Chit Chat Stocks - Is Coupang Stock Really The Next Amazon? (Ticker: CPNG)

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Starting point is 00:00:39 is paid for by public investing. Must activate your options account by March 31st for revenue share. Options are not suitable for all investors and carry significant risk. Full disclosures are in the podcast description, US members only. All right. Welcome in everyone. This is Chit Chat Stocks. My name is Brett Schaefer. And in this intro, Ryan is not joining us. But during this episode, he was with us. He had to jet out for something real quick. So I'm just recording this on my own. But let's get into it. Today we have Drew from Speedwell Research. And we're talking Coupang. He has a report out. We talk about this during the episode. You can kind of check it out in the show notes or on speedwellresearch.com. They have a very comprehensive

Starting point is 00:01:23 report on Coupang. And it is a company that I think is quite interesting. They just had their earnings report. They are an e-commerce player in South Korea. Some people call them the Amazon of South Korea. But as we talk about during the interview, they actually might have taken the Amazon e-commerce model and improved it. So we go through management, their founding. We go through the 2023 results. We dive deep into the South Korean e-commerce market, where they fit any competitors. We talk about the push into Taiwan. We talk about Coupang Eats, Coupang Play, FinTech, the Farfetch acquisition, valuation discussion, what could go wrong, any big risks. It's a very comprehensive discussion. I think anyone will enjoy it. So let's get right into it.

Starting point is 00:02:07 Here is our discussion on Coupang with Speedwell Research. welcome to chit chat stocks on this show host ryan henderson and brett shaffer analyze businesses and riff on the world of investing as a quick reminder chit chat stocks is a ccm media group podcast anything discussed on chit chat stocks by ryan brett or any other podcast guest is not formal advice or recommendation now please enjoy this episode welcome into chit chat stocks my name is brett schaefer and as always i am joined by ryan henderson and today on the podcast we have a guest second time guest drew from speedwell research and we're talking coupon perfect timing uh might have been you know we we did this on

Starting point is 00:03:04 purpose to do it right after the company reported earnings, but we're talking one of the largest e-commerce companies in Asia, the dominant e-commerce company in South Korea. So as we lead into it, how long have you been following Coupang? And for all the great research you guys do on the company, where can they find that? Any of the listeners here? Yeah. No, this might be perfect timing for you guys because the annual report just came out, but I had to update all my numbers. So yeah, anyway, in terms of research and all that, we're very basic. We just go through all the transcripts, all the financial filings. For a company like Coupang though, where it is a consumer service and it's very important to

Starting point is 00:03:46 have a sense of how consumers behave and interact with the product, we want to get a lot of consumer conversations going. So we reached out to dozens of people that lived in South Korea, talked to all of them, sometimes walked through all of their different consumer habits, the different sites they purchase stuff at, every sort of thing that you'd want to know before you make a decision as an investor. Just out of curiosity, Drew, how did you find people to pick out and talk to from South Korea? Yeah, that part wasn't easy. I have a couple of Korean friends who then kind of reached out to other friends they knew. And then from there, reached out to other friends they knew. And it was definitely, that was one of the trickier pieces of

Starting point is 00:04:27 this research uh you know in the past i've done like rh and floor decor you could just go and visit the showrooms there's everyone has had some experience with those or at least a lot of people have uh so this one was trickier and i think that's also the one of the reasons why most people are either unaware of it and unaware of how good of a service is because they've just had no experience with it all right and it makes sense before we get into it what you know what is speed well research work and what can people expect when, say, you're a fund manager listening to this episode, you're an analyst listening to this episode, you're saying, hey, I want to look at Coupang more. What can you guys offer them? Yeah. So Speedwell Research basically does

Starting point is 00:05:08 in-depth single company research on public equities. And so we are very slow to push out reports. But when we do, they are very much comprehensive and in-depth. Our Coupang report, I'm just putting the finishing touches on it. It's going to be around 70 pages. Most of our reports run anywhere from, at the longest end, 160 pages for a meta report, which came out a year ago. Speedwell members are able to get access to all of them, as well as updates and PM summaries and transcripts and other sort of benefits.

Starting point is 00:05:39 And so if you do become a Speedwell member, you get all that. Otherwise, if you just want the single report, you can purchase our coupon report. and if you're not ready to purchase it yet you can get more free content at speedwallmemos.com or check out our podcast the synopsis and i i can attest these reports are thorough to say the least if you want to get up to a speed up to speed on any company that's in their wheelhouse highly recommend now we've got a lot of questions here i do want to lay the groundwork for anyone who might not know what Coupang is. We've kind of alluded to it here throughout the start of the show, but what is Coupang? Just kind of basic, bare bones, what's the business do?

Starting point is 00:06:26 Yeah. So the sort of one-liner I think everyone's looking for is it's Korean Amazon, but it's really a lot more than that. And so Coupang comes actually, originally they were a copycat of a Groupon company. And so this is in 2010 when this was one of the most popular models All these VCs were stepping over themselves to fund these Groupon competitors. And Bum Kim was at Harvard. He decided to start one of these back at his home in Seoul in South Korea. And so they started from these kind of daily deal models. And in short, he basically realized that that was not a very good business model.

Starting point is 00:07:02 He started adding, and we get more into the details of that in the report, but he starts adding more products to the site and they were getting ready to actually IPO in 2013. They were getting good usage, good numbers. But at the end of the day, he realized that the product they were offering was not something that consumers really loved. And so he ripped apart at the last minute the entire business model, decided they were going to go the Amazon route. They were going to be 1P, which means first party, which means they're the ones who are actually contracting out directly with the suppliers for the product for them to directly sell, which is important to guarantee consistency and trust. and then also to actually control the inventory for when they went out and decided to build out a full logistics network. It allows them to actually have the inventory on hand and ship

Starting point is 00:07:44 it out quicker. And so this is in 2014, he starts to do something called Rocket Delivery. This is their version of Amazon Prime. They now are reconceiving of themselves from this daily deal site where it's all about compulsive purchasing to becoming a core pillar of someone's commerce habits. And so the idea here now is we are going to deliver on selection, we're going to deliver on price, and we're going to deliver on service. And so within service, it's several things. It's all about fast delivery. Coupang now has gotten to the point where over 99% of their orders are less than 24 hours, but that's not the impressive part. Most of their orders are actually less than seven hours. And so people

Starting point is 00:08:24 can place an order by midnight and get it by 7am the next morning. On top of that, they're competing on trust. Basically, when you see that Rocket logo on the app, you know that they have the inventory in stock, you trust it'll be there on time, you know that they're going to be consistent in delivery. And then on top of that, they have 5 million plus Rocket items. And this number is as of four years ago. So that's been expanded a lot since. And then it's also just the order ease and the price. And we could get into more of some of those other factors and competitive dynamics, but very big picture, you're looking at one of the top, or I guess by market share, the top e-commerce player in Korea. They own everything from the warehouse to the delivery trucks,

