What we think about Coupang (CPNG)
Coupang in Three Words: Customer-Obsessed, Operating Leverage
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Background
Coupang is South Korea’s largest online marketplace, with 22.5 million shoppers collectively spending $27.5 billion USD on its site every year to buy everything from tomatoes to TVs. Its average customer spends around $318 each quarter — $1,272 per year — which is 8% higher than what they spent in 2023. Similar to Amazon Prime, Coupang’s WOW membership offers a slew of additional perks for an annual fee, such as free same-day shipping, free returns, exclusive deals, and access to media streaming.
The company is organized into two segments: Product Commerce and Developing Offerings.
Within Product Commerce, 90% of sales involve Coupang purchasing the products directly from vendors, taking ownership, and then selling and shipping them to its ultimate customers. Because it owns its inventory, it can broaden its international selection — which now includes vendors who are based in China, the United States, and Japan.
The other 10% of Product Commerce comes primarily from third-party merchant services; where Coupang charges fees to others to deliver their packages or for them to advertise on-site.
Total Product Commerce revenue — including both direct and third-party sales — will be around $28 billion USD this year. This represents 89% of the top-line and this segment generates a 7% EBITDA margin.
The other 11% of revenue comes from Developing Offerings. These are tangential services that generate incremental sales and are intended to steer customers to the Commerce platform. It includes Coupang Eats for food delivery, a digital streaming content library, and its payment processing gateway. One of the most intriguing new additions to Developing Offerings was Coupang’s acquisition of Farfetch in January (which we’ll discuss in greater detail in the following section).
Coupang was founded in 2010 in Seoul, South Korea and has around 78,000 full-time employees.
Conviction Update:
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Thoughts on Current Valuation and Capital Allocation
I currently derive a fair value of $32.26 per share of Coupang
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7investing's DCF Valuation Model for Coupang from April 2024
Recent Company Updates:
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