Why Coupang Can Turn Profitable: Because Coupang Is Korea’s Naver

“Once hailed as the Amazon of Korea, now a company left with nothing but losses.” That’s what people are saying these days about Coupang (CPNG), whose share price has plunged alongside the recent Nasdaq sell-off. The stock is trading at around $12–13, far below its IPO price of $35 and its 52-week high of $69 (right after listing), and that’s fueling the negative sentiment. Some even go so far as to compare Coupang with Market Kurly and predict that both will sink into the swamp of losses and go bankrupt. That comparison, frankly, is deeply insulting to Coupang.

So why do I say Coupang is “Naver”? To understand that, you have to look at Naver’s business model and clear up some common misconceptions about Naver. That’s because most people, very likely including you, think of Naver as Korea’s Google — essentially, a search-engine-based advertising platform.

The two largest revenue drivers at Naver are its Search Platform (search ads, etc.) and Commerce. The Search Platform, which once accounted for 80% of revenue, had fallen to about 48% as of 2021, while Commerce surged vertically to 21.6%. Here’s the catch: a substantial portion of search-ad revenue comes from shopping-related keywords. Naver doesn’t disclose the exact share, but it’s widely believed to be at least more than half.

In short, e-commerce and commerce-related infrastructure (advertising and fintech) are now the main revenue engines that keep Naver running. Naver’s equity swap with CJ Logistics last year to improve its delivery experience was also driven by this trend. If an e-commerce platform fails to satisfy consumers on delivery experience, it loses its competitive edge.

Criteo (CRTO), a Nasdaq-listed online advertising company, publishes a research report called Shopper Story every year. According to the 2022 report, 22% of consumers last year said that when they “know exactly what they want to buy,” they start their search on an e-commerce platform like Amazon, and the same share said they use a search engine like Google. The numbers are similar when they “know the type of product they want,” and the gap between e-commerce and search engines has narrowed sharply compared with 2019. In other words, when consumers are shopping, they now use the search function within e-commerce platforms more than general search engines.

If you narrow the sample to U.S. consumers, the trend is even clearer. Based on 2018–2021 data, Amazon (AMZN) accounts for 74% of initial product searches for shopping, leaving Google far behind. From the outside, Naver and Coupang (CPNG) may look like completely different companies, but in reality they are fighting hard over future market share with very similar business models.

We need to understand two trends: the rising share of shopping-related keywords in Naver search, and the growing tendency in the U.S. to start shopping searches on Amazon rather than Google.

The reason Americans love Amazon is that it is a true one-stop shop — everything you need is in one place. Price only ranks third. Rather than waste time hopping from one app to another, many people would rather pay a bit more and order everything at once from Amazon.

As for why people buy Amazon’s subscription service, Prime membership, the top reason is “free shipping,” followed by “fast shipping.” This shows how many consumers place a premium on shipping fees and delivery experience.

Putting all of this together, Amazon has:

Now it’s time to go back to search. Why do Americans search on Amazon, not Google, when they want to buy something? Google connects you to online stores, but along the rest of the customer journey (payment, refunds, cancellations, delivery, and so on) it has relatively little control. No matter how good Google is, if its partners don’t meet Google’s standards, users won’t get a consistently “Google-like” experience. Yet as an ad company, Google can’t simply refuse their ads. Nor does it own fulfillment centers or guarantee one- or two-day delivery. This is where Amazon comes in. Consumers know from experience that virtually anything they can imagine is on Amazon, and that if they hit the buy button, it will be delivered to their door in one or two days for free. Under those conditions, why wouldn’t they search on Amazon? And if a huge number of consumers are searching there, what kind of business opportunity does that create?

The answer is advertising. Advertising inside an e-commerce platform is, by design, more profitable than advertising on a general search engine. That’s because people who search there are doing so in order to buy.

If you look at Amazon’s annual report excerpted above, Advertising Services grew 57% in 2021 and 56% in 2020, making it Amazon’s fastest-growing business segment. For reference, AWS — the business often said to be propping up Amazon — grew revenue by 37% in 2021, while Online Stores and Third-Party Seller Services, which underpin the ad business, grew 12% and 28%, respectively. Once Amazon established a dominant position in online retail, more and more sellers flocked to the platform. In return for this “opportunity,” Amazon can sell high-margin ads. That’s how ad revenue can grow faster than retail revenue.

Can we apply Amazon’s case to Coupang as is? Not quite. Competition among online marketplaces in Korea is fiercer than in the U.S. (11st, Gmarket, SSG, and others), and consumers use a wide variety of platforms.

However, no other company in Korea matches Coupang in the breadth of products it buys and sells on its own account, or in its ability to offer same-day, dawn, and next-day delivery regardless of weekends and holidays. Even with Naver and CJ Logistics swapping shares and forming a partnership, they can’t change the reality that courier companies don’t work on Sundays. Nor is there any marketplace as generous as Coupang when it comes to returns and exchanges. In effect, Coupang is delivering the best e-commerce experience available in Korea.

If Coupang keeps operating under its current structure, it cannot escape the red. It is investing enormous sums in logistics, delivery, and service infrastructure to deliver a top-tier consumer experience. Naver, for its part, launched Smart Store and Brand Store, boasts a higher gross merchandise volume than Coupang, and has attracted a large number of online merchants with seller-friendly policies (sellers decide on cancellations/returns/exchanges, lower commissions, and so on).

But let’s run a thought experiment. As a consumer, are you more likely to choose a marketplace where, weekday or weekend, delivery takes at most a day and you can return items for free, without hesitation, if they don’t match expectations or you simply don’t like them? Or one that treats sellers more generously but doesn’t offer that level of convenience? Naturally, consumers will prefer the former.

Coupang is a large ecosystem, and its members enjoy the best consumer experience available in Korea — for just 4,900 won a month. This ecosystem will keep expanding, and the number of suppliers eager to get inside it will keep growing. Once competition among those suppliers heats up, Coupang’s advertising business will take off spectacularly. By how much? By enough to deliver that best-in-class consumer experience without running losses.