Amazon is one of the best performing stocks of all time. The e-commerce and technology giant is up more than 1,000x since its IPO by capitalizing on consumers’ massive shift from in-person to online shopping, among other things.
It’s still a great company, but with a market cap of $1.9 trillion, it’s highly unlikely to match the returns of recent decades. This could be disappointing for new investors who missed out on the bulk of Amazon’s profits. But what if I told you that investors could own shares in the next Amazon from East Asia?
Enter Coupang (NYSE: CPNG). The South Korean e-commerce giant is taking its home country by storm and expanding into new markets. Here’s why it could be a unique investment opportunity at its current price.
The Amazon of South Korea
Founded in 2010 as Groupon clone, Coupang switched to copying Amazon‘s business model, but focused on the South Korean market. It has many similarities to Amazon’s retail business — subscription membership, vertically integrated shipping, video streaming — as well as things that help the company win in the small Asian country. For example, customers can leave reusable return boxes outside the door to return packages, which are collected by Coupang drivers.
It is these types of customer value propositions that have made Coupang a leading e-commerce platform in South Korea. Last quarter, the company generated revenue of $7.1 billion, up 23% year over year on a currency-neutral basis and excluding the Farfetch acquisition. With the growth of the third-party marketplace for other e-commerce retailers, gross profit is growing much faster, increasing 27% last quarter, excluding Farfetch.
These growth rates are much faster than those of the entire Coupang e-commerce market. South Korea sees about $500 billion in retail spending annually, giving Coupang a lot of opportunity to grow if it can convince more customers to adopt its offerings for things like food delivery and groceries.
Expanding to Taiwan?
Coupang still has plenty of runway to grow in South Korea, but this isn’t a huge market like the United States or China. Fortunately, management is thinking ahead and has tested several ways to expand into other Asian regions with enough wealthy consumers to spend on an e-commerce platform. It recently landed on Taiwan as a place for major investment.
In the region, the company is building infrastructure to replicate the vertically integrated offering it has in South Korea and is seeing strong initial growth. Sales in Coupang’s ‘development offerings’ segment grew 143% year over year, excluding Farfetch, with most of the growth coming from Taiwan. The market is currently small and unprofitable, but with nearly 25 million people living on the island, there is a great opportunity for Coupang to expand its e-commerce platform beyond Korea.
The stock is cheap for patient investors
Today, Coupang trades at a market cap of $38 billion. Over the last twelve months, the company has generated $1.45 billion in free cash flow, with a price-to-free cash flow (P/FCF) ratio of 26, which is close to the market average. However, I think the stock is set up to deliver better-than-market returns over the next five years and beyond.
First, the company’s free cash flow is under pressure due to all the growth investments over the past twelve months, especially in Taiwan. The country has spent almost $1 billion on new infrastructure in that time. It is also growing faster than the market average, with gross profit growth of more than 30%. That level of growth won’t last forever, but I think the company is poised for double-digit growth for many years to come.
With a profit margin around the market average, I think Coupang is a cheap stock for patient investors willing to hold it for the long term.
Should you invest $1,000 in Coupang now?
Consider the following before buying shares in Coupang:
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Brett Schafer has positions in Amazon and Coupang. The Motley Fool has and recommends positions in Amazon and Coupang. The Motley Fool recommends United Parcel Service. The Motley Fool has a disclosure policy.
A once-in-a-lifetime investment opportunity: 1 fast-growing e-commerce stocks to buy now and hold forever was originally published by The Motley Fool
