Coupang stock forms a risky pattern, pointing to a post-earnings dive

Coupang (CPNG) stock price has done well this year, rising by 56% since January, beating popular indices like the Nasdaq 100, S&P 500, and the Dow Jones. It has also outperformed other popular technology companies like Amazon and MercadoLibre.

Coupang is a fast-growing company

Coupang is a top company in the e-commerce industry, where it operates the most popular brand in countries like South Korea, Japan, and Taiwan. 

Over the years, the company has expanded its solutions to include Rocket Delivery and Farfetch, which it acquired earlier this year. It hopes that Farfetch, a loss-making company, will help it become a leading player in the luxury fashion industry.

Coupang, like other companies in the e-commerce industry, has also expanded its business to the advertising market. This is one of its fastest-growing and highest-margin business since it lets sellers on its platform boost their visibility. 

Coupang’s business has been growing, with its annual revenue moving from $5.83 billion in 2022 to $7.11 billion last year. 

This growth has continued in the past few years. The most recent financial results showed that its revenue rose by 25% YoY to $7.3 billion. Part of this revenue growth was because it included FarFetch. Excluding the company, its revenue was up by 18%.

This growth happened as the number of customers in its platform jumped from 19.4 million in Q2’23 to 21.7 million last quarter. Most of its growth was because of more spending by its existing customers. 

The company’s margins also continued doing well, with the gross margin moving to $2.1 billion. This gross profit margin rose by 310 bps during the quarter. 

A key challenge for Coupang is how to operate Farfetch profitably since the company lost about $500 million in the first half of 2023. In the last earnings call, the management noted that its developing offerings would have an EBITDA loss of $750 million this year. The management said:

“On Developing Offerings last quarter, we updated our full year guidance of adjusted EBITDA losses of roughly $750 million this year, including Farfetch.”

Coupang earnings ahead

The next important catalyst for Coupang will be its earnings, which are scheduled to happen on Tuesday.

Analysts expect that its business continue firing on all cylinders during the quarter. Precisely, they expect that the revenue rose by 30% to $7.76 billion. Part of this growth will be because of its Farfetch business. 

Analysts also expect that its fourth-quarter revenue guidance will be $8.25 billion, a 25% increase from the same period last year. For the year, analysts expect that its revenue will be $30.4 billion, followed by $35.75 billion in 2025.

Analysts also believe that Coupang stock is fairly undervalued. For one, it has a strong balance sheet, with over $5.53 billion in cash and short-term investments. It ended the last quarter with $254 million in restricted cash and $2 billion in inventories.

Most notably, it has little debt, with short-term borrowings of $336 million and long-term debt of $1.04 billion. Most of this debt came from its Farfetch buyout.

The challenge, however, is that Coupang has lower margins than some of its peers. It has a gross profit margin of 27% compared to MercadoLibre’s 55%. Its net income margin of 3.8% is much lower than MELI’s 8.8%. 

The average Coupang stock price forecast is $28.5, about 12% higher than the current level. Some of the most bullish analysts are from companies like Bernstein, CLSA, Morgan Stanley, and UBS.

Coupang stock analysis

Coupang chart by TradingView

Coupang share price has done well as I predicted in my last report on the company. It jumped and reached the year-to-date high of $26.35 last week.

The daily chart shows that it has formed a double-top chart pattern at $26.25. In most periods, this is one of the most bearish patterns in the market.

Coupang has remained above the 50-day and 100-day Exponential Moving Averages (EMA), meaning that bulls are in control for now. 

Therefore, because of the double-top, there is a risk that the stock will drop and retest the 50-day moving average at $24.51, which is about 4% below the current level. A drop below that swing could see it fall and retest the support at $23.73, its highest level on May 7, which is 6.70% below the current level.

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