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3Q26 Update.
Coupang reported 3Q26 and in trading the day after announcement the stock was up +12%. Results were generally lackluster, but all the earnings call commentary suggested the business is trending in the right direction. If we had to attribute the stock movement to one thing, it was the confirmation that by the middle of next year the business will be back to its pre-data incident margin level, while growth is expected to continue to accelerate from here.
Product Commerce revenue grew +9% y/y adjusting for constant currency and the Chuseok holiday timing. Their growth is still suppressed from the data leak scandal because of the small cohort of users who left and haven’t returned. While that is the minority of users, it still hits growth by a couple points. Furthermore, customers that returned resume spending at the same level they were at when they left instead of in line with their cohort spending patterns. What that basically means is that if they had stayed they would have grown spend maybe another 10% more like others did, but that growth was effectively paused. Nevertheless, these are all factors that will be lapped in 2 quarters.
They note that WOW Memberships are at the highest level in their history, and that “net additions are running above historical rates, driven by both returning members and strong new sign-ups”
Growth from here will come partially from new members (active customers grew +2% y/y to a new high), but mostly from increasing spend among existing members. Bom Kim said that “buyable selection is the lever our teams are focused on, because it’s the input that we see that customers responding to most directly”. Over time we would expect existing customers to continue to spend more on the platform. Rocket Fresh, their grocery offering, has also been a strong spot with Fresh volumes growing more than twice the pace of overall Product Commerce.
Margins continue to be pressured. Excluding costs from (another) warehouse fire, gross margins were 29.5%, a 260bps y/y contraction. They listed the same three temporary items weighing on margins: “supply chain headwinds, fixed cost deleverage against a pre-incident demand curve, and the elevated marketing investment we’re making to accelerate the return of departed customers”. They said this will be a low for margins and they should be back to pre-incident level by the middle of next year.
On their Developing Offerings, they continue to be sparse on details. In regard to Taiwan they noted, “our WOW membership program in Taiwan has grown more than +100% y/y and +14% q/q, an acceleration over the growth we saw in Q2” They also noted, the response from customers is “accelerating” and their owned last-mile network now delivers the vast majority of orders next day.
In total their Developing Offerings (which includes Eats and Rocket Now in Japan) grew revenues +27% y/y in constant currency, a +300bps sequential acceleration. They increased the range of their full year losses by $50-100mn on an increased Taiwan infrastructure investment.
Looking to 4Q they expected revenue growth of 13-14% and margins to increase 50-150bps q/q. We think they can get back to mid-teens revenue growth by 2027, while continuing to improve Product Commerce margins.
They purchased $201mn in stock during the quarter.
In terms of valuation, at $17 a share Coupang has an enterprise value of $29.6bn (after backing out $5.5bn in cash and adding back $1.8bn debt and operating leases). We estimate that their Product Commerce segment can generate 10% EBIT margins at maturity (which translates to ~12% adjusted EBITDA margins, slightly above their current long-term guidance of 10% EBITDA). Given their current $30.4bn in Product Commerce revenues, this yields $2.3bn in NOPAT. This is an implied 13x mature margin multiple, with value only attributed to their Product Commerce segment. So, any value in their Taiwan operation, Coupang Eats, Farfetch, and their newer Japanese Rocket Now service is not accounted for.
In order to invest in Coupang, an investors needs to understand their value prop and the core Korea ecommerce opportunity, which we cover extensively in our report below!
Check it out here: Coupang Extensive Research Report here.
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