Buy Coupang

The current market is one to navigate carefully, as it is more than fully valued and attractive buying opportunities are few and far between. That said, I do think one of our Watch List stocks has drifted into "buy" territory, and we will add it today!

That stock is Coupang (CPNG). Coupang is the "Amazon of South Korea", with the leading general e-commerce site in the country, its own delivery network, and a "Prime-like" membership program called Rocket WOW that gives benefits such as free same-day delivery. You can read all about the firm in the full review article.

While Coupang has spent much of its decade or so of existence in a cash flow negative state in order to invest in the business, I think the company is turning a corner now into strong cash profitability, and a chance to expand into its "second act", so to speak. The South Korean e-commerce market is growing at about 8% annually, so that's a good baseline for growth. Market share gains in Korea are a clear potential growth channel, as it owns less than 1/3rd of the market there (compare that to Amazon's nearly 40% share in the U.S.). Now the firm is trying to establish itself in Taiwan, where it is seeing faster uptake than even its home nation.

Most notably, Coupang recently completed a deal to acquire Farfetch, one of the top e-commerce luxury goods retailers. Luxury goods are a $400 billion global market, and South Korea is a particularly ripe locale - the largest per-capita spender on luxury goods in the world.

This acquisition is not without risks. Farfetch was a failing business that was near insolvency. Coupang floated it a $500 million bridge loan. If that loan isn't paid back by the end of April (with 12.5% interest), Farfetch becomes a subsidiary of Coupang. I think it is highly unlikely it is paid back, so essentially Coupang bought Farfetch for that amount. From a valuation perspective, it isn't a bad deal. Farfetch had $2.4 billion in revenue in 2023, so the price-to-sales ratio was just 0.2. If Coupang can improve operations a bit, it may earn a nice return here. If it can't, it could be a drag on results until it can be winded down.

Overall, though, I like the move, it is a classic value play by a company that knows how to do e-commerce.

The overall package with Coupang is attractive, and investors short-sightedness with the Farfetch deal has given us a good buy-in price on the stock. Trading around $14, it is slightly more than 25% below our fair value target of $19. We will pull the trigger and add it to the Buy List today!