Headquartered in the capital city of Seoul, Coupang, Inc. (CPNG) is the largest e-commerce company in South Korea and is an up-and-coming rival of global e-commerce mammoths Amazon.com, Inc. (AMZN) and Alibaba Group Holding Limited (BABA). As one of the fast-growing companies globally, CPNG was ranked #2 in the 2020 CNBC Disruptor List.

CPNG completed its overseas IPO listing on the NYSE on March 11. The stock opened at $63.50 during its first trading session, 81.4% higher than the pre-listing price of $35. However, the stock has declined 39.8% since then, driven by weakening investor sentiment regarding its international expansion prospects and weak profit margins. Following the release of the mixed fiscal second-quarter earnings report (for three months ended June 30) on August 11, shares of CPNG declined 17.9% to close Friday’s trading session at $29.65. It has slumped 23.6% over the past month.

Here’s what could shape CPNG’s performance in the near term:

Strong Business Model

CPNG has been dubbed as South Korea’s “Amazon,” as it controls 24.6% of the country’s market share (as of last year). The company’s wholly-owned logistics delivery system, Rocket Delivery, has played a vital role in its accelerated growth within a decade of its inception in 2010. It currently delivers approximately 3.3 items per day, up 50% from the end of 2019. Furthermore, 99.3% of orders placed through the CPNG site are delivered within one day, as 70% of Koreans live within 10 minutes of a Coupang logistics center. Thus, it is one of the most valuable start-ups in South Korea.

Intense Competition

CPNG has demonstrated remarkable growth over the next decade to become a household name in South Korea. However, the company is yet to venture into international markets. While the ADR listing on NYSE has created brand awareness in the United States, it is yet to commence operations in the west. In addition, the company faces immense competition from AMZN, the world’s largest e-commerce retailer, controlling 7.7% of the global market share.

In addition, despite being a leading e-commerce platform in South Asia, CPNG faces immense competition from BABA. Along with an established international supply chain, China’s devalued currency has allowed BABA to retain its position as one of the biggest e-commerce platforms in the world.

Thus, it might take significant time for CPNG to scale its operations to compete with multinational e-commerce giants effectively.

Negative Profit Margins

CPNG’s mixed financial report for the fiscal second quarter has been the significant factor behind the stock slump over the past month. Though the company’s net revenues increased 71% year-over-year to $4.48 billion over this period, its net loss widened 408.2% from the same period last year to $518.60 million. Excluding the losses incurred due to fire in the FC fulfillment center, net loss increased 118.6% from the prior-year quarter to $223.10 million.

Despite adding back $295.50 million from FC fire losses (as it is a one-time expense), Adjusted EBITDA loss came in at $122.18 million, up 314.2% from the same period last year.

CPNG’s operating cash flows turned negative in the first six months of 2021, despite a revenue growth rate of over 50%. Net operating cash outflow came in at $152.47 million, reflecting a 304.1% decline.

Consensus Rating and Price Target Indicate Potential Upside

Of the five Wall Street analysts that rated CPNG, four rated it Buy while one rated it Hold. The 12-month median price target of $48.00 indicates a 61.9% potential upside from Friday’s closing price of $29.65. The price targets range from a low of $40.00 to a high of $62.00.

POWR Ratings Indicate Uncertain Prospects

CPNG has an overall rating of C, which equates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

CPNG has a grade of C for Value and a D for Sentiment. Its 2.68 forward Price/Sales ratio is higher than the industry average of 1.26, in sync with the Value grade. In addition, analysts expect CPNG’s revenues to grow 38% in 2022, while EPS is expected to decline at a CAGR of 70.8% over the next five years, consistent with the Sentiment grade.

Of the 76 stocks in the F-rated Internet industry, CPNG is ranked #38.

In addition to the grades I’ve highlighted, you can check out CPNG ratings for Growth, Momentum, Stability, and Quality here.

Bottom Line

CPNG is undoubtedly one of the fastest-growing start-ups based in South Korea. Analysts expect the company’s market share in the Asian economy to increase to 30% within the next few years. However, competing with industry giants with robust international supply chains and economies of scale might be challenging for CPNG, considering its already weak profit margins. Thus, investors should wait until CPNG’s profitability improves before investing in the stock.

How Does Coupang (CPNG) Stack Up Against its Peers?

While CPNG has an overall C Rating, one might want to consider looking at its industry peers Yelp Inc. (YELP), Alphabet Inc. (GOOGL), and Cars.com Inc. (CARS), which have an overall B (Buy) rating.

CPNG shares were trading at $32.10 per share on Tuesday afternoon, up $2.45 (+8.26%). Year-to-date, CPNG has declined -34.82%, versus a 21.75% rise in the benchmark S&P 500 index during the same period.

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.

More...