Coupang Is Not A Buy - At Least Not Right Now

seekingalpha2021-03-19

Summary Coupang is the Amazon of South Korea, making them a great long-term investment. Coupang is a mix of Amazon, UPS, and Doordash. However, the stock rose over 40% opening day, making it a pass. ...

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精彩评论

FuJie1010
2021-03-23
FuJie1010
Bought & going to hold for long term
Limth
2021-03-22
Limth
Yup
ahpeh
2021-03-21
ahpeh
Expensive for now.
Kel26
2021-03-20
Kel26
Yes, sell put for $35, the IPO price
- Nebhol:
  No
sqwee
2021-03-19
sqwee
Okok
Kalllll
2021-03-19
Kalllll
Nice
- Chriz:
  Really nice

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They have dominated their home turf to become the top online retailer in the nation. While they are not identical to Amazon(NASDAQ:AMZN), their business model is similar in many ways, making CPNG an attractive investment for long-term investors.\nHowever, like recent tech IPOs that have seen 40%+ spikes on the first day of trading, CPNG is initially overpriced. However, I would argue they are an excellent long-term investment later in the year based on their competitive advantages.\nSource: S-1\nBrief Overview\nCoupang is an e-commerce platform similar to Amazon, where customers can purchase a wide variety of products with expedited shipping. They host over 200,000 merchants and hundreds of millions of SKU's providing customers with a wide variety of choices to suit their purchasing needs. The company wasfounded in 2010 by Bom Kim, the current CEO, who graduated from Harvard University and dropped out of Harvard Business School to start Coupang. Their culture is very customer-centric; throughout their S-1 is a relentless focus on making the customer happy. In an opening letter from Mr. Kim, he states, \"We want our customers to have it all,\" and \"Why force customers to choose between amazing service, low prices, and broad selection?\"\nCoupang received pre-IPO investments from prominent U.S. Hedge Fund managers Stanley Druckenmiller and Bill Ackman, who saw the potential of bringing the Amazon model to South Korea, where the e-commerce marketplace has been underserved. Coupang's rapid ascension is due in part to the South Korean market opportunity, which is the fourth-largest economy in Asia and the twelfth largest globally with a GDP of $1.6 trillion and GDP per capita of $31,847. Total e-commerce spend was $128 billion in 2019 and is expected to grow to $206 billion by 2024, equaling a CAGR of approximately 10%.\nEconomic Moats\n\n \"What we're trying to do, is we're trying to find a business with a wide and long-lasting moat around it, surrounded -- protecting a terrific economic castle with an honest lord in charge of the castle.\" -Warren Buffet.\n\nRocket WOW Membership\nCoupang has a membership program called Rocket WOW, similar to Prime, that provides unlimited free shipping with no minimums, free returns, and exclusive discounts. The cost is a mere $2.50 a month and being a part of this program also gives customers access to Rocket Dawn and Rocket Same-Day Delivery. With Rocket Dawn, if a customer places an order by midnight, even seconds before, they are promised arrival before7 am! Also, WOW members have access to two newer benefits in Rocket Fresh and Coupang Eats.\nRocket Fresh provides Same-Day Delivery for fresh food such as vegetables, dairy, fruit, and meats. Since last year,Coupang has been the only e-commerce firm to deliver fresh foods directly to customer's doors in under 24 hours. Expedited shipping is vital for perishable foods, and with Coupangs massive distribution network, they can execute this type of delivery speed.\nCoupang Eats has piggybacked off Rocket Delivery by leveraging their technology and logistics to partner with independent restaurants to deliver food, similar to Doordash. Eats' success has become apparent by rising to the top as the largest online food delivery service in the nation.\nThese value-added services to the WOW membership have paid dividends in growing their user base. Of Coupangs 14.8 million users,32%are WOW members whose frequency of purchases was over four times that of non-members!\nVirtuous Cycle\nSimilar to Prime, Coupang's WOW Club fosters a virtuous circle. By offering unique services such as expedited shipping, Eats, and Fresh, more users sign up for the club. In turn, it increases purchases, providing more incentive for Merchants to join the platform to offer more products. Coupang generates more revenue to further invest in more offerings like Eats and Fresh, leading to more members joining.\nSource: S-1\nThe exceptional experience customers have using Coupang is reflected in their loyalty, retention, and increase in purchasing. As shown above, the chart demonstrates a cohort for each year a new user signed up. Displayed here is that more recent cohorts have increased their spending faster than older cohorts, with their more unique offerings like Eats and Fresh likely contributing to Coupang's stickiness.\n\n For example, the 2017 cohort spent approximately 80% more in 2018 compared to 2017. By comparison, the 2018 and 2019 cohorts spent approximately 98% and approximately 119% more, respectively, in their second years compared to their first years with us.\n\nSource: S-1\nFurthermore, users' increased engagement and spending have translated to rapid user growth, with an increase in 2018 to 2020 from 9.1 million to 14.8 million, a 61% increase in just two years.\nThe impressive user growth is highly encouraging to see how engaged, and loyal users of Coupang's platform are. As an American and avid Amazon customer, I can relate to many of the same perks where my experience isn't the same when I order online from Amazon's competitors. And through the years, as I have made many purchases via Amazon, my own loyalty has grown, and further disinterests me to try other eCommerce marketplaces.\nMassive Distribution and Geographic Domination\nSouth Korea didn't have a robust e-commerce infrastructure before Coupang. In the US, we have been fortunate to have the infrastructure built many years pre-internet with UPS (UPS) and FedEx (FDX), founded in 1907 and 1971. Thus there was a gaping hole in the logistics process, from packaging, fulfillment, shipping, and delivery in a streamlined process.