Starting point is 00:09:02 to millions of different items that they ship out to their 21 million active customers. Okay. Yeah. For any listener, we are going to hit the details of all these later, but let's hit management first. You mentioned Bom Kim. He is the founder of the company. He's still running it. He has full control, if I remember correctly, with heavy voting shares. So he's an important part of the story. What are your overarching thoughts of what he's built here and the culture and the leadership team at Coupang? Yeah, you could see it in the way he writes and the select times that he does talk. I actually met him in person a few years back. And this was even before they were kind of at the level they

Starting point is 00:09:49 were at. This was in, I believe, back in 2019. And he was speaking the same sort of thing, which is very much the sort of Jeff Bezos ideal of investing today in order to provide for a better consumer experience in the future. And the same way Jeff Bezos oriented Amazon around these sort of three variables of price selection and fast delivery, he's expanded fast delivery out a little bit. So he says selection, service, and price. And so he is building out Coupang just for really optimizing for those three things. And he's done a phenomenal job. I mean, you could just look at the numbers. This is a company that did not start that early. Remember, Amazon started in the mid-90s. This is a company that started in the backdrop of many other e-commerce companies

Starting point is 00:10:31 already existing. And so by the time they roll into their 1P offering, it's already like 2014, 2015. And so just in a decade, they've been able to gain less than a decade. They've been able to gain dominance in Korea. And on top of that, you now have this Prime or they call it RocketWow membership program that is starting to lock in users. This is also sort of the same kind of idea behind Amazon Prime. But then on top of that, you could just look at the actual numbers. And Amazon, there's a little bit more going on there because it's a broader operation and different things are consolidated together. But they've gone from losing $1.5 billion in EBIT to now earning about $500 million in EBIT in the last year. And so that swing from huge loss

Starting point is 00:11:13 to actual EBIT profitability, none of this adjusted EBIT gimmicks, actual gap profitability is really impressive in a pretty short time period. And you could look at them on a free cashflow basis too, even backing out a stock-based comp and including all their losses of the development offerings, as well as all this growth of CapEx for all their fulfillment centers they're building. They're still generating about one and a half billion of free cashflow. And so these are real numbers that he's been able to achieve by more or less entirely turning around the operation in a decade. Yeah. What I like about them versus a lot of other management teams, especially in tech, that you read a conference called Transcript, you listen to their investor

Starting point is 00:11:55 presentations, and yeah, they'll toss out some adjusted EBITs and numbers in the investor presentations, but it seems like they're no BS. It's just, we're going to tell you the numbers, we're going to tell you our plan. We're not going to toss in this fluff for two paragraphs that you're going to come away with, what did I just read? And it seems like the results are working. they're very efficient and ruthless, but I didn't have a follow-up question there. Ryan, do you have anything? No, I guess to kind of touch on that too, I like that. And it's probably because Baum Kim owns so much of the business by himself. The first thing they brag about, I don't know if it's brag about, but the first thing they report on their investor presentations

Starting point is 00:12:35 is them trying to minimize dilution. They say, we're trying to keep shares outstanding from growing too rapidly while still investing in the business. With that said, they just reported, I guess that is yesterday as of this recording, but it'll be about a week ago once this is up and live. What are your thoughts on 2023 overall? How do you think the year went for them? Yeah. I mean, and he likes to say this too. 2023 isn't about what we did this year. It's about what we did in the years before. And so that's also just a straight Bezos quote. And so the idea there is they've been building this sort of infrastructure. They've been investing in their fulfillment, their warehouses. They have 47 million square feet of fulfillment and warehouse

Starting point is 00:13:20 space. And for context, JD.com has something called the Asia number one warehouse, which is designed to be one of the largest fulfillment centers. And those are only half a million in square feet. And so Coupon has 47 million of square footage. And so they've been at this for a long time. They have their own delivery force. And on top of that, they've been talking about just adding more selection, which we could get into more. That's been a little bit of their soft spot in particular categories like beauty and apparel. And so in terms of actual 2023 results, it's basically just been methodical execution of what they said they were going to do. They said they're going to return them to profitability. They more than did that in a

Starting point is 00:13:55 very short order. Again, you're talking about a company in two years going from losing $1.5 billion to being half a billion dollars in EBIT. And this is not an easy business to be profitable in when you're investing at this level of infrastructure. And they do have some tailwinds in that South Korea, it's very dense per capita population, per capita square footage and retail space. It's quite beneficial for them. And so they do have some tailwinds in that respect, as well as the offline competition, which we'll get into not being quite as fierce as other areas, but they really have been able to execute on the things that they said they were going to do. And that's kind of the big thing there. And then you also see that they've done some experiments with going into Japan, where they started with this sort of quick service commerce. And then that didn't work out. So they pulled out there. And then in Taiwan, that's been a little more successful in Coupon Eats.

Starting point is 00:14:42 Maybe we'll talk more about these later, but you see that they are doing what they're saying they're doing, which is that they're going to test out the offerings and lean into them to the extent that they're working. And they gave some updates on how Coupon Eats is actually helping retain and helping the WoW membership that they have. And in addition to that, people who are WoW members tend to spend more on Coupon Eats. And so you see that he is really working on building this flywheel and making, which is another thing he says he wants to make this sort of Rocket WoW membership be one of the most valuable memberships in Korea, if not the world. Okay, let's hone in on, I guess for the listener context, we're going to hit the core business first. And then on the second half of the show, we're going to hit the developing offerings. So we'll hit Taiwan, we'll hit Coupang Eats, Coupang Play, and then the Farfetch acquisition, of course. I've got a lot of questions about that one since Coupang is not, let's say, the most communicative in between quarters, to put it lightly.

Starting point is 00:15:40 Okay, so first one, why did revenue growth accelerate throughout the year and membership growth and RocketWide memberships? Did anything change or does it come back to what you said about the bundling with the Coupang Eats? Did they make any major improvements this year that should lead to that revenue acceleration? I mean, they've always been working on improving their offering in terms of the RocketWow membership. But the big thing in terms of growth and all that, there's two things. One, it depends whether or not you're looking at constant currency or not. That is something to be aware of because that is a distortion. And then, of course, you have all the COVID comps that have distorted stuff as well. And so there's nothing in particular that I think is worth pointing to that is sort of like a change in their strategy. They've continued to add customers. As I said, they would add customers, convert them to RocketWow memberships as they can. And then it's also just filling out selection. I mentioned a moment ago that they do have some weaknesses in selection and talking to consumers. There's stuff in beauty, cosmetics and apparel where they've had some softness and kind of weakness in selection.

