Everyone’s always on the lookout for the next Amazon (NASDAQ:AMZN). Lately, people have been drawing parallels between Amazon and South Korea’s Coupang (NYSE:CPNG), both in terms of the companies’ e-commerce businesses and in the potential of CPNG stock.
AMZN stock has skyrocketed more than 1,700% in the past 10 years and nearly 9,000% in the past 15 years. Gains of that magnitude are not easy to replicate. But I expect CPNG stock to soar over the next decade, even if Coupang does not become as profitable as Amazon.
Let’s run through a few of the similarities between Coupang now and Amazon 10-15 years ago to show you why I think the former could follow in the latter’s footsteps.
Coupang Now and Amazon Then
Like Amazon in the United States, Coupang has become the dominant online retailer in its home market. Founded in 2010, Coupang had 16.8 million active customers at the end of the third quarter. To give you some perspective, South Korea has a population of around 51.3 million.
Coupang is benefitting from rapid growth in South Korea’s e-commerce market similar to the way Amazon benefitted from an explosion in online shopping in the U.S. On Coupang’s Q3 earnings call earlier this month, CEO Bom Kim said the Korean e-commerce market has grown at least 20% year over year for the past 12 quarters in a row.
This growth is translating into a top-line surge for Coupang. In the most recent quarter, revenue was up 48% from a year ago to $4.6 billion. In the 15 quarters prior to that, the company saw top-line growth of at least 50% year over year.
While the company is growing revenue at a fast clip, in another similarity with Amazon of yore, Coupang is reporting week bottom-line figures. For Q3, the net loss came in at $324 million, up from a $173 million loss during the same period a year earlier.
Part of the reason for the widening losses is that, like Amazon, Coupang isn’t content staying in its lane — geographically or business-wise. Amazon has become the biggest online retailer in Europe, while Coupang is in the early stages of entering the Japanese and Taiwanese markets. Coupang is also expanding its offerings to include grocery delivery, a food delivery service and streaming. Sound familiar?
Coupang Could Use a Profit Boost, but It May Not Need One
What ultimately lit a fire under AMZN stock was its very profitable cloud business, which caused its overall bottom line to surge. Over the longer term, Coupang’s bottom line could jump similarly.
As I’ve written in past columns, the company’s profitability could be boosted by the expansion of its logistics business and its overseas initiatives that will increase its economies of scale. Other factors that could ultimately lift its profits are its growing ad and grocery delivery businesses, along with reduced investments after its infrastructure buildout is largely completed.
Perhaps Coupang will decide to emulate Amazon by entering some sort of high-tech business like the cloud or artificial intelligence, greatly increasing its profits in the process. Or it could branch out into online gaming or enter the payments business like Asian e-commerce giant Sea Limited (NYSE:SE). My point is, there are plenty of ways Coupang could go about increasing its profits.
However, CPNG stock could climb even if the company’s profitability improves little or not at all. As Coupang’s CEO noted, the e-commerce giant’s overseas forays are in their “nascent” stages. If these initiatives are successful, we could see shares move higher even as the company continues to post losses.
As evidence of that, look at the performance of Singapore-based Sea Limited, which has been successful in multiple markets. Over the past three years, Sea’s operating income has declined meaningfully. Yet, SE stock is up 63% over the past year and more than 700% over the past two years. If Coupang starts rapidly growing in Japan and Taiwan, CPNG stock could easily soar.
The Bottom Line on CPNG Stock
CPNG stock is currently trading near its 52-week low and for less than 3 times trailing 12-month sales. Unless the stock market continues to correct, it’s hard to see shares going much lower.
Given the huge potential gains, I think the risk-reward ratio is extremely positive at this point. I urge long-term, risk-tolerant investors to buy CNPG stock.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Larry Ramer has conducted research and written articles on U.S. stocks for 14 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.