Coupang, Inc.

Moat: 2/5

Understandability: 2/5

Balance Sheet Health: 4/5

Coupang is a South Korean e-commerce giant, operating as a hybrid online retail and logistics platform, known for its fast delivery times and comprehensive ecosystem.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Coupang’s moat is currently weak with rating of 2/5. It primarily relies on its logistics network and first-party inventory management to maintain its competitive edge. This is a solid foundation that, if further developed could turn into a stronger moat, which currently isn’t present.

Moat Analysis:

Coupang’s competitive advantage is primarily built around its logistics and delivery infrastructure. Here’s a breakdown:

Logistics Network: Coupang has invested heavily in a nationwide fulfillment network, including its own last-mile delivery operations. This allows it to offer faster and more reliable deliveries compared to competitors. The company continues to invest in its delivery network and is building new fulfillment centers. However, this moat is expensive to maintain, and is not insurmountable.
First-Party Inventory: Coupang maintains a large first-party inventory that is delivered through its logistics network. This helps control its product quality and provide a predictable shopping experience.
Customer Experience: The company focuses a lot on customer experience including fast and reliable deliveries and a good returns policy. This increases brand loyalty and repeat purchases.
Subscription Service: Coupang has introduced a membership program, Rocket WOW, that offers special promotions, discounts and fast shipping. This has helped in attracting a loyal customer base and gives an edge over the competitors.
Ecosystem: Coupang has integrated multiple services into one, including e-commerce, food delivery, fintech and digital content which makes it a very sticky platform for the customers.

These attributes do create some level of competitive advantage, but it’s important to note that the company also has a lot of expenses that goes into maintaining it and is not as strong or durable when compared to the moats held by tech giants. That’s why Coupang scores a 2 out of 5.

Risks to the Moat and Business Resilience:

Coupang faces several risks that could erode its moat and impact its resilience:

Intense Competition: The South Korean e-commerce market is highly competitive with entrenched players and new startups. New entrants and large companies from outside the country may attempt to enter the market. The competition will continue to lead to margin and market share pressure.
High Capital Expenditure: The company is required to make heavy investments in infrastructure, logistics, and technology to maintain its scale advantage which might create a cash crunch.
Technology Disruption: Emerging technologies may disrupt the existing model of the business and require changes in the way Coupang conducts its operations and business.
Inflationary pressures: The macroeconomic environment and persistent high inflation can hurt consumer spending and put downward pressure on the business growth and margins.
Regulation: The company is subject to a variety of regulations, especially those pertaining to labor, environment, and data privacy, any change in these could significantly increase operational costs.

Business Explanation:

Coupang, founded in 2010, is a South Korean e-commerce giant operating as a hybrid retail and logistics platform. The company operates two main segments:

Product Commerce: Includes all e-commerce activities that involve sales of a wide range of goods to consumers. This segment accounts for the majority of revenue.
Developing Offerings: This segment includes services like advertising, logistics, and fintech which are provided by the company.

Coupang has a vast logistics network covering a majority of South Korea. It allows them to offer a wide range of services such as early morning delivery and same-day delivery. The company also focuses on high quality customer service.

These offerings, combined with its wide range of products, create a strong customer base that continues to grow even amid changing market conditions.