Starting point is 00:16:44 And so they've been leaning more into 3P, FLC. And so let me explain that because that's a lot of jargon there. And so for any sort of business, especially eCommerce business, there's two routes you could take. There's first party or third party. First party means you're working directly with the supplier. You're becoming the merchant of record. And so you're actually owning and controlling that inventory. You're deciding where it goes. If something's wrong with it, you're responsible for it. Third party, that's basically what eBay is, what most marketplaces are. Someone else owns the inventory and they're just helping you connect it with the buyer and sell it. Importantly,

Starting point is 00:17:20 you're not the merchant of record. The inventory is not going on your balance sheet. And it also means though that in most cases, you're not actually getting exclusive proprietary inventory that you could store in your warehouse. Coupang and Amazon pioneered this idea with their fulfillment centers is the third party merchants send in their inventory to Coupang. This used to be called Jet. Now it's called FLC. And the idea there is that we'll have the inventory on hand controlling it, and we'll be able to ship it to people as soon as an order comes in. And so that's how we're able to do a sort of seven-hour delivery. And so that's kind of the big differences there between 1P and 3P. The differences mesh together though, when you are introducing the sort of

Starting point is 00:18:01 fulfillment by coupon aspect. And so if you're asking me if anything kind of changed, they noted at the beginning of the year, about 4% of units were being fulfilled. Third-party units were being fulfilled by their logistic services. And so they've also noted that's been increasing at a faster rate. And so what that really means is that they're getting more selection on their platform that's getting this little Rocket logo. And if you talk to anyone who's a purchaser of Coupang, they're always looking for that Rocket logo that says to them, I can trust this. It's going to be come here fast. I don't need to worry about it. So it conveys trust, consistency, fast delivery. And so that's what everyone wants is that little badge near their listing.

Starting point is 00:18:39 And so to the extent that they can increase the amount of third-party merchandise on their platform that gets this badge and that they have in their warehouses, it just allows them to offer more products. And they've talked about this too on the earnings call where it's been a multi-year, almost decade process where even the oldest cohorts are now buying more on the platform than they were originally. And we saw this with Amazon too. As they continue to just build out their selection and categories more and more, buyers just

Starting point is 00:19:05 spend more on the platform. And so what's going to end up happening, and it doesn't need to be a very sexy sort of driver, is just more items, more selection on the platform. And consumers, they already love and trust Coupang. 14 million of them are already members. As soon as they see some other item there, they'll start purchasing in that category as well. And so that's part of that driver too. I was going to say, and more selection, more competition means maybe you need to advertise on the platform to differentiate yourself as a merchant. So do you want to talk about advertising real quick? How has this business grown? How meaningful is it to Coupang? And then where's the ceiling, I guess? How much upside do you think the advertising business

Starting point is 00:19:55 could have. Yeah. No, I see that segue you just did there. Yeah, it's a good point. Advertising is as much of an opportunity as something that can potentially create contention within merchants because it is de facto raising the take rate and the cost of selling on coupon. If you look at Naver, they have something called a smart store. And basically, anyone can sign up, any merchant can sign up for a Naver smart store. They could use Naver Pay, which is a relatively frictionless way to buy something. And then anyone who searches on Naver, which is basically the Google of South Korea, it's the number one search engine there, they're going to be directed to these Naver stores and the listings there. And so they're only taking a couple point take rate

Starting point is 00:20:37 on their services there. So it's a very cheap sort of way to sell items. And so when you are looking at the advertising opportunity, what you're basically saying is to what extent can they continue to keep their customers captive to coupon and continue to really press on their merchants and monetize them more and take a larger portion of the overall GMV. And if you are looking at things Amazon has said in the past and other platforms have said in the past, they put numbers out there that it could be about 5% of GMV. So every dollar of GMV, 5% of that can be going to advertising revenue. And of course, this is pretty high margin revenue. As far as when that actual ramp off will end or what the real limit of it is. No one really knows. You could say the same

Starting point is 00:21:23 thing with Google today. At what point does the return on ad spend hit a wall? Well, it matters to what extent the targeting doesn't work as well. If you can continue to get more items that people want on the platform, then you can better match them. And then you're also freeing up inventory when you can better match items to other people. And so then it just allows the flywheel to continue to progress. But advertising is still pretty early innings on Coupang. It is there. A couple merchants we've talked about have already complained about how expensive it is, but how it's necessary to drive sales on the platform. And at the end of the day, Coupang is serving the customers. And as long as the customers are there, the merchants are going to have to

Starting point is 00:22:02 be there as well. And so it is kind of a fine balance of pressing the merchants as much as they can while also not pushing them off the platform entirely. Right. Makes sense. And I think people can run the numbers of how advertising can expand margins, all that good stuff. We've seen it with Amazon. We're probably already seeing it a little bit with Coupang, although it's hard to tell exactly how big that business is. But one thing I think there's a lot of, at least for me as a shareholder. There's a lot of uncertainty. You mentioned the 4% FLC, which again is their logistics stuff. How big of an impact could there be on this business if it goes to 20, 30, even higher percentage of GMB or revenue or however you want to describe it?

Starting point is 00:22:51 Yeah, it's not clear to me that the strategy there is really to take a margin on these sort of services. It's more about just getting more inventory in the system. And once that inventory gets in the system, it's proprietary inventory that merchants can't sell elsewhere. And to the extent that consumers continue to value fast delivery and a lot of selection, coupon is just going to continue to win on those vectors. And then they can monetize it just in the forms of higher advertising rates, if that's the case, or a higher take rate on the commission on sales. I don't know that the strategy, at least now though, is to actually charge for the logistic services themselves. And so that is one of the trickier things when you're dealing with

Starting point is 00:23:29 thinking about a mature margin, steady state margin for a business like this, is you do have all of these accounting distortions and separate business lines. You have the accounting distortions of the gross versus net, of 1P versus 3P. You have the fact that the commission and advertising is fairly high margin, but then you have something like logistics, which is fairly low margin. And then they just did that accounting change where now they're reporting it as a net basis. And so that does create a lot of distortions. But just in terms of the actual economic value of logistics, it's not really so much as the straight profit they could draw from that, so much as the extent it allows the ecosystem and the flywheel to

Starting point is 00:24:06 continue to spin. Before we move on, we want to talk about our friends at FinChat.io. FinChat.io is the complete stock research platform for fundamental investors. Beyond having all the standard financial data for companies around the globe they also have company specific segments and kpis on over 1500 stocks so if you want to see amazon's aws revenue over the last 10 years or you want to track match groups paying users maybe you're curious how many stores sprouts farmers market added last quarter bin chat tracks all those kpis and literally half a million more we know that if you're a fundamental investor you probably track this stuff yourself but this saves so much time and it has all the data you already need. If you aren't sure where to go,

Starting point is 00:24:51 you can also simply ask FinChat. That is their conversational AI powered by FinChat's proprietary data. So that'll save you tons and tons of time researching. They've got stock screening tool. They've got fundamental charting that is best in class in terms of design. I use FinChat every day. I absolutely love the platform. Brett does as well. We both use it as our primary dashboard. and the place where we do all our research. So if you want to get 25% off any paid plan, use our link, finchat.io slash chitchat. That is finchat.io slash chitchat. The link will also be in our show notes. Let's hit competition. It's something that people get very nervous about if they're not in South Korea, which I think only a small percentage of our listeners are from South

