Korea / Special Sits, Pairs, Index Rebalancing, Clepsydra Capital

Sanghyun Park

I investigate special situations, pairs, and index rebalancing trades in Korea.

Korea / Special Sits, Pairs, Index Rebalancing

Korea FTC Says It Will Regulate Coupang on Search Algorithm Manipulation

Coupang's Anticipated Disappointment, but 1P's Trouble Makes Us More Worried

Coupang: Inviting Strict Oversight from Government Regulators

CPNG: Some Thoughts on Coupang's Cost Structure

Clepsydra Capital

Investigate special situations, pairs, and index rebalancing trades in Korea.

Equity Bottom-Up

<h2>Why is Coupang below $30?</h2><p>Coupang's stock price finally fell below $30.</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/226/696/original/Screen+Shot+2021-08-29+at+1.50.45+AM.png?1630216270" class="editor-image img-responsive" data-smartkarma-image-id="226696"></figure><p></p></section><p>As we all know, the main reason for this is the disappointment with the second-quarter results announced on August 11th. Coupang's stock has plummeted nearly 20% since the 11th.</p><p>Coupang posted sales of $4.48B in the second quarter, which is pretty much in line with the market average forecast of $4.45B. However, EPS was -0.30 dollars, which fell short of the market average forecast of -0.13 dollars.</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/226/695/original/Screen+Shot+2021-08-29+at+1.48.52+AM.png?1630216183" class="editor-image img-responsive" data-smartkarma-image-id="226695"></figure><p></p></section><p>It is true that the cost of the fire at the Deokpyeong Logistics Center that occurred on June 17, which was $295M, resulted in a significant increase in the net loss. Coupang has insurance to cover this cost. So, it is expected that insurance payments will cover these fire-related losses in the third quarter.</p><p><strong>However, even excluding these costs, the key point is that Coupang failed to reduce the size of its net loss as much as the market expected in the second quarter.</strong></p><section class="figure"><p>Although Coupang is not yet in the black, the secret to maintaining a huge market cap is the declining SG&amp;A ratio through economies of scale.</p>
<p>In fact, the SG&amp;A ratio to Coupang's total sales has continuously decreased from 31% in 2018 to 27% in 2019 and 22% in 2020. So, the market predicted that Coupang could turn to the black from 2023. The current market cap size requires both sales growth and SG&amp;A decline. However, as the SG&amp;A decline did not continue in the second quarter as in the first quarter, investors began to feel anxious.</p>
<p>These results are sufficiently expected. In the absence of a profitable anchor business like Amazon's AWS, Coupang's survival strategy is to continuously expand its market share. However, there are many questions about how Coupang could overcome and survive it from a cost perspective when the bleeding competition of local competitors intensifies to the extent that has never been seen.</p>
<p>Competition with Naver, an existing online commerce powerhouse, is a concern. But even more worrisome is Shinsegae, the strongest player in the local offline commerce market. It is making every effort to secure liquidity, which is the basis of the bleeding competition against Coupang, by selling most of its real estate assets.</p>
<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/226/698/original/Screen+Shot+2021-08-29+at+1.59.49+AM.png?1630217189" class="editor-image img-responsive" data-smartkarma-image-id="226698"></figure></section></section>

Why is Coupang below $30?Coupang's stock price finally fell below $30.As we all know, the main reason for this is the disappointment with the second-quarter results announced on August 11th. Coupang's stock has plummeted nearly 20% since the 11th.Coupang posted sales of $4.48B in the second quarter, which is pretty much in line with the market average forecast of $4.45B. However, EPS was -0.30 dollars, which fell short of the market average forecast of -0.13 dollars.It is true that the cost of the fire at the Deokpyeong Logistics Center that occurred on June 17, which was $295M, resulted in a significant increase in the net loss. Coupang has insurance to cover this cost. So, it is expected that insurance payments will cover these fire-related losses in the third quarter.However, even excluding these costs, the key point is that Coupang failed to reduce the size of its net loss as much as the market expected in the second quarter.Although Coupang is not yet in the black, the secret to maintaining a huge market cap is the declining SG&amp;A ratio through economies of scale.
In fact, the SG&amp;A ratio to Coupang's total sales has continuously decreased from 31% in 2018 to 27% in 2019 and 22% in 2020. So, the market predicted that Coupang could turn to the black from 2023. The current market cap size requires both sales growth and SG&amp;A decline. However, as the SG&amp;A decline did not continue in the second quarter as in the first quarter, investors began to feel anxious.
These results are sufficiently expected. In the absence of a profitable anchor business like Amazon's AWS, Coupang's survival strategy is to continuously expand its market share. However, there are many questions about how Coupang could overcome and survive it from a cost perspective when the bleeding competition of local competitors intensifies to the extent that has never been seen.
Competition with Naver, an existing online commerce powerhouse, is a concern. But even more worrisome is Shinsegae, the strongest player in the local offline commerce market. It is making every effort to secure liquidity, which is the basis of the bleeding competition against Coupang, by selling most of its real estate assets.


Thoughts on Short-Selling Coupang Aimed at September 6th Massive Lockup Release