Coupang, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Unless otherwise stated, amounts are USD millions. Coupang operates an e-commerce business primarily serving Korea, supported by its integrated technology, fulfillment, and logistics network. It reports one operating and reportable segment.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $4,644.7 (+48%; +44% constant currency) | $3,136.5 | $13,329.7 (+63%; +54% constant currency) | $8,163.8 |
| Gross profit | $754.5; 16.2% margin | $467.0; 14.9% margin | $2,145.5; 16.1% margin | $1,337.0; 16.4% margin |
| Operating loss | $(315.1) | $(216.2) | $(1,097.4) | $(385.1) |
| Net loss | $(324.0) | $(173.0) | $(1,137.6) | $(380.4) |
| Adjusted EBITDA (non-GAAP) | $(207.4); (4.5)% margin | $(176.6); (5.6)% margin | $(462.5); (3.5)% margin | $(275.5); (3.4)% margin |
| Operating cash flow | $(55.4) | $210.4 | $(207.8) | $285.1 |
| Free cash flow (non-GAAP) | $(244.6) | $(3.4) | $(712.4) | $(29.6) |
Q3 net loss margin was (7.0)%, compared with (5.5)% a year earlier; nine-month net loss margin was (8.5)%, versus (4.7)%. Q3 revenue growth reflected higher customer activity and spending, broader selection, and growth in newer offerings and marketplace merchants. Active Customers were 16.8 million at quarter-end, versus 14.0 million a year earlier; revenue per Active Customer was $276, versus $224.
Liquidity, debt, and investment
- Cash and cash equivalents were $3,928.6; restricted cash was $341.4, for combined cash and restricted cash of $4,270.0. Total current assets were $5,911.3 and current liabilities were $4,576.9.
- Debt carrying amounts included $168.1 of short-term borrowings, $385.9 of current long-term debt, and $169.3 of long-term debt. No balance was outstanding on the $1.0 billion revolving credit facility. Convertible notes converted into Class A shares in connection with the IPO.
- Nine-month capital spending on property and equipment was $505.6. The company reported $712.4 of negative free cash flow and $207.8 of cash used in operating activities for the period.
- The March 2021 IPO generated approximately $3.4 billion of net proceeds. Management said available liquidity should meet anticipated requirements for at least 12 months.
Changes, outlook, and key risks
- Revenue increased substantially year over year, but net loss and operating cash use widened. Q3 cost of sales was 83.8% of revenue, down from 85.1%; management cited a shift toward higher-margin categories, partly offset by higher labor and operating costs. Nine-month cost of sales was 83.9% of revenue, up from 83.6%, reflecting fire-related inventory losses and higher labor and operating costs.
- Operating, general and administrative expense rose 57% in Q3 and 88% for the nine-month period, principally due to labor costs supporting growth and newer initiatives; the nine-month comparison also included the fulfillment-center fire losses.
- A June 2021 fire extensively damaged the Deokpyeong fulfillment center. The company recorded $158 million of inventory losses in cost of sales, $127 million of property and equipment losses in operating expenses, and $11 million of other related costs. The filing says the fire increased nine-month net loss by $296 million. Insurance recovery was uncertain and no recovery was recognized.
- Management expects losses to continue for the next few years and says investment in fulfillment, logistics, technology, workforce, and new centers will remain significant. It expects future infrastructure and workforce expenditures to exceed several billion dollars over the next several years. No specific revenue or earnings guidance was provided.
- COVID-19 has affected demand, operations, labor availability, and costs; management noted demand may moderate as pandemic-related behavior changes. The fire also reduced excess fulfillment capacity, potentially increasing constraints during COVID-related disruptions. Labor, energy, and other cost pressures, competition, execution of expansion, and foreign-exchange volatility are additional risks.
- Disclosure controls and procedures were deemed ineffective as of September 30, 2021 because of material weaknesses involving IT general controls, segregation of duties, and account-reconciliation processes. Management reported additional review procedures and an ongoing remediation plan; it concluded the financial statements fairly present the periods reported.
- The Korean Fair Trade Commission imposed an approximately $3 million fine in a supplier-related matter; Coupang intends to appeal. A separate KFTC investigation concerns alleged supplier or merchant practices and private-label product treatment. The filing also describes employment and labor matters, with outcomes uncertain.
- Class B shares carry 29 votes each; the CEO beneficially held 76.3% of combined voting power as of September 30, 2021. This concentrates voting control.
Most important facts for investors to verify
- Whether cash generation improves as growth investments continue, and how the company funds substantial planned spending.
- Whether gross-margin gains persist and whether labor and operating costs continue to pressure expenses and profitability.
- Any insurance recovery, fulfillment-capacity effects, or further costs related to the Deokpyeong fire.
- Progress and independent evidence of remediation of the disclosed internal-control material weaknesses.
- Developments in the KFTC appeal and investigations, employment and labor matters, and related potential financial or operational consequences.
- Effects of KRW/USD movements, COVID-19 and demand normalization, and the company’s concentrated dual-class voting structure.