The Amazon of South Korea remains a speculative long-term bet.

Key Points

  • Coupang is beating its e-commerce rivals in South Korea.
  • It’s unclear what will happen as Coupang saturates its home market, launches new services, and expands into other countries.
  • Hitting the $1 trillion mark within ten years could be very tough.

Coupang (NYSE:CPNG), the largest e-commerce company in South Korea, went public this March at $35 per share. It opened at $63.50 on the first day, but closed at $49.25 and has gradually lost its momentum.

Coupangs stock recently dipped below its IPO price after it posted a messy second-quarter report. Concerns about Coupangs lack of profits, its ability to expand beyond South Korea, and tougher post-pandemic comparisons for e-commerce companies exacerbated that sell-off.

But is that near-term noise causing investors to overlook Coupangs core strengths? Lets dig deeper and see if this $55 billion e-commerce company can become a trillion-dollar one within the next ten years.


Image source: Getty Images

How Coupang can join the twelve-zero club

Coupangs revenue surged 93% to $12.1 billion in 2020, and analysts expect that figure to rise another 60% to $19.3 billion this year. Based on that forecast, Coupangs stock trades at just three times this years sales -- making it much cheaper than other high-growth e-commerce stocks.

Sea Limited (NYSE:SE), which owns Southeast Asias top online marketplace Shopee, grew its revenue 101% to $4.4 billion last year, and analysts anticipate 91% growth this year. However, Seas stock already trades at 19 times this years sales.

MercadoLibre (NASDAQ:MELI), Latin Americas largest e-commerce company, grew is revenue 73% to nearly $4 billion last year. Wall Street expects that momentum to continue with 73% growth this year, but its stock already trades at 13 times that forecast.

Amazon (NASDAQ:AMZN), which is growing much slower than all three companies, trades at just three times this years sales. In other words, Coupangs low price-to-sales (P/S) ratio indicates that investors arent too optimistic about its ability to maintain its current growth rates.

However, lets assume investors warm up to Coupang again and bump its P/S ratio up to ten. If that happens, Coupangs annual revenue would need to rise at a CAGR of 23.5% between 2020 and 2030 to $100 billion to make it a $1 trillion stock.

Is that a reasonable target?

That CAGR is fairly reasonable relative to other high-growth e-commerce companies. For example, MercadoLibre grew its revenue at a CAGR of 33.8% between 2010 and 2020. Amazons total revenue (including its cloud business) rose at a CAGR of 27.4% during the same period.

However, we cant assume Coupang will become the next MercadoLibre, Amazon, or Sea, for four reasons. First, Coupang only controlled 24.6% of the South Korean e-commerce market last year, according to Goodwater Capital. The rest of the market was still fragmented among smaller players like G Market (19.7%), 11 Street (15.9%), Auction (10.8%), and Naver Shopping (8.3%).

To truly dominate the South Korean market, as MercadoLibre and Seas Shopee did in their respective regions, Coupang needs to wipe out its competitors with loss-leading strategies or buy them out to consolidate the market -- both of which will squeeze its margins and result in wider losses.

Second, South Korea only has a population of about 52 million. Its internet penetration rate has surpassed 90%, and its average annual wages are comparable to wages in the U.S. and Japan.

Therefore, Coupangs South Korean market has less room to expand than MercadoLibres Latin American market and Shopees Southeast Asian market, which both still have lower internet penetration rates and income levels (and thus more room to generate long-term gains). Coupang already served 17 million active customers last quarter, and its unclear how many more customers it can gain before hitting a ceiling.

Third, Coupang is trying to squeeze more revenue out of its active customers to offset that potential slowdown. To do so, its expanding unprofitable services like its grocery delivery platform Rocket Fresh and its restaurant delivery platform Coupang Eats. Its also trying to lock them in with its Prime-like WOW subscription service. However, all of these costly strategies will exacerbate Coupangs losses.

Amazon subsidizes the expansion of its lower-margin retail business with its higher-margin cloud business. Sea subsidizes Shopees expansion with its Garena mobile gaming units higher-margin revenue. Coupang doesnt own a comparable profit engine -- so its only hope is to wait for economies of scale to kick in, expand its higher-margin third-party marketplace, and reduce its losses per order.

Lastly, Coupang plans to expand overseas, starting with Japan, Taiwan, and Southeast Asia. However, Amazon and Rakuten (OTC:RKUNY) are already firmly in control in Japan, while Shopee is the market leader in Southeast Asia and Taiwan. Challenging those entrenched leaders could result in ugly price wars and wider losses.

The bottom line

Coupangs founder and CEO Bom Kim has already transformed his company multiple times over the past decade, and it still has a lot of growth potential in its current form. I think Coupangs stock could generate multibagger gains as it stabilizes its business over the next few years, but hitting a trillion-dollar market cap by 2030 might be asking too much -- especially if it saturates its home market and struggles to find fresh ways to expand its ecosystem and geographic reach.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Leo Sun owns shares of Amazon, Coupang, Inc., MercadoLibre, and Sea Limited. The Motley Fool owns shares of and recommends Amazon, Coupang, Inc., MercadoLibre, and Sea Limited. The Motley Fool recommends the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. The Motley Fool has a disclosure policy.


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