4 reasons for Coupang to rebound

 

 

"The party is just beginning".. 4 reasons for Coupang to rebound

Every business has ups and downs.

Even a growing company needs a period of breathing.

Short distances can be sprinted from start to finish, but long distances require pace.

Clearly, Coupang is currently in crisis. Last year's listing on the New York Stock Exchange seemed to only walk the flowery road, but the stock price was below the IPO price. Still, it kept the $30 level last year, but broke down to the $20 level, a psychological barrier in the new year.

The rumors of a Coupang crisis that had sunk to the bottom of the water after listing were rekindled.

It is said that Coupang is also taking the current situation seriously.

So here I would like to ask you a question. Is Coupang really in a serious crisis?

Does Coupang's fast-track stop here?

Not so.

There are four main reasons for Coupang's eventual rebound.

First, Coupang is finally starting to show its will to improve its profit structure.

 

 

 

Coupang has been explaining that the huge deficit in the trillions was made under the plan.

It was intended to dominate the market with a planned deficit model like Amazon. No matter how much we grow 4-50% every year, the deficit does not decrease, so suspicions did not disappear.

There has been constant pessimism that the business itself could not be profitable if it was packaged well.

But Coupang was not shouting that it was a planned deficit without any basis.

This is because, in fact, the profitability of rocket delivery itself has improved significantly.

The core of Coupang is rocket delivery.

It grew into a rocket delivery model, and this was the reason for the operating loss in the first place.

But basically, rocket delivery is a business where economies of scale work.

First of all, it requires a huge investment in the initial logistics center, various facilities, and vehicles, but Coupang's transaction amount is enough to cover it now.

Only if there is a contribution margin.

Contribution margin is the margin minus variable costs.

In simple terms, it can be said that it is the profit and loss structure per one rocket delivery order.

The cost of a basic e-commerce platform for delivery is around $2 per case.

However, rocket delivery using direct-employment drivers was estimated at up to $10 at the beginning of the launch, so naturally, losses were inevitable.

However, the more orders you have, the lower your logistics costs will be.

This is because the efficiency of one knight increases.

Moreover, in Korea, the effect is maximized because there are many cases of houses such as apartments.

So, the logistics cost is expected to drop to the $3 range this year.

Moreover, in a situation where courier freight rates are rising recently, the gap with other competing platforms is narrowing.

Then, why the hell has the deficit been accumulating?

Coupang's continued deficit was indeed part of the investment.

In particular, it has been aggressively investing in Rocket Fresh and Coupang Eats to the extent that it was mentioned in the quarterly report.

Among them, Coupang Eats, a delivery business, had an undesigned profit structure to the extent that one order would soon be in the red, but marketing expenses were also pouring out tremendously.

And this year, Coupang is finally announcing a plan to normalize Coupang Eats rates.

While blocking these leaking holes, the cost of Rocket Wow is also raised while increasing the holes for money.

Here, rocket delivery is also facing a new opportunity to enter the courier business.

In retrospect, right before the listing, Coupang showed that although it did not reach the BEP, it was able to manage the deficit.

And the current situation is much better than it was then.

Perhaps, from the first quarter of this year, Coupang's deficit will noticeably decrease, and there is a possibility that the show will strategically match the BEP for at least one quarter.

Second, the live ammunition is still sufficient.

 

 

 

It has become difficult to attract additional investment, but Coupang still has ample cash.

Although it is difficult to attract large-scale investment as in the past, due to a successful listing, we have 30 to 40 billion dollars of cash in the company.

Of course, considering the current size of the deficit, it may not seem stable, but if we reduce the size of the deficit as mentioned above, the perspective on this will change, right?

Moreover, Coupang still has the means to generate cash in the short term as it has invested heavily in real assets such as logistics centers.

We have the capacity to urgently transfuse hundreds of billions of won, if not trillions of dollars.

Everything is relative.

Coupang's financial strength never lags behind its potential competitors.

Moreover, Coupang's differentiated competitiveness lies in its logistics infrastructure.

