Coupang, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Coupang operates an e-commerce business primarily serving Korea, with owned-inventory retail sales and third-party marketplace and other services.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total net revenue | $4.478 billion | $2.614 billion | $8.685 billion | $5.027 billion |
| Gross profit | $658.5 million | $439.7 million | $1.391 billion | $870.0 million |
| Operating loss | $(514.9) million | $(95.2) million | $(782.3) million | $(168.9) million |
| Net loss | $(518.6) million | $(102.1) million | $(813.6) million | $(207.4) million |
| Adjusted EBITDA (non-GAAP) | $(122.1) million | $(57.0) million | $(255.1) million | $(98.9) million |
| Operating cash flow | $30.9 million | $(240.0) million | $(152.5) million | $74.7 million |
| Free cash flow (non-GAAP) | $(137.7) million | $(272.9) million | $(467.8) million | $(26.2) million |
Q2 gross margin was approximately 14.7%, versus 16.8% a year earlier; cost of sales rose to 85.3% of revenue from 83.2%. Operating expenses were 26.2% of revenue, compared with 20.5%. The company attributed margin pressure primarily to the fulfillment-center fire, alongside growth-related costs.
- Q2 revenue increased 71% year over year as reported and 57% on a constant-currency basis. Six-month growth was 73% reported and 60% constant currency.
- Net retail sales grew 65% in Q2 (52% constant currency); net other revenue grew 151% (131% constant currency). Management cited customer growth and engagement, broader product categories, and expansion of newer offerings and marketplace merchants.
- Active customers reached 17.0 million at June 30, up from 13.5 million a year earlier. Q2 revenue per active customer was $263, versus $194 a year earlier.
- Q2 net loss included approximately $295.5 million of fire-related losses; the filing describes the fire’s increase to net loss as $296 million. Q2 adjusted EBITDA also adds back the fire losses and equity-based compensation.
Cash, liquidity, debt, and capital
- At June 30, cash and cash equivalents were $4.285 billion; restricted cash was $175.8 million, for total cash and restricted cash of $4.461 billion. Current assets were $6.028 billion and current liabilities $4.536 billion.
- Balance-sheet debt carrying amounts comprised $172.4 million of short-term borrowings and $474.5 million of current and long-term debt combined. The company also had a $1.0 billion revolving credit facility with no amount drawn at quarter-end.
- Six-month capital spending on property and equipment was $315.5 million. Management said it expected to invest several billion dollars over the next several years in infrastructure and workforce, including new fulfillment centers.
- The March 2021 IPO generated approximately $3.4 billion in net proceeds. Convertible notes converted into Class A shares in connection with the IPO, reducing interest expense.
- Management said cash, restricted cash, and available borrowing capacity were expected to cover anticipated cash needs for at least 12 months. It also stated that losses were expected to continue for the next few years; no specific revenue or profit guidance was provided.
Material developments, risks, and contingencies
- Deokpyeong fulfillment-center fire: The June 17 fire destroyed or damaged inventory, buildings, equipment, and other assets. The company recorded $158 million in inventory losses, $127 million in property and equipment and other losses, and $11 million of other directly related costs. Insurance recovery was uncertain and none was recognized. The fire reduced excess fulfillment capacity and could constrain operations.
- Debt collateral: Damage to collateral caused a breach of minimum collateral requirements under a term loan as of June 30. On August 4, 2021, within the cure period, the agreement was amended to provide $203 million of cash collateral and repay $71 million of principal. The filing says this restored compliance. In August, the company also entered a new $177 million, three-year secured term loan at 3.155%.
- COVID-19: Management said the pandemic had supported demand but its future effects were uncertain. Korea’s worsening outbreak and strict lockdown could cause facility closures and labor shortages; the fire’s capacity impact could compound disruption.
- Fair-trade and labor matters: The KFTC was investigating supplier dealings, including allegations involving LG Household & Healthcare and a separate inquiry into supplier or merchant practices and preferential treatment of private-label products. Employment, labor, workplace-safety, and other investigations and claims were also disclosed. Outcomes and potential sanctions were uncertain.
- Internal controls: Disclosure controls were deemed ineffective at quarter-end because of material weaknesses involving IT general controls, segregation of duties, and timely preparation and review of account reconciliations. Management was pursuing remediation and performed additional procedures; it concluded the financial statements fairly presented the periods shown.
- Other risks: The filing highlights ongoing losses, intense competition, substantial investment needs, foreign-exchange exposure, labor and regulatory risks, possible fulfillment disruptions, and concentrated voting control. CEO Bom Suk Kim held 76.5% of voting power through the dual-class structure.
- Unusual sanctions disclosure: The company reported seven orders, totaling approximately $360, delivered to individuals at the Iranian Embassy address in Seoul after it became an issuer. It said it had taken steps to block future sales and strengthen screening.
Most important facts for investors to verify
- Whether insurance proceeds for the fulfillment-center fire are recovered, and the fire’s lasting effect on capacity, delivery performance, and costs.
- Whether revenue growth and customer engagement persist as pandemic-related demand shifts, and whether margins improve excluding fire-related charges.
- Cash conversion, inventory investment, capital expenditures, and the funding needed for planned expansion given continued losses and negative six-month free cash flow.
- Compliance with debt terms after the collateral amendment, and the terms and use of the new August term loan.
- Progress in remediating material weaknesses and developments in KFTC, labor, workplace-safety, and other legal matters.