Even as Microsoft plotted its AI-powered course to become the world’s largest company, Gates began to step back. In 2006, he moved away from an active role with the company to focus on managing the Bill and Melinda Gates Foundation Trust.
Out of respect for Gates’ prowess, his investing moves have become as scrutinized as his business moves. The respect is well-deserved, as Gates has grown the trust to include $42.28 billion in assets under management. The largest holding for the foundation is, not surprisingly, a 34% stake in Microsoft.
His second largest position is a nod to his friend Warren Buffett. A full 16.8% of his portfolio is invested in Berkshire Hathaway.
Gates is close friends with Buffett and surely values his advice, but there have been times when Gates has strayed from Buffett’s somewhat conservative investing philosophy.
For instance, Gates pulled the trigger on a nearly $150 million buy of Coupang (NYSE: CPNG) stock. The foundation trust bought 9.25 million shares in the South Korean e-commerce platform. While a large investment by most standards, Gates’ position represents just 0.35% of the trust’s portfolio.
So, why did Bill Gates buy this asian e-commerce firm?
Why Did Coupang Stock Drop?
After slipping from its highs after the company’s initial public offering in early 2021, Coupang share price has slowly recovered. The positive trend kicked into high gear over the past 12 months with the stock rising by 33%.
However, that trend might be in jeopardy after the company’s earnings release for the 1st quarter of 2024. Net revenue of $7.1 billion was a 23% improvement over last year, and the top line also beat analysts’ expectations by 1.55%. Gross profits jumped 36% to $1.9 billion.
Unfortunately, Coupang’s net income dropped from $86 million in 2023 to $5 million in the first quarter. The marked decrease was the result of the first-quarter acquisition of Farfetch, a luxury fashion marketplace. Leaving out the Farfetch expenses, Coupang had a net income of $98 million.
That won’t comfort investors after diluted earnings per share fell flat, a $0.05 drop from the first quarter of 2023. Management does expect the Farfetch impact to be short-lived.
“We remain just a single-digit share of a massive and highly fragmented $560 billion commerce opportunity in Korea, and an even smaller share in Taiwan,” said Gaurav Anand, CFO of Coupang.
Will Coupang Stock Go Back Up?
Although earnings disappointed, Coupang has largely dominated the South Korean world of e-commerce in a manner similar to Amazon’s dominance in the US.
The successes have paid off in spades with management reporting 21 million active users at the end of 2023, a 16% year-over-year jump.
Home field advantage hasn’t extended across borders as much as investors may wish with Coupang failing to gain as much traction in other Asian countries. With that said, the e-commerce platform is starting to gain traction in Taiwan where revenues from operations increased by 105% year-over-year.
The company had a successful first quarter, outside of the Farfetch acquisition. The $500 million purchase was not popular with every CPNG investor, though Gates hasn’t weighed in either way on the transaction. Farfetch was saved from the jaws of bankruptcy by the purchase, but whether shareholders are set to see the fruits of the acquisition remains unclear.
Do Analysts Agree With Gates On Coupang?
That uncertainty has caused many analysts to stay on the sidelines with Coupang. The ten analysts rating the stock side with Gates and consider CPNG to be a buy.
The average price target for CPNG is $23.29 per share, which is around a 1% drop from where the stock currently trades.
On the high side, the stock is forecasted to increase by 9.75% over the next 12 months to $26 per share. On the low end, the most bearish analyst sees CPNG declining by 15.6% to $20 per share in the coming year.
While none of the analysts’ forecasts will overwhelm investors, Wall Street remains bullish on the stock long term and perhaps with good reason.
Coupang had a price-to-earnings ratio of 30x at the end of 2023, which puts the company in line with many of its technology rivals. It’s not cheap, though, and suggests that the stock is not particularly undervalued at this point.
The company’s price-to-sales multiple of 1.69x is not elevated and suggests investors are not valuing it at a premium at this time.
So far, CPNG has dropped over 5% in the hours since the earnings report.
Why Did Bill Gates Buy Coupang?
Bill Gates bought Coupang because of its dominant market position in the South Korean e-commerce market.
According to a discounted cash flow forecast model, Coupang also has upside to $26.89 per share. For value investors that should provide quite a bit of comfort.
Beyond the strong income statement the balance sheet is in good shape too with a boatload of cash.
With all those positives however investors need to be cognizant of the dangers associated with the Farfetch acquisition. Excessively burdensome expenses relating to the acquisition might still sink the thesis.
Overall though Coupang is a dominant e-commerce platform that is starting to take root outside of its native South Korea. If the company can begin to realize revenue from Farfetch and expand into Taiwan, there’s little doubt the stock has the potential to climb and validate Gates thesis.
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