASDAQ:BABA).

There are just two problems. First, Coupang is not profitable. It didn’t even have positive operating cash flow during the March quarter.  Second, it doesn’t have a cloud. As its S-1 notes, it’s a customer of Amazon.Com. (NASDAQ:AMZN) Web Services.

Coupang went public in March, getting a quick pop to $50, but that’s as good as it has gotten. Since the start of June, shares have mostly traded in a range of $36-43. They trade today around $32.

The trend continued in the June quarter, Coupang losing 13 cents/share while growing 57% in its local currency, the Korean Won. Wall Street turned thumbs down on the results, the stock falling 8% over the rest of the week.

A Closer Look at CPNG Stock

Shares fell even though the result exactly matched street estimates.

What you’re buying with CPNG stock is the company’s delivery infrastructure, which leads but does not dominate its home market. Coupang had about 19% of Korea’s e-commerce volume last year.

Its cheap rivals are Naver (OTCMKTS:NHNCF), which does have both a cloud and search engine and Gmarket, which is a unit of eBay (NASDAQ:EBAY).

Coupang is a Softbank (OTCMKTS:SFTBY) investment. At the time of the S-1 Softbank’s Vision Fund held a 33.1% stake, for which it had paid $3 billion six years ago. Greenoaks Capital has an 18% stake. Other U.S. institutions, including Blackrock (NYSE:BLK) and Morgan Stanley (NYSE:MS), have smaller stakes.

What distinguishes Coupang from American e-commerce giants, even Amazon, is speed. Its Rocket Delivery service claims to get 99.6% of orders on 5 million items to customers in 24 hours.

It was able to nearly double in size during the pandemic and offers a subscription service called Rocket Wow. This is like Amazon Prime and is priced at $2.50/month based on current exchange rates.

There’s also an Uber (NASDAQ:UBER) Eats clone called Coupang Eats. Coupang also has a streaming video platform called Coupang Play, built on assets from a Singapore company.

If Coupang can deliver profits or even positive operating cash flow, the stock could get a good pop on August 12.

But growth is the priority right now. Coupang began trialing its service in Japan in June. That’s where founder Kim Bom-suk’s energies are focused right now, writes our Josh Enomoto. The company is also expanding into Taiwan.

Profits aren’t the only question. There’s real danger. Coupang’s aggressive growth push has led to worker horror stories worse than anything at Amazon.  Its logistics center even had a fire in June. 

Nevertheless, the company has enormous potential, which is why our Chris Lau recommends it. So does Faisal Humayan, who expects a positive break-out once the current consolidation is finished.

The Bottom Line

Coupang isn’t Amazon. It isn’t even Alibaba. It’s almost purely an online retailer, which is the least profitable part of both companies.

The question for investors is whether Coupang can turn growth into profit. That won’t happen by magic. It will take a disciplined focus on operations.

Cutting corners by registering delivery vehicles as private cars is bad. Risking employee lives in the name of speedy delivery is worse. Coupang’s role as a “sole seller” in its Item Winner system could also get it into trouble. Coupang management needs to develop a culture of patience and safety.

The same is true for a Coupang investor. There may be more trouble ahead before you see an Amazon or Alibaba-sized profit.

On the date of publication, Dana Blankenhorn held long positions in AMZN and BABA. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Living With Moore’s Law: Past, Present and Future available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or tweet him at @danablankenhorn. He writes a Substack newsletter, Facing the Future, which covers technology, markets, and politics.


Article printed from InvestorPlace Media, https://investorplace.com/2021/08/cpng-stock-has-risks-well-beyond-its-shaky-balance-sheet/.

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