Can Coupang be the next Great Growth Stock?
- Brandon Fong
- Mar 4, 2021
- 3 min read
Updated: Mar 4, 2021
What exactly is Coupang?
Coupang may be an unfamiliar name to many in the States but, has a strong presence in South Korea, being the so-called Amazon of South Korea. South Korea is dubbed the world’s third-largest e-commerce market and Coupang holds about 25% of the market share(Amazon’s market share is 37% in the US). More than 99% of shipments ordered through Coupang arrive at the consumer’s doorstep in less than 24 hours (less than three days if items ordered are imported internationally). By using technology to create an on-demand delivery service, (e-commerce) Bom Kim the CEO of Coupang, embarked on his journey from dropping out of Harvard and successfully succeeded in creating the leading e-commerce platform in South Korea. CNBC Disruptor 2020 (Ranked #2)
How is Coupang leading e-commerce in South Korea?
Coupang’s mission is to create a world for the consumer where they wonder “How did I ever live without Coupang?”
As a customer-centric business, Coupang relies on customer reviews and satisfaction to gauge its growth in South Korea.
Coupang has thrived through the pandemic, growing revenue of 90% YOY, becoming the market leader in South Korea for e-commerce. By running a consumer-focused business, Coupang has a high customer retention rate, enabling Coupang to increase its revenue growth. “ As customers have used our services more frequently, the spend generated by each customer cohort has grown in each year, demonstrating our value proposition”(S1 Filing Coupang).
Source (Coupang Investor Presentation)
From the chart featured above, 2016 Cohort has increased their spending YOY. The four cohorts feature above show a pattern of an average increase in consumer spending as they use Coupang more n more.
What separates Coupang from other e-commerce companies in South Korea is its ability to deliver consumer goods at lighting fast delivery speeds. Coupang realized that many South Koreans came home late from work and most items ordered on Coupang are during the hours of 10 PM-12 PM, therefore, would miss out on the one-day delivery experience. This led to the development of Dawn delivery, offering customers who order items before midnight to receive them in the morning. The concept of “order at night and deliver in the morning” demonstrates the MOAT Coupang has created in the e-commerce sector.
Can Coupang continue growing at a rapid growth rate?
The pandemic definitely kickstarted Coupang’s business by forcing many consumers to shop online. But as the pandemic seems to start winding down, Coupang’s growth rate QoQ may slow down over time. Despite the world returning back to normal, in my opinion, the world has definitely changed and e-commerce will only continue to grow. As individuals, our habits have changed, and enjoy the concept of having our items delivered to our houses. Overall, it will be difficult for Coupang to repeat its impressive revenue growth YOY.
Source (Coupang S1 Filing)
2018 Coupang exhibited a 68.6% revenue growth. 2019 Coupang had a 54.8% revenue growth. And 2020 Coupang exhibited a whopping 90.6% revenue growth.
Source(Global Data)
Studies show that South Korea’s e-commerce value will continue to increase citing the potential Coupang can still grow in years ahead.
What are Coupang’s risky risks?
There are two major factors that can negatively affect Coupang; its operating costs and competition.
According to the S1 Filing, Coupang posted a net loss of $1.1 billion in 2019 and reduced it to $475 million in 2020. As you can tell, Coupang is not profitable yet! Like a hyper-growth company, Coupang is focusing on customer acquisition and improving their customer satisfaction but sacrificing on turning a profit (operating loss). Their replicating Amazon’s business model of efficiency and improving logistics to offer lightning fast delivery times in which no other e-commerce company can compete with.
Coupang has invested so much in its logistics network that it has become the market leader in South Korea. However recently, Amazon purchased a 30% stake in a Korean e-commerce company that competes with Coupang called 11Street. Although Amazon isn’t directly in South Korea, they are trying to enter into the e-commerce market in South Korea through 11Street. In their S1 Filing, Coupang stated “Many of our competitors have, and potential competitors may have, competitive advantages such as longer operating histories, more experience in implementing their business plan and strategy, better brand recognition, popular offline locations, greater negotiating leverage, established supply relationships, significantly greater financial, marketing, and other resources"(Coupang).
Conclusion
Coupang is currently at its prime, exhibiting hyper-growth as it was fueled by the shift in consumer behavior due to the pandemic. Can Coupang continue delivering impressive growth numbers, that’s yet to be seen. Depending on the IPO price and what Coupang starts trading, it will definitely influence my decision if I want to start a long position.
Sources:
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