Coupang is known to be the Amazon of Korea, and it operates in the E-commerce industry. Coupang’s consolidated financial highlights from the 10-K filings present a robust and growing business. The company reported net revenues of $6.2 billion, marking a significant 21% year-over-year (YoY) increase. Coupang’s revenue growth rates are much greater than the e-commerce industry’s 11% YoY (CSI, 2023), further proving its rapid expansion speed. Korea’s e-commerce market is the 4th largest in the world, 23% of which Coupang owns, with Naver, their closest competitor, coming slightly behind in market share at 21% (HOSOKAWA, 2023). When exploring Porter’s five forces model, The e-commerce industry has very high entry barriers due to the significant capital investments that must be made to maintain the delivery systems. This area of delivery has especially been noted as a reason customers use Coupang, with their ‘Rocket Delivery’ service, which guarantees next morning 7 am delivery for all orders made before midnight (Yoonseo, 2023). This was made possible by their $1 billion investment into their workforce, as they plan to hire 40,000 employees by 2025 (Jeehyun, 2022). Overall, the competitive landscape for the e-commerce industry in Korea is very competitive between its few top competitors, and how Coupang can solidify its value proposition through cost advantages (controlling the whole supply chain) and differentiation (Rocket delivery) will determine its future standing in this market.
DuPont Analysis:
Coupang’s net margin is 2%, lower than the industry average of 3%, Amazon’s 4%, and Naver’s 9%. This lower margin indicates Coupang is less efficient at converting sales into profit. This can be attributed to the higher operational costs related to Coupang’s rapid growth strategies due to significant investments in fulfillment centers and logistics, allowing Coupang to capture market share but compressed margins in the short term.
Graph 1. One part of the Dupont Analysis for Coupang, its competitors and industry averages.
Graph 2. Second part of the Dupont Analysis for Coupang, its competitors and industry averages.
Coupang’s Asset Turnover 2.3 is significantly higher than the industry average 1.2. This turnover rate highlights Coupang’s effectiveness in using assets to generate revenue. This is fueled by Coupang’s strong sales growth and efficient delivery systems. A survey conducted by the Korean Herald noted how Coupang users logged the most frequent visits and most significant weekly expenditure, with 49,500 won ($38.6) per person, beating the second place Naver (44,000 won). The survey also noted that the primary reason for using Coupang was for its Rocket Delivery service (Yoonseo, 2023). Although there were significant capital investments, it seems to have paid off for Coupang as it acts as a key differentiating factor for its customers, generating more revenue per unit of asset, indicating effective asset utilization. Rapid growth comes at high costs; with an equity multiplier of 3.9, Coupang is much more leveraged than the industry average of 1.5 (Exhibit Dupont). Coupang is utilizing considerable debts to finance its operations and growth. This is connected to Coupang’s strategic choice to invest heavily to capture market share and scale operations quickly. While this can be great for its growth, there is also a tremendous financial risk. Coupang’s credit rating has been downgraded once due to its heavy use of debt (Maybach, 2023). Coupang has an ROE of 18%, notably higher than the industry average of 12%, primarily driven by Coupang’s high equity multiplier. The ROE suggests that Coupang is generating great returns on shareholder’s equity but also achieved a higher financial risk through debt. Coupang’s ROA of 5% is also higher than the industry average of 4%, indicating its ability to use assets to generate profits better than its competitors.
Comparable analysis:
The relevant comparable companies were Naver, eBay, and Amazon, for industry, geography, and size reasons. eBay participates in the Korean market through its subsidiary company G-market, and Amazon offers services through Amazon Global, albeit much more limited product offerings in the Korean market. It should be noted here that Coupang is traded on the NYSE, along with eBay and Amazon, while Naver was deemed a relevant company even though it is traded on the Korean Stock Exchange.
According to the discounted cash flow analysis, the NPV for 2023-end for Coupang is $9 billion. Its terminal value assumes a 3% perpetual growth rate derived by estimating beyond the industry average (CSI, 2023), giving the company a terminal value of $99 billion (Exhibit DCF Model). This optimistic outlook is driven by Coupang’s unique market positioning in Korea, combined with its innovative delivery strategies and rapid expansions in Taiwan. These aggressive expansion strategies, combined with significant financial leverage, cause the valuation to range from $6 billion to $16 billion in the comparable analysis. There is a constant discrepancy between the mean and median values, where the median value gives a more centrally representative value. The comparables benchmark is based on how Coupang’s competitors are valued. Coupang’s actual market capitalization is $27 billion. This overvalued market valuation likely reflects investor optimism about Coupang’s growth trajectory compared to its intrinsic value in the DCF ($9 billion) and its expectations to exceed industry norms in the Comparables analysis ($6-$16 billion, Exhibit Comparables). It underscores a belief in Coupang’s potential as it already outperforms established companies like eBay and Naver in revenue despite its earlier stage and Coupang’s intrinsic terminal value of $99 billion. Understanding this context, the gap between calculated valuations and actual market capitalization highlights the market’s high expectations for Coupang, relying on innovations such as Rocket Delivery and rapid expansion into new markets to drive future growth significantly beyond current projections.
Strategic Recommendations:
One key strategy Coupang is focusing on is investing $400 million in fulfillment centers and logistics equipment in the Taiwanese market (TenTen, 2023). This aligns with their growth-over-profit attitude, which has succeeded for them, as they lead the e-commerce industry in market share. However, Coupang’s high equity multiplier (3.9) compared to the industry average (1.5) is still a great cause for concern, leading to their credit rating being downgraded. Investor confidence will be significantly impacted when earnings growth does not meet expectations. Financing their $400 million investment project will further worsen their equity multiplier, and Coupang has recently backed out from the Japanese market after making significant investments (Dong, 2023). There is no room for similar mistakes, so the suggestion is to cut the investment to $200 million. This still leaves Coupang to make more investment than any Taiwanese e-commerce company, as the biggest competitor is allocating $68 million to fulfillment centers (TenTen, 2023).
Reports mention that Coupang’s most robust value proposition in the Taiwanese market is its ability to provide Korean products and building fulfillment centers to provide Rocket delivery service in Taiwan has not yet proved to increase market share. The subsequent recommendation is to spend $50 million to expand its Coupang Eats product (similar to Uber Eats) in Korea while saving $150 million to improve its capital structure. Coupang would mainly have to spend on further improvements in delivery infrastructure through labor costs but would save a significant amount on building warehouses in a new country. Investing into Coupang Eats is a viable alternative because the Eats platform users generated 2 million new active users for their e-commerce platform, bringing their total active users to 18 million (PYMNTS, 2023). Coupang Eats also improves the company’s overall image regarding CSR, where 20% of Korean stores participating in the Coupang Eats program generated increased sales in the last year (Gyusik, 2023). Overall, this strategy will improve Coupang’s equity multiplier and show investors that Coupang is looking to grow sustainably while contributing to the social good of the Korean economy, while minimizing the growth tradeoffs.