Keeping up with this is difficult even for conglomerates such as Naver, SSG, and Lotte.

As I said before, if it shows how to improve the deficit problem, it seems unlikely that limited IR will become Coupang's Achilles heel.

Third, it is certain that the Golden Cross will happen soon.

The scariest thing about Coupang is its growth rate.

As of last year, Coupang maintained a growth rate three times higher than the market average, despite being one of the Big 3 in the domestic e-commerce industry.

Of course, as the overall market growth has stabilized, Coupang is not able to achieve growth of 8-90% as in the past.

However, as of the third quarter of last year, Coupang still grew 48%, while rival Naver's smart store grew only 29%.

Coupang has long been the number one e-commerce platform in terms of sales.

On the other hand, the transaction amount was only 3rd in 2020.

1st place was Naver, and 2nd place was SSG with eBay. However, as of last year, it is clear that they beat SSG again and took second place. The gap with Naver has also been significantly reduced

And if it maintains a high growth rate compared to the aforementioned competitors, a golden cross is likely to occur as early as this year. Coupang will become the true powerhouse.

In the market so far, Amazon has seen the final victory in the e-commerce war with Korea's Amazon as a market share of 30%.

And if the current trend continues, it is highly likely that Coupang will also rise to the level of 30% market share.

Is the competition in the e-commerce market fierce?

It's true to some extent.

But I don't think that's talking about competing for number one.

Rather, the competition in the e-commerce market is more likely to progress to a third-place competition that will not be eliminated rather than a first-place competition.

fourth, Coupang's gigantic organization is truly terrifying.

 

 

 

Coupang, which I watched closely, is a commerce company that works like the biggest big tech company.

Not only is the business model derived from Amazon, but it is also leading the way to work in Silicon Valley, and many of its executives are from foreign tech companies.

No one sees organizations like Amazon, Google, and Apple as dull or uninnovative because they have a large headcount.

Still young people dream of working in these companies.

Of course, compared to really hot IT companies or startups, the innovative image may be weak.

However, Coupang is known for its aggressive hiring practices as well as its aggressive management practices.

We run a large recruitment organization in-house.

It is said that, like a trawl boat, when it finds a great talent, it is brought in as if it were swept away.

Also, it is well known that CEO Kim Beom-seok does not spare any compensation for talented people.

It is not a structure where all members can aim for one shot like in early startups, but it is said that at least the talents above the executive level are treated unconventionally.

It is difficult to say that Coupang has a stable organization as much as a long-standing large company, but it is clear that it has a manpower pool that can outweigh its competitors, and is introducing an overseas big-tech work method.

The strength of such an organization is highly likely to lead Coupang on a growth path going forward.

So, why is Coupang's stock price falling?

It is because the stories discussed above are only prospects for the future, and it is true that various environments in Coupang are not good at least at this point.

In particular, it is also a trend that the blade of verification for platform companies that have been partying all over the world is falling sharply.

Therefore, the stock prices of most IT-based platform companies as well as Coupang are falling day by day.

It is still incomparable to traditional large corporations.

Coupang's competitors are mostly companies with more bureaucratic organizations than Coupang.

However, the reason Coupang is highly likely to rebound in the end is because Coupang has a reality.

There is an innovative business model called rocket delivery.

It has already succeeded in scaling up to the extent that it can be used by the entire nation, and this has led to a structure that can make a profit.

Of course, even if stability is restored, growth is bound to slow for the time being.

Therefore, I think the performance of entering overseas markets such as Japan and Taiwan will be the most important task.

Looking at Coupang's recent overseas expansion, it is focusing on the form of quick commerce rather than rocket delivery. Compared to the delivery model, the initial investment is low, and there is no dominant operator in the Asian market.

It is true that Coupang has a lot of tasks, and it is also causing a lot of controversy both internally and externally.

However, since it is a Coupang, I look forward to overcoming various crises wisely with the observation deck above, and enjoying a real party, especially abroad.