Can This Asian E-Commerce Stock Make You a Millionaire?

Most traders have the similar overarching objective: To increase their prosperity. Some make bets on large-advancement shares like Amazon (AMZN 4.44%), which is up close to 10x in the final 10 decades and in excess of 100x considering that its preliminary public featuring (IPO) in 1997. Several buyers turned millionaires by acquiring significant-advancement shares like Amazon and keeping for the long phrase. 

So, what stock is the subsequent Amazon? I assume I may well have an respond to in the South Korean e-commerce system Coupang (CPNG 2.48%). This is why obtaining this the latest IPO and holding the stock extended-time period could possibly just help you retire a millionaire. 

Coupang Q1 earnings: a income move inflection

Coupang operates an e-commerce market identical to Amazon in South Korea. Like its North American counterpart, it constructed its own warehouses and delivery network to deliver a vertically built-in offering. Due to the fact of this dense logistics network, Coupang can offer consumers with identical-day and future-working day shipping on practically all orders, which enhances its worth proposition versus rivals. The e-commerce specialist also extra even more choices by the Coupang market like grocery and meal delivery, which expands its profits prospective from its South Korean customer base.

In 2023’s initial quarter, Coupang’s progress continued to outpace general South Korean retail paying, developing 20% 12 months in excess of year on a currency-neutral foundation to $5.8 billion, which is impressive taking into consideration it grew 32% year above 12 months in the exact time period in 2022.

This advancement was driven by 14% calendar year-about-year advancement in earnings for each lively consumer, which hit $323 on a regular-forex basis in the initially quarter, displaying the accomplishment Coupang experienced in increasing its product array to its present clients.

When development was strong, the most remarkable component of Coupang’s very first quarter was its hard cash flow. Better earnings margins and lessen money expenditures assisted force absolutely free dollars circulation to $406 million in the quarter, as opposed to a reduction of $294 million a yr before.

Aspect of this was also due to an raise in accounts payable to $162 million. Like Amazon, Coupang has a everlasting functioning-money edge simply because it collects income from buyers at the time of obtain but does not fork out the retailers who sold the goods right up until afterwards (likely inside of 90 times). This just isn’t cash it can maintain forever or return to shareholders, but it presents its balance sheet significantly much more flexibility, compared to other companies, when making new investments.

Coupang saw growth in Taiwan, a pullback in Japan

With above $20 billion in once-a-year profits, Coupang nonetheless has a good deal of room to develop as it tackles the $500 billion South Korean commerce current market. But with only a modest inhabitants in its property nation, management has currently looked to increase to other Asian nations.

It invested in Japan but recently resolved to exit that market place as it was not seeing a lot traction with consumers. Incumbents like Amazon, which has a large existence in the region, and Rakuten have been very likely hard to make any inroads against.

But 1 country exactly where Coupang is observing robust returns is Taiwan. The island country with just underneath 24 million persons and large population density could be a fantastic area to replicate Coupang’s vertically integrated e-commerce network in South Korea, which also has a high inhabitants density.

Right now, its worldwide earnings is considerably more compact than its domestic earnings. But accomplishment in Taiwan — and other Asian nations — could hold Coupang’s profits escalating at a superior level for many several years.

CPNG Net Revenue (TTM) data by YCharts. TTM = trailing 12 months.

Will not get caught up in Coupang’s valuation

Just on the lookout at net money, Coupang does not feel quite rewarding. Above the last 12 months, the corporation generated internet cash flow of just $208 million on $21 billion in gross sales, for a trailing rate-to-earnings ratio (P/E) of 134. Nonetheless intelligent traders know that a inventory is not really worth what it has gained in the earlier, but what it will generate in the foreseeable future.

As Coupang scales up, management expects its gain margins to hit close to 10% or larger as it gains running leverage and grows substantial-margin opportunities like advertising and marketing. A 10% margin on $20 billion in earnings equates to $2 billion in earnings and $4 billion on $40 billion in gross sales. If the company can get any where in close proximity to that quantity within the subsequent couple of decades (and possibly $10 billion web profits on $100 billion in gross sales further into the future), it is just about specified that the stock will trade at a industry cap a great deal larger than its recent worth of $28 billion. 

Of course, no financial commitment arrives with a warranty, but it looks like Coupang has all the ingredients of a millionaire-maker stock for traders who strategy to hold for the extended expression. 

John Mackey, previous CEO of Complete Foods Industry, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Brett Schafer has positions in Amazon.com and Coupang. The Motley Idiot has positions in and suggests Amazon.com and Coupang. The Motley Fool has a disclosure policy.