Coupang, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; compared with the three months ended March 31, 2020. Coupang operates a Korean e-commerce business supported by an integrated fulfillment and delivery network. Figures below are in U.S. dollars; financial statement amounts are in millions unless stated otherwise.
Financial results and key metrics
| Metric | Q1 2021 | Q1 2020 | Change / context |
|---|---|---|---|
| Total net revenue | $4,206.9 | $2,413.3 | +74%; +63% at constant currency |
| Net retail sales | $3,807.0 | $2,236.5 | +70%; +59% at constant currency |
| Net other revenue | $399.8 | $176.8 | +126%; +111% at constant currency |
| Active customers | 16.0 million | 13.3 million | +21% |
| Revenue per active customer | $262 | $182 | +44% |
| Gross profit | $732.5 | $430.3 | +70%; gross margin about 17.4% versus 17.8% |
| Operating loss | $(267.3) | $(73.6) | Operating margin about (6.4)% versus (3.1)% |
| Net loss | $(295.0) | $(105.4) | Net loss margin (7.0)% versus (4.4)% |
| Adjusted EBITDA | $(133.0) | $(41.8) | Margin (3.2)% versus (1.7)%; non-GAAP |
| Operating cash flow | $(183.3) | $314.7 | Significant year-over-year deterioration |
| Free cash flow | $(330.2) | $246.7 | Non-GAAP; reflects operating cash use and capital spending |
Balance sheet and liquidity
- Cash and cash equivalents were $4.333 billion at March 31, 2021; total cash, cash equivalents and restricted cash were $4.534 billion, up from $1.401 billion at year-end 2020.
- Total current assets were $6.156 billion and current liabilities were $3.917 billion. Accounts payable was $2.965 billion.
- Short-term borrowings were $154 million. Current and long-term debt together were about $445 million; the $590 million carrying amount of convertible notes at year-end converted into Class A shares during the IPO quarter.
- The new three-year revolving credit facility had a $1.0 billion commitment and no amount drawn at quarter-end. The company reported compliance with debt covenants.
- Total liabilities were $5.321 billion. Operating lease obligations were about $1.198 billion on the balance sheet; undiscounted lease payments were $1.476 billion. An additional $429 million of leases had not yet commenced.
Material changes and notable items
- Revenue growth reflected customer growth and increased spending and engagement per customer, including across more product categories. The company also cited expansion of newer offerings and marketplace merchants.
- Cost of sales rose 75%, faster than revenue; it increased from 82.2% to 82.6% of revenue as product and logistics costs grew. Operating, general and administrative expenses rose 98% and increased from 20.9% to 23.8% of revenue, driven by capacity, staffing, technology and corporate costs, and IPO-related equity compensation.
- Operating cash flow declined by $498 million year over year. Management attributed the change principally to operating asset and liability movements, including increased inventory investment and payment timing, and a larger net loss. Capital expenditures were $146.8 million, primarily for fulfillment, logistics and technology.
- The March 15 IPO issued 100 million Class A shares at $35 per share and generated approximately $3.4 billion in net proceeds for Coupang. Preferred units and common units converted into common stock, and convertible notes converted into 171.8 million Class A shares.
- Equity-based compensation expense was $87.0 million, versus $6.4 million a year earlier. IPO-triggered vesting and cumulative catch-up expense contributed materially. The company also retrospectively changed its service-award expense attribution method; prior-period results were adjusted, with no net effect on prior-period cash flows.
- The dual-class structure gives each Class B share 29 votes, compared with one vote per Class A share. Founder and CEO Bom Suk Kim held 76.5% of combined voting power, according to the filing.
Outlook, risks and contingencies
- No specific quarterly or annual financial guidance was provided. Management expected losses to continue for the next few years and said investment in growth would remain significant. It planned several new fulfillment centers and expected infrastructure and workforce expenditures in Korea to exceed several billion dollars over the next several years; remaining commitments for construction contracts were $149 million at quarter-end.
- Management believed available cash, restricted cash and borrowing capacity would cover anticipated requirements for at least 12 months. It also noted that additional financing could be needed for growth or strategic opportunities and might not be available on favorable terms.
- COVID-19 had increased customer engagement and demand, but the company cautioned that demand could moderate as restrictions eased and consumer mobility increased. The pandemic also created operating disruption, safety spending, labor and fulfillment pressures, and uncertainty that management said it could not yet quantify.
- Foreign exchange is material: a hypothetical 10% adverse change in average translation rates would have reduced Q1 revenue by $377 million and decreased net loss by $13 million. The company did not then hedge currency exposure.
- Significant disclosed risks include competition, execution and cost risks from rapid growth and infrastructure expansion, inventory and labor pressures, cybersecurity and privacy, supplier and merchant compliance, and changing Korean regulation. The filing identifies an ongoing Korean Fair Trade Commission investigation concerning supplier practices following a complaint by LG Household & Healthcare, as well as employment and labor investigations. Management said it was cooperating with the KFTC and intended to defend labor proceedings.
- Disclosure controls and procedures were ineffective at March 31, 2021 because of material weaknesses 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; the financial statements were stated to fairly present the company’s financial position and results.
Most important facts for investors to verify
- Whether customer, revenue and spending growth can persist as pandemic-driven demand changes, and whether growth translates into improved gross and operating margins.
- Whether operating cash flow and free cash flow recover as inventory investment, payment timing and infrastructure spending evolve.
- The scale and timing of future fulfillment, logistics, technology and workforce investment, including lease and construction commitments, relative to the company’s liquidity.
- Progress in remediating material weaknesses and whether controls operate effectively over a sufficient period.
- Developments, potential penalties or operational changes arising from the KFTC and labor matters, and other Korean regulatory and safety risks.
- Equity compensation, share issuance and potential sales following IPO lock-up releases, alongside the implications of the founder’s majority voting control.