Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Nearly 30 years of experience in the Korean/Asian equity research. Major sectors coverage include the following:
- Technology 
- Consumer 
- Special Situations/Deep Value Plays
- Tender Offers/M&As
- Holdcos/Stubs
- Asian Unicorns/Private Companies

Korea/Asia, Events, IPOs

CPNG: 1Q21 - Revenues Soar, Losses Deepen

Coupang's Anticipated Disappointment, but 1P's Trouble Makes Us More Worried

Emart & Kurly - Double Down On the Pricing War Against Coupang

Battle Lines Drawn As BABA Builds Out First/Last-Mile Capacity; But Who Will Fund 75+ Bn CNY CapEx?

Equity Bottom-Up

There were more negatives than positives in Coupang's 1Q 2021 earnings.  <a href="https://www.smartkarma.com/entities/coupang" target="_blank" data-smartkarma-citation="entities:28425:1" rel="noopener">Coupang (CPNG US)</a> reported 1Q 2021 earnings after the market close today. Overall, the reports were a bit disappointing with a slight decline in gross margins YoY and operating losses that ballooned by 263% YoY in 1Q 2021. Despite these worsening profit margins, its sales increased by 74.3% YoY. The major negatives were as follows:<ul>
<li>Declining gross and operating margins on a YoY basis in 1Q 2021</li>
<li>Cash flow from operations turning negative driven by higher inventory in 1Q 2021</li>
<li>Despite a 74.3% YoY growth in sales, total active customers only increased by 21% YoY</li>
</ul>Recent Share Price Performance - After a blistering share price appreciation in the first few days after the IPO, Coupang's shares have continued to decline since then. Its current price is $35.33, which is close to the IPO price of $35. In our valuation assessment two months ago, we mentioned that our base case valuation of the company to be $35, which is close to the current price.<div class="content-highlight">In particular, the company's share price has declined by 19% in the past two weeks. Also, the company's big operating loss in 1Q 2021 was nearly the same as the consensus estimates. So our guess is that somehow the preliminary results of the company's results in 1Q 2021 may have been leaked a bit to the Street in the past couple of weeks, which explains how the stock price has fallen so much in this period. Overall, we believe that Coupang's shares are likely to remain weak following the lackluster 1Q 2021 results. </div>

There were more negatives than positives in Coupang's 1Q 2021 earnings.  Coupang (CPNG US) reported 1Q 2021 earnings after the market close today. Overall, the reports were a bit disappointing with a slight decline in gross margins YoY and operating losses that ballooned by 263% YoY in 1Q 2021. Despite these worsening profit margins, its sales increased by 74.3% YoY. The major negatives were as follows:
Declining gross and operating margins on a YoY basis in 1Q 2021
Cash flow from operations turning negative driven by higher inventory in 1Q 2021
Despite a 74.3% YoY growth in sales, total active customers only increased by 21% YoY
Recent Share Price Performance - After a blistering share price appreciation in the first few days after the IPO, Coupang's shares have continued to decline since then. Its current price is $35.33, which is close to the IPO price of $35. In our valuation assessment two months ago, we mentioned that our base case valuation of the company to be $35, which is close to the current price.In particular, the company's share price has declined by 19% in the past two weeks. Also, the company's big operating loss in 1Q 2021 was nearly the same as the consensus estimates. So our guess is that somehow the preliminary results of the company's results in 1Q 2021 may have been leaked a bit to the Street in the past couple of weeks, which explains how the stock price has fallen so much in this period. Overall, we believe that Coupang's shares are likely to remain weak following the lackluster 1Q 2021 results. 

Coupang 1Q 2021 Earnings - Decline in Profit Margins Raises Concerns