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Coupang, Inc. (CPNG) Q4 2022 Earnings Call Transcript

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Coupang, Inc. (NYSE:CPNG) Q4 2022 Earnings Conference Call February 28, 2023 5:30 PM ET

Company Participants

Mike Parker - VP, IR

Bom Kim - Founder, CEO

Gaurav Anand - CFO

Conference Call Participants

Eric Cha - Goldman Sachs

Seyon Park - Morgan Stanley

James Lee - Mizuho Securities

Jiong Shao - Barclays

Operator

Good afternoon. My sanction is Ashlee, and I will beryllium your convention usability today. At this time, I would for illustration to invited everyone to nan Coupang Earnings Conference Call. [Operator Instructions]

Now I'd for illustration to move nan telephone complete to Mike Parker, Vice President of Investor Relations. You whitethorn statesman your conference

Mike Parker

Thanks, operator. Welcome, everyone, to Coupang’s 4th fourth 2022 net convention call. I'm pleased to beryllium joined connected nan telephone coming by our Founder and CEO, Bom Kim, and our CFO, Gaurav Anand.

The pursuing discussion, including responses to your questions, reflects management's views arsenic of today's day only. We do not undertake immoderate responsibility to update aliases revise this information, isolated from arsenic required by law. Certain statements made connected today's telephone see forward-looking statements. Actual results whitethorn disagree materially. Additional accusation astir factors that could perchance effect our financial results is included successful today's property merchandise and successful our filings pinch nan SEC, including our astir caller yearly study connected Form 10-K and consequent filings. During today's call, we whitethorn coming some GAAP and non-GAAP financial measures. Additional disclosures regarding these non-GAAP measures, including reconciliations of these measures to nan astir comparable GAAP measures, are included successful our net merchandise and our SEC filings, which are posted connected nan company's Investor Relations website.

And now, I’ll move nan telephone complete to Bom.

Bom Kim

Thanks, everyone, for joining america today. A twelvemonth ago, we were emerging from a challenging play of COVID-related disruptions. We shared our outlook that 2022 would beryllium an important twelvemonth to show our expertise to march towards semipermanent profitability targets while still compounding astatine a aggregate of nan wide unit market. We besides shared that we would renew our attraction connected operational improvements arsenic it was progressively clear that COVID was winding down. And we would study our results nether 2 segments, Product Commerce and Developing Offerings, to supply accrued visibility connected our continued progress. We ended Q4 of 2021 pinch a gross profit separator of astir 16%, and an adjusted EBITDA nonaccomplishment of $285 million.

A twelvemonth later, 2022 Q4 concluded pinch a gross profit separator of 24%, an betterment of complete 800 ground points. We recorded complete $200 cardinal successful adjusted EBITDA for nan quarter, an betterment of astir $500 cardinal year-over-year. Adjusted EBITDA separator was 4%, an summation of complete 900 ground points year-over-year. And a nett income of $100 cardinal successful Q4 represents an betterment of complete $500 cardinal versus nan anterior year. We delivered these results while increasing revenues by complete 20% year-over-year connected an FX-neutral basis.

The results are nan result of focused execution and invention by galore teams, pinch astir of nan gains coming from operational improvements specified arsenic technology, infrastructure, proviso concatenation optimization, and process improvement, including automation. The results are besides a reflection of nan underlying spot of our flywheel successful Product Commerce. Active Customers successful Product Commerce accrued 5% year-over-year, and nan walk of each cohort, including our oldest, continued to compound astatine a accelerated rate. And our newer cohorts are starting their travel astatine higher levels of walk and increasing faster than earlier cohorts.

Over nan past year, we besides added astir 2 cardinal much customers arsenic paid WOW members, whose walk and wave are galore times higher than that of their non-WOW counterparts. Enduring customer loyalty is driven by breaking nan tradeoffs betwixt and delivering connected each 3 levers of commerce: service, price, and selection.

Much of our important finance complete nan years has been devoted to delivering connected nan hardest 2 legs: building nan champion acquisition and nan astir businesslike operations truthful that we tin present nan champion acquisition astatine nan champion value to our customers. We’ve begun to spot nan powerfulness of delivering connected nan first 2 levers, work and price, successful our superior cohort behaviour and WOW rank adoption. We expect that momentum to proceed successful 2023 and nan years up arsenic we’ll strive to amended our customer acquisition each day. Expanding action is nan 3rd lever that will amplify our differentiation successful work and value for customers.

