Thursday, December 1 2022

Given its huge success, investors around the world are looking for the next Amazon (NASDAQ: AMZN) for years. The company has grown into a huge e-commerce powerhouse since its beginnings as an online book provider in 1994, and many more are trying to replicate that success. In this article, we used TipRanks’ comparison tool to evaluate two Asian e-commerce stocks – Coupang (New York Stock Exchange: CPNG) and Alibaba (NYSE: BABA) – to see if either could become the next Amazon.

Coupang, which dominates the e-commerce market in South Korea, and Chinese e-commerce giant Alibaba both look promising in the long term, although only one deserves a bullish view at the moment.

Coupang (CPNG)

Coupang is an unprofitable company in a high growth phase, although there is evidence of a path to profitability. Moreover, his stock showed signs of reversal. Although Coupang shares are down about 34% year-to-date, they are up about 2% in the past six months and more than 17% in the last month, showing a change of momentum. For these and other reasons outlined below, a bullish view may be appropriate for Coupang.

In terms of valuation, Coupang is trading at around 1.5x price/sales, which is a far cry from its peak of 5.2x at the time of its IPO. It should be noted that Amazon’s price/sales multiple is around 2.4 times, while Alibaba’s is around 1.8 times. The multiples of all of these e-commerce companies have followed a steady downward trend throughout 2022.

Although Coupang is still not profitable, it is important to highlight that its adjusted EBITDA is now positive, a major step on the road to profitability. The company’s management has also made profitability a near-term priority, so investors may not have to wait much longer for Coupang to turn a profit.

During the second quarter of 2022, the company reported that its gross profit margin improved by 250 basis points quarter over quarter. The company also reported adjusted EBITDA of $66 million and total net revenue of $5 billion, an increase of 12% year-over-year or 27% in constant currency.

Coupang’s gross profit jumped 75% to $1.2 billion year-over-year, a new record. Its net loss improved by $134 million quarter-over-quarter to $75 million. In his end-of-year 2021 letter seen exclusively by Walk of value, Lee Ainslie of Maverick Capital explained why gross profit is the best metric to gauge Coupang’s progress. It captures the company’s unit economics and gross merchandise volume: two critical metrics on the road to profitability.

Profitability is a major concern for Wall Street right now, so the rebound in Coupang’s share price despite its lack of profitability is huge. A general consensus among analysts suggests that the South Korean e-commerce major could see its final loss in 2023.

Is Coupang the next Amazon?

One thing that makes Amazon so extremely profitable is the revenue streams on top of its e-commerce business. Because of these other revenue streams, the razor-thin margins of e-commerce matter little. As Coupang pulled a few pages from Amazon’s playbook, it looks like this could be the next Amazon.

Coupang appears to be following a similar strategy by diversifying its sources of income. Not only is it expanding its e-commerce business to other Asian markets, including Singapore and Japan, but it has also launched other services similar to what Amazon has done.

For example, Coupang is vertically integrating by covering delivery, including its Rocket Delivery service, which delivers packages to customers’ doorsteps the same day or early in the morning, even if items were ordered by midnight. In fact, Coupang’s average delivery time is less than 12 hours and 99% of its orders are delivered within a day, putting it ahead of Amazon in this area.

The company’s Rocket Fresh service is South Korea’s largest grocer and offers fast grocery delivery. Coupang Eats mimics Uber Eats and was South Korea’s most downloaded app at the height of the pandemic in 2020. Coupang Play is the company’s take on Amazon’s Prime streaming service, including offering its own content , while Coupang Pay covers the fintech angle.

What is the price target for CPNG stock?

Coupang has a moderate buy consensus rating based on six buys, two holds and one sell given over the past three months. At $23.99, the average price target for Coupang implies 24.9% upside potential.

Alibaba (BABA)

Although Alibaba is significantly larger than Coupang, it shares many similarities with its smaller South Korean counterpart. Accordingly, a bullish view would be appropriate in the long term, but as China’s zero COVID policy is undermining Alibaba’s current earnings, a neutral view seems appropriate at this time.

A look at the action on Alibaba’s stock price reveals Wall Street’s hesitation over this compared to the momentum Coupang has been building. Alibaba shares are down nearly 30% year-to-date, with most of that decline occurring in the past six months and more than a third of that decline in the past 30 days. .

In terms of valuation, Alibaba is trading at a forward P/E of 11.1x and a price/sales multiple of around 1.8. Like Coupang, Alibaba’s P/S multiple has steadily declined since its IPO in late 2017, when it was around 12 times.

The e-commerce giant’s P/E has seen a recent peak of around 21.7x in July 2022, following its previous peak of around 35x in October 2020. As a result, this could be an attractive entry point. for Alibaba, but the stock may continue to decline in the near term, presenting even better entry points.

Is Alibaba the next Amazon?

In some ways, Alibaba has already arrived. With $30.7 billion in revenue for the June 2022 quarter, Alibaba is already a monstrous-sized e-commerce name, though not as big as its American counterpart. Unfortunately, it’s facing an uphill battle right now due to China’s zero COVID policy, which has slashed the e-commerce giant’s earnings numbers.

What is the price target for the BABA share?

Alibaba has a moderate buy consensus rating based on 18 buys and one sell sold over the past three months. At $148.47, Alibaba’s average price target implies 75.5% upside potential.

Conclusion: bullish on CPNG now, bullish on BABA later

Both Alibaba and Coupang have removed certain pages from Amazon’s playbook, branching out into many of the same revenue streams. Obviously, this business model with these specific revenue streams works well for e-commerce businesses. Given current valuations and dynamic market trends, a bullish view seems appropriate for Coupang now, with a neutral view for Alibaba for now, which will likely turn into a bullish view whenever the Chinese economy recovers.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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