Buy better: Coupang vs. Amazon
Coupang (NYSE: CPNG) is often called the “Amazon (NASDAQ: AMZN) from South Korea. ”It’s the country’s largest e-commerce company and maintains its lead with a“ Rocket Delivery ”service that delivers packages within hours or a single day.
Coupang went public in March at $ 35 a share and opened at $ 63.50, but is only trading around $ 40 a share today. The market’s current distaste for growth stocks, Coupang’s mixed earnings report in May, and a warehouse fire earlier this month all seemed to bring the stock down. Should investors still expect Coupang to generate similar earnings to Amazon in the future, or should they just stick with Amazon instead?
How fast is Coupang growing?
Coupang was founded a little over ten years ago, but the big investments of SoftBank (OTC: SFTB.Y), Sequoia Capital, and Black rock (NYSE: BLK) helped it quickly expand its logistics network.
Today, around 70% of South Koreans live within 11 km of a logistics center in Coupang. Its entire infrastructure spans 30 cities, with a physical footprint equivalent to more than 400 football fields. This massive presence makes it difficult for foreign challengers like Amazon to gain traction.
Coupang is expanding its ecosystem to maintain its lead. It delivers fresh groceries through Rocket Fresh and restaurant orders through Coupang Eats, and offers temporary employment opportunities through Coupang Flex. It even launched a streaming video platform called Coupang Play last December.
Coupang’s revenue, which comes primarily from its retail services, grew 91% to $ 11.97 billion in 2020. Its number of active customers grew 18%, while its net retail sales per active customer jumped 62%.
Like many other e-commerce companies, Coupang experienced accelerated growth during the pandemic. It remains unprofitable, but its net loss has fallen from $ 699 million in 2019 to $ 475 million in 2020.
In the first quarter of 2021, Coupang’s revenue grew 74% year-over-year to $ 4.21 billion. Its total active customers increased 21% to $ 16 million, while its sales per active customer increased 44% to $ 262.
However, his net loss almost tripled from $ 105 million to $ 295 million. On an adjusted EBITDA basis, his net loss more than tripled from $ 42 million to $ 133 million. Its gross margin actually increased year over year, but an 80% increase in operating costs wiped out those improvements.
Coupang has provided no indication, but he plans to increase his national footprint by another 50% this year, indicating that his losses will continue to widen. Analysts expect its revenue to grow 61% this year as its growth decelerates slightly in a post-pandemic world, with another annual net loss.
Based on these forecasts, Coupang is trading at less than four times this year’s sales. This makes it cheaper than other high growth eCommerce companies like Limited sea (NYSE: SE) and Pinduo (NASDAQ: PDD).
How fast is Amazon growing?
Amazon grows slower than Coupang, but it’s bigger and more profitable. Its revenue increased 38% to reach $ 386.1 billion in 2020, with growth of 38% for its North American operations, growth of 40% for its international operations and growth of 30% for its Amazon Web Services (AWS) cloud infrastructure platform.
Amazon generates most of its revenue from its online marketplaces, which host more than 300 million active customer accounts and 200 million paid Prime subscribers. This ecosystem includes its owner market, third-party market, physical stores (including Whole Foods), and grocery delivery services.
However, Amazon generates most of its profit through AWS, which collects higher margin revenue than its lower margin markets. That’s why its ecommerce business can constantly offer big discounts, cheap hardware devices, new streaming content, and other digital perks to lock in its Prime members.
In other words, AWS subsidizes the growth of its marketplaces and enables it to generate higher profits than many other ecommerce companies. That’s why its net income jumped 84% to $ 21.3 billion last year, even after spending billions of dollars on pandemic-related security measures.
Amazon’s steady growth continued in the first quarter of 2021. Its revenue grew a further 44% year-on-year to $ 108.5 billion, and its net profit more than tripled to 8. $ 1 billion. Analysts expect its revenue and profits to increase by 27% and 34% for the full year, respectively.
Based on these expectations, Amazon is trading at 49 times forward earnings and less than four times this year’s sales. These valuations are cheap relative to its growth and suggest that it may still have some headroom.
The winner: Amazon
Coupang is generating impressive growth, but I’m worried about his worsening losses. Its addition of new services like Coupang Play could boost its revenue, but it also highlights its growing need to aggressively increase revenue per buyer as it saturates its home market.
Amazon remains the safest bet as the market punishes more speculative growth stocks. So until I see how Coupang performs over the next few quarters, I will stick with Amazon as my primary ecommerce stock.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.