Coupang Finally Turns a Profit... "Will Reshape the E-commerce Market Next Year"

Korea Investment & Securities Report

[Image source=Yonhap News]

[Asia Economy Reporter Myunghwan Lee] After Coupang was listed on the New York Stock Exchange in the United States and posted its first quarterly operating profit, securities firms have forecasted that next year’s e-commerce market will be reorganized around Coupang.

Korea Investment & Securities diagnosed on the 12th, "Coupang turned to operating profit and net profit for the first time since its listing."

Coupang’s consolidated sales for the third quarter of this year recorded $5.1 billion, a 10% increase compared to the same period last year, and operating profit turned positive at $77.42 million. During this period, sales increased by 27% in Korean won terms. Net profit also turned positive compared to the same period last year, recording $90.68 million, with earnings per share greatly exceeding market expectations.

The background for the turnaround to operating profit was attributed to achieving economies of scale and reducing inventory losses through technological advancement. Coupang’s fresh food inventory loss was reduced by half compared to the same period last year. In particular, Korea Investment & Securities pointed out that the number of active customers, which had declined in the previous quarter, recorded 17.99 million, showing a positive increase again. As of the third quarter, Coupang’s cash and cash equivalents reached $2.9 billion (approximately 3.9 trillion KRW), and Coupang stated that one of its next goals is to turn free cash flow (FCF) positive.

Korea Investment & Securities predicted that next year’s e-commerce market will be reorganized around Coupang. Amid recent financial crises faced by e-commerce companies, Korea Investment & Securities evaluated that Coupang, which has already achieved economies of scale, is in a positive position. This is because the financial difficulties of competing companies could be a factor easing competition in the e-commerce market. Korea Investment & Securities forecasted Coupang’s 2023 online market share to increase by 3.8 percentage points from the same period last year to 24.5%, and retail market share to rise by 1.6 percentage points to 9.3%. Despite a slowdown in online market growth, the open market sector is expected to continue growing thanks to strengthened fulfillment services.

Korea Investment & Securities also projected that Coupang could turn to annual operating profit next year. This is because Coupang is expected to expand new businesses such as advertising, which can improve profitability, rather than aggressively expanding domestic and overseas businesses amid high interest rates. Assuming Coupang pursues a profitability enhancement strategy like this, the timing of turning to annual operating profit is estimated to be next year.

Myungjoo Kim, a researcher at Korea Investment & Securities, advised, "With stable profit contributions from commerce and strengthening of highly profitable new businesses, Coupang will achieve both profitability improvement and valuation increase in 2023," recommending a positive approach toward Coupang.