What Happened: Shares of e-commerce marketplace Coupang (NYSE:CPNG) jumped 11.4% in the afternoon session after the company announced it would raise its WOW membership (paid membership service) by 58% to 7,890 won. The new fee will apply to new members beginning April 13, 2024, while existing members will start paying the higher fee in August. Notably, Coupand had 14 million WOW members at the end of 2023. Following the announcement, Morgan Stanley analysts added, "Assuming no change to the 14 million WoW members as reported at end-2023, the higher fee equates to almost W490bn in incremental annual revenue, which should fall through to the EBITDA line. In USD terms, this equates to nearly US$360mn in higher annualized EBITDA, which we see driving 10% upside to our 2024e adjusted EBITDA (assuming 5 months' contribution this year), and 16% upside for 2025e."
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What is the market telling us: Coupang's shares are somewhat volatile and over the last year have had 11 moves greater than 5%. But moves this big are very rare even for Coupang and that is indicating to us that this news had a significant impact on the market's perception of the business.
The biggest move we wrote about over the last year was about a month ago, when the stock gained 12.6% on the news that the company reported fourth-quarter results with revenue exceeding expectations, driven by strong outperformance in its Developing Offerings segment ($273 million of revenue vs estimates of $234 million). The Developing Offerings segment includes its Taiwan operations, food delivery, video streaming, and fintech solutions. Management noted it is seeing especially good momentum in Taiwan, with customers and revenues more than doubling over the last two quarters alone. We were also glad its 21 million active customers (14 million WOW members) topped Wall Street's estimates of 20.6 million. Coupang shared that its revenue growth would have been 9.4% higher without the accounting change it made in Q2 2023 concerning its fulfillment and logistics revenue.
On the profitability side, Coupang blew past analysts' EBITDA, EPS, and free cash flow projections. The company has now posted five quarters of positive free cash flow in a row, showing it's gaining leverage on its fixed cost base. During the quarter, Coupang acquired Farfetch (OTC:FTCHF), the leading e-commerce platform for luxury goods, by extending it a $500 million bridge loan that wiped out its equity holders. The deal initially scared investors, but the panic seems to have died down after receiving more color this quarter. CEO Bom Kim stated he wasn't actively seeking to acquire a company, but the deal was too attractive to pass up as Coupang bought Farfetch for pennies on the dollar because it faced bankruptcy risk. In the aftermath of the deal, Coupang has stripped out redundant costs and removed Farfetch executives, making progress on its plan for Farfetch to break even from a profit perspective with no additional investments. Management implied that the Farfetch integration is not detracting from the company's focus on its core business.
Overall, this quarter's results seemed fairly positive, and shareholders should feel optimistic about the company's direction.
Coupang is up 35.2% since the beginning of the year. Investors who bought $1,000 worth of Coupang's shares at the IPO in March 2021 would now be looking at an investment worth $431.68.