Should you buy Coupang stock?

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Founded in 2010, ecommerce business Coupang is known as the Amazon of South Korea.

However, shares have fallen sharply this year taking the company’s market cap to 35 billion dollars. With 2.9 billion of cash the enterprise value is roughly 33 billion.

Revenue over the last 12 months is 20.4 billion, net income is negative 600 million and adjusted ebitda is negative 115 million. That means the stock is valued at around 1.6 times revenue and is not profitable on a trailing twelve month basis.

However, Coupang did post a profit in its latest quarter with 90.7 million of net income and 195 million in adjusted ebitda in Q3 for an ebitda margin of 3.8%.

The company is also growing fast. Revenues have compounded at more than 50% over the last 4 years and were up 10% in Q3 after currency conversion. Active customers were also up 7% to 18 million.

Like Amazon, Coupang is a dominant force in ecommerce. The company has over 20% market share in South Korea. It’s built out its own fulfillment network and invested in last-mile logistics. The company also offers deliveries via Coupang Eats and streaming content via Coupang Play.

But unlike Amazon, Coupang doesn’t have a lucrative cloud business. Amazon's AWS segment is hugely profitable and a key reason why its stock commands such a premium. As a result, Coupang’s profit margins are a lot smaller.

In truth, Coupang looks like a solid business and it offers exposure to South Korea which is a stable and prosperous country. However, the valuation isn’t quite there.

If you assume Coupang can grow revenues at 10% a year for the next 10 years and then hit 10% ebitda margins, ebitda in 10 years time would be roughly 5.2 billion dollars. A 20 times multiple on that figure gets us to an enterprise value of 104 billion for an investment return of roughly 12% per year.

That’s not a great return when you consider 10% ebitda margins are at the top of management targets. And its worth noting that South Korea is one sixth the size of the US with a slowing population. The company will also find it hard to expand internationally because there are already big competitors in most of Asia.

For those reasons, I give Coupang a neutral rating and I hold no position in this stock. But these are my personal opinions, not financial advice.

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