investors in Coupang(New York Stock Exchange: CPNG), South Korea's largest e-commerce company has been going through a difficult period in recent years. The company went public on March 11, 2021 at $35 per share, and closed at an all-time high of around $50 later that month. But in the months and years that followed, I slowly gave up all those benefits and more.
Still, despite the lackluster share price performance, some of the market's smartest investors are paying attention to this company, and for good reason.
Coupang has just reported its first profitable financial results.
The past few years have been a roller coaster for Coupang. It all started in 2020 when the pandemic hit and sent already high growth rates into the stratosphere. Revenues increased by 90% in 2020 and by 54% in 2021.
As profits rose, losses also rose sharply. Net losses more than doubled from $697 million in 2019 to $1.5 billion in 2021. However, this was acceptable to investors as it shows that Coupang is investing heavily in acquiring new users and improving its logistics infrastructure. They also expected that hyper-growth trajectory to become the new normal.
However, the company's growth trajectory changed rapidly in 2022 as consumers largely resumed their in-store shopping habits. Revenue for the year increased by only he 12%. Investors were shocked and understandably sold their stocks.
Besides slowing growth, there were other issues that Coupang had to deal with at the moment. For one, rising interest rates have rapidly reduced the amount of easily available money. This affected all high-growth but loss-making technology companies such as Coupang. for example, sea limited — Southeast Asia's leading e-commerce company has shifted from a strategy of growth at all costs to one that emphasizes survival and self-sufficiency. Coupang had to do the same.
Moreover, investors have also shifted their focus from promising loss-making companies to profitable and established companies. So Coupang had no choice but to change course to prove that their business model was sustainable (and profitable).
Fortunately, Coupang's move was a big positive, even though it led to slower revenue growth. Losses have decreased significantly, from $1.5 billion in 2021 to $92 million in 2022. The e-commerce business did even better and grew in his 2023. Revenue increased 18%, with net income of $1.4 billion.
You can increase your profits from here
Coupang achieved a major milestone in 2023, proving that its business model can be profitable at scale. Even better, there's good reason to expect the company to continue increasing profitability for some time.
The main driver of profitability improvement is revenue growth. Coupang is already South Korea's largest e-commerce platform with a 25% market share, but it accounts for less than 5% of the total Korean commerce market. Therefore, increasing market share over time will likely depend on attracting new users and increasing the wallet share of existing users. For example, the technology company leveraged its infrastructure and consumer base to launch new services such as online grocery, food delivery, and streaming.
Even if it exhausts domestic opportunities, Coupang can grow its overseas business thanks to its investment in the Taiwanese market. Although these efforts are still in their early stages, this investment has shown encouraging results in user and revenue growth.
Another important aspect of Coupang's continued profit growth is improving efficiency and operating leverage. Continuous investment in the latest technology and infrastructure allows the e-commerce company to continuously improve productivity across its supply chain.
Additionally, as your company grows in size, your unit fixed costs will decline as you process more volumes with a similar asset base. These operational improvements will improve profit margins and ultimately increase profitability. Looking ahead, Coupang's adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) margin has gradually improved over the years, going from -4.1% in 2021 to 4.4% in 2023. Ten%.
What does that mean for investors?
Early investors have struggled with Coupang as its stock has languished below its offering price. Still, the “Korean Amazon” has proven its viability and is well-positioned to grow its profits over time.
It's not for everyone, but investors with the right risk appetite may consider adding this growth stock to their watch list.
Lawrence Nga holds a position at Sea Limited. The Motley Fool has a position in and recommends Coupang and Sea Limited. The Motley Fool has a disclosure policy.
The Motley Fool is a USA TODAY content partner providing financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY.
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