Starting point is 00:25:41 Korea. And we got a lot of English speaking listeners, unsurprisingly, since we speak English on this podcast. What does the competition landscape look like? I know when I talk about this on Twitter, people talk about the Chinese e-commerce players. They talk about the local competitors, as you mentioned. I always say it's Naver, but it's Naver, I guess. Naver. I think it's Naver. I'm not sure, actually. I've been dinged on pronunciation before, so don't trust me. Okay. Let's just say broadly, what do you think about the competition is there anyone to worry about yes so it is it is unique in that one coupon was able to come up from the backdrop of being a pretty late entrance into the

Starting point is 00:26:24 e-commerce uh arena there was many other players the the chables all these big department stores uh ebay korea ssg uh lode 11 mart uh emart uh several others we make price t monster ticket Monster. All of these other sort of players have been there for a while. And it was a pretty fragmented scene. And only relatively recently do we see that it's starting to consolidate. But within that, the most concerning one is Naver. And so for a sort of analogy into North America, imagine if Google was very competent in shopping. They decided to buy Shopify or built Shopify. And so now they have all of this shoppable inventory where they can now link it very easily into the Google search results. And on top of that, imagine if everyone used Google Pay.

Starting point is 00:27:12 And so it's very easy preloaded shipping credit card information. You just search immediately and you could very easily and relatively frictionlessly check out. That is basically what Naver is. They have those three things going for them. And so they do report GMV. It's a little iffy exactly what they're including in that. And they have a couple other platforms they purchased that they're consolidating. Big picture, I'm estimating they're doing roughly $25 billion in GMV versus Coupang. Again, this is an estimate, maybe doing anywhere from 35 to 40, likely closer to 40, though, billing and GMV. So Coupang does have a lead out over them. But Naver is not that far behind. And importantly, Naver is an app that every single person in Korea has and continues

Starting point is 00:27:51 to use for a lot of their search. When we talk to a lot of our consumers, all of them use Naver to purchase stuff as well. There was no one who said that we only use Coupang and there was no that said they didn't use Naver. And so that is a little concerning in that to the extent people continue to go to Naver first, price check just to start general search, Naver has ample opportunity to continue to try to win them over on that purchase. Now, the thing that Naver can't do, and this is because they are basically an aggregation of 500,000 different merchants, is that they cannot offer the same sort of consistent experience, easy return policies, quick shipping that Coupang can. However, they're trying to solve for that by having some sort of

Starting point is 00:28:38 blanket return policies. It's still not as good. They're also trying to solve for that with now the Naver Shipping Alliance, which is basically, if you're familiar with this, maybe you're not, Alibaba in order to address their shipping concerns when JD.com was basically a fully integrated e-commerce operation. They rolled out something called Sanyao. And Sanyao was this grouping of basically all the different shipping companies in China to create a unified platform where they would send their delivery orders to and all these third-party logistics providers would pull orders for that. And so it tried to basically coordinate all that. And to the extent that South Korea is not that big, again, it's a pretty densely populated country. It's not that

Starting point is 00:29:19 hard to get full coverage of Korea compared to China. And so most people in Naver can already get one to two day shipping. Coupons are ready at seven hours. It'll be very hard for Naver to do that without getting their own fulfillment, proprietary inventory. They are pushing to do that. Naver also has something else called the Smart Store, which is a uniform laid out store where you go to it and all these stores look the same. So it's kind of more similar to going to coupon searching for something and the store page layout looking similar. And so if you were saying you think that coupon is going to continue to win, what you're really saying is that I believe that that little difference between one and two day shipping and seven hour shipping,

Starting point is 00:29:57 that is really going to be valuable to consumers. I think that trust is going to be valuable, consistency, and also just the ease of use of the platform. If you want to return an item, you literally just leave it outside your door and the guy will come by and pick it up for you. So it sounds like they're a formidable competitor. They have some advantages. They're working to close some of the gaps versus Coupang. Now, let's say you are Coupang's management team. You're in a meeting and you're trying to devise a strategy to further increase your

Starting point is 00:30:31 customer value proposition, your competitive advantage versus Naver over the next five years. What would you suggest to the executive team? This is such an important point, and I don't want to pick on your question, but Coupang wouldn't think like that. And great businesses do not think of how we can optimize a response to mitigate a competitive threat. What they think is how we can offer the best consumer value prop. The thing that they're trying to really iterate on and build on is service selection and price. And to the extent that that continues to be an important preference

Starting point is 00:31:06 for consumers and their consumer hierarchy of preferences, that is how they will continue to gain out versus Naver. And it's not by really saying, oh, maybe we also need to have a sort of search engine and something else to stay top of mind, and maybe a third-party payment platform. All of these things would just confuse their actual offering. And so great companies really just need to focus on the actual consumer, the one that really is making these decisions, and the rest will kind of follow in suit. And Naver in turn, they're not optimizing necessarily for the same thing because they do have a search engine. And so the question they're trying to solve for is what can be the best commerce experience we can have, given that we're never

Starting point is 00:31:44 going to have a 1P operation, given that we have to treat all of our merchants better than Coupang does, because Coupang can really jack up the take rates. They can do stuff like advertising and all that. Naver has less of an ability to do that because they're not driving demand the same way that Coupang is with Coupang's captive customers. And then, of course, Naver also has their search engine they're optimizing for. And so they want search engine results to be the best possible. And in some cases, that even means surfacing coupon items. And so generally speaking, as long as they continue to focus on the consumer value prop they're trying to, and very importantly, consumers value those preferences, then coupon will continue to be able to take a lead versus Naver. But they're going to both exist and they can both grow.

Starting point is 00:32:26 So while we're on the topic of competition, what do you think about the risk of Chinese retailers or Chinese e-commerce providers entering the space? I know Timu, I believe, has tried to launch there. I think it makes up a small – People seem concerned about it, but I guess what do you think of that as a threat? so it kind of goes back to this idea of the consumer hierarchy of preferences which is this idea of what do consumers actually value and so within that an average consumer has a bunch of different preferences i want fast delivery i want it to be able to purchase it easy i don't want to have to worry about it being a crappy item i want to be able to return it easy

Starting point is 00:33:14 and so they have a whole list of preferences and and sometimes within those preferences can be you I want excitement. I want compulsivity. And so to the extent that Teemu is hitting on those preferences, because in my mind, Teemu isn't necessarily about being low priced, even though that's the way a lot of people describe it. It's much more about being compulsive and exciting. And so a lot of times people end up buying stuff on Teemu, not because they need the item, but because it's so cheap that it's exciting to get a deal. And so that is a very different position in the minds of a consumer versus someone like Coupang, who's actually trying to lower the prices of paper towels or something like that, that there is some sort of essential

Starting point is 00:33:54 good that they'll actually need. And interestingly enough, so Timu is, of course, owned by Pinduoduo. Pinduoduo basically undercut and to an extent dethroned Alibaba in China. But Pinduoduo, from my research, they focus much more on serving unmet needs of consumers rather than trying to sell them potentially frivolous items. And so very early on, they were focused on a lot of these third and fourth tier cities where there wasn't a big e-commerce presence. And so that was their first time they were really getting e-commerce at all whatsoever.

