2 Things the Smart Investors Know About Coupang, the “Amazon of Korea” The Motley Fool

Coupang understands the challenges of all online shopping platforms, whether long shipping times or limited selection for faster delivery. In response, the company has developed a business model focused on creating an integrated technology and infrastructure system to enhance the customer experience. Coupang’s founder, Bom Kim, fxchoice review born in Seoul in 1978 and later moved to the United States with his family, quickly captured the disruptive codes of e-commerce and and introduced them to South Korea. After studying at Harvard University, he briefly worked at the Boston Consulting Group before founding the Vintage Media Company, which he sold in 2009.

Coupang had to build its own infrastructure and now has 100 fulfillment and logistics centers in 30 cities and 15,000 delivery drivers. Net other revenue also includes consideration from online restaurant ordering and delivery services performed by Coupang and advertising services provided on its apps or websites. Net retail sales represent most (~90%) of the net revenues Coupang earns from online product sales of its owned inventory to customers. Net other revenue includes commissions earned from merchants selling their products through Coupang’s apps or websites. Coupang is not the merchant of record in these transactions, nor does it take possession of the related inventory. Complete integration enables Coupang to control and improve the entire experience, from the customer app to the delivery of the order at the customer’s door, while increasing efficiency and lowering prices for customers.

Rocket Fresh is Korea’s largest online grocer that gets all fresh produce delivered in cold-chain logistics within one day. By eliminating all styrofoam, Coupang uses Fresh bags to deliver groceries, whereby customers can leave empty bags outside their doors to be picked up by Coupang drivers on the next delivery. Coupang has built a business model to address these tradeoffs and transform the customer experience. Coupang is centered on building an end-to-end integrated technology and infrastructure system to deliver a superior customer experience, launch new offerings, and offer effective merchant solutions.

  1. Coupang’s marketplace attracts a large number of merchants, including small- and medium-sized businesses, which enables it to obtain a wide and unique selection of merchandise.
  2. Despite the DTC world’s early stance against discounting, companies have given into holiday sales over the past few years.
  3. Coupang is not the merchant of record in these transactions, nor does it take possession of the related inventory.
  4. The business model of Coupang categorizes its revenue as (1) net retail sales and (2) net other revenue.

However, if the tests are successful, you can expect Coupang to increase its investments in these areas. Coupang also sources a large proportion of merchandise directly from manufacturers, which can result in better customer pricing. Coupang’s marketplace attracts a large number of merchants, including small- and medium-sized businesses, which enables it to obtain a wide and unique selection of merchandise. In 2019, Coupang launched its Rocket WOW membership program for a flat monthly fee. It began by offering unlimited free shipping for millions of products with no minimum spend.

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When looking at an unprofitable business like Coupang, I like to estimate what revenue and gross profit could look like five years from now. Let’s say Coupang is able to compound its top-line revenue at a 25% rate off of its $18.4 billion base over the next five years. Let’s also say gross margin expands to the low end of its long-term guidance of 27%. In year five, the company will generate about $56 billion in revenue and $15 billion in gross profit.

He pointed out that the company recently registered a brand name dedicated to selling used cars, and in its application, “they mentioned that they are considering expanding their business to car rental,” he said. Second, investors need to track gross margin and how much it can expand over the next few years. In 2021, gross margin was only 16.0%, down from 16.6% the previous year. But long term, management expects that metric to reach a range of 27% to 32%. Margin expansion will be vital to Coupang eventually generating sustainable earnings for shareholders. A passionate writer and a business enthusiast having 6 years of industry experience in a variety of industries and functions.

Notably, Goodwater’s research found that shoppers are more likely to return and spend money on Coupang than other e-commerce sites — not just compared to its South Korean competitors, but also other major e-commerce players around the world. Based on dollar retention rate (or the amount of money a group spends each year after they first use a platform), Coupang customers return and spend more money than shoppers on eBay, Etsy, Walmart or Alibaba in the U.S. In just the last year, Coupang has expanded to become much more than an e-commerce business. In December, Coupang launched a video-streaming service called Coupang Play, the company’s equivalent of Prime Video. The company has also honed plans to build out a livestream shopping business. South Korea’s big conglomerates, called chaebol, and others are building their own delivery networks as Coupang plans its expansion.

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I have been on Industry Focus very skeptical [laughs] of food delivery, restaurant delivery. So to me that’s not the greatest business to be in, but for them because, again, this is a compressed company, a country with really dense cities, cmc markets review it is a sustainable business model in the long term. It’s just getting it right, so that there is a humane balance for the freelancers who are taking these deliveries for them to be able to earn a decent living without risking their lives.

His approach involves adopting innovation, reducing prices, and investing in fast deliveries. Bom Kim’s approach revolutionized the e-commerce market in South Korea, with over 99.3% of orders delivered within 24 hours. In 2019, the company launched Coupang Eats, competing with giants like Deliveroo and Uber Eats. Founded in 2010, Coupang became a leading technology company in Korea with business spanning e-commerce, online shakepay review grocery, food delivery, online streaming, fintech, and more. While it has diversified into other segments over the years, Coupang’s core business remains in e-commerce, with around 25% market share in Korea. For example, the Rocket WOW membership program that was introduced in 2019 provided customers with unlimited free shipping, Dawn Delivery, Same-Day Delivery, free returns for 30 days, and Rocket Fresh groceries.

What it means for investors

Boot Barn says its larger U.S. footprint is helping to propel sales forward. The company, which now has 321 stores, reported a 12.4% increase in year-over-year net sales. However, what Coupang hasn’t done yet is grow much internationally. The company made reference in its S-1 to the fact that it wants to expand abroad, and Lee has found some evidence that Coupang is working on building a presence in China. If using the app, after installing, you need to give permission for the app to access your phone. Quick Commerce aims to achieve higher speed than Rocket Delivery, which means deliveries could be done in less than an hour.

Looking to the stock, Coupang now trades at a market cap of $29.6 billion. If it can reach $15 billion in annual gross profit (net income is too unpredictable given how much the company is reinvesting for growth), it is likely the business would trade at a market cap much higher than $30 billion five years from now. Although these estimates are bullish and will require Coupang to execute at a high level, the potential bodes well for shareholders who plan to hold for the long term. Coupang believes that historically, online shopping has forced customers to accept various compromises. E-commerce is convenient, but shipping times can be long and inconsistent.

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It faces other issues, too, such as growing concerns about working conditions after the death of several Coupang warehouse and delivery workers that some relatives and labor activists blamed on overwork and poor labor practices. The trucks and the operation belong to Coupang, a start-up founded by a Harvard Business School dropout that has shaken up shopping in South Korea, an industry long dominated by huge, button-down conglomerates. In the fourth quarter of 2021, revenue grew 34% year over year to over $5.1 billion.

In its short life, Coupang — which started as a kind of Groupon for South Korea before expanding to an e-commerce marketplace within its first three years — upended competition in the country. The company quickly raised $300 million in 2014, largely from U.S. investors, followed by $3 billion in 2015 and 2018 from SoftBank. Those investments allowed Coupang to balloon into a 50,000-employee business in 11 years. Rocket Delivery is a shipping service that makes 99% of orders possible to be delivered within one day.