Coupang's Differentiated Growth Trend... "Need to Confirm Overhang Risk"

[Image source=Yonhap News]

[Asia Economy Reporter Minji Lee] There are forecasts that Coupang's performance improvement trend will continue due to market share expansion. However, it is advised to verify as there is a short-term potential overhang risk.

On the 16th, Coupang's stock price surged about 13% in one day on the US stock market (on the 14th local time), closing at $36.43. Although it fell about 9% one day after the Q1 earnings announcement, it rebounded by surpassing the IPO price ($35).

In Q1, Coupang recorded sales of $4.2 billion, a 74% increase compared to the same period last year, but operating loss widened to $270 million. Sales showed high growth due to market share expansion, but operating loss increased as selling and administrative expenses rose significantly.

Major e-commerce companies are worried about growth rate slowdown this year due to a high base effect last year, but Coupang recorded a high sales growth rate in Q1. During the same period, Naver Shopping Smart Store and SSG.COM's sales increased by 53% and 16%, respectively. Especially, the domestic e-commerce market growth rate in Q1 grew only 0.3% compared to the previous quarter, while Coupang grew 11%. This is analyzed as a result of new customer inflow through various service expansions, strengthening customer lines, and expanding product categories. Hwajeong Lee, a researcher at NH Investment & Securities, said, "Even in February and March, which had a high base due to COVID-19, it showed a growth rate of over 50% compared to last year," and added, "It is expected to record a high growth rate of over 30% annually."

Selling and administrative expenses increased by 98% year-on-year due to stock compensation costs and one-time IPO-related expenses of $87 million and $66 million, respectively. It also appears to reflect increased labor costs, including logistics center personnel. Excluding stock compensation costs and IPO-related expenses, the selling and administrative expense ratio is analyzed to have rather decreased, so it is interpreted that there is no major problem with the performance.

As the profitability improvement trend continues, concerns about capital expansion also seem to have decreased. Younghoon Joo, a researcher at Eugene Investment & Securities, explained, "As of the end of Q1, Coupang's equity capital was $3.27 billion, successfully escaping capital erosion through capital raising via IPO," and added, "Although losses continue, profitability improvement is ongoing when excluding one-time factors."

However, short-term verification is needed regarding the release of lock-up shares. Starting from the 18th, 34 million shares distributed to employees are expected to be unlocked, which accounts for 2.2% of the issued shares. Lock-up shares for remaining shares are also scheduled to be released on the 9th of next month and September 7th. Eun Kyung Park, a researcher at Samsung Securities, said, "Considering that the current floating shares account for only 10.3% of the issued shares, this is a scale that could affect short-term supply and demand."