When deciding where to put investing dollars to work, an appealing choice for many would be a fast-growing stock with amazing potential. However, there are often trade-offs when investing in growth companies. For example, many are growing their top line at an impressive rate but not yet profitable. Some have impressive customer growth, but they’re burning cash.
South Korean e-commerce company Coupang (CPNG 2.32%) could be the ultimate growth stock that’s doing it all. Every investment comes with risks, but there’s not much to pick on with Coupang’s results. Let’s dig in to see why it might be the ultimate growth stock to buy right now.
Following a proven blueprint
Comparing younger companies to older companies is commonplace on Wall Street. While this is typically unfair to the newer company, the similarities in business models between Coupang and Amazon are striking.
By focusing on the customer experience, Coupang has modeled itself after some of the most successful aspects of other e-commerce companies. Its Rocket delivery services feature dawn (order at night and get it by morning), same-day, and next-day delivery. Returns are also easy for customers, who can simply leave the items outside their door to be picked up by Coupang.
While the e-commerce business is the core, Coupang also offers food delivery, streaming video, and a membership program that features unlimited free shipping, grocery delivery, and other discounts and features. These additional services currently represent a small percentage of overall revenue, but it’s easy to imagine them growing over time to be a more meaningful part of the business.
Growing and keeping customers
With a business like Coupang, one of the most important metrics to follow is the growth of its customer base. Not only has its number of active customers been growing, but the rate of that growth has been accelerating.
| Quarter |
Active Customers |
Growth (YOY) |
|---|---|---|
|
Q4 2023 |
21.0 million |
16% |
|
Q3 2023 |
20.4 million |
14% |
|
Q2 2023 |
19.7 million |
10% |
|
Q1 2023 |
19.0 million |
5% |
Data source: Coupang. YOY = year over year.
Another interesting fact is that new customers each year spend more than their predecessors. Put simply, in their first year on the platform, a customer who joined in 2023 spent more than a customer who joined in 2022. This trend holds going back to 2018 with each new cohort spending more than their counterparts from previous years. All cohorts also continue to spend more over time, leading to some of the revenue and profitability growth the company has reported.
Coupang’s membership program, Rocket WOW, is also growing but at an even faster pace than its active customer growth. While active customers grew 16% year over year in 2023, Rocket WOW membership increased 27%.
This is great to see for two reasons. First of all, Rocket WOW subscription revenue is higher margin. Secondly, these members drive spending on the platform. For example, after launching the Rocket WOW membership, Coupang saw its food delivery service order volumes double.
Where does Coupang go from here?
Already one of the largest e-commerce companies in Asia, Coupang has focused mainly on South Korea. However, a recent expansion into Taiwan has been going well. Active customers and revenue have doubled in Taiwan over the past two quarters, and the company expects to reach profitability there faster than it did in South Korea.
High-growth companies also tend to trade at premium valuations. Coupang isn’t cheap, but it is compelling compared to some of its peers. Coupang’s price-to-sales multiple of 1.4 is lower than Amazon’s (3.2) and Latin American e-commerce giant MercadoLibre‘s (5.7). Coupang’s price-to-free cash flow multiple of 19.0 is on par with MercadoLibre’s (17.7) and significantly lower than Amazon’s (57.6).
The combination of customer growth and steadily improving financials makes Coupang attractive. Its reasonable valuation makes it investible.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Jeff Santoro has positions in Amazon and MercadoLibre. The Motley Fool has positions in and recommends Amazon, Coupang, and MercadoLibre. The Motley Fool has a disclosure policy.
