South Korean e-commerce company Coupang (NYSE:CPNG) is growing rapidly and has created a winning formula that it is poised to replicate in multiple Asian markets. What’s more, Coupang has created an impressive, highly effective logistics system that it can easily bring to other nations, and it’s looking to expand to other, profitable businesses. Yet, CPNG is down almost 25% in the last two months.
That decline shows just how much investors overreacted to the company’s second-quarter earnings miss reported on Aug. 11. That weakness has created a great opportunity for long-term investors.
As I’ve analyzed it, there seems to be at least four catalysts that could fuel the doubling of the CPNG stock price in the next 12 months.
Coupang Is Still Expanding Rapidly
The company’s top line soared 71% year-over-year in Q2. Given the huge boost that e-commerce companies received in Q2 of last year, when most brick-and-mortar retail stores were closed due to the onset of the coronavirus pandemic, that’s quite an accomplishment. What’s more, Coupang achieved that growth despite its primary focus on just one market: South Korea.
“Our revenue has more than tripled in just the past two years, now reaching $18 billion on an annualized run rate basis,” noted Bom Kim, Coupang’s founder and CEO in the company’s second-quarter earnings conference call, held on Aug. 11.
What’s more, Coupang’s sales per active customer jumped 36% YOY, suggesting that its users enjoy utilizing the company’s website and tend to increase their use of it over time. Meanwhile, despite its focus on the Korean market, the company’s active customer base increased 26% YOY in Q2, topping 17 million.
Finally, it’s important to note that, even within South Korea, the company still has gigantic growth opportunities; one firm predicts that the country’s e-commerce market will climb at a compound annual growth rate of 12%, reaching $142 billion in 2024.
Winning Formula Can Be Replicated in New Markets
Unlike many of its competitors, the company focuses on investing in and selling great products itself before offering those of other merchants on its website, Kim explained. That approach has enabled it to entice many consumers to shop frequently on Coupang, the CEO stated.
As a result, when Coupang starts selling the products of other merchants, their sales are high, prompting other retailers to start selling their products on the website. The availability of more products, in turn, attracts more consumers to the website.
The company has successfully used the approach in multiple categories, including consumables, consumer electronics, and clothing/accessories, Kim explained.
And Coupang has shown that it excels at rapidly growing its business using a process called blitzscaling. Seeking Alpha columnist Star Investments explained blitzscaling in a Sept. 28 column on CPNG stock.
Kim confirmed that Coupang is in the “very early” days of expanding into Japan and Taiwan. I believe that Coupang will be able to use its proven growth techniques, including blitzscaling, to succeed in Japan and Taiwan.
Theere are two main reasons for my confidence. First of all, Japanese investor Softbank, with a seemingly bottomless pot of money, is backing Coupang. Softbank’s funding will enable Coupang to quickly make the investments needed to incorporate its methods in both Japan and Taiwan. And secondly, Softbank’s expansive knowledge of and connections in Japan should greatly help Coupang in that market.
Logistics Business Is Gateway to New Fields
As I noted in a past column, Coupang has established a logistics unit that is able to ” all of its packages by the next day.” And, earlier in 2021, the South Korean government started allowing Coupang to deliver packages for other companies.
I believe that this venture will become very lucrative for the company is its home market. Moreover, Coupang can deliver packages for many companies in other countries. As a result, within the next 12 months, the top and bottom lines of the company’s logistics unit should start to surge, exciting investors and meaningfully boosting CPNG stock.
Investors Are Too Concerned About Headline Earnings
Coupang’s Q2 earnings per share came in at a 16-cent loss, 30 cents below analysts’ average estimate. However, a warehouse fire that resulted in about $158 million of write-offs and the company’s $120 million of combined investments in its grocery delivery and restaurant delivery businesses appear to have caused much or all of its loss and its shortfall versus the average estimate
After CPNG stock tumbled in the wake of the miss, the shares have a trailing price-sales ratio of just 3x. Meanwhile, international e-commerce company Sea Limited (NYSE:SE) has a trailing price-sales ratio of nearly 24x.
The Bottom Line on CPNG Stock
Within a year, Coupang is likely to start showing some signs of success in Japan and Taiwan.
As a result, the valuation of CPNG stock is likely to move closer to that of Sea Limited, which has done well in multiple markets. With the higher valuation, Coupang’s shares are likely to at least double within the next 12 months.
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 14 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.