Coupang, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited. Coupang operates an e-commerce business primarily serving South Korea, with integrated retail, marketplace, fulfillment, and delivery operations. Amounts below are in U.S. dollars unless noted.
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Total net revenue | $5.117 billion | $4.207 billion | +22% reported; +32% constant currency |
| Gross profit / gross margin | $1.043 billion / 20.4% | $733 million / 17.4% | Gross profit +42% |
| Operating loss | $206 million | $267 million | Improved by $62 million |
| Net loss / net loss margin | $209 million / 4.1% | $295 million / 7.0% | Loss narrowed by 29% |
| Adjusted EBITDA / margin | $(91) million / (1.8)% | $(133) million / (3.2)% | Loss narrowed by 32% |
| Operating cash flow | $(55) million | $(183) million | Cash used decreased |
| Free cash flow | $(290) million | $(330) million | Cash used decreased |
Net retail sales were $4.556 billion, up 20% reported and 29% on a constant-currency basis. Net other revenue was $561 million, up 40% reported and 52% constant currency. Constant-currency figures are non-GAAP measures; reported revenue was reduced by unfavorable exchange-rate effects compared with the constant-currency presentation.
Cost of sales was 79.6% of revenue, down from 82.6%, which management attributed mainly to supply-chain optimization and a higher mix of higher-margin categories, partly offset by higher logistics costs. Operating, general and administrative expense increased 25% to $1.249 billion; it rose to 24.4% of revenue from 23.8%, primarily reflecting labor and advertising costs, partly offset by lower equity compensation.
Segments and operating indicators
- Product Commerce: Revenue of $4.936 billion, up 20% reported and 30% constant currency. Adjusted EBITDA was positive $3 million versus a $69 million loss. Management cited customer and revenue growth, supply-chain efficiencies, and a higher-margin revenue mix.
- Developing Offerings: Revenue of $181 million, up 65% reported and 79% constant currency. Adjusted EBITDA loss widened to $94 million from $64 million, reflecting investment in Coupang Play content and start-up costs for international e-commerce platforms.
- Active Customers were 18.112 million, compared with 16.037 million a year earlier. Revenue per Active Customer was $283, versus $262.
The company changed its reportable segments in Q1 2022 to Product Commerce and Developing Offerings; prior-period figures were presented on the new segment basis.
Liquidity, debt, and investment
- Cash and cash equivalents were $3.369 billion; restricted cash was $308 million. Combined cash and restricted cash totaled $3.678 billion, down from $3.810 billion at year-end 2021.
- Current assets were $5.482 billion and current liabilities were $4.495 billion. Stockholders’ equity was $2.037 billion, down from $2.176 billion.
- Long-term debt carrying value was $804 million, comprising $193 million current and $611 million long-term. Total principal debt was $808 million. Debt increased from $626 million principal at year-end 2021. The $1.0 billion revolving credit facility had no borrowings outstanding; the company reported compliance with debt covenants.
- Investing cash outflow was $249 million, including $239 million of property and equipment purchases, primarily for fulfillment, logistics, and technology. Management expects infrastructure and workforce spending to exceed several billion dollars over the next several years.
Outlook, risks, and other notable matters
- No specific revenue, earnings, or margin guidance is provided. Management said losses may continue over the next few years, investment in newer offerings and new geographies will remain significant, and it believes available liquidity will cover anticipated cash requirements for at least 12 months.
- Remaining fulfillment-center construction capital commitments were $467 million. Unconditional purchase obligations totaled $590 million; total undiscounted debt, purchase, and lease commitments were $3.462 billion. The company also disclosed $460 million of future minimum payments for leases not yet commenced.
- Management cited uncertainty from COVID-19, supply-chain disruption, logistics and fulfillment labor costs, consumer confidence, macroeconomic conditions, and foreign exchange. A hypothetical 10% adverse currency-rate change would have reduced quarterly revenue by $458 million, according to the filing.
- The company reported no material change in its previously disclosed risk factors and no material developments in previously disclosed legal proceedings. It said pending legal matters were not currently expected to have a material adverse effect, while noting litigation may still entail costs and management distraction.
- Disclosure controls were not effective as of March 31, 2022 because previously reported material weaknesses remained in IT general controls, segregation of duties, and timely preparation and review of account reconciliations. Management reported additional review procedures and an ongoing remediation plan; it concluded the financial statements fairly presented results in all material respects.
Important facts for investors to verify
- Whether Product Commerce can sustain positive segment adjusted EBITDA as labor and logistics costs evolve.
- Whether Developing Offerings growth can eventually offset its increased operating losses and investment needs.
- Cash consumption, capital spending, debt levels, and the company’s ability to fund announced infrastructure and lease commitments.
- Progress and testing of remediation for the disclosed material weaknesses in financial reporting controls.
- The effect of KRW/USD movements, supply-chain and labor constraints, and other macroeconomic risks on reported results.