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Global TMT analyst with Asia ex-Japan focus.

Mitchell Kim

Equity Bottom-Up

Coupang's share price is 14% above its IPO price of USD35 but it is down 21% from the peak closing price on 15 March.  Since the IPO, the company has weathered through the deteriorating public support over the death of an overworked logistics center employee and the public ire over the death of a firefighter in the fire at Coupang's logistics center in June.  Added to this, The Korea Fair Trade Commission (KFTC) investigated  <a href="https://www.smartkarma.com/entities/coupang" target="_blank" data-smartkarma-citation="entities:28425:1" rel="noopener">Coupang (CPNG US)</a> for possible violation of the Korean Fair Trade Law last week. KFTC is accusing Coupang has manipulated its search algorithm to prioritize its private-label items at the top of the search results, while placing other products in the lower-tiered areas at the bottom.   Moreover, Coupang is also accused of leveraging its dominance to demand the lowest pricing from suppliers and penalizing those suppliers who resisted preferential pricing over those provided to other platforms.   I was cautious on the stock pre-IPO (see my pre-IPO thoughts in <a href="https://www.smartkarma.com/insights/coupang-cpng-us-going-mano-e-mano-with-jd-com" target="_blank" data-smartkarma-citation="insights:49065" rel="noopener">Coupang (CPNG US): Going Mano E Mano with JD.com</a> and my view on 1Q21 results in <a href="https://www.smartkarma.com/insights/coupang-cpng-us-crack-in-the-armor" target="_blank" data-smartkarma-citation="insights:51455" rel="noopener">Coupang (CPNG US): Crack in the Armor</a>) as its valuations appeared expensive.  I remain a bear on the stock as I am concerned about the risk of operational disappointment, and the company's risky global ambition. Eroding public sentiment on the company and the rising regulatory risks further increases risk premium on the stock, in my view. One of the benefits of owning Coupang for investors was risk diversification from the Chinese Internet platforms currently facing their own intense regulatory restrictions.  However, increasing regulatory risk neutralizes this benefit, in my view.

Coupang's share price is 14% above its IPO price of USD35 but it is down 21% from the peak closing price on 15 March.  Since the IPO, the company has weathered through the deteriorating public support over the death of an overworked logistics center employee and the public ire over the death of a firefighter in the fire at Coupang's logistics center in June.  Added to this, The Korea Fair Trade Commission (KFTC) investigated  Coupang (CPNG US) for possible violation of the Korean Fair Trade Law last week. KFTC is accusing Coupang has manipulated its search algorithm to prioritize its private-label items at the top of the search results, while placing other products in the lower-tiered areas at the bottom.   Moreover, Coupang is also accused of leveraging its dominance to demand the lowest pricing from suppliers and penalizing those suppliers who resisted preferential pricing over those provided to other platforms.   I was cautious on the stock pre-IPO (see my pre-IPO thoughts in Coupang (CPNG US): Going Mano E Mano with JD.com and my view on 1Q21 results in Coupang (CPNG US): Crack in the Armor) as its valuations appeared expensive.  I remain a bear on the stock as I am concerned about the risk of operational disappointment, and the company's risky global ambition. Eroding public sentiment on the company and the rising regulatory risks further increases risk premium on the stock, in my view. One of the benefits of owning Coupang for investors was risk diversification from the Chinese Internet platforms currently facing their own intense regulatory restrictions.  However, increasing regulatory risk neutralizes this benefit, in my view.       

Coupang (CPNG US): Under the Regulator's Microscope