Consequently, we judge action will beryllium a captious driver going guardant of moreover higher levels of customer engagement and loyalty, which successful move will unlock much maturation and profitability complete nan agelong term. Currently, only 20% of Active Customers person purchased 9 aliases much of nan complete 20 categories that we offer. These customers purchased much than two-and-a-half times nan magnitude of nan mean customer. We expect that engagement wrong and crossed categories will accelerate pinch wider action connected Rocket. Our oldest cohorts, while spending astir doubly nan magnitude of our newer ones, are still increasing successful walk each twelvemonth arsenic they acquisition caller action and categories connected Rocket.

Just a 3rd of Active Customers successful Q4 were customers of Fresh, wherever we will besides put successful enriching assortment. More than 20 cardinal customers online person yet to subordinate WOW, but nan program’s worth proposition will go harder to defy pinch each caller point added to Rocket. While Rocket action has grown to millions of items, it pales successful comparison to nan overmuch larger number of products that person yet to beryllium included. 1P will target nan immense catalog of celebrated products that are yet to beryllium disposable connected Rocket. Fulfillment and Logistics by Coupang, aliases FLC, shares pinch our sellers nan benefits of nan billions we’ve invested successful our infrastructure and technology.

Over two-thirds of our merchants are SMEs, small-and mean enterprises pinch little than $2.5 cardinal successful yearly revenues. FLC wields nan imaginable to grow action exponentially for customers and successful parallel make unprecedented maturation for our merchants, including SMEs. Early results show that merchants who moved their inventory to FLC saw income summation by complete 65% connected average. This helped to thrust seller take that exceeded our expectations past year, and FLC is already driving a important stock of seller income and higher growth. In Q4, nan mixed maturation of FLC and Marketplace outpaced that of 1P.

We’re still successful nan early days of expanding action connected Rocket. Accordingly, our penetration successful nan wide unit marketplace remains debased successful nan azygous digits, but we’re excited astir nan important opportunity ahead.

Now connected profitability, location are galore efforts crossed nan institution to summation efficiency, that will let america to amended profitability and put successful amended selection, work and value for customers. As an example, automation successful nan shape of some package and hardware will output much savings successful nan years to come. One target of continuous betterment is our fulfillment web wherever we spot that our astir automated FCs person demonstrated much than doubly nan ratio of nan remainder of nan network. We’ll proceed to summation nan ratio of nan web arsenic we thrust higher levels of automation.

While nan complaint of betterment will beryllium variable, we stay encouraged by our imaginable to continuously amended operational excellence and thrust meaningful profit growth. We’re besides excited by nan imaginable we spot successful each of our processing offerings, wherever we’ll proceed to situation tradeoffs customers return for granted. We’ll proceed to trial and put successful initiatives for illustration Eats, Play, Fintech and International among different initiatives. Only initiatives that show nan imaginable for meaningful rate flows successful nan early will gain their measurement to much important investment. And each of nan awesome initiatives has nan imaginable to make important externalities arsenic portion of our ecosystem that will nutrient outsized worth for customers and for shareholders alike. We commencement 2023 moreover much assured and excited astir nan opportunities ahead. As always, we’ll return nan agelong position and onslaught nan biggest trade-offs for customers, make bold decisions and disciplined investments, and build sustainable, semipermanent worth for customers and shareholders, striving to create a world wherever everyone wonders “How did I ever unrecorded without Coupang?”

Now, I'll move nan telephone complete to Gaurav to reappraisal nan financials successful much detail.

Gaurav Anand

Thanks, Bom. Our request continued to stay beardown moreover amidst macro-economic pressure. We continued to turn astatine a aggregate of nan market, pinch full dollar nett gross maturation of 5% year-over-year, and changeless rate maturation of 21% year-over-year and 6% quarter-over-quarter. Our gross maturation continues to beryllium driven by nan summation successful our progressive customers and gross per progressive customer. Total progressive customers grew 1% year-over-year. This was negatively impacted by our Eats offering, arsenic our progressive customers successful Product Commerce grew astatine 5% year-over-year. Our nett gross per progressive customer accrued 19% year-over-year and 5% quarter-over-quarter connected a changeless rate basis, arsenic we proceed to spot moreover deeper engagement from our customers.

