Coupang (NYSE:CPNG) is the leader of the South Korean e-commerce market. The company successfully completed its initial public offering (IPO) this spring, and its shares started trading around $50. That was close to the high-water mark for CPNG stock; the shares have skidded to less than $30 now.
The company has faced a variety of headwinds. Asian internet stocks have been volatile in light of the issues in nearby China. Star fund manager Bill Ackman donated his stake in Coupang to charity around the time of its IPO, making people think the shares might be fully valued.
And now, online commerce stocks are once again taking heat following Snap’s (NYSE:SNAP) big earnings whiff which centered around concerns about online advertising and sales conversion rates.
Still, investors shouldn’t give up on CPNG stock. In fact, after its recent decline, Coupang is looking like a better deal than ever. Here’s what sets Coupang apart from other e-commerce players.
Owning a Market Versus Dabbling in Many
Most e-commerce companies are trying to operate around the globe. Amazon (NASDAQ:AMZN) has a footprint in a vast number of markets. MercadoLibre (NASDAQ:MELI) is making a play for all of Latin America. Newer firms like Sea (NYSE:SE) seemingly announce an additional country that they’re launching in every month. Even the Chinese firms are looking outside of their massive domestic market.
E-commerce companies benefit from being very large, so this expansion instinct makes sense. But what if it’s actually the wrong approach?
It takes a ton of knowhow, legal work, logistics, and so on to move into each new country. It’s not hard to see how companies could spread themselves too thin by trying to go everywhere at once. Coupang, by contrast, has historically been the opposite of that.
A Super App for South Korea
Instead of trying to sell stuff on a global scale, Coupang aims to provide everything within South Korea. To that end, Coupang has long been the leader in its home market in rolling out hot new features.
Coupang’s Rocket platform is a key piece of this. Rocket Delivery offers one-day shipping fulfillment on the vast majority of orders placed through that service. Rocket Wow, like Amazon (NASDAQ:AMZN) Prime, is a subscription service that offers free shipping, a more generous return policy, and so on. Coupang also offers Rocket Direct which allows South Korean consumers to buy foreign imported goods.
A newer service, Rocket Fresh, is rapidly expanding now. It allows customers to order groceries online and get them quickly through Coupang’s Rocket Delivery service.
Outside of the Rocket services, Coupang offers other solutions. Coupang Play is a video streaming platform. Meanwhile Coupang Eats competes in the restaurant-delivery market. The company also plans to launch a number of new offerings, such as payments and merchant services.
Admittedly, Coupang may be at a fork in a road. The company has recently launched services in Japan and Taiwan, and reportedly is looking at the Singapore market as well.
This could result in a dilution of the company’s South Korea focus and a shift in its business model. So far, though, Coupang’s market valuation is primarily based on its skill in navigating its domestic market.
The Big Question: Valuation
So if we assume Coupang ends up dominating the South Korean market, what’s the company worth? It currently has a market capitalization of $50 billion, which amounts to roughly $1,000 per South Korean citizen, as South Korea has 52 million people. That might seem steep.
MercadoLibre, by comparison, has a market cap of $75 billion and Latin America has a population of 650 million.
There are some real advantages to South Korea, however. For one, the country’s gross domestic product per capita (GDP) is more than $30,000 per year, putting it far closer to developed markets like the U.S. and Europe than developing areas like Latin America, India, or China. For another, high-speed internet penetration in South Korea is elevated, and the population is already accustomed to doing business online.
Also worth noting is that Rakuten Group (OTCMKTS:RKUNY) has a market capitalization of $18 billion. It is one of Japan’s largest e-commerce platforms. Japan’s GDP per capita is a little higher than that of South Korea, and it has a much higher population; 125 million versus South Korea’s 52 million.
That said, Rakuten faces a steep challenge from Amazon Japan, whereas Coupang’s competitive position in South Korea is much stronger.
For one more angle, consider that CPNG stock is trading for roughly 3.2 times the company’s revenues. That might be a little steep.
China’s JD.com (NASDAQ:JD) often trades in the 1.5-2 times revenue range, but its price-sales ratio has slipped to one due to the recent slump of Chinese equities.
That said, Coupang is worth a premium to the China names given South Korea’s better governance and geopolitical situation. In any case, Coupang’s valuation, if not compelling, is certainly defensible.
The Verdict on CPNG Stock
I’ve been an admirer of Coupang’s focused business model since the company’s shares went public. The issue has always been that the market was already giving Coupang a high valuation, due to the company’s success in the South Korean market.
With CPNG stock now down almost 40% from where it traded just after its IPO, the shares look more interesting.
Bears can argue that the stock is still expensive compared to other e-commerce names. However, given the favorable dynamics in the South Korean market, there is a good argument for buying the shares.
On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.