Q4 2023 Coupang Earnings Call Transcript

Q4 2023 Coupang Earnings Call

New York: Tue. 2/27/2024, 5:30 PM / Seoul: Wed. 2/28/2024, 7:30 AM

Mike Parker:

update or revise this information, except as required by law. 

Certain statements made on today's call include forward-looking statements. Actual

results may differ materially. Additional information about factors that could

potentially impact our financial results is included in today's press release and in our

filings with the SEC, including our most recent annual report on Form 10-K and

subsequent filings. 

During today's call, we may present both GAAP and non-GAAP financial measures.

Additional disclosures regarding these non-GAAP measures, including

Q4 2023 Coupang Earnings Call Transcript

Bom Kim:

Thanks everyone for joining us today. The fourth quarter of 2023 capped a year of

accelerating growth, record profits and expanding free cash flows for our business.

We believe that creating moments of “wow” for customers across selection, price,

and service form the foundation for long-term growth, profitability, and ultimately free

cash flow, which serves as the basis of long-term shareholder value.

Apples to apples, without the FLC accounting change we made in Q2, our Q4

revenue growth rate would have been over 900 bps higher than our Q1 growth rate

of 20%.

We also generated record net income and free cash flow for the year, thanks to the

expanding profitability of Product Commerce, our largest and most established

offering, whose adjusted EBITDA now exceeds 7% in Q4.

We did all of this while only growing our share count by 1.3%. Our share dilution has

remained at around 1% in each of the three years since we became a public

Sizeable and durable free cash flow streams are not created overnight, or even in a

few quarters.

Since the beginning of this company, we have made foundational bets on “new-

competency initiatives”. These are bold bets that required years of investment,

persistence and patience before they began producing meaningful free cash flows

for our business. They were attractive to us because we saw opportunities to break

tradeoffs and deliver a “wow” experience to customers.

For example, Rocket Delivery was an entirely new competency. We had never

Today, we benefit from the success of the new-competency initiatives we’ve scaled.

And we have the ability now to seed and scale incremental initiatives, leveraging our

vast technology, processes, scale and knowledge.

Q4 2023 Coupang Earnings Call Transcript

Our bar for investments remains incredibly high. We only invest when we have

conviction that our opportunities can reach meaningful scale and deliver high returns

on capital. We look for confirming evidence at each stage of investment. If they

don’t meet our high thresholds, we reduce or exit investments. And when we see

strong signals, we’re not shy about investing more.

A number of our investments are already showing remarkable progress and promise.

One such incremental initiative is Fulfillment and Logistics by Coupang, or FLC, for

shelves in traditional retail and lack the capital to build their own technology and

infrastructure, account for over 80% of our merchant base in FLC today. We’re

delighted to share with these enterprising small businesses access to billions of

dollars of historical investment we’ve made in our Rocket network to help them

delight customers and grow their businesses.

Another incremental investment that is proving its potential on growth, scale, and

impact is Taiwan. We’re excited about the opportunity to challenge tradeoffs and

wow customers in a geography with an attractive retail market. Since launching

Rocket in October of 2022, Taiwan's customers and revenues have continued to

Many of our incremental investments benefit from our already strong customer

cohort behavior. Our cohorts continuously expand their levels of spend across

Coupang. With our new categories and offerings, we have the ability to further

expand the spending and engagement potential of all of our customers.

Eats is a great example. Since we launched the WOW membership savings program

in early Q2, we’ve seen our order volumes double. Every month we’ve seen new

adoption and strong retention of those new customers. And as we see one-time

investments such as new merchant acquisition promotions expire, we expect Eats’s

We also see this engagement pattern with Play, our video streaming service. Play

was the most downloaded app in Korea in all categories on both iOS and Android in

2022 and 2023. It’s also delighted customers by not just broadcasting but creating

Q4 2023 Coupang Earnings Call Transcript

from scratch unprecedented live sporting events in Korea. Some of the most

streamed live sporting events over the past two years in Korea have been unique

sports matches created and exclusively streamed by Play. For the first time ever,

millions were able to see Neymar, Haaland, and Son play in Korea with international

franchises like Manchester City, PSG, and Tottenham Spurs. This spring, the

Dodgers and Padres will open their regular season with two games in Seoul, for

which tickets and live broadcast in Korea will be available exclusively to WOW

members. These will mark the first time that regular season MLB games have ever

been played in Korea.

It’s too early for that conversation today. Even if that full potential is not fully

realized, we’re highly confident that this will prove to be a prudent financial decision.

We’re already executing on a plan to make Farfetch self-funding with no additional

investment beyond the announced capital commitment, and we see many paths to

making this a worthwhile investment for shareholders.

