The past year wasn't short of misery for e-commerce stocks. Thanks to rising inflation and fears of a recession across the United States and parts of Europe, e-commerce companies went from seeing record-high demand in 2021 to a slowdown in 2022. This took many stock prices down with it. In 2022:
- Etsy fell 45%.
- Amazon fell 50%.
- Shopify fell 75%.
This bearish sentiment affected companies outside of the U.S. and Europe, too. South Korean e-commerce stock Coupang (CPNG -1.31%) also saw its shares slump 50% last year.
Some e-commerce companies are bracing for another challenging year, but will Coupang face similar struggles?
Image source: Getty Images.
Coupang isn't like many other e-commerce businesses
With nearly 35% of the entire population of South Korea using its platform, Coupang is the e-commerce stalwart in the country. The company's main business is e-commerce, but it does much more than that. It provides an Uber Eats-style offering (Coupang Eats) and a streaming service called Coupang Play. It even dabbles in the fintech space.
Coupang also does something that few other e-commerce businesses do: It sells consumer staples. Unlike Shopify or Etsy, it allows customers to buy basic necessities primarily through Rocket Fresh, where they can purchase fresh groceries and have them delivered to their doorstep in a matter of hours.
In a world where consumers are cutting spending on discretionary products due to the worsening macroeconomic picture, this aspect is vital to Coupang's success in 2023. The company could see revenue remain relatively stable thanks to this side of its business. Consumers will still need a place to purchase the basics, even in a recession, and Coupang can be that platform.
The company has over nine million members in its WOW subscription service as of March 2022, which includes same-day and next-day delivery, free Rocket Fresh delivery, and many other perks. With a loyal customer base likely to continue using Coupang for both discretionary items and consumer staples, it could be in for a stable 2023 in terms revenue growth.
What could happen to profitability?
That stability could enable the company to continue improving its profitability. In the third quarter of 2022, Coupang saw its net income reach its highest point ever with a profit of $91 million. And third-quarter adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) rose 195.5% to $195 million from the previous quarter.
Coupang had otherwise failed to post profitability since 2020, so investors rejoiced when the company delivered its record profit. With its durable leadership position and unique business model, profitability could continue improving in 2023.
What is Wall Street expecting?
Wall Street, however, isn't forecasting such a rosy outlook for the new year. Analysts' estimates for 2023 anticipate $23.9 billion in revenue, which implies just 18% growth from the company's $20.3 billion in trailing-12-month revenue. For comparison, Coupang saw its sales rise 27% on a currency-neutral basis in the third quarter.
And the market overall doesn't seem to be anticipating much from Coupang. Shares trade at just under 1.4 times sales, a lower valuation than nearly every e-commerce stock you can think of. At this large of a discount compared to the rest of the industry, it might be worth buying a few shares for a diversified portfolio.
Coupang has the potential to thrive compared to its industry in the coming year, making this leading e-commerce stock a huge bargain today.
