Coupang (CPNG.US) – Note 1

[March 6, 2021]

Some thoughts after skimming through S1 and The Generalist’s briefing (Coupang: The Art of Obsession)

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Coupang is a consumer internet company expanding verticals and gaining consumer’s wallet share in South Korea.

Coupang currently has 1P & 3P e-commerce business (with in-house logistics capacity), grocery offering, food delivery and digital financial service (these are interconnected platform businesses with shared user base/graph, logistics network/tech and payment processing leading to operating leverage when the business further scales).

The company might launch (expect more initiatives coming) any proven consumer internet business model around the world with some twists by leveraging existing user base, merchant base, logistics network and technology/data platform.

While constrained by geographical footprint at the moment, the expanded TAM for Coupang in South Korea is large enough that international expansion might not be a priority. South Korea faces higher geopolitical risk.

Roadmap to tackle next few invisible asymptotes is clear, the bet is simply on a founder-led management team’s execution and their ability fend off competition in each vertical. Growth comes from user base (ceiling) and increasing average spend fueled by typical e-commerce growth pattern and new offerings adoption (stacking s-curves).

In terms of financials, gross margin should gradually trend up as there will be more contribution from high margin revenue streams (including higher margin products for customers and high margin services for customers and merchants). In terms of operating margin, the company should enjoy operating leverage as businesses scale up but the associated marketing and technology “investment” (expensed at current period) for new initiatives & growth of existing businesses might grow in tandem which might slightly slow the speed to GAAP break-even. Operating margin was -3.6% in 4Q20 and on an upward trend. Due to the business model, Coupang needs to do heavy capex. Coupang has reached a scale where it could have positive operating cash flow. However, the company is still in heavy investment stage so it’s still free cash flow negative. It might stay free cash negative for a while. Capital shortfall will be covered by this IPO and future capital raising activities.

Coupang expects to debut on NYSE on March 11, 2021. The IPO price range is between $27-30/share and valuation is around $50B.

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