And while we’re excited about the long-term potential of such investments, we

remain focused on our biggest priority. We have a very small share of the retail

markets in Korea and Taiwan. Each of those opportunities are massive and

capturing them remains by far our greatest prospect and priority.

As always, we remain committed to the relentless focus on wowing our customers to

create a world where they wonder: “How did I ever live without Coupang?”

Now, I’ll turn the call over to Gaurav to review the financials in more detail.

Q4 2023 Coupang Earnings Call Transcript

Gaurav Anand:

Thanks, Bom. This quarter, we saw an even greater acceleration in customer

engagement with a record 21 million active customers. The rate of active customer

growth accelerated every quarter in 2023, culminating with 16% year-over-year

growth in Q4. That’s the highest growth rate we have seen in the past two years. We

also now have 14 million WOW members, up 27% since last year, reflecting the

broadening recognition of the tremendous value that WOW membership provides for

our members.

The accounting adjustment is from the change in FLC accounting that we have

highlighted earlier. It will continue to adversely affect our reported revenue growth

rate for the next couple of quarters as they will comp against quarters with the

previous accounting treatment.

It is important to highlight that the spend of every annual cohort grew over 15% year

over year. Even our oldest cohorts continue to grow above that rate, demonstrating

that there is still massive opportunity for us to continue to wow even our oldest

customers with new selection at the best prices and a best-in-class delivery

levels also continue to climb.

In our Product Commerce segment, revenues grew 21% on a reported basis and

18% in constant currency. This growth is being driven by deeper spend penetration

across many categories and offerings, higher spend levels per customer, and

increasing adoption of our newer products and offerings. Our Product Commerce

growth rate continues to compound at high multiples of the growth rate of total retail

spend in Korea, which grew at 2% this quarter. We believe we are in the very early

stages of our growth journey in Korea as Coupang currently represents a very small

fraction of the projected $560 billion of total commerce spend in Korea by 2027.

Q4 2023 Coupang Earnings Call Transcript

demonstrates a vast potential we’re seeing from this portfolio of nascent initiatives,

especially in Eats and Taiwan.

We delivered a record $1.7 billion in gross profit, an increase of 32% year-over-year.

This represents a gross profit margin of 25.6%, improving 160 basis points year-

over-year and 30 basis points quarter-over-quarter. We are driving higher

efficiencies across our operations through improvements in our logistics network and

greater utilization of automation and technology, including AI. We also continue to

benefit from further optimization in our supply chain and the scaling of margin

versus last year. This change was due to an estimated 170 basis points negative

impact from the FLC accounting change.

This quarter we recorded a non-recurring adjustment of $895 million from changes in

tax-related reserves, including the release of valuation allowances related to certain

deferred tax assets from historical net operating losses. This resulted in an income

tax net benefit of $861 million for the quarter.

We generated net income of $1.0 billion and diluted earnings per share of 57 cents,

largely impacted by the $895 million in tax reserve adjustments. This adjustment had

point benefit from the FLC accounting change.

Our Product Commerce segment delivered $444 million of adjusted EBITDA, an

improvement of nearly 70% over the previous year. This resulted in a 7.1% margin,

which expanded 190 basis points over last year and includes a 60 basis point benefit

from the FLC accounting change. The growth in margin was also driven by the

expansion in gross profit margin this quarter, as well as improvements in efficiencies

across our operations that we are harvesting from our many years of investment in

infrastructure, technology, and operational excellence. And we believe we’re still in

the early stages of realizing the full margin potential of the business.

50% over last year. This was the result of producing $2.7 billion in operating cash

flow and $1.8 billion of free cash flow for the full year. This is significantly higher than

the $1.1 billion of adjusted EBITDA this year, due to some one-time and seasonal

Q4 2023 Coupang Earnings Call Transcript

working capital benefits, among other factors. As we’ve previously communicated,

we expect that over time free cash flow on a TTM basis will be closer to the levels of

adjusted EBITDA generated.

Now, a few comments on our outlook for 2024.

While we are exiting 2023 with strong growth, we expect our growth rate going

forward to be more consistent with the average growth rate we have seen over the

past year.

We continue to expect growing adjusted EBITDA margins on an annual basis,

excluding Farfetch.

Due to the $895 million tax reserve adjustment, we recorded this quarter, we

anticipate we will experience a temporarily high effective tax rate between 45-50% in

2024. This is just an accounting effective tax rate, as we expect our cash tax

obligation to be closer to 20-25%. Over the mid- to long-term, we expect to normalize

to an effective tax rate closer to 25%.

Bom and I are extremely proud of our teams whose work over many years is