Coupang, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Unaudited results are compared with the corresponding 2022 periods. Coupang operates primarily in Korean e-commerce, with newer offerings including Eats, Play, fintech and retail operations in Taiwan.
Financial performance
| Metric | Q3 2023 | Q3 2022 | First nine months 2023 | First nine months 2022 |
|---|---|---|---|---|
| Revenue | $6.184B | $5.101B | $17.822B | $15.256B |
| Gross profit | $1.566B | $1.234B | $4.510B | $3.431B |
| Operating income (loss) | $87.5M | $77.4M | $341.9M | $(195.4)M |
| Net income (loss) | $91.3M | $90.7M | $327.3M | $(194.1)M |
| Adjusted EBITDA (non-GAAP) | $238.7M | $194.9M | $779.8M | $170.2M |
| Operating cash flow | $721.6M | $58.2M | $2.043B | $(15.0)M |
| Free cash flow (non-GAAP) | $536.2M | $(222.4)M | $1.393B | $(707.5)M |
Q3 gross margin was approximately 25.3% versus 24.2%; operating margin was 1.4% versus 1.5%; net margin was 1.5% versus 1.8%; and adjusted EBITDA margin was 3.9% versus 3.8%. For the first nine months, gross margin was approximately 25.3% versus 22.5%, operating margin 1.9% versus negative 1.3%, net margin 1.8% versus negative 1.3%, and adjusted EBITDA margin 4.4% versus 1.1%.
- Q3 reported revenue grew 21%; management reported constant-currency growth of 18%. Nine-month reported growth was 17%, versus 20% on a constant-currency basis.
- Q3 revenue included $5.315B in net retail sales and $868.9M in net other revenue. Other revenue rose 55%, supported by merchant services and other offerings.
- Active Customers reached 20.421M, up from 17.992M a year earlier. Revenue per Active Customer was $303, compared with $284.
- Product Commerce Q3 segment adjusted EBITDA increased 67% to $399.5M. Developing Offerings had a $160.8M adjusted EBITDA loss, compared with a $44.3M loss.
Liquidity, debt and cash flows
At September 30, 2023, cash and cash equivalents were $4.858B and restricted cash was $402.7M, totaling $5.261B. Cash and restricted cash held by foreign subsidiaries was $3.5B and may not be freely transferable to the U.S. Current assets were $7.430B and current liabilities were $6.506B. Stockholders’ equity was $2.928B.
Long-term debt, including its current portion, totaled approximately $910M; short-term borrowings were $232.1M. Total borrowings shown on the balance sheet were approximately $1.142B. The company reported $1.1B available under its revolving credit facilities, no borrowings under those facilities, and compliance with debt covenants. Nine-month capital expenditures were $662.3M. Remaining commitments for specified construction projects were $179M.
Nine-month operating cash flow improved by $2.058B year over year. The filing attributes much of the improvement to operating asset and liability movements, notably a $1.235B increase in accounts payable; management cited improved payment terms and seasonality among the reasons. Cash and restricted cash increased by $1.573B over the period, including the effect of exchange-rate changes.
Changes, outlook and risks
- Management attributed Product Commerce growth to more Active Customers, higher spending per customer, broader selection and marketplace merchant growth. Cost of sales fell to 74.7% of revenue from 75.8% in Q3 2022, which management linked to operating efficiencies, supply-chain optimization and a greater share of higher-margin categories.
- Beginning in Q2 2023, revised Fulfillment and Logistics by Coupang (FLC) contracts changed the accounting for some transactions from gross to net revenue recognition. Management expects lower reported revenue prospectively, with no significant corresponding gross-profit impact.
- Developing Offerings’ losses widened amid investment in Eats and Taiwan and higher Coupang Play content costs. Management expects substantial investment in newer offerings, new geographies, fulfillment, logistics and technology, and says future infrastructure and workforce expenditures are expected to exceed several billion dollars over several years.
- The company expects existing liquidity to cover anticipated requirements for at least the next 12 months. It did not provide specific revenue or earnings guidance in the filing.
- Management said Korea tax valuation allowances may be released if sufficient evidence of sustained income emerges. Any release could create a material tax benefit; timing and amount remain uncertain.
- Key risks include foreign-exchange exposure: a hypothetical 10% adverse currency translation change would have reduced revenue by approximately $557M for Q3 and $1.6B for the nine-month period, with an immaterial net-income impact, according to the filing. Management also cited macroeconomic, competitive, regulatory, cybersecurity and execution risks.
- Contingencies include a securities class action and related derivative suits, which the company intends to defend; the filing says a possible loss cannot currently be reasonably estimated. Korean Fair Trade Commission investigations could result in fines, process changes or other proceedings, but penalties cannot be reasonably estimated. The company recorded a refundable $59M insurance advance related to the 2021 fulfillment-center fire and has not recognized an insurance benefit.
- Supplier-finance program invoices included in accounts payable were $431M at September 30, 2023, compared with $337M at year-end 2022.
Important facts for investors to verify
- Whether operating cash flow remains strong if payable growth and other working-capital benefits moderate.
- Progress in narrowing Developing Offerings’ losses alongside investment in Eats, Taiwan and Coupang Play.
- How the FLC gross-to-net accounting change affects reported revenue trends and whether gross-profit economics remain as management expects.
- Debt maturities, facility availability, construction commitments and the accessibility of cash held by foreign subsidiaries.
- Developments in the securities litigation, KFTC investigations and fulfillment-center fire insurance recovery.
- Any change in Korea deferred-tax-asset valuation allowances, and the effect of currency movements on reported performance.