Should You Buy the Dip in Coupang?
The shares of South Korea-based e-commerce giant Coupang (CPNG) were crushed recently after its largest shareholder sold CPNG shares worth $1 billion. Furthermore, challenges related to high costs and rising...
The shares of South Korea-based e-commerce giant Coupang (CPNG) were crushed recently after its largest shareholder sold CPNG shares worth $1 billion. Furthermore, challenges related to high costs and rising local competition make the company's growth prospects gloomy. Also, given that CPNG has not been able to improve its profitability, will the stock be able to recover? Read on to learn more.
Seoul, South Korea-based e-commerce company Coupang, Inc. (CPNG) went public on March 11, 2021. Its shares soared on their market debut due to a pandemic-induced e-commerce boom. While the e-commerce giant offering topped $84 billion after surging 40% in its mega listing, it has since lost roughly half its value. Its stock's price has slumped 56.2% over the past year and 18.4% over the past month. Although CPNG's active customer growth accelerated year-over-year in the last reported quarter, its losses have ballooned.
Closing its last session at $19.24, CPNG's stock is trading 61.9% below its 52-week high of $50.5, indicating bearishness. It is currently trading lower than its 50-day and 200-day moving averages of $21.52 and $29.57, respectively, which indicates a downtrend.
In addition, SoftBank Group Corp's Vision Fund recently sold 50 million shares of CPNG worth $1 billion. This move could be a deterrent to many investors. Moreover, increasing competition with local e-commerce rivals and investors' concerns surrounding CPNG's poor profitability could lead to the stock experiencing a further dip in the price in the near term.
Here is what could influence CPNG's performance in the upcoming months:
SoftBank Divested Its Shares
The e-commerce giant's largest shareholder, SoftBank Group, first invested in the company in 2015. However, SoftBank Group Corp's Vision Fund recently sold 50 million shares of the South Korean company at a price nearly 30% lower than the previous sale price of $29.7 in September. This could result in increasing investors' skepticism regarding the loss-making e-commerce firm.
As one of the biggest online retailers in South Korea, CPNG faces intense competition from several local players in the e-commerce business. In its last reported quarter, the company's loss widened as it continued to spend aggressively on infrastructure in the face of growing rivalry. CPNG spent more than one trillion won on distribution centers in 2021. Also, a COVID-19 related surge in operational costs and expenses could further fuel investor anxiety about the stock.
Although CPNG's total revenue came in at $5.1 billion, representing a 34% year-over-year increase, in the fourth quarter, ended Dec.31, 2021, the company's total operating costs and expenses rose 39.1% from its year-ago value to $5.4 billion. In addition, UP's adjusted EBITDA came in at a negative $285 million for the quarter, compared to a negative $82 million in the fourth quarter of 2020. UP's operating loss grew 16.3% year-over-year to $24.8 million. Also, it reported a $404.98 million net loss, up 389.4% from its year-ago value. Furthermore, the company's operating loss amounted to $396.6 million compared to $130.9 million in the prior-year period.
The company's 16.9% trailing-12-month gross profit margin is 52.8% lower than the 35.8% industry average. And its ROA and ROTC came in at negative 17.9% and 25.3%, respectively. Also, its trailing-12-month cash from operations stood at a negative 410.58 million. CPNG's trailing-12-month net income margin stood at a negative 8.4%.
POWR Ratings Reflect Bleak Prospects
CPNG has an overall F rating, which translates to a Strong Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. CPNG has an F grade for Growth. This is reflective of the stock's inadequate financials and weak growth potential.
The company has a Quality grade of D, which is in sync with its negative profit margin.
Beyond the grades that I have highlighted, one can check out additional CPNG ratings for Sentiment, Stability, Value, and Momentum here. CPNG is ranked #68 of 72 stocks in the F-rated Internet industry.
Analysts expect CPNG's EPS to decline 7.7% next quarter. Even though its strategic initiatives to improve its active membership growth have driven significant revenue growth in the fourth quarter, its substantial losses and expenses could put downward pressure on its stock. Furthermore, given the intense competition and the recent divestment of shares by its largest shareholder, its growth prospects look bleak. So, the stock is best avoided now.
How Does Coupang (CPNG) Stack Up Against its Peers?
While CPNG has an F (Strong Sell) rating in our proprietary rating system, one might want to consider taking a look at its industry peer, trivago N.V. (TRVG), which has an A (Strong Buy) rating.
Note that TRVG is one of the few stocks handpicked by our Chief Growth Strategist, Jaimini Desai, currently in the POWR Stocks Under $10 portfolio. Learn more here.
CPNG shares rose $0.11 (+0.57%) in premarket trading Monday. Year-to-date, CPNG has declined -34.51%, versus a -6.41% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization.
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