Disclaimer: The stocks mentioned in this newsletter are not intended to be construed as buy recommendations and should not be interpreted as investment advice. Stocks mentioned in this newsletter should only end up in your own portfolio after you conduct your own research and due diligence. I encourage everyone to do their own research and due diligence before buying any stocks mentioned in my newsletter. Please manage your own portfolio and position sizes in accordance with your own risk tolerance and investment objectives. At the time of writing, I have positions in Amazon and Coupang.
Amazon – The Parent https://www.amazon.com/
Coupang – The South Korean Wizkid https://www.coupang.com/
Ozon – Russia’s biggest grower https://corp.ozon.com/
What is e-commerce?
E-commerce is the buying and selling of goods or services via the internet, and the transfer of money and data to complete the sales. You will often hear people use terms like B2B, B2C, D2C and they will assume that you know what they are talking about. It is honestly very simple. B is for Business; C is for Consumer and D is for Direct
Business to Consumer (B2C): This is the most popular. Where business sells to a consumer. Think Woolies, PnP.
Business to Business (B2B): Here businesses sell to each other. These are not consumer-facing platforms. It’s often raw materials or software.
Direct to Consumer (D2C): Direct to consumer e-commerce is the newest model of e-commerce. D2C means that a brand is selling directly to its end customer without going through a retailer, distributor, or wholesaler. Subscriptions are a popular D2C item, and social selling via platforms like Instagram, Pinterest, Facebook, Snapchat.
Consumer to Consumer (C2C): C2C e-commerce refers to the sale of a good or service to another consumer. Consumer-to-consumer sales take place on platforms like eBay, Etsy, Fivver.
Consumer to Business (C2B): Consumer to business is when an individual sells their services or products to a business organization. C2B encompasses influencers offering exposure, photographers, consultants, freelance writers, etc.
You will notice that I have not mentioned our three monsters in the above definitions, because what have they done? They have gone and merged all the above in their strategies and platforms. No wonder they are monsters.
Some examples of types of e-commerce:
- Retail: The sale of products directly to a consumer without an intermediary.
- Dropshipping: The sale of products that are manufactured and shipped to consumers via a third party. (This is a very lucrative side hustle. Remind me on another day)
- Digital products: Downloadable items like templates, courses, e-books, software, or media that must be purchased for use. Whether it is the purchase of software, tools, cloud-based products, or digital assets, these represent a large percentage of e-commerce transactions.
- Wholesale: Products sold in bulk. Wholesale products are usually sold to a retailer, who then sells the products to consumers.
- Services: These are skills like coaching, writing, influencer marketing, etc., that are purchased and paid for online.
- Subscription: A popular D2C model, subscription services are the recurring purchases of products or services on a regular basis.
- Crowdfunding: Crowdfunding allows sellers to raise start-up capital in order to bring their product to the market. Once enough consumers have purchased the item, it’s then created and shipped.
Numbers do not lie. In 2014 the e-commerce market size was $1,3 trillion. It is estimated to grow to $6,4 trillion in 2024. This is clearly a sizeable part of the global economy and we cannot ignore its growth potential.
I am not going to compare the three monsters to each other. That would be impossible, as they are in different geographies and they are in different life stages.
Amazon owns 40% of the US e-commerce market. That is massive. Look at the 2nd company which is Walmart at 7%. Amazon’s market share has just been growing and growing. There has not been a single year that they have lost market share to any competitor.
I have seen many articles over the years of how expensive Amazon stock is and that it is the wrong time to invest in Amazon. I sat on the sidelines from 2018 to 2020. See what Amazon did over that period. I was hesitant to buy at $1000 and when I finally bought, I paid just under $1 800 per share. I also heard to never buy Amazon because they do not pay dividends. I really need to close my ears. The reason Jeff Bezos has never paid shareholders a dividend makes 100% sense once I learnt why.
