Rocket Delivery And Taiwan Expansion Will Spur Service Excellence

Key Takeaways

• Expansion of product selection and logistics services is expected to increase customer engagement, revenue, and operational efficiency, enhancing profitability.
  
• Investments in technology and expansion into new markets, like Taiwan, will likely boost growth and improve margins.
  
• Currency volatility, increased expenses, and early-stage losses pose risks to Coupang's profitability and revenue growth despite no current macroeconomic impacts.

Catalysts

Owns and operates retail business through its mobile applications and internet websites in South Korea and internationally.

• Coupang's investment in expanding its product selection, including onboarding esteemed brands across various categories, is expected to drive increased customer engagement and revenue growth as customers now purchase in more categories. This could result in higher revenue per customer.
  
• The continued expansion and improvements of the Rocket Delivery service, which offers same-day, dawn, or next-day delivery, aims to enhance customer satisfaction and capture a larger market share, ultimately driving higher revenues and possibly improving net margins through operational efficiencies.
  
• Fulfillment and Logistics by Coupang (FLC) is a growing growth engine for third-party marketplace sellers, offering storage, packing, shipping, and returns. By enhancing seller growth and making the service more attractive, FLC could significantly boost Coupang's profitability by increasing revenues and improving operational margins through scale.
  
• Investments in technology, automation, and robotics are expected to improve operational efficiencies, driving down costs while enhancing the customer experience. These initiatives are likely to contribute to expanding net margins over time.
  
• Expansion in Taiwan, including a 500% increase in selection and the launch of the WOW membership program, is anticipated to drive substantial growth in revenues and customer spend in a new geographic market, contributing to Coupang's overall revenue and earnings growth.

Coupang Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Coupang's revenue will grow by 13.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 0.5% today to 4.5% in 3 years time.
• Analysts expect earnings to reach $2.0 billion (and earnings per share of $1.1) by about May 2028, up from $154.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $3.6 billion in earnings, and the most bearish expecting $1.4 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 34.4x on those 2028 earnings, down from 282.9x today. This future PE is greater than the current PE for the US Multiline Retail industry at 15.8x.
• Analysts expect the number of shares outstanding to grow by 0.98% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.47%, as per the Simply Wall St company report.

Coupang Future Earnings Per Share Growth

Risks

• The weakening of the Korean won against the U.S. dollar creates variance in reported revenue results, potentially affecting revenue and earnings if currency fluctuations continue.
  
• Despite no current meaningful impact from global macroeconomic events, the unpredictable nature of these conditions poses a risk to revenue growth and consumer behavior, which could impact future earnings forecasts.
  
• The increased operating, general, and administrative expenses as a percentage of revenue, primarily driven by higher technology and infrastructure investments, might affect net margins if these investments do not yield expected scalability benefits soon.
  
• Developing Offerings, including market expansion efforts in Taiwan and the Eats segment, are currently operating at a loss, which could negatively impact overall profitability and net income if these ventures do not achieve expected revenue growth.
  
• High effective tax rates, driven by losses in early-stage operations and certain nondeductible expenses, could continue to weigh on net income and earnings per share if not addressed in future quarters.

Valuation

• The analysts have a consensus price target of $29.671 for Coupang based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $35.0, and the most bearish reporting a price target of just $24.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $44.1 billion, earnings will come to $2.0 billion, and it would be trading on a PE ratio of 34.4x, assuming you use a discount rate of 7.5%.
  
• Given the current share price of $24.0, the analyst price target of $29.67 is 19.1% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.