Shares of Coupang (CPNG 6.94%) gained 15.4% in the second half of 2022 despite continued losses for global equities, according to data from S&P Global Market Intelligence. The South Korean e-commerce company put up strong top-line growth and margin expansion in its latest quarter.
As of this writing, Coupang stock is down 64% since going public in early 2021.
Coupang runs a similar e-commerce business model to Amazon with a vertically integrated product offering to improve the customer value proposition for merchants and buyers on its marketplace. Since incorporating a little over a decade ago, it has invested billions of dollars in building out its square footage for e-commerce warehouses and increasing its driver/delivery fleet. Through the first nine months of 2022, it spent $700 million on capital expenditures.
These investments have given Coupang a competitive advantage over other e-commerce companies, enabling it to become the dominant player in South Korean e-commerce. With these market share gains and boosts from the pandemic lockdowns, Coupang’s revenue has soared over the past few years, growing 27% year over year in local currency last quarter on top of 44% growth a year ago.
But what has had investors concerned, and the reason the stock had fallen by 64% at one point this year, is the lack of profitability. In the first quarter of 2022, Coupang posted a net loss of $209 million on gross margins of just 20%. But then, in the third quarter, the company finally started to see an inflection, with gross margins hitting 24.2%, which was up 800 basis points year over year. This helped the company achieve a positive net income of $91 million for the quarter, its first profitable quarter as a public company.
Management at Coupang has grand ambitions for the business. It not only wants to dominate the South Korean e-commerce market but has projects in grocery and food delivery, financial technology, and international expansion into countries like Taiwan and Singapore. Like its North American brethren Amazon, Coupang’s goal is to become not just an e-commerce company but a technology giant.
At a market cap of just $32 billion, there still could be plenty of returns left in the tank if Coupang continues to grow its revenue at a double-digit rate, margins continue to expand, and some promise is shown with its nascent initiatives.