CPNG 11/19 32.50c earnings play? Earnings expected 11/10

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Ticker: CPNG

I’m new to options and still learning my fundamentals but with some money to spare I want this to be my first big play. It’s a holistic approach I’m taking to DD and if anyone would like to get into the nitty-gritty of the financials, I’d appreciate it. But here’s my framework, a holistic approach, as I’m looking to make this trade within the next few days.

The Cons
This stock has been disappointing since it’s IPO in March ($35). It’s been tagged as the “Amazon of Korea” except it doesn’t have Amazon’s cloud revenue and it’s branched off into food and grocery delivery. There is some plans for expansion into Japan and south east Asian countries but most of their revenue is generated in Korea.

They have released 2 earnings reports that have underwhelmed the market, mainly because they don’t turn a profit. Q2 was the worse because they brought in over $4.5B in revenue, but operating losses 5x to $515M. A fire in one of their distribution plants had a lot to do with it.

So far so great, huh?

Well here’s some pros arguments.

The Pros

  1. Internet traffic is up significantly. Q3 traffic was up to 101.3M, a 650% jump from 13.5M last Q3. Korean retail is rebounding from the pandemic and although vaccination rates are slowly catching up to other G20 countries, their daily case counts remain extremely low. Even with the economy opening up, Coupang has become as ubiquitous as Amazon has in Korea. In September, Korea celebrated their Thanksgiving which I believe will lead to a bump up in revenues if it correlates to their traffic.

  2. Q4 guidance should be positive. The winter holidays, and especially the new year, are boom times for Coupang and with increased market share, any guidance they provide should be bullish. The caveat being the supply chain issues and increased input costs felt by companies globally right now.

  3. Political headwinds have eased. During Q3, the Korean government began mimicking China with threats of cracking down on tech companies. Since those remark, the government has backtracked and said that it has no immediate plans to pass new regulations for internet platform companies.

The Caveats
So far, CPNG hasn’t turned a profit and won’t for the foreseeable future. What makes this quarter any different? A quick survey of the internet suggests analysts expect earnings to be about -$0.15 and PTs ranging from $36-$46.

Based on the increase in web traffic, I believe revenue should greatly exceed expectations. Q2 was a disappointed due to the fire and labour issues, and have since been mostly resolved.

The great variable here is how much the push into food and grocery delivery is eating into income. Significant investments, and low margins, to capture market share is the narrative here but is it already priced in to market expectations?

I put my entry into the topic title because these calls are trading at less than $0.50. The shares saw a low of $25 but are now trading above $28. I’m hoping to buy now with the anticipation of a push up above $30 (which it held until this month) and then try to sell in the first week of November (to give me that cushion before earnings - thanks, JB and Conq!).

Apologies if this post seems elementary. I’m very much a rookie but I’m looking at this trade as a sink-or-swim lesson that is not a YOLO at all. Any advice and feedback is much obliged.

Applicable links to news articles or Reddit analysis:

https://www.reuters.com/breakingviews/coupang-loses-investors-winding-path-profit-2021-08-13/

https://www.nasdaq.com/articles/the-relevance-of-web-traffic-for-these-2-internet-stocks-2021-10-15

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this is great.
Also forming nice cup and handle now.
COVID shopping will boost their earnings.

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Entry at that 25.75/26 double bottom would have been much better entry time. I haven’t read this but will look tonight. Thanks for posting.

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Thanks, JB! Really trying to work on entry points and hopefully be able to recognize them better. Learning so much from you guys

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Chart looks good but I think you’re entering into the peak. I would wait for the reversal before entering.

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did you play this and sell today or yesterday for a profit?

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i took a page from Tedro and looked for a pullback. i have 40 calls for 11/19 32.50 strikes. it’s already up 6 cents per contract on a good entry. i was looking to add more, round off to 100 if they shares fall close to 28 again. i’d be grateful for any guidance and feed back.

love that you’re killing your scalps btw

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I just updated my position to 100c 11/19 32.50. Average cost price of $0.5942. Volume is still really low in comparison to it’s daily averages.

Looking for earnings from AMZN, SHOP, MELI and how the markets react. Hopefully bullish!

