3. Coupang, Inc. (NYSE:CPNG)
Value of Bill & Melinda Gates Foundation Trust’s 13F Position: $157 million
Analysts’ Average Upside Estimate: 39.2%
Hedge fund ownership of Coupang, Inc. (NYSE:CPNG) jumped by 16.1% during Q3 to hit an all-time high, with the Bill & Melinda Gates Foundation Trust maintaining its 9.25 million share position in the South Korean e-commerce company. Lee Ainslie’s Maverick Capital owns an enormous position in CPNG as of the end ofQ3, holding 77.1 million shares worth $1.31 billion. The fund’s success is heavily dependent on Coupang’s performance, as it has 29.6% 13F exposure to the stock.
Bank of America and Mizuho each lowered their price targets on Coupang, Inc. (NYSE:CPNG) to $20 from $22 in early November, which still represents greater than 25% upside. Bank of America declared Coupang to be one of the best-run companies that it covers, but expects the higher interest rate environment to weigh on demand. Mizuho cited the stock’s valuation premium as reason for caution.
The Baron Global Advantage Fund shared some of Coupang, Inc. (NYSE:CPNG)’s revolutionary productivity improvements in the fund’s Q3 2023 investor letter:
“Coupang is a leading Korean e-commerce company founded in 2010. It went public in March of 2021, and we have been investors in this Fund since the IPO. After spending half a day with management, touring the company’s fulfillment center, asking questions, and learning more about the reasons behind the remarkable success the company has achieved over the last 13 years, we decided we wanted to own it in this Fund as well. When we originally invested in Coupang, our thesis was constructed around the company’s wide product selection, low prices, and unrivaled convenience thanks to its investments in an end-to-end infrastructure that covers over 70% of Korea’s population, enabling over 99% of orders to be delivered within one day or less, rather than the industry norm of two to three days, driving customer satisfaction, which translates to higher customer retention rates and lifetime value. We thought that Coupang would continue to gain market share in the U.S. $500 billion-plus Korean retail market, while expanding its offerings into additional categories, expanding its ecosystem via a third-party marketplace, and continuing to invest in infrastructure density to further capture inefficiencies, enhancing the customer experience, and improving profit margins. The company has since outperformed our expectations, growing its market share to 25% (#1 in the industry), despite not being a first mover, while building an unrivaled user experience with 99.8% of products delivered the next day (with the majority of them by dawn) and becoming profitable significantly faster than we expected. Our biggest takeaway from the visit was that despite all of Coupang’s success, there is still a long runway of growth ahead. For example, while most of the facility we visited is operated with pickers going to shelves to pick up items for orders, there was one room in which shelves drove themselves to pickers on the back of autonomous robots, which increased picker productivity by 3x. Additionally, while Coupang has been striving to reduce its reliance on distributors, which enables them to expand margins while lowering prices for consumers, a significant opportunity remains for further reduction. Lastly, we got plenty of examples of out-of-the-box thinking (no pun intended) from the company’s singulation process (improves the picking process by reducing the constraint to search for items order by order), decreasing use of boxes (80% of shipments are now boxless), enabling grocery delivery without cold-chain logistics (thanks to end-to-end supplychain efficiency), or how Coupang is able to fill trucks so that each carries more than 2x the parcels a UPS or a FedEx truck can, despite being half the size. The 4% free-cash-flow yield, which is also negatively impacted by the significant reinvestments the company is making into its emerging offerings, also contributed to our decision to add to our Coupang position upon returning to New York.
