It’s been a bumpy ride for investors in South Korean e-commerce giant Coupang (NYSE:CPNG) since the company’s initial public offering in March. CPNG stock, which was priced at $35 a share, shot up to a high of $69 on its first day of trading. Today, shares sit more than 20% below their IPO price.
Yet, with outstanding top-line growth, a strong moat and impending profitability, CPNG stock is a tremendous long-term investment. In fact, I believe Coupang represents the cream of the crop as far as e-commerce investment opportunities are concerned.
In a report published by Deloitte, Coupang was the fastest-growing company among the top 250 retailers globally in 2020. The company’s revenue grew 60% last year, with five-year compound annual growth of over 100%. Going forward, the company is likely to continue to grow at a torrid pace as it steamrolls its local competition through its cost advantages and robust logistics.
With a depressed valuation and plenty of upside potential, CPNG stock is a buy at this time.
Coupang Delivers Another Solid Quarter
Coupang released stellar third-quarter results last week. Revenue jumped 48% from a year ago to $4.6 billion. That’s impressive. And so is the fact that in the 15 prior quarters, the company saw revenue increase by at least 50% on a year-over-year basis.
Advertising revenue almost tripled during the quarter from a year ago, while active customers rose 20% from the same period last year.
Despite these growth numbers, profitability remains a concern, with the bottom line worsening significantly. Coupang is likely to continue posting hefty losses as it looks to aggressively expand its ecosystem.
The company reported a net loss for the first nine months of the year of $1.1 billion, up from $380.4 million in the same period in 2020.
On a positive note, gross margins improved 130 basis points to 16.2% in the third quarter. Moreover, gross profit increased by 62% from the prior-year quarter to $755 million.
Coupang’s profitability will improve significantly as it scales rapidly in the coming years. Therefore, it is plausible to assume it could achieve EBIT profitability by 2024.
Coupang’s Outlook Is Bright
Coupang has dominated the South Korean e-commerce sector and will continue to tighten its grip on the market. Revenue is estimated to grow 57% this year and 33% next year, outpacing the industry’s projected annual growth of 19.9% through 2025.
Coupang’s fortunes changed when it launched its logistics services, Rocket Delivery, in 2014. It exceeded 1 billion deliveries in just four years.
Moreover, Coupang continues to branch out into new and potentially profitable businesses similar to Amazon (NASDAQ:AMZN). Some of these include:
- Rocket Fresh, its overnight grocery delivery service
- Coupang Eats, a food delivery service comparable to industry stalwarts such as DoorDash (NYSE:DASH)
- Coupang Play, a video streaming service launched in December 2020
The company also has plans to expand internationally in markets such as Japan, Taiwan and Southeast Asia. These markets are highly competitive and are dominated by established leaders. So, international success remains a question mark at this stage. Nevertheless, if Coupang can establish a presence internationally, it can significantly expand its revenue base.
The Bottom Line on CPNG Stock
Investors are skeptical of Coupang for its lack of profitability and the deceleration in its post-pandemic growth. However, all indications suggest it will continue to grow at a healthy pace and move toward profitability. It is diversifying its income streams by spreading its tentacles into new businesses, which could pay dividends down the road.
All in all, CPNG stock is remarkably undervalued now, which is all the more reason to scoop up shares.
On the date of publication, Muslim Farooque 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
Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.