Vipshop Holdings Limited (VIPS) and Coupang, Inc. (CPNG) are prominent players in the growing e-commerce sector in Asia. China-based VIPS is an online discount retailer that operates through the Vip.com, Shan Shan Outlets, and Others segments. CPNG is an e-commerce business operator in South Korea that offers various products and services home goods, beauty products, groceries, and electronics categories, in addition to delivery services, among others.

The Asian e-commerce industry has experienced exponential growth amid the COVID-19 pandemic, bolstered by the increasing online shopping activity and advancements in  delivery systems. The shift in consumers’ shopping behavior regarding  online purchasing has helped major players in the Asian e-commerce market—including JD.com, Inc. (JD), Pinduoduo Inc. (PDD), and Alibaba Group Holding Ltd (BABA)—to generate considerable revenues and profits over the past year. While VIPS and CPNG have also been beneficiaries of the industry’s exponential growth, they look relatively less appealing now given their weak financials.  And we think the competitive landscape could negatively impact the market shares of these two companies and impact their near-term growth prospects.

Over the past month, VIPS has lost 9.7%, while CPNG has declined 20.3%. Let’s find out if any of these stocks is a good pick now.

Click here to check out our E-commerce Industry Report for 2021

Latest Movements

In March, VIPS’ board of directors authorized a share repurchase program under which the company will  repurchase up to $500 million of its shares over a two-year period. The program could drive  an increase in the company’s earnings over the long term. However, VIPS expects to fund the repurchases from  its cash on hand.

On March 11, CPNG went public through an IPO and began trading under the ticker symbol “CPNG” on the New York Stock Exchange. Also in March, the company announced an early stock lock-up agreement release for approximately 34 million shares held by employees. CPNG’s CEO, Bom Suk Kim, liquidated 1.2 million shares for $42 million through a secondary offering along with the  IPO, at $35.00 per share.

Recent Financial Results

VIPS’ revenue increased 22% year-over-year to RMB35.8 billion (US$5.5 billion) in the fourth quarter ended December 31. Its operating income grew 45.9% from its year-ago value to RMB2.6 billion (US$396.9 million). However, VIPS’ gross margin was 21.9% for this period, compared with 23.9% in the prior year period. Also, the company reported RMB1.7 billion (US$261.1 million) of marketing expenses, compared with RMB944.1 million in the fourth quarter of 2019.

In the first quarter, ended March 31,CPNG’s revenues increased 74% year-over-year to $4.21 billion. Its gross profit rose 70% from the year-ago value to $733 million. However, its gross profit margin was 17.4% compared to 17.8% in the prior year period. The company reported a $295 million net loss, due primarily to higher operating, general and administrative costs. Also, it reported an adjusted EBITDA loss of $133 million for this period, compared to a $42 million loss in the prior year’s quarter.

Expected Financial Performance

VIPS’ revenue is expected to rise 22.6% in the current year and 14.2% next year. Also, a consensus EPS estimate is for an 18.3% increase in fiscal 2022.

In comparison, the Street expects CPNG’s revenue to increase 62.1% in its fiscal year 2021 and 36.7% in its fiscal year 2022. The company’s EPS is estimated to increase 22% in the current year.

Profitability      

VIPS’ trailing-12-month revenue is 1.13 times CPNG’s. Also, VIPS is more profitable with a 20.9% gross profit margin versus CPNG’s 16.6%.

VIPS’ 5.8% net income margin compares favorably with CPNG’s negative returns.

Valuation

In terms of trailing-12-month Price/Sales, CPNG is currently trading at 4.59x, 321.1% higher than VIPS, which is currently trading at 1.09x. Also, its 4.40x trailing-12-month EV/sales is 358.3% higher than VIPS’ 0.96x.

POWR Ratings

Both VIPS and CPNG have overall C ratings, which equates to a Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

In terms of Value Grade, VIPS has a B, consistent with its lower-than-industry P/E ratio. In comparison, CPNG has a C, which justifies its higher-than-industry EV/Sales ratio.

Both VIPS and CPNG have C Quality Grades, given their lower-than-industry gross profit margins. Also, both VIPS and CPNG have a C grade for Momentum, which is in sync with their negative price returns over the past month.

Of the 76 stocks in the F-rated China group, VPS is ranked #13. CPNG is ranked #35 of 71 stocks in the D-rated Internet industry.

In addition to the grades we’ve highlighted, our POWR Ratings system has also rated  VIPS and CPNG for Growth, Stability and Sentiment. Get all VIPS ratings here. Also, Click here to see the additional POWR Ratings for CPNG.

The Winner

Both VIPS and CPNG might benefit in the long run given the sprawling Asian e-commerce market and their differentiated offerings. However, we think that their inadequate financials and low profitability in an intensely competitive market do not make them good investment bets right now.

Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the China group. Also, you can access all the top-rated stocks in the Internet industry here.

Click here to check out our E-commerce Industry Report for 2021

CPNG shares were trading at $34.12 per share on Monday morning, down $2.31 (-6.34%). Year-to-date, CPNG has declined -30.72%, versus a 11.52% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...

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