The company’s promise to investors has been built around the idea that as Amazon grows, eats up business in new markets, and starts generating meaningful profit, investors will get more excited about buying the stock, pushing the price up. It’s a virtuous cycle that has seen Amazon’s stock price increase around 5.5 times from this same point five years ago. Bezos is essentially saying trust Amazon to use the dividend money. We know better how to make you more money and he is correct. I want my companies to make me more money, that’s why I never cry over dividends while I am in the accumulation phase of investing. This strategy will change once I need to live off my investments. I am not part of the aged yet, so I invest in exciting companies that will make me money faster than any dividend-paying stock.
If I bought Walmart on the same day in 2020 when I bought Amazon, I would have paid $130. Today that $130 would be worth $141 and I would have received 2 dividends totaling a whopping $2. A total return of 7%.
The Amazon shares I bought for $1800 are worth $3 346. Mr. Bezos paid me $0 but gave me an 86% return.
This is just an example. There are dividend-paying stocks that grew more than 7%, but not a single one that grew like Amazon. Always put dividends into perspective. It cannot be the sole reason you invest in a stock.
Now many will ask “Soul, but Amazon is trading at $3 346. Is it not too late to buy?” History has a way of repeating itself, so back to the numbers, as numbers do not lie:
So, I am making a huge assumption here that Amazon will not increase its market share nor lose significant market share. By that standard, Amazon should increase the share price by 30% in 2024. If only the markets were that easy, we would all be rich. We do not know what will happen to the 40% and we do not know if a mega-trend could replace e-commerce in the future. Until then, in Amazon I trust.
Let us look at the fun stuff…growth. Everything at Amazon screams CUSTOMER. They even use the word “obsessed” because that is what they require from each and every employee.
Below are the areas that Amazon is currently doing extensive research in. You can go to their website and click on each of these topics. You will be amazed at how much this company is busy with. Their Innovation Department is rumoured to be one of the largest in the US.
The Amazon bear case…I do not have one. The most realistic I can be is that Amazon is threatened by a massive new competitor. Until then, I am a very happy Amazon holder.
A little snapshot for the numbers-lovers only. Move swiftly along to Coupang if this makes your head spin, please. Last 12 months vs next 12 months numbers gang:
If you read all the above, you realize that everything at Coupang also screams CUSTOMER. They put the customer first in everything they do.
Coupang is a South Korean company that listed on the NYSE on 11 March 2021. The business, founded in 2010 by Bom Suk Kim, raised $4.6 billion in its initial public offering (IPO). So Coupang is not a brand-new company, they have an 11-year track record.
Coupang was founded with the goal of building an end-to-end e-commerce platform for the Korean market. Its flagship offerings are the Rocket Delivery service and the Rocket Wow membership (similar to Amazon Prime) that give people same-day and next-day delivery on millions of items. This part of the business is almost an exact match for what Amazon does in the United States and other markets. However, Coupang goes a step further by offering its members what it calls “Dawn Delivery,” a program that delivers any item ordered before midnight by 7 a.m. the next day.
What makes Coupang different? This I love…
An interesting aspect of Coupang’s journey is the fact it had to build out its own logistics network. Unlike North America and Europe, where companies like FedEx had already invested billions of dollars in infrastructure that e-commerce start-ups could use, Coupang has built its own network from scratch. It took years and tons of capital spending to build, but the company now has 25 million square feet of warehouse space across 30 cities in Korea, with 70% of the country’s population within seven miles of a fulfillment center. It also has 15,000 full-time delivery drivers that power its last-mile solutions, similar to what JD.com has built in recent years.
Coupang also offers MyStore, which allows small businesses to sell on Coupang and have access to its 15 million customers
Coupang’s logistics network powers other products besides the traditional e-commerce site, like Coupang Eats, a food delivery platform, and Rocket Fresh, which does grocery delivery. Coupang also offers MyStore, which allows small businesses to sell on Coupang and have access to its 15 million customers. Lastly, it provides Coupang Logistics, an offering that imitates what Amazon does with its third-party partners.