Our investments into our WOW rank program, and nan compounding worth of WOW, helped thrust grounds rank maturation successful Q4, ending nan twelvemonth pinch 11 cardinal WOW members. We are encouraged by nan take we proceed to spot pinch our WOW rank program. We generated complete $1.3 cardinal of gross profit successful nan 4th quarter, a astir 60% year-over-year improvement. Our gross profit separator was 24%, an summation of complete 800 bps year-over-year. Product Commerce saw gross profit separator description of complete 600 bps year-over-year, ending nan 4th astatine 24.4%. This is 20 bps little quarter-over-quarter chiefly because of merchandise operation change. The drivers for this year-over-year betterment stay accordant pinch those we person highlighted passim this year: benefits from investments successful technology, infrastructure, proviso concatenation optimization, scaling margin-accretive offerings, and process improvement, including automation.

The immense mostly of nan gains successful 2022 were generated by operational improvements extracurricular of ads. We are seeing nan consequence of galore ongoing initiatives, astir of which person been successful process for immoderate time. We expect these efforts to proceed driving further separator description successful nan future, though we whitethorn not ever spot meaningful betterment each 4th aliases nan aforesaid complaint of betterment arsenic nan past fewer quarters.

Continuing this inclination we saw successful nan past 4th we again improved OG&A complete 120 bps year-over-year and complete 20 bps quarter-over-quarter, successful spite of our continued investments for growth. We delivered a grounds $211 cardinal of adjusted EBITDA, for a separator of 4%. Product Commerce generated adjusted EBITDA of $266 cardinal aliases 5.1% of revenues continuing our improvements done each of nan quarters this year, while Developing Offerings recorded adjusted EBITDA of minus $55 million, a $105 cardinal year-over-year improvement. We proceed to attraction connected improving nan profitability instauration of our Eats offering. Included successful nan Developing Offerings results are our investments into our much nascent offerings for illustration Coupang Play, Fintech, and International. The magnitude of these investments for nan afloat twelvemonth was accordant pinch nan $200 cardinal magnitude that we forecasted astatine nan commencement of nan year. For nan afloat twelvemonth 2022, we reported minus $246 cardinal of free rate flow, an betterment of complete $830 cardinal from nan anterior year. This includes opportunistic investments successful nan procurement of strategical onshore and building assets of $227 million.

Our adjacent milestone is achieving affirmative free rate travel connected a trailing twelve-month cumulative basis. We are assured successful nan imaginable of nan business to make meaningful free rate flows arsenic indicated by our adjusted EBITDA profitability. As we look backmost connected 2022, we are proud of nan measurement our teams executed each quarter. This was a twelvemonth of galore milestones: we deed affirmative adjusted EBITDA for Product Commerce successful Q1, achieved affirmative adjusted EBITDA for nan consolidated business successful Q2, delivered a affirmative nett income of $91 cardinal for nan consolidated business successful Q3, and delivered grounds gross profit, adjusted EBITDA, and nett income successful Q4. We person consistently grown astatine multiples of nan Retail market, and we are assured successful our expertise to proceed that inclination successful 2023.

In nan past we person shared our semipermanent adjusted EBITDA guidance of 7% to 10% aliases higher. In ray of nan advancement we person demonstrated complete nan past year, we are now updating our semipermanent guidance to 10% aliases higher. We expect Product Commerce successful 2023 to proceed its march towards this semipermanent adjusted EBITDA target, though nan gains won’t beryllium accordant each quarter. For Developing Offerings, we will proceed to beryllium opportunistic and disciplined successful our investments successful these nascent, semipermanent opportunities. We put successful these opportunities because we're excited astir nan imaginable to grow nan TAM and make meaningful further rate flows complete nan agelong term. We expect these losses for 2023 to beryllium accordant pinch nan amounts we saw successful 2022.

Operator, we are now fresh to statesman nan Q&A.

Question-and-Answer Session

Operator

[Operator Instructions]. Your first mobility comes from nan statement of Eric Cha pinch Goldman Sachs. Your statement is open.