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sorry to keep this thread alive with constant replies. just some articles on confirmation bias:

  1. This article from Korea supports the thesis that 2021 3Q results will be the best ever, a lot of contribution from the Korean Thanksgiving holiday. However they are spending more than ever before. Also an unsubstantiated claim in the article that earnings will be released next week, still no news on the IR front.

https://pulsenews.co.kr/view.php?year=2021&no=1012914

  1. This article notes that SoftBank, the biggest investor in CPNG, stakes almost all of it’s $15B stake for a margin loan. Loan proceeds expected to be $1.5B. This was done in late September, about the time that 3Q results would have been coming in. A bit of support that SoftBank is risking a margin call against their CPNG stake unless they expect the earnings report to at least maintain current stock price? Just an educated guess.

https://finance.yahoo.com/news/softbank-vision-fund-borrows-against-171709607.html

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update: CPNG has confirmed earnings for 11/11 after hours. also, after a few days of consolidation it finally broke the $30 resistance level today, which was it’s prior support level from Aug. 27 - Sept. 7 before breaking down to the double bottom.

would definitely like to see a few more days above the $30, test $30.62 and breakthrough $32 a couple of days before 11/10. right now my 100 11/19 32.50c are up over 30%. IV is still only 60% and theta only at -.0.04 so feeling like letting the thesis playout a bit more before i start scaling down and taking profits. thanks for all the help and guidance. this forum has been invaluable and hopefully i can lock down a big win with all i’ve learned here

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In accordance to that, the relation to earnings and market reaction has been a mixed bag hasn’t it, how does that play into your opinion of this play?

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yes, so far AMZN and SHOP, both similar online platforms for retailers, have had mixed market reactions to earnings. to answer your question i’m waiting on earnings this week from some other comparable companies later this week.

AMZN disappointed on both the top and bottom line and guidance was negative given the continued supply constraints, especially coming out of China. the share price has been down over 2% but came back from a dip at 5% AH/PM when earnings were released.

SHOP also disappointed but was already in the correction phase before earnings were announced. also, forward looking guidance was a bit rosier than AMZN. since then, SHOP has recovered nicely and is up over 5%.

But these are mainly North American markets we’re dealing with that are significantly effected by supply chain blocks in China. this week will give us a better understanding as to how other regionalized companies are dealing with supply chain issues and two of them are being announced before CPNG so it may be a better indication on how the market will digest earnings.

Mercardo Libre (Latin America) MELI - 11/04
Alibaba (mainly China and worldwide) BABA - 11/04
Sea Limited (mainly Southeast Asia) SEA - 11/16

While I can’t find too much info on Korean companies stating that China’s supply chain issues are hindering future growth, there is also no information regarding backed up ports like LA and Long Beach. Furthermore, the distance travelled from China to Korea by freight is considerably less than their North American counterparts but how that impacts transportation costs requires some more digging.

i still expect earnings to be bullish given the Korean thanksgiving holiday that just passed. Revenue for the quarter hopefully above $5B and if EPS comes under -$0.15 to maybe -$0.12 (yes, they have still to return a profit) might see it jump like SHOP?

volume is still abysmal at around half the average volume. but taking guidance from the gods here, if my position is ATM or ITM prior to earnings i will be taking profits and reducing my position. then, if the upward trend continues, to hold onto a smaller stake through earnings and pray that CPNG blows the market away!

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Thanks for the detailed reply! That makes sense.

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here’s an article i found that’s not that great - discusses an expired returned item. but the more interesting item is the last paragraph of the article:

“Coupang became Korea’s second-most-used e-commerce firm after Naver in the third quarter of this year. According to market researcher Wiseapp on Tuesday, customers spent 24.6 trillion won on Coupang’s platform during the first nine months of this year, up 57 percent year-on-year.”

tried navigating Wiseapp but you have to pay to see their reports. The key here is that in the 3rd quarter, CPNG’s became the second-most used e-comm platform in Korea. Another nice indicator for strong earnings for 3Q

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I think its been this way for awhile now. Naver has been number 1 because its one of the oldest, provides a lot of diversity in products, and they are trying to speed up delivery times. Gmarket (used to be owned by ebay) is usually top contender as well but coupang took that away from them. All coupang really has is its speedy delivery service(same day midnight/early morning delivery). I live in Seoul currently and seen a drop in coupang usage in my neighborhood. Its really easy to tell because their trucks, drivers, boxes have their logo all stamped everywhere. Their midnight/early morning deliveries I dont see as much anymore. You would see boxes and trucks everywhere before all the negative news. There is a couple other small start ups popping up taking away parts of coupangs market away, such as grocery delivery. Personally I love them and bought shares when they first ipo. But lets say you have two options. You can buy something cheaper and wait a day or get it from coupang and get it within half a day but possibly for a little more then avg price.