Basically, Coupang is Amazon and a bit more with their Logistics leg. They keep it all in the Coupang family.
Revenue: Coupang reported around $12 billion in revenue in 2020, which was up 91% from 2019 and more than 600% than in 2016.
GP Margins: Gross margin expanded from 7.8% in 2016 to 16.6% in 2020, and operating cash flow over the past 12 months came in at $301 million. While margins aren’t anything to get excited about, the expansion from sub-10% to close to 20% shows that Coupang is achieving efficiencies at scale.
Cash flow: Coupang is already generating cash, which shows the business model can be sustainable over the long haul. Free cash flow was negative in 2020, as Coupang spent almost $500 million on capital expenditures. However, that investment is necessary to fund the bold technology and delivery investments it is making. In its S-1 document, management says that its long-term focus would be on increasing free cash flow while minimizing shareholder dilution. This should is music to my ears.
Price/Earnings ratio: Coupang is a growth stock. The company is investing billions still into capex to build networks. It would be ridiculous to expect Coupang to be profitable and have a positive Price/Earnings ratio. We do not do that. Friends do not let friends compare PE ratios of growth stocks. That is just dumb.
Price/Sales ratio: A current share price of $38.60 puts Coupang’s market cap at $64 billion. This gives it a price-to-sales ratio (P/S) of 4.7, substantially higher than that of JD.com, a company with a comparable business structure, at 1.4. Coupang’s market cap is also high relative to its $2 billion in gross profit, which reflects investor expectations for strong growth. Like with most IPOs, it is likely prudent to wait for two or more quarterly earnings reports and for the lock-up period to end, which is typically six months post-IPO, before thinking of buying shares in Coupang.
With all the above information, I bought Coupang after IPO at around $40. I decided because this is a new IPO, I want to see three quarterly reports, and I will invest equal amounts at each quarter if my conviction grows and the company keeps its promises. It is called Dollar Cost Averaging (DCA). You will see this strategy often on FinTwitter. You take your investment amount and spread it over time. I like it for IPOs specifically.
Coupang looks like a fantastic business. But with such a premium valuation, investors should exhibit discipline and patience before investing in the Korean e-commerce giant.
Watch this very informative video https://youtu.be/rxUiwW9y51s where the Brians break down how they researched Coupang from scratch. Brian Feroldi has an amazing checklist that he uses when he analyses stocks. You can get it on Gumroad. It is extensively extensive, so proceed with caution.
Ozon is an online marketplace connecting buyers and sellers throughout Russia. The company offers products in various categories that include electronics, home and decor products, children’s goods, fast-moving consumer goods, fresh food, and car parts. It also manages an online marketplace that enables third-party sellers to offer their products to consumers on its mobile apps, as well as ozon.ru and Ozon.travel websites. In addition, the company provides advertising services and payment solutions to vendors and third-party sellers.
Some investors are already calling Ozon the “Amazon of Russia” which might be true given how fast they are growing and how fast they are investing in logistics and fulfillment (although Amazon is a $1.6 trillion company so, please keep things in perspective). Ozon has already said they are likely to spend the proceeds from their recent IPO to add 2.7 million square feet of distribution space and open five new fulfillment hubs. The company has already developed a nationwide logistics infrastructure consisting of nine fulfillment centers, 43 sorting hubs, 7,500 parcel lockers, 4,600 pickup points, and 2,700 couriers.
A recent interview with the CEO on CNBC [click here]
It’s like Ozon CEO read my mind. Where is the growth dude?
*GMV is Gross Merchandise Value
Ozon is also a growth stock. Please don’t judge it by it’s PE ratio. Why Ozon is on my watchlist is because I want more exposure to e-commerce without increasing Amazon. I love growth stocks and underdogs. I am still doing research on Ozon competitors, but like all things Russian, it is difficult. But Russia gave us vodka, so I don’t even care.