Shares of a South Korean e-commerce company coupang (NYSE: CPNG) rose 27.4% in February, according to data from S&P Global Market Intelligence.
Unfortunately for investors, Coupang rallied last month solely on the basis of better-than-expected reports from other e-commerce companies, such as Amazon, which exceeded expectations at the start of the month. This led to optimism for Coupang throughout the month leading up to its own earnings report on March 3.
However, Coupang’s earnings and revenue fell short of expectations, sending shares tumbling in recent days and wiping out all of February’s gains.
After a difficult month of January which saw many high growth and losing tech stocks like the fall of Coupang, the title rebounded in February. It should be noted that even after the big rebound in February, its stock price was still below its level at the start of the year. The culprit behind January’s decline was fear of inflation, which some say could cause interest rates to spike. Higher interest rates threaten to reduce the value of future earnings.
While February saw a nice rebound in better-than-expected Amazon earnings, Coupang returned virtually all of those gains based on its recent earnings report. In the fourth quarter, revenue rose 34% to $5.1 billion, which was below expectations. Net losses reached $405 million, for a net loss per share of $0.23, which was also below expectations. It also probably didn’t help management guide an Adjusted EBITDA (earnings before interest, tax, depreciation and amortization) loss of “less than” $400 million for the year ahead, letting investors know that they will have to wait longer for profitability. That said, that would be an improvement over this year’s $747.6 million Adjusted EBITDA loss.
Those numbers clearly worried investors, as the stock fell more than 17% on Friday, the day after the March 3 earnings report.
At around $21 per share, Coupang is now 40% below its initial public offering (IPO) price of $35. But was the sale overdone?
The market is in a cutthroat mood right now. But on the conference call with analysts, Coupang’s management explained that it faced capacity constraints as it scaled up its platform in 2021 amid rising demand, due to outbreaks of COVID-19 variants. Labor constraints likely held back growth while biting into gross margins.
However, over time, these issues should be resolved. Management has already said its gross margin is on track for a sequential improvement of 2.5 percentage points from the fourth quarter of 2021; the company is turning to efficiency management, after struggling to increase capacity in the last two years of COVID.
Management also says its core e-commerce business is actually profitable and company-wide losses are driven by hypergrowth initiatives such as Eats (restaurant delivery), Play (video streaming) and fintech and international growth initiatives. Starting next quarter, the company even plans to separate its profitable core segment and new initiatives separately. This can calm the nerves of those who are worried about profitability.
Many growth stocks have been downgraded to attractive valuations, and it looks like Coupang is another. It’s on my potential buy list if the market corrects further.
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