I think the korean thanks giving would help but im not sure if it would be enough. This is just based on what I can see here but I would be happy to be wrong. There is a list of things culturally that you must or typical to buy around this holiday and theres better places to buy them. Coupang would be used for lazy or just last minute purchases. The past couple months Koreans have been stressed with the restriction due to covid so they have been going out and gathering a whole ton. So instead of depending on coupang they rather get a better deal or find a item more to their liking at the near by store.

I see their food delivery business growing a lot right now. They are taking market shares away from the top 2 players in that market. Not exactly sure how it works or affects revenue but they have been steadily increasing delivery prices for majority of places. What used to be free or couple dollars is now double the price for most. Probably inflation cause other services are doing the same.

They released a streaming service not to long ago, but have no idea about this one. All I know is they been adding a lot of k-dramas, western media, live sporting events. The streaming service is included with membership. From my knowledge the biggest things for coupang is their logistics network.

Sorry for the essay, just wanted to try provide more information then just its the amazon of korea. I really do hope that it can beat estimates or something so i bought a small amount of shares. But from what I observe, its just not the case.

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thanks for the reply and grateful for including so much detail! so good to know what’s happening on the ground since we can’t really tell from here 5000 miles away. real-time observations and an informed opinion from someone that uses their services so valuable. the dip in visibility, especially in Seoul, is sort of cooling my bullish sentiment on them. the biggest takeaway from what you stated about covid-fatigue and people out more is something that has affected retail here as well.

i may just take profits earlier if this run above $30 continues. after today’s close my position has a 21% gain so not too bad. couple of questions if you have a chance time to respond would be appreciated:

1.Have you seen a shortage in anything you’ve ordered from Coupang or other online purchases? How was the supply constraints in China effected delays, items out-of-stock?

  1. Do Koreans spend a lot during this last quarter? I know the Lunar New Year is a big holiday but that’s falling in Q1 2022 so I’m wondering if they will have optimistic guidance for the last quarter?

thanks again for taking the time to respond!

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I dont think there’s a shortage in anything really besides the typical GPU, ps5,etc. When something gets sold out then it gets restocked pretty quickly. If the distribution centers arent able to restock then there’s always other sellers within coupang. I believe stock is distributed fairly equally between all competitors of the market so everyone gets a chance. For example if i wanted to buy a ps5 theres like 30 large retailers selling it, then additional 20 small retailers, etc. So no company can monopolize anything. Because of this coupang has been creating and pushing their own brand of things. They are fairly decent products at a better value i believe most of the time. Not sure if they sell a lot but i see a decent amount of reviews on some of the products (usually couple hundred to thousands).

I honestly dont know if there is any supply constraints due to china but everything i ever bought that made in china has always been in stock, in abundance. From what my chinese friends tell me, its pretty much normal there. Production and what not is constantly going at its pre covid pace. Coupang added overseas shipping/purchases to its service this year i believe. So I can buy products from china or US directly. I havent tried it yet though cause shipping would probably take a while. It seems like they have a deal with someone so they handle all the logistics and even the tax/duty stuff.

Koreans are probably spending a lot since the last quarter. We have gotten something similar to a stimulus. I know ive been overspending lol. Theres also certain amount of debt and credit card forgiveness from the government. Typically the korean holiday is when you spend a lot on food and gifts. I think the people here are getting more into American holidays such as Halloween and Christmas. Just the other day I noticed thousands of people going out dressed up (this wasnt as huge before but growing). So if earnings this time isnt too bad then i would expect it to increase for next quarter. Another thing that could help this is that the culture is changing towards more materialistic i guess. People are spending way more then they should, its to the point i question how many of these people will survive in retirement. I think coupang is a long term hold for me. Not sure if i remember this correctly but the expansion is not just japan but south east asia as well. Countrys like vietnam would take up coupang extremely well.

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thanks again for taking the time to respond and providing invaluable insight. Coupang was just an earnings trade for me but the more i flesh it out i wouldn’t mind holding LEAPS as well.

i think everyone’s becoming a bit more spend-happy around the world! we were locked down for too far here in Canada.

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Just to follow up, for comparable earnings release:

  1. MELI has announced today at 4:30PM EST
    MercadoLibre Q3'21 Earnings Call | MercadoLibre, Inc.

  2. BABA has not announced although on NASDAQ website showing today so probably not today

  3. SE plans to release 11/16 7:30AM EST
    https://cdn.sea.com/webmain/static/resource/seagroup/website/investornews/3Q2021/yxFnXPEdMmM4ThcX/2021-11-02%20%20Sea%20Limited%20Third%20Quarter%202021%20Announcement%20Date.pdf

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A lot of buys for calls here thats the december 17th 35

Also looks like MELI just beat earnings

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