This article first appeared on Simply Wall St New.
Over the past decades, the growth of online retailing has been nothing short of astonishing. While global players like Amazon have grown into multi-billion dollar giants, regional players have risen to conquer niche markets.
After a launch in 2010, Coupang ( NYSE: CPNG ) has grown into South Korea’s largest online retailer, focusing on speed of delivery. The company claims that 99% of its orders are delivered within 24 hours.
Yet after the IPO debuted in March, the stock has fallen steadily, followed by lackluster earnings reports.
Since the business remains unprofitable, shareholders should pay close attention to its consumption of cash. For this article, we’ll define cash consumption as the amount of cash the business spends each year to finance its growth (also known as negative free cash flow)
Second Quarter Results
GAAP EPS: -0.30 US $ (shortfall of 0.16 US $)
Returned: $ 4.48 billion (beat $ 50 million)
Gross profit: US $ 658 million (+ 50% year-on-year)
The overall outlook remains mixed, with Deutsche Bank joining the bull club and upgrade stock to buy after having it as a holdback – citing revenue growth even through the capacity constraints of the pandemic.
Will Coupang run out of money?
As of June 2021, Coupang had $ 4.3 billion in cash and debt so minimal that we can ignore it for this analysis. Looking at last year, the company spent $ 625 million.
Therefore, as of June 2021, he had 6.9 years of cash flow. Notably, however, analysts believe Coupang will break even (at the level of free cash flow) before that date. In this case, he may never reach the end of his cash trail. Shown below, you can see how his cash holdings have changed over time.
How much is Coupang growing?
Coupang has provided a strong boost to investment over the past year, with cash consumption up 75%. Overall, we would say the business is improving over time.
Obviously, however, the crucial factor is whether the company will expand its business in the future. For this reason, it makes perfect sense to take a look at our analyst forecasts for the company.
Can Coupang easily raise funds?
There is no doubt that Coupang appears to be in a good enough position to manage his cash consumption, but even if this is only hypothetical, it is still worth considering how easily he could raise more money for finance its growth. Generally speaking, a listed company can raise new liquidity by issuing shares or going into debt. Many companies end up issuing new shares to finance their future growth. We can compare a company’s cash consumption to its market capitalization to see how many new shares a company would need to issue to fund a year’s operations.
Since it has a market cap of $ 54 billion, Coupang’s $ 625 million in cash consumption is equivalent to about 1.2% of its market value. the issuance of a few shares.
Is Coupang’s cash burn a concern?
Overall, we are relatively comfortable with the way Coupang uses its cash. For example, we believe that its revenue growth suggests that the business is on the right track. The article more than makes up for the weakness of this measure. It is clearly positive to see that analysts expect the company to break even soon enough.
Considering all the factors in this report, we are not at all worried about its consumption of cash, as the business appears well capitalized to spend as needed. A thorough examination of the risks revealed 2 warning signs for Coupang which readers should consider before committing capital to this stock.
Sure, you might find a fantastic investment looking elsewhere. So take a look at this free list of companies that insiders buy, and this list of growth stocks (according to analysts’ forecasts)
Simply Wall St analyst Stjepan Kalinic and Simply Wall St have no positions in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative material.