Coupang (NYSE: CPNG) stock is in the green after the ecommerce business hiked its full-year guidance and topped expectations with its second quarter earnings.
This article will examine the company’s earnings in greater detail, but the key change in guidance is that the business now anticipates that it will make a profit before interest, tax, depreciation and amortization across the full year, compared to previous expectations of a $400m loss.
Coupang CFO, Guarav Anand, commented:
“We’re pleased to report that we achieved positive adjusted EBITDA on a consolidated basis, generating $66m across the entire business, improving $157m from the prior quarter. Over the past two quarters, we’ve driven a total improvement of over $350m, a reflection of our continued execution across the company.”
What is Coupang?
Coupang owns and operates an e-commerce business through its mobile applications and Internet websites primarily in South Korea. It operates through two segments, Product Commerce and Growth Initiatives.
The company sells various products and services in the categories of home goods and décor products, apparel, beauty products, fresh food and groceries, sporting goods, electronics and everyday consumables, as well as travel and restaurant order and delivery services.
It also performs operations and support services in China, Singapore, Japan, Taiwan and the United States.
Coupang was incorporated in 2010 and is headquartered in Seoul, South Korea.
How Does Coupang Make Money?
Coupang makes money by selling consumer goods through its mobile and desktop ecommerce platform, which is enjoying growing interest among customers.
In the three months ended 30 June 2022, the business recorded 17.89 million active customers, compared with 17.02 million in the same period last year. Additionally, revenue per customer has increased by 7% to $282.
Additionally, the company makes a small amount of revenue through its separate offerings of food delivery, video streaming, and advertising services.
CPNG Stock Financials
The company reported that second quarter total net revenues amounted to $5.04bn, compared with $4.48bn in the same period last year. This constitutes an increase of 12%.
This growth outpaced rises in total operating costs and expenses, which rose from $4.99bn to $5.10bn. As such, operating losses narrowed from $514.94m to $67.14m.
Gross profit climbed by around 75% to $1.15bn, or 41% when taking into account the impact a fulfilment centre fire had on the company’s performance in the period last year.
Net loss per share came in at $0.04, a significant improvement on the $0.30 achieved in the same period in 2021.
At the time of writing, the company’s share price sits at $21.02 and has fallen by just over 26% across the year to date. The stock reached lows of under $9 in May, having started the year at a price of nearly $30 per share.
CPNG Growth Potential
With almost 18 million active customers, the stats suggest that around 36% of South Korea’s population are using Coupang’s services. This high level of penetration suggests that there is limited scope for growth of the company’s core offering in South Korea, though the company is diversifying beyond ecommerce.
Given its similarities to Amazon (NASDAQ: AMZN), the business is perhaps wise to be exploring food delivery and streaming services, which open up further revenue streams from the South Korean market, where the company is already a dominant figure.
International expansion is another possibility, with the company already beginning to explore opportunities in Japan, Taiwan and Singapore.
However, it faces significant competition in these markets from the likes of Amazon and Alibaba, two major international players who are significantly more experienced in operating successfully in new geographies.
Even so, Coupang’s emphasis on efficiency and high-speed delivery could see its success spread beyond South Korea’s borders.
CPNG Investment Risks
Coupang appears to be successfully growing its userbase and revenues but, despite expectations it will begin turning a profit this year, the business is currently losing money. Backing any business in such a situation carries an elevated risk that the company will run out of capital to fund its operations.
That being said, Coupang is well-funded and appears to be on the right trajectory towards profitability.
The company has positioned itself as a leader in its sector when it comes to delivery times and efficiency, with customers receiving orders on the same day or the following morning. However, its high standards could be compromised by supply chain difficulties or disruption, such as that seen when one of its fulfilment centres went up in flames last summer.
This fire claimed the life of a responding firefighter and garnered a significant backlash from both customers and investors, with questions being raised over the safety and working conditions at the company’s distribution centres.
Hopefully, Coupang has taken sufficient measures to ensure that such a tragedy never happens again, but a business with such high-performance standards could suffer from further accidents or increased regulation to improve conditions for workers.
South Korean logistics and delivery workers have launched strike action in the past in pursuit of improved working conditions, with widespread strike action occurring throughout 2021.
Is CPNG Stock a Good Investment?
With its latest earnings pointing squarely towards profitability, and this being achieved more quickly than management had expected, Coupang looks like quite a tidy investment. The business is well-funded and has a huge customer base who appear largely satisfied by its offering.
However, the business could face difficulties in its attempts to expand internationally, which may limit the company’s growth potential in the longer term. Additionally, disruption to Coupang's efficient delivery operations could see it lose its appeal to customers.
Even so, Coupang stock looks like it might be a sound choice for investors looking to get behind a future ecommerce heavy hitter, with Amazon having potentially provided the company with a blueprint for growth in its home market.