\nIn South Korea, merchants have been struggling to stitch together these highly fragmented services to create a well-integrated and end-to-end network for e-commerce. Coupang has built a massive distribution network with over 100 fulfillment and logistic centers in over 30 cities, encompassing over 25 million sq ft. Their workforce comprises over 40,000 workers, including 15,000 full-time delivery drivers guided by proprietary software, making Coupang the second-largest B2C logistics company in the nation.\nCoupang has strategically placed itself in critical parts of the country by building an extensive distribution network to execute its lofty delivery speed promises.Incredibly, nearly 70% of the population lives within just 7 miles of a logistics center in a country that is about 1% the size of the U.S. geographically.\nSource: Wikimedia Commons\nWhat's vital here is South Korea's geography and why that matters for Coupang's distribution model compared to competitors.Over 60% of the land is mountainous, making flat land-scarce and requiring the mega fulfillment centers to be built vertically. Meaning building a large logistics center is more complex, time-intensive, and capital-intensive. So current and future competitors will have a challenging time matching Coupang's logistics in South Korea. Also, by becoming the quasi-UPS of South Korea, the logistics network they are building will be hard to compete with economically as Coupang scales which will further drive down their costs.\nConvenience and Eco-Friendly\nPart of Coupang's plan to make life unlivable for Koreans without it is making purchasing simple and easy, which they have done. Coupang has the only significant payment experience that supports \"one-tap\" buying without additional verification. In a day in age with massive fraud and online theft, building a secure one-tap purchasing experience is convenient for users.\nFurthermore, frictionless returns are a crucial part of the user experience, and luckily for users of Coupang, they don't have to sacrifice convenience to be eco-friendly. They are committed to frictionless transactions in concert with their devotion to waste reduction and cardboard elimination. As of 2020, they have removed cardboard boxes in over 75% of parcels and instead replaced them with their coined \"Zero Packaging\" innovation. Instead of cardboard boxes, packages get delivered in eco-bags and re-collected for reuse after each delivery. Not to mention on returns, customers can forget packing and shipping returns. Customers need to tap a button on the app and leave their items outside their door for pickup.\nValuation and Analysis\nCoupang had a fantastic 2020, with sales growing over 90% from $6.2 billion to $11.9 billion from 2019 to 2020. The likely reason for the jump from 55% growth in 2018-2019 is the pandemic that forced many local retailers' doors to close and moved many consumers to shop online. Clearly, Coupang was a significant beneficiary from the Pandemic and will likely retain many of the consumers who never shopped online to now continue shopping online. Still, I think it's unrealistic to expect a continuation of 90% growth.\nSource: S-1\nOn IPO day, Coupang priced its shares at $35 yet finished at $49.25, a 40% pop and giving the company a hefty market cap of $84.47 billion. They are also not profitable, with a $475 million loss last year; however, their losses are dropping from $1.1 billion in 2018.\nCurrently, they are trading at a Price to Sales (P/S) ratio of 7x, which is a significant multiple for a non-software company. On occasion, this high of a multiple for a software company can make sense because as they grow, their fixed costs stay the same and become significantly more profitable as they acquire more users. They are trading at 25x Gross Profit, a high multiple, especially with the market's current macro trends being volatile for growth stocks.\nCoupang is investing for the future and will continue to reinvest back into the business to build their eCommerce platform and infrastructure further; thus, they will likely not be profitable in the short term. However, I see a massive opportunity here. They mentioned they are in the early stating of advertising on their marketplace, an enormous revenue generator like Amazon receives from sellers on their platform.\nOverall I like their business model and believe they will continue to dominate the eCommerce market in South Korea. However, the 40% gain on day one and the volatile market makes this stock a pass for now. But add to your Watch List. If high growth tech stocks see another sell-off in the next couple of months, a better buying opportunity could arise.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[{"id":353897464,"gmtCreate":1616477974058,"gmtModify":1634525610200,"author":{"id":"3569319160707763","authorId":"3569319160707763","name":"FuJie1010","avatar":"https://static.tigerbbs.com/95099c51f8498b56c3973ded1570fc6b","vip":1,"crmLevel":2,"crmLevelSwitch":0,"idStr":"3569319160707763","authorIdStr":"3569319160707763"},"htmlText":"Bought &amp; going to hold for long term","listText":"Bought &amp; going to hold for long term","text":"Bought & going to hold for long 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for now.&nbsp;","listText":"Expensive for now.&nbsp;","text":"Expensive for now.","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://laohu8.com/post/359084434","repostId":1177979145,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":350264834,"gmtCreate":1616214024028,"gmtModify":1634526697255,"author":{"id":"3571003730304627","authorId":"3571003730304627","name":"Kel26","avatar":"https://static.tigerbbs.com/a06b9e1fe81fc1f09149063082b90dc3","vip":1,"crmLevel":5,"crmLevelSwitch":0,"idStr":"3571003730304627","authorIdStr":"3571003730304627"},"htmlText":"Yes, sell put for&nbsp;$35, the IPO price","listText":"Yes, sell put for&nbsp;$35, the IPO price","text":"Yes, sell put for $35, the IPO 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