Historically, buying stocks right after their initial public offering (IPO) has proven to be a high-risk proposition for investors. This risk often stems from the hype surrounding activity at an all-time high, when there is only limited financial data for the company.
Generally speaking, it’s usually wise for investors to wait a few quarters, gathering information from the company’s regular earnings reports. With this new data, investors can develop a stronger investment thesis for the stock.
After going public in early 2021 at $35 per share, the South Korean e-commerce specialist coupang (CPNG 0.45%) gradually moved lower – even below $10 briefly.
However, with a year of earnings reports now behind it and two key pieces of information from Coupang’s last quarter, I think it might be time to buy.
Constantly improving gross margin
With gross profit growth of 42% year-over-year and gross margin improvement of 450 basis points quarter-over-quarter, Coupang posted record numbers for every metric during his first trimester.
Gross margin is key for Coupang investors as its progress highlights improved efficiency in its capital-intensive logistics network. If it continues to optimize these logistics and adapt to the massive infrastructure expenditures required to operate its e-commerce operations, Coupang could begin to see significant network effects, especially given the high population density of South Korea.
Better still for investors, Coupang could reach a tipping point in realizing these network effects. Consider the following table:
While that 3% difference may seem small at first glance, Coupang’s substantial jump in gross margin growth over last quarter’s sales growth shows that its operations are starting to expand. Additionally, with this streamlining of its operations, the company potentially paves the way for future profitability, demonstrating that past investments in warehouses, logistics and broader inventory are beginning to pay off.
Booming e-commerce segment
Thanks in part to this record gross margin, Coupang’s core commodity trading segment posted its first-ever positive Adjusted EBITDA in the quarter.
Consisting of Coupang’s e-commerce business and its Rocket Fresh grocery delivery service, the segment has not only achieved EBITDA profitability, but management expects it to remain profitable in the future. . On top of that, CEO Bom Kim explained that the best is yet to come: “We believe that continued improvements in operational efficiency, supply chain optimization and scaling of Merchant Services, among other factors, will expand our consolidated Adjusted EBITDA margins to at least 7% and potentially above 10% over the long term.”
As the e-commerce segment approaches these long-term direction goals, it seeks to self-fund its growth, allowing management to deploy capital into its nascent developing segment of offerings.
Offerings in development include Coupang Eats (restaurant ordering and delivery), Coupang Play (video streaming), its fintech services, and ads related to these categories. With a cash balance of $3.4 billion and a standalone e-commerce segment, Coupang is poised to provide an attractive growth option for investors through these non-core operations.
Perhaps most importantly, these additional offerings create a strong ecosystem of services that Coupang can bundle for its nine million WOW members and 18.1 million active customers.
Now trading at just 1.2x sales and with analysts predicting sales growth of over 20% this year, Coupang’s nascent EBITDA profitability is preparing me to buy and hold more shares for the future. next decade.