Starting point is 00:34:26 And part of that is because of the novel way they designed last mile logistics with group leaders who will sometimes handle the delivery process there. But on top of that, they also were really big into fruit. And fruit is, of course, an essential good. And so if you're getting deals on fruit, then you're not thinking of this platform as some sort of cheap Chotsky platform. And so I would love to get some pushback on this from someone. But my take is that Teemu is very different than Pinduoduo because, especially in South Korea, but you can make the same analogy in the US, elsewhere, these are much more developed e-commerce offerings. And so they have to offer something different and they have to try to wedge their way in there and then ultimately try to move up from these sort of more compulsive, non-essential cheap goods into more essential offerings and even higher end stuff too. And so that is not the same formula to do. And so we've talked to different consumers.

Starting point is 00:35:17 A lot of them have used AliExpress, Timu. None of them were using it regularly. There was a couple other group sites, group buying sites that also were popular, but nothing that was really that common. And then there's more, I would say, competition from vertical specific marketplaces, like a marketplace I'll focus just on fashion, rather than this general third-party marketplace of all sorts of lower-end goods. And so this is a long-winded way of saying, I don't think the value prop they're offering

Starting point is 00:35:47 is the same thing that a typical coupon customer is looking for when they're shopping at Coupon. Okay, let's shift gears a bit to the subscription, which we've mentioned it here before, but it's called the RocketWow membership. For anyone that doesn't know Coupon, it's basically an Amazon Prime-like service. I copied everything from them. yeah it seems like it uh and i thought i was crazy when i did the currency translation when i saw how much the rocket wow membership cost and maybe my first thought was wow i just don't understand the korean consumer because this seems like it like an incredible deal and for context in dollars it comes out to i think three dollars and like 75 cents a month you get free shipping

Starting point is 00:36:39 free overnight shipping uh coupon play which is their video streaming service you get discounts on coupon eats there's a bunch of different benefits that you get with it am i wrong to think that there was incredible pricing power here potentially and then i guess what kind of impact could it have on the pnl like is it margin accretive for the business or have they not kind of talked about that. Yeah, it's the same sort of idea as Prime, where it helps subsidize a lot of the shipping cost as well as improve lock-in. In terms of the price, you're right. It is definitely priced on the lower end. They actually raised prices too recently. They're optimizing for adoption rather than trying to just raise it as much as they can. But it's also important to point

Starting point is 00:37:27 out purchasing power parity. And so when you are converting to dollars, because the dollar is stronger, it does seem even cheaper than it really is. But it definitely is on the cheaper side. uh in terms of the actual benefits within it you do have things like coupon play which is their version of prime video uh they have a cut it's relatively limited but most people they just consider it free so they're happy to get what's on there there's like korean saturday night live that's pretty popular as well as a bunch of exclusive soccer matches that was pretty big for them so people talked about that bundesliga right they have like some like uh the german soccer league is aired on coupon this year they're doing a baseball game or something

Starting point is 00:38:05 something along those lines yeah yeah yeah there's something with the yeah um major league baseball and then i don't know exactly if it's the german league or what soccer league but they do have uh soccer games that you can't get anywhere else uh so that's coupon play and then as you mentioned the free shipping is the other aspect of it the other thing that we haven't really mentioned is coupon fresh which is their grocery delivery operation and another benefit of that is free delivery there with a very low minimum it's like a ten dollar uh in usd it's like a ten dollar minimum limit for free shipping. And that is by far the cheapest of any of the competitors. There's a competitor, Market Curly, who was earlier to market than them, but they're a little

Starting point is 00:38:42 higher end, higher minimums. And so it's not quite the same market there. And the grocery operation is really important. It kind of goes back to what I was saying about Teemu, whereas if you think of Teemu as being very compulsive, non-essential, grocery, very essential, very frequent. And so that is a great business to own because people are constantly going into the coupon app, perhaps multiple times a week and they're buying their groceries just for the next morning. So you can place it at night, it gets delivered to you in the morning, and then you could cook your breakfast or whatever have you. And so that's a really important business to own. And so the other thing that they've also included within the RocketWow membership now is a 5% to 10% discounts on

Starting point is 00:39:18 Coupon Eats. And so they've found that that actually helps RocketWow members actually tend to spend more on Coupon Eats. And so the discount kind of helped with that as well. And so all of that is kind of within their membership. Now, the idea there, again, it's basically we're going to just collect some money, mostly to get people locked in to our offerings and to try to cross sell them across different things, make them think that they are benefiting more by spending more money with us. And in the meantime, we're going to use those funds to help subsidize some of our operations. But I'm sure you'll see some price increases there in the future. Just that's not really the optimization right now. Yeah, I think given the speed of delivery with the geographic

Starting point is 00:39:58 you know density where they're delivering faster than even amazon in the united states the grocery makes so much sense because i think what holds back grocery a lot of the times and why people you know in other markets will go to a place like instacart is because you need typically you're like i want those groceries kind of soon if possible and you mentioned that dawn delivery which are they the they might be the only company that does that but market curly does that okay So you can get, you know, order before midnight and you can get those groceries by 7 a.m. the next morning when you need them for, say, you know, making the kids breakfast, making dinner, you know, for your family. I think that's just it's just an incredible offering. And I kind of wish I had it for where I live.

Starting point is 00:40:44 So I think that kind of that's telling for. Yeah. And you can think about why it'd be a lot harder for someone who, you know, is in the U.S. like Amazon to do that sort of delivery operation. and the answer is simple. They're trying to fulfill it from a supermarket foot store footprint, whereas Coupang is doing it

Starting point is 00:41:01 from dark stores or fulfillment centers, right? And so the difference right there is you can reconfigure your entire logistics operation for speed and combine it with your regular e-commerce delivery operation,

Starting point is 00:41:16 whereas Amazon, they have to do this kind of tack on Whole Foods delivery. And so it's just not quite the same experience there. And so it's just tough to optimize for that unless you're actually going back and changing your logistic structure. And Coupang also has the advantage. And I've said density multiple times, but you'll literally have

Starting point is 00:41:34 a single Coupang delivery person. Their entire job may be to just deliver to a single apartment building, a single high-rise. And so they'll park their truck there and they'll go up multiple times. And that's their deliveries for the day because there's that many people that are ordering within a single apartment. Yeah. I think they have specific distribution centers or whatever they call them, a fulfillment center for grocery, right? They're like custom made for grocery or is that... Yeah, that's correct. And then they also mesh the actual delivery truck that delivers regular e-commerce packages with the cold chain for grocery. And so that's another advantage there. And yeah, I think before we move on to pass the core business, you mentioned that someone could be like in one apartment building and kind of maybe remember, you know, something from the company is that they have their own, how do I say it?

