Are you ready to try out a potential emerging-market winner? If so, then check out South Korean e-commerce company Coupang (NYSE:CPNG) — but only if you’re risk-tolerant, as CPNG stock is definitely out of favor on Wall Street right now.
It is an interesting business to bet your hard-earned money on. As InvestorPlace contributor Muslim Farooque pointed out, finance mogul Stanley Druckenmiller recently staked one-fifth of his fund on Coupang.
That is what I would call confidence — and perhaps it is justified. After all, Coupang’s Rocket Delivery system delivers nearly 100% of its orders within 24 hours. Additionally, the monthly Rocket membership has multiple benefits and services costing just $2.45.
With great services at low prices, it is easy to see how Coupang could be a strong revenue generator. As we delve into the details, we’ll uncover some strong points and at least one area that needs improvement — but overall, the bullish thesis for Coupang should hold up.
A Closer Look at CPNG Stock
CPNG stock has been around for almost exactly one year, as its first day of public trading took place on Mar. 11, 2021. The stock closed that day at $49.65, around 40% higher than the initial public offering (IPO) price of $35.
That was an auspicious start, but it was all downhill from there. Due to a series of cybersecurity crackdowns by the Chinese government, many investors have been reluctant to get involved with Asian stocks in general, and Coupang in particular.
This took a toll on CPNG stock, which ended 2021 near the $30 level. Fast-forward to March of 2022 and the stock trading around $16 today.
Are you truly ready to flex your contrarian muscles and take a chance on Coupang? Being a contrarian means springing into action during times of peak pessimism. Yet, few people actually do this when a stock is down 50% or more.
Before you go bottom-fishing with CPNG stock, though, let’s see if the company’s financials justify a long position.
Let’s start off with the good news. In 2021’s fourth quarter, Coupang grew its active customer count by 21% year-over-year (YOY). With that, the company exceeded 20% YOY active customer growth for the 16th consecutive quarter.
Furthermore, Coupang’s customers seem to be spending more on average. In 2021, the spend “for every annual customer cohort dating back to our oldest in 2010” increased by roughly 30%.
Turning to the company’s top line, Coupang’s Q4 2021 total net revenue increased 34% YOY to $5.1 billion — pretty impressive, you must admit.
What impressed me the most, however, is Coupang’s improving capital position. At the end of 2020, the company had unaudited cash and cash equivalents totaling $1.25 billion. A year later, that figure more than doubled to $3.49 billion.
Far from Full Potential
Of all the positive data points, it appears that Coupang founder and Chief Executive Officer Bom Kim really wanted to emphasize the company’s revenue growth and increased per-customer spend.
With those considerations in mind, Kim believes that Coupang is “still far from our full potential.” This might be true, but there is one area that is badly in need of improvement.
In 2020, Coupang incurred a net earnings loss of $463.18 million. Then, in 2021, the company’s net loss widened to $1.54 billion.
It might be hard to make sense of this given Coupang’s revenue growth. The problem, it seems, is that the company has been spending a lot of money lately.
Reportedly, Coupang spent over one trillion won in 2021 on distribution centers. Moreover, as Covid-19 infections increased in South Korea, Coupang evidently spent more money in 2021’s fourth quarter to add labor and Covid-19-related cleaning and social distancing measures, according to Bloomberg.
The Bottom Line on CPNG Stock
Is it possible that Coupang is “far from its full potential” because the company is spending too much, too fast?
That is a question for prospective investors to decide. It would be nice, though, to see Coupang implement more aggressive cost-cutting measures.
Still, it is encouraging to observe Coupang’s firm capital position and powerful revenue growth. The company’s overall fiscal profile is imperfect, but given the overwhelmingly negative sentiment surrounding CPNG stock, audacious contrarians might want to try a small long position.
On the date of publication, David Moadel 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.