Stealing a Page From Amazon’s Playbook

Trackstar doesn’t just find popular penny stocks, it sees market trends as they happen.

After the Thanksgiving holiday, every Wall Street analyst will be watching retailers and e-commerce companies after Black Friday and Cyber Monday.

Yet, last week, TrackStar began to see search volume in related names steadily rise as the holiday approached.

While there were obvious names like Amazon (AMZN), Coupang (CPNG) stood out for one obvious reason: It’s not based in the U.S.

As one of Asia’s largest e-commerce companies, it came as a bit of a shock, especially given Shopify’s note highlighting heavy retail sales in the U.S. and Europe over the weekend. 

In fact, its search volume has exceeded retailers Walmart (WMT), Best Buy (BBY), and Etsy (ETSY), some of the more popular retailers this holiday season.

The South Korean stock only began trading in the U.S. back in March 2021.

Since then, it’s been a steady bleed for shares, dropping from just under $70 to below $20.

However, shares have more than doubled since making a low in May of this year.

So, is this increased interest tied to the holidays, the Q3 earnings, or something deeper?

Coupang’s Business

Regarded by some as the Amazon.com of South Korea, Coupang is one of the largest e-commerce companies in Asia. 

The company offers various services, including same-day and next-morning delivery of groceries and general merchandise, prepared foods through Coupang Eats, and video streaming through Coupang Play. Its markets include South Korea, Japan, Taiwan, Singapore, and China. 

Coupang has over 100 fulfillment centers, covering 42 million square feet, covering millions of products.

Source: Coupang

The company invested heavily in technology to improve optimization, automation, machine learning, and robotics. Those investments are starting to pay off, as the firm delivered a record net income of $91 million in Q3 2022.   

The company IPO’ed in March 2021 on the New York Stock Exchange, reaching a high of $69. Shares bottomed out in May 2022, at $8.98 per share.

Financials 

Source: Stock Analysis 

CPNG CEO Bom Kim announced that the company’s next milestone is to become free cash flow positive during its Q3 2022 conference call. 

Similar to Amazon, the firm invested large in CapEx in building its warehouses and beefing up inventory. 

However, they are now beginning to normalize their CapEx spending. 

Kim believes free cash flow margins should trend towards their adjusted EBITDA margins. 

One thing’s for sure, CPNG has been growing at an explosive rate. 

Revenues rocketed from $4 billion in 2018 to $18.4 billion in 2021. Over the last 12 months, it has made $20.3 billion in revenues. 

The company’s financials are stable, with $2.9 billion in cash, a total debt of $2.1 billion, and a current ratio of 1.2x.  

Valuation

Source: Seeking Alpha

CPNG has experienced three straight quarters of profitability improvement. 

The company found ways to leverage machine learning to predict changes in customer demand by region better and optimize inventory orders and placement. 

The company reported its first quarter of GAAP net income in Q3 2022. 

Its P/E GAAP ratio is NM, which is also the case for one of its peers, ETSY. BBY has a P/E GAAP ratio of 12x, while WMT is at 46.9x, and AMZN is at 83.9x. 

However, forward estimates put the P/E ratio at 107x, still expensive, but profitable.

CPNG trades at a price-to-sales ratio of 1.7x. In comparison, AMZN trades at 1.8x, WMT at 0.7x, BBY at 03x, and ETSY at 6.1x. 

Profitability

Source: Seeking Alpha

CPNG is inching closer to profitability. 

The firm’s EBIT margin is currently -2.9%. In contrast, AMZN is at 2.5%, WMT is at 3.4%, BBY is at 4.3%, and ETSY is at 15.8%. 

Meanwhile, CPNG has a net income margin of -2.95%, not nearly as strong as AMZN at 2.25%, WMT at 1.49%, BBY at 3.2%, but significantly better than ETSY at -25.9%. 

Coupang experienced a significant spike in its gross profit margin in Q3, hitting a high of 24.2%. 

Gross profit rose substantially, 64% (YoY) in Q3. The company credits its success to managing costs better and optimizing its food delivery business. 

Growth

Source: Seeking Alpha

Coupang’s growth has been incredible. 

Sales grew by 18.6% YoY for the trailing 12-month period. 

To put that into context, ETSY has grown revenues by 11%, BBY by -8.4%, WMT by 4.9%, and AMZN by 9.6%. 

In Q3, CPNG grew revenues by 27%, despite a difficult macroeconomic environment. 

Our Opinion 8/10

We have to hand it to Trackstar on this one. This isn’t a company we would normally look at.

Coupang is a dominant player in the Asian e-commerce market. 

The firm is investing heavily in technology to improve its business, and based on its latest quarterly earnings report, it appears to be working well. 

Shares of the stock are up nearly 20% over the last month but are still down 32.8% YTD. 

We believe the stock is a buy if you can get shares between $15 to $20.