What Happened: Shares of e-commerce marketplace Coupang (NYSE:CPNG) jumped 11.4% in afternoon trading after the company announced it was raising its WOW (paid membership service) membership by 58% to 7,890 won. The new fee will apply to new members from April 13, 2024, and existing members will begin paying the higher fee in August. Notably, Coupand had 14 million WOW members at the end of 2023. Following the announcement, Morgan Stanley analysts added, “Assuming no change in WoW’s reported membership of 14 million at the end of 2023, the higher fee would amount to nearly 490 billion won in additional annual fees.” In US dollars, this equates to nearly $360 million higher annual EBITDA, which we see will result in 10% upside to our 2024 adjusted EBITDA (assuming 5 months of contribution this year), and Growth potential of 16% in 2025.”
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What the market tells us: Coupang shares are somewhat volatile and have risen above 5% 11 times in the past year. But such large-scale moves are very rare even for Coupang, indicating that the news had a significant impact on market perception of the business.
The biggest move we’ve written about in the last year came about a month ago, when shares rose 12.6% on news that the company reported fourth-quarter results with revenue that beat expectations, driven by strong segment outperformance developing proposals ($273 million). revenue versus estimates of $234 million). The Emerging Offerings segment includes operations in Taiwan, food delivery, video streaming and fintech solutions. Management noted that growth has been particularly strong in Taiwan, with customer numbers and revenue more than doubling in the last two quarters alone. We were also pleased that 21 million active customers (14 million WOW members) exceeded Wall Street’s estimate of 20.6 million. Coupang said its revenue growth would have been 9.4% higher without accounting changes made in the second quarter of 2023 for order fulfillment and logistics revenue.
In terms of profitability, Coupang beat analysts’ estimates for EBITDA, EPS and free cash flow. The company has now reported five straight quarters of positive free cash flow, showing that it is gaining leverage from its fixed cost base. During the quarter, Coupang acquired Farfetch (OTC:), a leading luxury e-commerce platform, giving it a $500 million bridge loan that wiped out its shareholders. The deal initially spooked investors, but the panic appears to have subsided after it deepened further this quarter. CEO Beom Kim said he was not actively seeking to acquire the company, but the deal was too attractive to pass up as Coupang bought Farfetch for pennies on the dollar as it faced the risk of bankruptcy. Following the deal, Coupang cut unnecessary costs and fired Farfetch executives, making progress on its plan to get Farfetch to breakeven on a profit basis without additional investment. Management has made it clear that the integration with Farfetch does not distract the company’s attention from its core business.
Overall, this quarter’s results appear to be quite positive and shareholders should be optimistic about the company’s direction.
Coupang shares are up 35.2% year to date. Investors who bought $1,000 worth of Coupang shares at the March 2021 IPO will now be looking at an investment worth $431.68.