Starting point is 00:42:31 Almost like those delivery packages. It's not like Amazon where it's a box and you just tear it to shreds. They have the returnable packages and they have the returns where you can leave it on your front doorstep and someone will just pick it up for free. And then they also have the delivery drivers, like the last mile, I believe, are instead of being contracted like they are in the United States a lot, it's actual employees of Coupang. Is that a growing... I feel like that for me, you mentioned they focus on... At the end of the day, it's all about improving the customer value proposition. Is that those small little things? Is that where someone like, as you mentioned before, we talked Naver, they can't, they're not going to be able to replicate that. Yeah, of course. I mean, look at just a coupon truck. You could see that the way it's configured, the doors open up on the side instead of the back. You're pulling out boxes of pre-sorted materials.

Starting point is 00:43:28 The whole truck is built just for coupon orders. And the only way you could do that is if you have the inventory upstream that you're organizing in a specific way, and you're kind of building the two operations to go together. And then in terms of actually owning your own delivery force, Yeah, that's definitely true too. And so then you could guarantee quality and consistency there. They have a program called Coupang Flex, where it is more these part-time drivers who can join. And then there's a potential synergy there with people who sign up to deliver for Coupang Eats. You could move them over to the delivery, kind of have the same pool of third-party contractors. But yeah, no, all of that is really important when you can actually control everything and design it for a specific purpose, versus to having to use these off the shelf solutions and make them work the best you can. It is a very different game. And it is too hard for Naver to do this because they just don't have the volumes that would allow them to and they can't get the volumes to do it because they can't offer the same thing coupons doing because they can't do the fast delivery at the same rate. And so they'll never win those customers over in the first place. And so it is a bit of a catch-22. And yeah, for those reasons, which are important to point out, is why Coupang is differentiated there. But it also is somewhat defensible. And then you talked about the packaging. That's right. They do have these cooler boxes that are reusable where all the groceries go in. Very importantly, theft is not really a problem in Korea. So you could just leave packages outside or just leave something to be returned outside. And that's also not an issue. Okay. I have this question in here just to be maybe nice to the listeners, although I think it can be insightful because I'm a little bit sick of this company. And it seems like it was the one that all anyone would talk about in 2020 and 2021. And it's C Limited, another Asian e-commerce operator, although in quite far away, I guess, for some of their core markets. what is the difference between and i'm asking this because a lot of people know the c limited's

Starting point is 00:45:24 business what is the difference between c limited and coupon in your opinion so c limited started as a video gaming company that very early on had a pretty um positive partnership with tencent which allowed them to distribute video games and then they got into uh payments a little bit and then after that, in 2015, I believe, they launched Shopee. And so Shopee was their e-commerce platform. That platform started out as a third-party marketplace. And so we talked a little bit earlier on about the difference between first and third party. Some of the most important things to hit out here is consistency, trust, and then also just selection, and then also the ability to deliver quickly. And so Shopee initially was just basically aggregating all of these different

Starting point is 00:46:11 merchants together. And you would just use regular sort of postal services to ship items out. And so that was the case for a while. They have been extremely savvy at growing their operations. They're very good at gamification, creating sort of reasons to show back up on the platform. And they also had a very popular game that at some point had like, I don't know, something over 750 million users, a game called Free Fire, very popular in Southeast Asia, which is where Shopee mainly operates, this video game they were able to use to try to drive traffic to their Shopee platform. And so they would do promotions like, get a free gun, get some free virtual clothes or something like that if you go and open the app of Shopee five times or something this week.

Starting point is 00:46:56 And that was a very smart and very cheap way to grow that platform. And so they've been really good, very sophisticated operators. But at the end of the day, it is just a different offering until you are going within the full kind of logistics, actually having the inventory in the warehouse, competing on trust, reliability, returns, no excuses. Instead, you're looking at someone who's trying to basically aggregate a bunch of merchants together, trying to, as best they can, patchwork together a sort of consistent experience, but it's just never going to get there. And they started in Southeast Asia. That is not an easy geography to try to compete with logistics because there's a lot of islands, there's a lot of ocean, everything is pretty

Starting point is 00:47:36 spread out. And so it's going to be pretty tough not to dismiss them. They've done a great job. And in Brazil too, they've also spun up a pretty successful operation. But if you were thinking about the spot in the mind of the consumer who is going to Coupang and who is going to buy an item, they are basically saying, I need this. And without much friction at all, they're already thinking of Coupang to purchase that because again, it goes back to trust, reliability, consistency, order ease, selection price, all these things that Coupang has built a habit within the consumer. And it is a different approach Shopee is taking. Shopee is basically saying, we're going to have a bunch of selection. We of course are trying to drive habit and all

Starting point is 00:48:14 that, but it's going to always require some sort of vetting of the product, some sort of vetting of the seller. And there's always going to be a little hesitation there about whether or not the item is going to be exactly what you want, which is fine, especially if it's cheap stuff. And especially if you have nothing, no other alternative. But it is a very different sort of value prop if you're putting them head to head and you have an option. Okay. Just full context here. There's work being done outside my place right now. So for all the listeners, if it gets noisy, I'm going to let Brett probably ask most of the questions from here on out. But I want to at least ask this one. Something that is commonly asked and something

Starting point is 00:48:52 that I think about a lot is that this is already a pretty big business. They have 20 million active customers. That's like 40% of the South Korean population. Some of those might be in Taiwan now. 14 million RocketWow members, that's a big chunk of the Korean population. So it kind of makes you think, how much bigger can this business get? So I guess I'll just leave the question pretty open-ended for you. kind of measure the TAM here? And then how much more upside do you think this business has? Is the ceiling a long ways away from here? How do they grow? What are some other avenues that they can kind of drive revenue? And this is excluding in South Korea. We're excluding other markets.

Starting point is 00:49:37 So I'll give you the Bom Kim answer, and then I'll help contextualize that. And so So Bumkin would say we're still just a single digit percentage of all retail sales in South Korean commerce. And so we have a lot of room to run. If you were looking at actual TAM estimates, like with any TAM estimate, it's very frustrating to pin down a real number, very wide band of errors. And so I was looking at anywhere from 500 to 550 billion South Korean commerce TAM. The numbers they quote, they include travel, they include consumer food services, which I'm not clear exactly if that's restaurants or what else is included in there. And so either way, though, you could pretty confidently say at the lower end, it's at

Starting point is 00:50:22 least 400 plus billion in retail sales. And then you can apply an e-commerce penetration rate to that. They've penetrated pretty high. South Korea is one of the highest e-commerce penetration rates, somewhere around 30%, 35%. And so you could kind of take your estimate from there. You don't need to just look at the online commerce, Tam, because Coupon could theoretically grow that. We haven't mentioned this yet, but offline within Korea, there's not a lot of selection.

