Do you have 20 dollars? Buy Korean e-commerce stocks before it’s too late

Last week was a big deal. Coupang (CPNG 0.91%). The South Korea-based e-commerce platform reported its full-year results and its shares surged more than 10% after reporting strong growth and profitability in the fourth quarter. Looking longer-term, the stock is well below its 2021 highs and is 62% below its all-time highs at the time of this writing.

Coupang’s stock price is still below $20 per share, and at that price it appears to be a bargain for investors. Here’s why you should consider adding this ecommerce startup to your portfolio in 2024.

CPNG total return level data from YCharts.

Vertically integrated competitive moats in e-commerce

Coupang originated in Korea as a competitor. groupon However, about 10 years ago, we quickly pivoted and built an e-commerce platform based on: Amazonis a success. Like its North American counterparts, Coupang has vertically integrated its operations and built its own delivery network and fulfillment warehouses to serve third-party sellers. There is also a Prime-like subscription bundle called Rocket WOW that offers free shipping, free returns, and other discounts on Coupang services.

This strategy worked well in densely populated areas of Korea. In 2023, Coupang generated sales of $24.4 billion at constant exchange rates, a 20% increase over the previous year. Rocket WOW has 14 million subscribers and 21 million active customers, making up a large portion of Korea’s population of approximately 50 million. Coupang continues to increase its market share, showing faster growth than the domestic distribution market and e-commerce sector. They are likely to do so because of their vertical integration and the superior value proposition they can offer to shoppers.

Retail spending in Korea is estimated at approximately $500 billion annually. Although Coupang does not cover all of this market, its extensive e-commerce platform and services account for a significant portion. With annual sales of about $25 billion, Coupang has plenty of room to double or even triple that amount this decade if it continues to gain share in the domestic market.

Replicating success in Taiwan (but faster)

After achieving tremendous success in Korea, Coupang is now expanding into new countries. The first is Taiwan, where Coupang officially entered the market in October 2022. According to management, sales and customers have doubled over the past two quarters. The region is now growing faster than South Korea has grown at the same time since the platform launched.

Although Taiwan is a geopolitically risky market, it has a dense population of 23.5 million people who can use e-commerce platforms such as Coupang. While this may not drive growth in the near future, it could become a meaningful part of the business within 10 years. The Development Offerings segment, which includes its Taiwan operations, saw revenue growth of more than 100% year-over-year in the fourth quarter of 2023. Investors should expect even faster growth in this sector going forward.

If you focus on the long term, stocks are cheap.

In 2023, Coupang generated operating profit of $473 million. Despite the company’s earnings growth potential, you might think the stock looks expensive compared to its market capitalization of $34 billion. However, this underestimates Coupang’s margin potential in terms of size, which is why long-term investors have an opportunity to buy the stock today.

Coupang provides a profit margin of approximately 10% upon maturity of the consolidated business. This makes sense for vertically integrated e-commerce operators. If a 10% margin is applied to sales of $24.4 billion in 2032, Coupang’s profit jumps to $2.4 billion. The price-to-earnings ratio (P/E) then becomes 14, which seems much cheaper.

And it doesn’t look like Coupang’s sales growth will slow down anytime soon. If Coupang can increase its revenue to $50 billion annually, the company is well on its way to $5 billion in annual revenue. I think the stock price will be much higher in 5-10 years in this scenario. Be patient and stay the course. There are many good years ahead for Coupang.