Eric Cha

Hi. Thank you for this opportunity. I person 2 questions. First is that, we noticed that location weren't immoderate afloat twelvemonth 2023 guidance, fixed successful your disclosure. I presume that this is because of nan macro uncertainty, but would for illustration to perceive your thought process astir this. And besides much importantly, arsenic months of January and February are now down us, would beryllium really adjuvant if you could stock your thoughts astir nan first 4th trends. Any guidance aliases colour would beryllium really helpful. Second mobility is, arsenic you conscionable mentioned, you've raised your agelong word target conscionable EBITDA margin. Would beryllium awesome if you could locomotion america done what were nan cardinal drivers that led you to raise this target? Was it mostly gross profit margin? Or do you guys now spot much operating leverage connected nan SG&A broadside aliases a spot of both? Any colour astir this would beryllium appreciated. Thank you.

Bom Kim

Hi, Eric. Thanks for nan questions. We person historically not fixed apical statement guidance. But arsenic we've demonstrated quarter-after-quarter, we are assured that successful immoderate scenario, we will proceed to turn astatine a aggregate of nan market. In nan first 2 months of Q1, we person seen maturation astatine a akin complaint to what we saw successful Q4. And while nan short-term, it is difficult to predict, we are really assured astir our expertise to proceed to compound and turn astatine a faster complaint complete nan long-term. We are still successful nan single-digit stock of wide marketplace opportunity. The overwhelming mostly of nan unit marketplace is offline, precocious prices and constricted selection. We are excited astir nan opportunity to let customers pinch wider selection, little prices and exceptional work to proceed to seizure important growth

On your 2nd mobility astir nan profit guidance and early description potential, nan drivers -- we're continually encouraged by nan betterment we spot and nan advancement we're making connected nan drivers of separator improvement, which are efforts and continuous betterment programs that leverage years of finance successful technology, infrastructure, proviso concatenation optimization, and caller services among others. Process improvements including automation, arsenic I mentioned, will besides lend to ratio gains successful nan future. And we're progressively assured astir our semipermanent separator opportunity, and we judge we're investing successful nan correct drivers that will get america there, though nan gains whitethorn not beryllium arsenic melodramatic arsenic past twelvemonth will beryllium realized each quarter.

Operator

We'll return our adjacent mobility from Seyon Park pinch Morgan Stanley.

Seyon Park

I person 2 questions. The first is connected FLC. Can we get a small spot of colour connected really overmuch of aliases what percent of your GMV is now coming from FLC? And past given, I conjecture location are immoderate concerns astir nan wide marketplace maturation successful nan adjacent word tin you possibly talk a small spot astir how, Coupang tin utilize FLC to possibly summation nan wide utilization of your distribution capacity? Whether that is thing that is already being actively considered aliases is being utilized would beryllium very adjuvant to us.

The 2nd mobility is connected Coupang Eats. I know, you're successful nan shape wherever guidance is reassessing nan options and I deliberation it's been astir two, 3 quarters since you've done that. Can you benignant of springiness america possibly immoderate colour connected really that is progressing and erstwhile immoderate benignant of a conclusion connected your stance could beryllium reached?

Bom Kim

On your first taxable of FLC, arsenic we mentioned successful nan call, FLC exceeded our expectations successful 2022 and is already starting to scale. Of course, leverages our extremity 10 integrated web allows america to stock nan velocity and ratio pinch merchants to thief them seizure maturation and savings. And parallel, of course, allows america to summation moreover amended economies of standard ratio gains location arsenic well. Helps customers summation entree to moreover wider action pinch nan acquisition of Rocket that we judge will yet unlock sizeable maturation complete nan agelong term. We mentioned nan take rates for merchants and customers alike are beardown connected FLC. So acold early results show that merchants who moved their inventory to FLC saw income summation by complete 65% connected average. Like immoderate caller initiative, location is simply a lead clip to cleanable nan devices and exertion processes and infrastructure to standard FLC to its afloat potential. But we're very excited astir nan agelong word opportunity here.

On Eats, we've made important advancement successful Eats nan $110 cardinal year-over-year gross profit betterment successful processing offerings which chiefly driven by improvements successful Eats. We're besides moving relentlessly and person galore efforts and galore initiatives to amended aspects of nan customer acquisition connected Eats. Eats is simply a strategically important offering for america now and successful nan future, among different benefits for illustration our Fresh offering, Eats thief deepen our customer engagement crossed galore services. There is simply a batch much to do, but we are excited astir nan beardown profitable instauration we are building for Eats. But we are excited astir driving nan adjacent shape of maturation connected that stronger instauration astatine nan correct time.

Operator

And we will return our adjacent mobility from James Lee pinch Mizuho Securities. Please spell ahead.