Starting point is 00:50:47 Within the US, there's all sorts of specialty stores, everything from Home Depot, AutoZone, Floor & Decor, all these sort of specialty stores that just don't exist in Korea. And so there's much more of these big department stores that just sell everything. So there's less selection there. The prices tend to be higher. There's actually, I'm trying to remember exactly what it was, but there was some sort of legislation that they weren't actually even required to show what the MSRP was for electronic items. And so the department stores were just gouging consumers. And so that is the context

Starting point is 00:51:17 of the offline market, not a lot of selection, high prices. And so the eCommerce offering they have is definitely better than that. Of course, some people will still like offline for some reasons. And so they can grow the online market just very simply, very high level. You're looking at them having somewhere around $35 to $40 billion in GMV. These are my estimates, not their numbers. And you're looking at a TAM that could potentially be close to $400 billion. You don't need to assume a very high percent market share to say that is the room for them to continue to grow. And again, you kind of see this when they're talking about their selection, their need to just really just bring out breadth in some of these categories and make them a little

Starting point is 00:51:55 deeper and bring more products in on the rocket offering. That sort of simple thing is what has continued to allow customers to spend more in the platform every year, which is what they said has continue to happen. Even their oldest cohort of customers has continued to spend more. And so that's the South Korean story. And of course, the price you pay is going to be very important to that because it's not this open-ended growth, but there is definitely opportunity there to grow GMV. And then within growing GMV, you also have the fact that take rates can go up from advertising. Maybe they do raise commissions or eventually you do see them layer on some sort margin on logistics. And also, Coupon Eats is never going to be a very high margin business.

Starting point is 00:52:35 I've not looked too much in depth into different delivery operations, but my understanding is you're usually looking at like a $20 to $25 average order value. And if you could get a dollar of contribution profit off of that, then that's pretty good. And so they would notice that they are unit contribution profitable, but you never know if they're including stock-based comp or what overhead, how they're allocating that. But that's kind of high level is I would really just focus on that core opportunity and then you can layer in some of the other stuff if you want to. Yeah. I like how they look at Coupang Eats as almost a churn reducer or a bundle subscription as opposed to something they're trying to build on their own. But I want to hit, this is I think

Starting point is 00:53:16 the question I was most looking forward to as I knew before we did this, that you had this comprehensive report coming out. And it's the one that I think surprised investors to the positive side last year, and that is their decision to start investing heavily into Taiwan. Correct me if this number is wrong, but they're going to project $650 million in adjusted EBITDA losses in developing offerings next year, most of which, or excuse me, this year, so 2024, most of which is going to come from Taiwan. I think my question to lead into this topic is, Are those losses a good thing right now? And should investors be maybe not happy, but satisfied if they continue over the next few years?

Starting point is 00:54:04 Well, when you say loss, that's the other hand of investment. And so then investment is always judged just basically on how accretive it is. And of course, different people could take different opinions on their time horizon and all of that. And so to the extent someone wanted them to be much more profitable today and just buy back stock or something like that. That could be the case. I would say though that their history and what they've done is that they've experimented with different things. You see they were in Japan and they pulled out of Japan when that didn't work. If it doesn't work, they don't continue to invest in it. And they have noted positive progress in Taiwan. They've noted their rocket offering, which they just launched in 2022,

Starting point is 00:54:43 was growing faster than it was in South Korea when they initially launched. They said that active customers have more than doubled in the last year. And so to the extent that Taiwan has about 25 million people, so it's about half the size of Korea, but also a pretty rich population as well. Similar to South Korea, it's very dense, a lot of people living per capita. And so to the extent that that is also kind of a similar offering that they could roll out in Taiwan, then you're just looking at them potentially expanding the TAM. Taiwan's a little weird in terms of e-commerce, because some of the big players that are in China are not big in Taiwan. And so you have more like Momo instead of Alibaba and JD. And so as far as I know,

Starting point is 00:55:26 there's no one that really does this fully integrated logistics service that is that kind of level of seven-hour delivery. And so I do think that that could ultimately be differentiated. But in terms of good is not really the question I would ask. It's whether or not it's going to work and be ROIC-accretive. And we don't know yet. We don't know yet. But I trust that BombChem wouldn't be investing more money unless it seemed like they saw a path to profitability. Yeah. And really all we can look at right now is what they say on the conference call and then whether revenue growth has accelerated. It's a very small base. It's way smaller than the South Korea one. But I think just for any listener that wants to follow this

Starting point is 00:56:09 company, I think. It's confusing because they don't just say Taiwan's revenue. They don't disclose it very well on the conference call, if at all. So for anyone listening, look at the developing offerings, look at that revenue line and look at that adjusted EBITDA line because that's what they disclosed. And that's kind of how you can track this segment. We have the other stuff in their developing offerings and I included these four because that's what they mentioned in their earnings release, which is the four most important things. We talked about Taiwan, but then there's Coupang Eats, Coupang Play, which is again, their prime video type deal. And then they talked about FinTech. I'm just going to combine those

Starting point is 00:56:47 three. We already talked Eats a little bit, but anything important here from Eats, Play, FinTech that you think listeners should know about? I feel like we've touched on it. Unless we want to get into more detail, it is generally just this sort of idea of offering a bunch within the bundle. These are going to be churn reductions. You get Coupang Play within your habit, okay, you're less likely to churn from the wow. You start getting the discounts on Coupon Eat, you're less likely to churn from it. The fintech offering I'll say a little bit more about, which is they have Coupon Pay. It is only, as far as I could tell, really used on the Coupon platform and Coupon Eats. People like that it gives extra rewards, but it's not used really

Starting point is 00:57:24 offline or anywhere else. And Naver Pay is much more popular. And they renamed actually from Coupon Pay, that subsidiary to Coupon Finance or Financial Services. And so that does suggest potentially broader financial ambitions, but nothing we've seen yet. It would make sense to do some sort of lending to merchants or something like that, but I wouldn't want to see them become very balance sheet intensive.

Starting point is 00:57:45 So hopefully they pass off the actual capital aspect to like a bank or something like that, some sort of affiliate. Yeah, I think I saw somewhere they were having success with like their ticketing platform as well. I don't know if that might get lumped in there. Not sure. I don't know much about that one, to be honest.

Starting point is 00:58:03 I have to look more. Okay. Let me just kind of consolidate all the developing offerings into this question. At what point in terms of EBITDA losses should it make shareholders uncomfortable? Is there anything where you're like, okay. Right now, they're in a situation where they're losing money, but they are much more free cash flow positive than anyone would have expected a year ago. And so this is including the losses that exist. So to me, they've earned that right to go ahead and invest if they want to invest. If you're talking about them now investing to the point that they're now free cash flow negative and they're drawing down on their cash balances, they have $5 billion in cash, $2.5 billion net cash, then you could be looking at a concerning situation. But yeah, that to me is something that I don't think is really an issue here. Right.

