On Monday, Bernstein SocGen Group maintained its Outperform rating and $30.00 price target on shares of Coupang Inc (NYSE:CPNG). The firm's analyst pointed out a shift in the e-commerce company's vendor margin dynamics, which historically faced skepticism. The competitive e-commerce landscape in Korea, which includes over 100 players, has been a challenge for Coupang, particularly with major brands leveraging their bargaining power on third-party platforms.
The analyst noted that recent developments have altered the market dynamics in Coupang's favor. Following a liquidity crisis at competitor Qoo10, many smaller e-commerce players reduced their loss-leading activities, which led to Coupang's market share jumping to approximately 30% in August and September, up from around 23% earlier in the year. This increase in market share has shifted the bargaining power balance from top-tier vendors to Coupang.
In October 2022, Coupang informed its vendors, including top-tier brands such as CJ, of a 2-5% price discount, which initially resulted in a backlash from Korean conglomerates and reduced reliance on Coupang's platform. However, the analyst believes Coupang has since improved its negotiation strategies, now engaging in more open discussions with vendors and trading advantages in addition to demanding concessions.
Looking forward, the firm anticipates that Coupang will continue to request price discounts from top-tier vendors over the next 2-3 years. This strategy is expected to exert pressure on the margins of second-tier vendors and encourage smaller brands to become private label manufacturers for Coupang. Such developments are projected to drive more effective improvements in Coupang's margins.
In other recent news, South Korean e-commerce giant Coupang reported robust growth for Q2 2024, with a 30% increase in constant currency revenues and a 12% rise in active customers. Despite a net loss of $77 million, the company's gross profit exceeded $2.1 billion.
Analysts at Bernstein SocGen Group and CLSA upgraded Coupang's stock, raising their price targets to $30.00 and $31.00 respectively, due to anticipated earnings volatility and projected annual top-line growth.
Meanwhile, Morgan Stanley (NYSE:MS) maintained its overweight rating on Coupang, citing potential for market share expansion and improvements in free cash flows, despite slight adjustments to its earnings estimates.
InvestingPro Insights
Coupang's recent market share gains and improved vendor negotiations, as highlighted in the article, are reflected in the company's financial performance. According to InvestingPro data, Coupang's revenue growth remains strong, with a 23.18% increase in the last twelve months as of Q2 2024. This aligns with the InvestingPro Tip that analysts anticipate sales growth in the current year.
The company's improving market position is also evident in its profitability metrics. InvestingPro data shows that Coupang has been profitable over the last twelve months, with a gross profit margin of 26.92%. This profitability is particularly noteworthy given the competitive e-commerce landscape in Korea described in the article.
Another InvestingPro Tip suggests that Coupang is trading at a low P/E ratio relative to near-term earnings growth, with a PEG ratio of 0.31. This could indicate that the market has not fully priced in the potential benefits of Coupang's improved vendor relationships and market share gains discussed in the article.
For investors seeking a deeper understanding of Coupang's financial position and growth prospects, InvestingPro offers 13 additional tips, providing a comprehensive analysis of the company's performance and valuation metrics.
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