Coupang, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparisons are with Q1 2022 unless stated otherwise. Coupang operates an e-commerce business primarily serving Korea, with additional operations in the United States, Taiwan, Singapore, and China. Its reportable segments are Product Commerce and Developing Offerings.
Financial performance
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Total net revenues | $5.801 billion | $5.117 billion |
| Gross profit | $1.420 billion | $1.043 billion |
| Operating income (loss) | $106.8 million | $(205.7) million |
| Net income (loss) | $90.9 million | $(209.3) million |
| Adjusted EBITDA (non-GAAP) | $240.9 million | $(90.9) million |
| Operating cash flow | $501.3 million | $(54.9) million |
| Free cash flow (non-GAAP) | $406.7 million | $(289.6) million |
- Reported revenue increased 13%; growth was 20% on a constant-currency basis. Net retail sales rose 14% reported (21% constant currency), while net other revenue rose 6% (12% constant currency).
- Gross margin increased to 24.5% from 20.4%. Cost of sales declined to 75.5% of revenue from 79.6%, which management attributed to operating efficiencies, supply-chain optimization, and a higher mix of higher-margin offerings. Operating expenses were 22.6% of revenue versus 24.4%.
- Net income margin was 1.6%, versus a 4.1% net loss margin. Adjusted EBITDA margin was 4.2%, versus negative 1.8%. Higher interest income also contributed to the improvement in pretax results.
- Product Commerce revenue increased 15% reported (21% constant currency) to $5.658 billion; segment adjusted EBITDA was $288.4 million, versus $2.9 million. Developing Offerings revenue decreased 21% reported (17% constant currency) to $142.2 million; its adjusted EBITDA loss narrowed to $47.5 million from $93.7 million.
- Active Customers were 19.010 million, up from 18.112 million a year earlier. Revenue per Active Customer was $305, versus $283.
Balance sheet, liquidity, and cash flows
- At March 31, 2023, cash and cash equivalents were $3.792 billion and restricted cash was $331.7 million, including long-term restricted cash. Total cash and restricted cash were approximately $4.124 billion. About $2.4 billion was held by foreign subsidiaries and may not be freely transferable to the United States.
- Total current assets were $6.115 billion and current liabilities were $5.174 billion. Stockholders’ equity was $2.560 billion.
- Reported short-term borrowings were $223.4 million; current and long-term debt totaled $671.9 million, for approximately $895 million of borrowings and debt combined. More than $1.0 billion was available under revolving credit facilities, which had no outstanding balances at quarter-end. The company reported compliance with debt covenants.
- Operating cash flow improved by $556.2 million year over year. Management cited the return to net income, lower supplier advances, and increased cash inflows from accounts payable, including improved payment terms with certain suppliers. Capital expenditures were $95.2 million, compared with $238.9 million; free cash flow is a non-GAAP measure.
Outlook, changes, and risks
- The filing provides no numerical earnings or revenue guidance. Management expects liquidity to cover anticipated cash requirements for at least the next 12 months, while noting that investment in newer offerings, geographic expansion, and fulfillment, logistics, and technology infrastructure will remain significant. It expects future infrastructure and workforce expenditures to exceed several billion dollars over several years.
- Remaining capital commitments for construction projects were $429 million at March 31, 2023. Subsequent to quarter-end, Coupang entered a $61 million one-year credit facility and a $176 million three-year term loan at a fixed 6.76%, secured by certain land and buildings.
- In April 2023, Coupang announced changes to its Fulfillment and Logistics by Coupang program. Beginning in Q2, some transactions will be recognized on a net rather than gross basis, reducing reported revenue, with no significant corresponding gross-profit impact expected.
- Management identified foreign-exchange exposure: a hypothetical 10% adverse exchange-rate change would have reduced Q1 revenue by approximately $514 million, with an immaterial net-income impact. The company does not currently hedge this exposure.
- Contingencies include a putative shareholder class action concerning the IPO registration statement and Korean Fair Trade Commission investigations, including alleged preferential treatment of private-label products. The company disputes the claims or is defending its practices; potential losses cannot be reasonably estimated. Management said pending legal matters are not currently expected to have a material adverse effect overall, but disclosed that outcomes remain uncertain.
- Other risks include competition, macroeconomic conditions, regulatory and tax matters, cybersecurity, execution of expansion plans, and currency fluctuations. The company reported no material change to the risk factors in its 2022 Form 10-K.
Important facts for investors to verify
- Whether Product Commerce profitability and positive consolidated operating cash flow are sustainable, and how much cash-flow improvement reflects working-capital movements and supplier payment terms.
- How the FLC accounting change affects reported revenue and segment comparisons from Q2, and whether underlying gross profit develops as management expects.
- Availability and transferability of cash held overseas, planned capital spending, and the effect of additional borrowing and collateral commitments.
- Developing Offerings’ revenue trajectory and the costs and returns of continued investment in newer services and international markets.
- Developments in the shareholder litigation and KFTC investigations, for which potential loss amounts are not estimable in the filing.