Starting point is 00:59:00 Right. That is... I guess we didn't mention it, but balance sheet is, yeah, quite clean. And there was, I think, multiple questions on the conference call or maybe just one about the buybacks which i guess you know the they haven't really done much of that and i guess we'll see what their decision is on that going forward but one thing that you know we tossed some stuff out hey what questions should we ask drew when talking about coupon and multiple people said farfetch and i think the reason is one they acquired this company two i think farfetch didn't

Starting point is 00:59:31 want them to acquire these assets or the company farfetch didn't even admit that they were getting inquired at the time it was highly confusing i'm still confused on it to be honest um so i'm just gonna lead in with it was a merger it was i don't in farfetch's eyes yeah yeah what what a little loose language yeah yeah i think i'm just gonna do a simple what happened what happened here well i is from coupons perspective as far as i can tell it seemed like it was just a good opportunity you're buying four billion of gmv for 500 million dollars so that's like a 0.125 five multiple. Whereas if you look at what was considered like a decent deal for Etsy was when they bought the Reverb platform, they paid half a turn of GMV. And then what was considered

Starting point is 01:00:14 overpriced was about two times GMV. And so this is 0.125 turns of GMV. And so you could say it's on the cheaper side. I think strategically more apparel is just a very important area that they're kind of lacking in. And so the idea is maybe this could help improve our offering there. And maybe it's also just an experiment to the extent to see whether or not they can turn this marketplace to profitability just as a standalone. And it reminds me a little bit of Taobao when they felt like they needed to move higher end. They launched Tmall, but then they kept a lot of Tmall search results within Taobao. And so maybe we see something similar to that, where you're searching a coupon. You want some fashion stuff that's higher end, you could get

Starting point is 01:00:53 forked over to Farfetch. They never said any of that though, but that's roughly what they've said. And they're saying they want it to be standalone profitable soon. I like that investors are clamoring for him to say something because they just randomly put out a press release, I think two months ago, maybe, or maybe even longer at this point. And then on the conference call, he basically went, he had like three sentences on it. And he was like, basically what you just said right here. And then he was like, I don't want to talk about it anymore. We're not talking about it.

Starting point is 01:01:22 We're like, okay, well, everyone's going to ask about it. And you're just going to say, I don't know. Well, Naver owns – it's interesting because Naver does acquired Poshmark, so I don't know if there's also something there. Okay. Oh, interesting. I didn't know that. Okay, let's do valuation. I'll let you take it from here.

Starting point is 01:01:41 Give us some numbers. Paint a picture of what the valuation looks like today, and then do you think it's attractive? Yeah, I mean, you could just look at it as free cash flow to EV or something like that. But you could see that, again, they have like $1.4 billion of free cash flow, $30 billion market cap. And that includes a lot of growth capex for fulfillment, as well as several hundred million in these developing offering losses. And so to the extent that you believe that free cash flow they have now is attractive, then that could make sense. And you could look at it multiple ways, looking at the TAM of e-commerce within South Korea, whether or not you believe they're going to continue to expand wallet and spend per buyer

Starting point is 01:02:25 as well as buyers, then you could do the math on that. I'm always a little shifty when people ask me about valuation. So if you go into the report, we'll do a reverse DCF on that, which will show you the exact assumptions and the associated perspective return with that. Beautiful. Yeah. And for listeners today, yeah, I know we try to keep it short on you know podcasts everyone's gonna have differing opinions and it's hard to even do when you're talking in the discussion but i'll just for reference for listeners mark caps about 33 billion dollars and they have uh that you know five billion dollar cash position as drew mentioned kind of one way i look at it is you know is there a scenario where they're generating three four

Starting point is 01:03:07 five billion dollars in free cash flow within a couple years you know that that scenario seems somewhat likely to me obviously it's not you know guaranteed and that kind of leads into our final question that we try to ask when we talk about a specific company is, you know, you did the long research report on Coupang. There's a lot of things to like about this business. But if someone was buying shares right now, what do you think could go wrong? How could they lose money over a, you know, obviously not in the next month, but over a five-year time horizon? Yeah. I mean, ultimately, if you're talking about risk within the business model. It could just be competition. Naver gets their stuff together. People find that

Starting point is 01:03:50 the friction on Naver is not so much that they're willing to buy it. A lot of people report they can find cheaper items on Naver. And so to the extent price sensitivity becomes more important, maybe the Naver Alliance does become pretty consistent in shipping out products. And then they offer some sort of blanket return policy. And that together is maybe enough to convince some consumers to leave coupon and purchase on Naver. Maybe you start to see the flywheel unwinds a little bit. Some of the density that they benefited from is no longer there to the same extent. And so you see them losing operating leverage. Another competitor could come out. Maybe Timu is successful at cutting out the low end and they subsidize a lot of stuff and maybe even

Starting point is 01:04:28 teaming up with Naver to kind of piggyback off of their listings and offer more stuff on their platform. All these are a little far-fetched. But yeah, I mean, ultimately, there are things that could happen within the business where it's not operating at the same level where it's generating the same amount of cash flow um these aren't going to be the most convincing risks though and i i see that bomb kim could leave that would not be a positive that would say also yeah something with government action uh especially if you're looking at korea it hasn't always been so i don't know capitalistic if you will and there is definitely a push periodically for more pro labor policies and so to the extent you have tens of thousands of workers there could be something

Starting point is 01:05:08 where you want to provide them more benefits. There was a fire at a warehouse a few years back at Coupang. And so that raised some conversations, but it's mostly died down since now. And then I guess you're just spending money poorly, allocating it to different investments, different geographies that don't end up paying off. Right, Farfetch.

Starting point is 01:05:29 I mean, the company is doing pretty bad. So, you know, I guess that, yeah, that could turn out poorly, something like that. Although that's not going to kill the business unless they just pour money into it. well this has been a wonderful discussion it is speedwell research i think people can find that but for any specific links where where would you direct any listener that wants to you know learn more about your work or specifically this company yeah you can become a speedwell member at speedwell

Starting point is 01:05:57 research.com we'll put a link in the show notes if you want to just purchase the single coupon report but if you do want to become a full member you'll get that report and all of our other reports as well. And if you just want more free content, you could go to speedwallmemos.com. We write these short investing and business memos. And for a podcast, check out the synopsis. We'll do in-depth company descriptions, breakdowns, as well as dialogues. And I'll also read some of the article memos we have if you prefer to listen to those instead of read them. Beautiful. Okay. Let me hit the disclosure and we'll get out of here. We are not financial advisors. Anything we say on the show is not formal advice or recommendation.

Starting point is 01:06:34 Ryan, I, or any podcast guests may hold securities discussed in this podcast, may have held them in the past, and may buy, sell, or hold them in the future. Thank you, everyone, for tuning in. We'll see you next time. Boom.

Chit Chat Stocks - Is Coupang Stock Really The Next Amazon? (Ticker: CPNG)

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