To The Moon

$Coupang, Inc.(CPNG)$ Coupang (CPNG) reported an adjusted earnings per share (EPS) of $0.04 for the third quarter of 2024. This was a notable improvement from the previous quarter. The company also achieved a 32% year-over-year growth in constant currency revenues, reaching $7.32 billion.

Company overview

Coupang, Inc. (CPNG) is a leading e-commerce company based in Seattle, Washington, and incorporated under the Delaware General Corporation Law. Coupang operates primarily in South Korea through its mobile applications and internet websites. The company offers a wide range of products and services similar to Amazon / Alibaba, Coupang also provides online content streaming services (Coupang Play) and advertising products.

Earnings overview

Here's an overview of Coupang's earnings for the third quarter of 2024:

• Net Revenues: $7.9 billion, up 27% year-over-year (YoY) on a reported basis and 32% YoY on an FX-neutral basis.

• Gross Profit: $2.3 billion, up 45% YoY.

• Gross Profit Margin: 28.8%, an improvement of 350 basis points (bps) YoY.

• Net Income: $64 million.

• Net Income Attributable to Coupang Stockholders: $70 million, a decrease of $21 million from last year.

• Diluted EPS: $0.04, a decline of 1 cent over last year.

• Adjusted EBITDA: $343 million, with a margin of 4.4%, up 50 bps from last year.

• Operating Cash Flow: $1.8 billion over the trailing twelve months, a decrease of $805 million YoY.

• Free Cash Flow: $935 million for the trailing twelve months, a decrease of $920 million YoY.

Coupang's Product Commerce segment saw net revenues of $6.9 billion, up 16% YoY on a reported basis and 20% YoY on an FX-neutral basis. The Developing Offerings segment, which includes Coupang Eats, Play, and Farfetch, reported net revenues of $975 million, up 347% YoY on a reported basis and 356% YoY on an FX-neutral basis.

Coupang Free Cash Flow History

Competitive Advantage

Coupang has several competitive advantages that have helped it become a dominant player in the South Korean e-commerce market:

• Robust Logistics Network: Coupang's extensive logistics infrastructure, including its Rocket Delivery service, ensures next-day delivery for millions of products. This logistical prowess is a cornerstone of the company's competitive advantage, enabling it to offer unparalleled customer service and efficiency1.

• Innovative E-commerce Platform: Coupang's e-commerce platform is known for its ease of use and personalized shopping experience. The platform's design and technological innovation have contributed to a loyal customer base and a strong brand reputation1.

• Diverse Product Range: Coupang offers a wide range of products, from apparel and electronics to fresh groceries and everyday consumables. This diverse product selection attracts a broad customer base.

• Dawn Delivery Service: Coupang's unique Dawn Delivery service promises deliveries as early as 7 am, meeting the growing demands of customers for speed and convenience.

• Strategic Partnerships: Coupang has formed strategic partnerships with major firms like Softbank, Sequoia Capital, and BlackRock, which have provided significant investments and support for the company's growth.

• Market Dominance: Coupang has solidified its position as South Korea's largest online retailer, surpassing even Amazon. Its market dominance is supported by continuous investments in technology and infrastructure2.

These factors collectively contribute to Coupang's stronghold in the e-commerce industry and its ability to compete effectively with other major players.

Challenges for CPNG Stock

DCF analysis using free cash flow shows a fair value price of around $12.24, CPNG could be overvalued. PE ratio of 46.36 is in the bottom 10% of its industry. Total debt of $1.548B has increased by 36.15% over the past year. Price to free cash flow ratio of 32.12 is greater than its 3Y average of 11.67

Coupang faces several challenges as it continues to grow and expand its operations:

• Intense Competition: Coupang competes with major e-commerce players like PDD Holdings' Temu and Alibaba Group's AliExpress, which are aggressively marketing to attract customers.

• Labor Disputes: The company has faced labor disputes and controversies over worker deaths during night and early morning deliveries. These issues can impact its reputation and operational efficiency.

• Regulatory Issues: Coupang is currently involved in a legal dispute with the Korea Fair Trade Commission (KFTC) over alleged unfair trade practices. The company has filed an administrative lawsuit to challenge a penalty and corrective order issued by the KFTC.

• Increased Facility Investments: Investments in logistics infrastructure have led to increased costs, impacting the company's net profit. For example, facility investments worth over 520 billion won weighed on the quarterly results.

• Fee Conflicts with Suppliers: Coupang has faced fee conflicts with suppliers, which can affect its supply chain and overall business operations.

Despite these challenges, Coupang continues to invest in its infrastructure and expand its services, aiming to maintain its leading position in the competitive e-commerce market.

Market sentiment

Coupang (CPNG) is currently mixed market reaction. While the company has shown strong revenue growth and positive earnings, there have been some concerns:

• Stock Performance: Coupang's stock has climbed 66% this year, supported by its first full year of profit in 2023. However, it recently fell by 8.9% in extended trading after reporting retail net sales that fell short of Wall Street's expectations.

• Analyst Ratings: Several analysts have raised their ratings on Coupang stock, with some setting price targets as high as $31. However, there are still mixed opinions, with some analysts maintaining a cautious stance.

• Investor Sentiment: Despite the recent dip, the overall sentiment among investors in the online retail segment remains positive, with share prices up 6% on average over the last month.

Risks & Rewards

Volatility: CPNG's stock price can be highly volatile, influenced by market sentiment and broader economic conditions.

Competition: The e-commerce market is highly competitive, with major players like Amazon and Alibaba. CPNG faces significant competition in its primary market of South Korea and its expansion efforts in Taiwan.

Financial Performance: While CPNG has shown impressive revenue growth, its profitability metrics, such as EBITDA margins, need improvement1.

Insider Selling: There has been significant insider selling over the past few months, which can be a red flag for investors.

Market Leadership: CPNG is often referred to as the "Amazon of South Korea" and has a dominant position in the South Korean e-commerce market.

Growth Potential: The company's revenue grew by 21% to $26 billion in the last year, and earnings per share (EPS) improved significantly from $0.12 to $0.71.

Strategic Initiatives: CPNG is focusing on expanding its marketplace, improving logistics, and investing in new offerings like grocery delivery (Fresh) and food delivery (Eats).

Valuation: The stock is currently trading at 51.8% below its estimated fair value, suggesting potential upside for investors.