What Happened?
Shares of online platform company Coupang (NYSE:CPNG) jumped 7.3% in the pre-market session after the company reported strong fourth-quarter results that significantly exceeded analysts' expectations for EPS and EBITDA. However, sales fell short of Wall Street's targets, rising 21%, as active customers increased by only 10%, slightly missing expectations. Looking ahead, the company may face slower growth. Its core Product Commerce unit grew just 9%, lagging behind total revenue gains. This suggests that its newer businesses, including international expansion and fintech, are driving top-line gains while the core e-commerce business matures. Overall, this was a mixed quarter: Strong earnings and margins offset weaker customer growth and revenue expectations, but investors appear focused on the profitability upside.
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What The Market Is Telling Us
Coupang’s shares are somewhat volatile and have had 11 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 12 months ago when the stock gained 12.6% on the news that the company reported fourth-quarter results with revenue exceeding expectations, driven by strong outperformance in its Developing Offerings segment ($273 million of revenue vs estimates of $234 million). The Developing Offerings segment includes its Taiwan operations, food delivery, video streaming, and fintech solutions. Management noted it is seeing especially good momentum in Taiwan, with customers and revenues more than doubling over the last two quarters alone. We were also glad its 21 million active customers (14 million WOW members) topped Wall Street's estimates of 20.6 million. Coupang shared that its revenue growth would have been 9.4% higher without the accounting change it made in Q2 2023 concerning its fulfillment and logistics revenue.
On the profitability side, Coupang blew past analysts' EBITDA, EPS, and free cash flow projections. The company has now posted five quarters of positive free cash flow in a row, showing it's gaining leverage on its fixed cost base.
During the quarter, Coupang acquired Farfetch, the leading e-commerce platform for luxury goods, by extending it a $500 million bridge loan that wiped out its equity holders. The deal initially scared investors, but the panic seems to have died down after receiving more color this quarter. CEO Bom Kim stated he wasn't actively seeking to acquire a company, but the deal was too attractive to pass up as Coupang bought Farfetch for pennies on the dollar because it faced bankruptcy risk. In the aftermath of the deal, Coupang has stripped out redundant costs and removed Farfetch executives, making progress on its plan for Farfetch to break even from a profit perspective with no additional investments. Management implied that the Farfetch integration is not detracting from the company's focus on its core business.
Overall, this quarter's results seemed fairly positive, and shareholders should feel optimistic about the company's direction.
Coupang is up 14.7% since the beginning of the year, and at $25.60 per share, it is trading close to its 52-week high of $26.89 from November 2024. Investors who bought $1,000 worth of Coupang’s shares at the IPO in March 2021 would now be looking at an investment worth $519.11.
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