Coupang (CPNG) is an e-commerce company. It sells clothing, electronics, footwear and food products.

Coupang has been called “the Amazon of South Korea (NASDAQ:).” However, it has many unique characteristics. Coupang’s logistical capabilities and South Korea’s high population mean that 95% of orders are shipped the next day.

According to the company, 70% of customers live within 10 miles from a logistic center. This may allow for higher margins in retail than Amazon which has to deliver over long distances.

I am neutral on CPNG stock. (See CPNG stock charts on TipRanks)

Opportunities for Expansion

Coupang is backed by SoftBank (SFTBF), which has extensive ties to Japan.

Coupang would love to expand its business into Japan, given the limitations of only operating in South Korea. South Korea may not be desirable, however. It has a highly tech-savvy culture and its ecommerce industry is growing every year.

The market is much larger in Japan, but with less competition. Coupang entered Singapore, Malaysia and Japan with the support of Softbank (OTC).

Massive Revenue Growth

Coupang is in high-growth mode with revenues increasing 72.7% for the first six months of 2021 as compared to 2020. It is remarkable, particularly considering that e-commerce sales soared in the spring 2020 due to the COVID-19 pandemic.

According to Coupang, Q2 2021 saw sales increase 50% in comparison with the year before.

Coupang is a retailer company with high sales costs. Investors can focus their attention on increasing gross profit and then look at the income statement.

In Q2 2021, gross profit was 50% higher than in Q2 2021. The company was also hit by a huge warehouse fire in Q2 2021. Due to inventory losses, this resulted in a $158 million decrease in gross profit. The one-time expense would have reduced gross profit by $158 million. Gross profit for the same period would have increased 86% if it weren’t for that item.

Significant Risks

The company is not yet net profitable, and likely will not be for several years as it scales operations. A major issue to address is the rapidly rising general and administrative costs.

They increased by 119% in the second quarter compared to Q2. The net loss of the company has increased despite gross profits and revenue growth.

Coupang is unlikely to make significant inroads into the Japanese market, as there are already strong competitors, such as Amazon.

There have also been concerns about Coupang’s labor practices. It is obvious that a company driven by consumers cannot afford to lose its reputation.

Stock Pullback May Make for Attractive Entry Point

CPNG stock has traded as high as $69 after its early 2021 IPO. It has been steadily falling since then.

As of writing, it is trading below $29. Although it is impossible to know when the downtrend will stop, it trades below $29.

A catalyst such as an expansion announcement, improved guidance or earnings beat may be needed to cause a turn around. Coupang will release its Q3 results in November 2021.

Wall Street’s Take

Wall Street analysts are quite bullish on CPNG stock, with a Strong Buy consensus rating, based on three Buy ratings, and one Hold.

The average CPNG price target is $43.33. This implies a 53.3% upside possibility from trading at current levels. Analysts seem to be fairly consistent in setting their target prices, with $46 per Share being the highest price target and $40 per Share the lowest.

Summary

There is much to be positive about with Coupang. This is evident in revenue growth and expansion. This is good news for margins, as gross profit has been growing at a faster rate than revenue.

On the flip side, the net loss of the company is increasing and the stock market is still in a downward trend. Coupang should be watched and maybe snipped at in an incremental fashion. However, the company needs to show positive trends for Q3 earnings before a bullish call can be made.

Disclosure: Bradley Guichard owned a position within CPNG at the time of publication.

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