Coupang, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Unaudited results; U.S. dollars unless noted. Coupang operates retail and other services, with Product Commerce primarily in Korea and Developing Offerings including Eats, Taiwan, and Farfetch.
Financial performance
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Total net revenue | $7.114 billion | $5.801 billion | +23% reported; +28% constant currency |
| Gross profit | $1.929 billion | $1.420 billion | +36% |
| Gross margin | 27.1% | 24.5% | +2.6 percentage points |
| Operating income | $40 million | $107 million | −63% |
| Net income (loss), consolidated | $(24) million | $91 million | Turned to loss |
| Net income attributable to Coupang stockholders | $5 million | $91 million | Basic and diluted EPS rounded to $0.00, versus $0.05 |
| Adjusted EBITDA | $281 million | $241 million | +17%; margin 3.9% vs. 4.2% |
| Operating cash flow | $212 million | $501 million | −58% |
| Free cash flow | $107 million | $407 million | −74% |
Revenue growth reflected higher customer engagement and active customers in Product Commerce, along with Farfetch and growth initiatives. Product Commerce revenue was $6.494 billion (+15% reported; +20% constant currency); Developing Offerings revenue was $620 million, including $288 million from Farfetch after acquisition. Product Commerce active customers rose to 21.5 million from 18.6 million a year earlier; revenue per active customer was $302 versus $305.
Cost of sales rose 18%, slower than revenue, and fell to 72.9% of revenue from 75.5%, which Coupang attributed to operational efficiencies, supply-chain improvements, a richer mix of higher-margin offerings, and Farfetch. Operating, general and administrative expense increased 44% to $1.889 billion and rose to 26.6% of revenue from 22.6%, reflecting business growth, Farfetch costs, and acquisition/restructuring costs.
Balance sheet, debt, and liquidity
- At March 31, cash and cash equivalents were $5.226 billion and restricted cash was $348 million; combined cash, cash equivalents, and restricted cash totaled $5.574 billion, down $23 million from year-end.
- Total current assets were $8.569 billion and current liabilities $7.435 billion. Accounts payable was $5.370 billion.
- Debt comprised $272 million of short-term borrowings, $196 million current long-term debt, and $1.062 billion long-term debt. Farfetch term loans accounted for $574 million outstanding; they bear interest at SOFR plus 6.25% and mature in October 2027.
- The senior unsecured revolving credit facility was amended in January to $875 million and extended to February 2026. Management reported approximately $1.0 billion available across revolving facilities and said liquidity should meet anticipated requirements for at least 12 months.
- About $4.2 billion of cash was held by foreign subsidiaries, primarily in Korea, and may not be freely transferable to the U.S. due to local restrictions. Management expects investment in growth and infrastructure to remain significant, with future infrastructure and workforce expenditures of several billion dollars over the next several years.
Operating cash flow declined partly because of lower earnings and changes in working capital, including the comparison against prior-year increases in accounts payable. Investing cash use was affected by Farfetch bridge-loan funding and capital expenditures. Q1 capital expenditures were $107 million; remaining commitments for fulfillment-center construction contracts were $104 million.
Material changes, outlook, and risks
- Farfetch acquisition: Completed January 30, 2024. Preliminary purchase consideration was $208 million; Farfetch contributed $288 million in revenue and a $122 million net loss from acquisition through quarter-end. Its segment included a $31 million adjusted EBITDA loss. Purchase accounting remains preliminary. Farfetch debt and acquired commitments add financial and execution exposure.
- Segment results: Product Commerce adjusted EBITDA increased to $467 million from $288 million. Developing Offerings adjusted EBITDA loss widened to $186 million from $47 million, reflecting investment in Eats and Taiwan, higher Coupang Play content costs, and Farfetch.
- Taxes: Income tax expense was $83 million and the effective tax rate was 140.1%, versus 26.6%. The company attributed the increase mainly to Farfetch losses without a corresponding tax benefit and the effect of releasing a Korean deferred-tax-asset valuation allowance in Q4 2023. It expects future effective tax rates to differ significantly from the statutory rate.
- Currency: Foreign-currency translation loss was $105 million in other comprehensive income. A hypothetical 10% adverse currency move was estimated to reduce quarterly revenue by approximately $635 million, with an immaterial net-income impact.
- Commitments: Farfetch-related minimum payments include $170 million under a technology services contract through 2027 and approximately $290 million under a license arrangement over nine years.
- Controls: Coupang’s disclosure controls were deemed effective at a reasonable assurance level, but Farfetch was excluded from the assessment. Farfetch had an unremediated material weakness involving certain business-process and IT controls in its New Guards business; Coupang is working on remediation.
- Contingencies: Coupang reported a securities class action and related derivative actions, and ongoing Korean Fair Trade Commission investigations. The company says it intends to defend the lawsuits; it cannot reasonably estimate potential losses from these matters. It stated pending legal matters overall are not currently expected to have a material adverse effect, while noting outcomes remain uncertain.
- Other events: In April, Coupang repurchased 10 million Class A shares for $178 million. On May 6, it amended its revolving credit agreement to increase capacity for certain permitted investments.
- Guidance: The filing gives no specific quarterly or full-year revenue or earnings guidance. Management expects continued significant investment, including new fulfillment centers, and believes available liquidity is adequate for at least the next 12 months. The company cautions that forward-looking results are subject to competitive, macroeconomic, currency, regulatory, operational, and acquisition-related risks.
Key facts for investors to verify
- Whether core Product Commerce growth and margin gains continue, and how the FLC shift to net revenue recognition affects reported growth.
- Farfetch’s post-acquisition performance, integration progress, debt servicing, purchase-price allocation, and remediation of its control weakness.
- Whether Developing Offerings losses and planned investment moderate or expand, and how they affect consolidated profitability and free cash flow.
- Liquidity availability and transferability of overseas cash, alongside debt maturities, variable-rate exposure, and Farfetch-related commitments.
- Developments in the KFTC investigations and securities litigation, including any change in the ability to estimate potential losses.
- Effects of foreign exchange and the unusually high effective tax rate on reported earnings and comparability.