James Lee

Great. Thanks for taking my question. Two present please. First connected user demand, pinch South Korea correct now facing immoderate inflationary pressure, are you seeing immoderate of nan operation displacement to possibly services, very akin to U.S. aliases possibly waste and acquisition downs by consumers? And second, and possibly tin we get a sense, possibly immoderate puts and takes connected processing offering for 2023, what segments do you consciousness for illustration you request to double down and possibly what conception do you look to beryllium much rational? Any commentary regarding nan $200 cardinal losses that you incurred this year, really should we deliberation astir 2023 connected that? Thank you.

Bom Kim

Okay. Hi, James. Thanks for your question. I deliberation connected user demand, that was your first question, location are economical uncertainties globally that impact each of us. But arsenic you person seen, we proceed to turn overmuch faster successful nan market, proceed to turn astatine a robust pace. We are astatine different stages of action acquisition crossed categories, but we are early successful nan action acquisition for astir each category. You spot that successful our customer cohort behaviour. The walk of our customer cohorts, moreover our oldest continues to compound astatine a accelerated rate. We are seeing beardown maturation crossed each categories, moreover our largest, possibly possibly because of nan shape that we are astatine action acquisition. It is difficult to isolate nan macroeconomic effect astatine a class level.

Seeing our each of our cohorts proceed to compound, each of our categories proceed to grow, we still don't cognize what our afloat imaginable walk is for our customers successful immoderate category. But it's very clear that, customers want debased prices, accelerated transportation and action successful each categories. And those are nan 3 levers that we will proceed to attraction on. We person not yet seen an objection to this elemental truth. And we judge that, our maturation successful nan early will beryllium driven by these 3 levers.

On Developing Offerings, we stay excited astir nan imaginable to unlock important gains successful these caller areas of growth. We judge nan benefits of which will beryllium amplified by our broader ecosystem. We will proceed to beryllium disciplined and intelligent successful nan measurement that we person approached processing offerings. And you will spot that our Developing Offering losses for 2023 will beryllium accordant arsenic Gaurav mentioned pinch nan magnitude of finance we made successful 2022.

Operator

And we'll return our adjacent mobility from Jiong Shao pinch Barclays. Please spell ahead.

Jiong Shao

Thank you very overmuch for taking my questions. I person 2 arsenic well. The first mobility is astir your Fresh. I was conscionable wondering, are you capable to supply a small spot further colour astir nan GMV contribution, wherever you are successful position of nan profitability? Any benignant of a outlook erstwhile that business whitethorn beryllium profitable astatine immoderate constituent successful a somewhat adjacent future. Anything you tin supply would beryllium very helpful.

Second mobility is astir nan Developing Offering arsenic well. Some of your peers, world peers look to person had a very bully occurrence successful nan fintech area, but each country, whether aliases not it’s Brazil aliases Southeast Asia, they person different offline banking system. With that, arsenic a backdrop, nan offline banking strategy aliases financial services manufacture successful Korea, could you elaborate a spot connected nan benignant of nan circumstantial products you are contemplating aliases already launched to get further maturation for your business successful nan financial services, nan fintech area?

Bom Kim

Thanks, Jiong for nan mobility connected Fresh. As we've mentioned before, we person a structural advantage of combining Fresh and wide merchandise successful nan aforesaid logistics and web that allows us, enables america to supply customers pinch nan champion acquisition astatine nan lowest cost. Fresh has affirmative portion economics. We expect profitability to proceed to amended pinch economies of standard and continued efforts to amended our exertion and operations.

We still besides person a important maturation opportunity successful Fresh. Just a 3rd of progressive customers successful Q4 aliases customers of Fresh will proceed to grow assortment and attraction connected providing precocious value and debased prices -- precocious value products and debased prices to customers there.

On Developing Offerings and fintech, I deliberation again, mostly we'll proceed to beryllium opportunistic and disciplined here. We do spot tons of opportunities. We're still successful nan learning shape successful immoderate of those areas. Our attack has ever been to test, learn, iterate, subject and opportunistic there. And I deliberation you'll spot america proceed to return that attack there. I deliberation astatine nan correct clip we'll stock much information, but we're still very early successful nan travel connected galore of nan initiatives that we are pursuing connected Developing Offerings.

Operator

[Operator Instructions] And this will reason today's convention call. Thank you for your participation. You whitethorn disconnect astatine immoderate time.

Editor: Naga



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