Revenues: Coupang’s revenue streams include:
Product Sales: Major share of the revenue comes through sales of products directly from its online platform.
Advertising: Revenue from advertising services on Coupang’s platform.
Seller fees & commissions: The company charges a fee from third party sellers who use its platform to sell products.
Subscription Fees: Members are provided incentives in terms of fast delivery, coupons and other features.
Logistics: Coupang also earns from providing logistic services to the third-party vendors.
Trends in the Industry: The South Korean e-commerce market is characterized by high internet penetration and tech-savvy consumers, creating a highly competitive yet promising environment. E-commerce continues to grow rapidly in South Korea with companies focusing on building out a good customer experience and creating strong logistics networks to gain an advantage.
Margins: The company has struggled to produce positive margins in its main product commerce operations and instead has relied on the services side of the business to improve overall profitability. As seen from the latest financials, the company has still not achieved its breakeven point and is struggling to do so.
Competitive Landscape: Coupang is facing significant competition from other e-commerce retailers, both domestic and international, including those from smaller and new companies. The biggest competitors are Naver Corp and Shinsegae group. These companies, especially Naver Corp, are making significant investments in technology and logistics to compete with the giants.
What Makes Coupang Different?
Coupang offers an ecosystem of different services including their own logistics network which allow it to have faster and more efficient deliveries.
It is a company that is local to South Korea and have a better understanding of the local customer base and culture.
Coupang has a huge customer base and a wide range of products and categories which makes it a go-to place for e-commerce purchases.

Financial Analysis:

Coupang’s financials reveal a company still in the growing phase, trying to balance growth and profitability.

Revenues: The company has continued to show impressive revenue growth in its report earnings. Net revenue increased 20% to $6.2 Billion in the third quarter of 2023.
Profitability: Despite showing decent revenue growth, Coupang has been unable to generate consistent profitability. The company has a goal of being profitable on the consolidated level, but they are also investing in growth and expansion.
Cash Flow: Coupang continues to generate net loss and a negative cash flow from operations. The company is actively working to improve its operations and reduce costs to reduce burn rate and become self sufficient.
Balance Sheet: The company has a lot of cash and short-term investments and has low liabilities, putting it in a good position to take further advantage of growth opportunities and weather any economic difficulties. It is also worth noting that the goodwill represents the largest item on assets side. Also, other nonoperating assets and liabilities are a little more than 10% of total assets and liabilities, respectively.

Understandability: 2 / 5 The company’s business model is somewhat easy to understand. It is a retail giant that sells a wide variety of products and provides delivery, logistics, and other services. However, their financials can be very hard to understand, especially with the number of line items that includes. Also, the valuation of the company is complex with its numerous segments and the fact that it operates primarily in one country, South Korea, it receives a low understandability rating.

Balance Sheet Health: 4 / 5 The company has relatively healthy balance sheet, with good amounts of liquidity as seen by cash and short term investments, and not as significant debt. However, if the company is not able to achieve break even, it may have difficulty to keep growing in the future. Even amid the current challenges, the company should be able to withstand major changes in the economic environment given its current balance sheet.

Recent Concerns/Controversies/Problems:

Missed Earnings Expectations: Coupang has consistently missed earning expectations despite showing strong revenue growth and has not yet achieved profitability. The company is trying to achieve it by cutting costs and improving operating profit.
High Cash Burn Rate: Coupang is burning cash at a high rate in its operations and is yet to reach breakeven and create positive cash flow, which is a sign that the business is not self sufficient and relies on continued external funding for its growth.
Labor Issues: Coupang has faced several labor issues pertaining to wages, working conditions and safety standards which have negatively impacted the overall perception of the company among consumers.
Competition: Coupang faces fierce competition from other ecommerce players, and this will ultimately effect the company’s growth and its share price as it grows, or if it can sustain the growth.
Impact of Inflation and Economic Downturn: Current Macroeconomic environment and reduced spending from the consumers has had a negative impact on growth and profitability.
Growth in Emerging Verticals: Although the revenue in the main product ecommerce has slowed, new offerings and emerging verticals including fintech, logistics and digital content are showing decent growth which is a source of encouragement.
Losses from Acquisitions: Coupang has made some acquisitions, including Farfetch, a luxury marketplace for $500 million and the company will be taking a large write-off on this deal. The company has stated that this decision was based on a desire to streamline its operations and focus on its core business.

Management says it is not focusing on short term profitability but are aiming at long-term growth and profitability. Also the company seems to be making moves to focus more on their core competencies rather than exploring new areas. Management believes the company is still well positioned to succeed and will try to improve profitability with its existing business strategies.