Coupang, Inc. Q4 FY2024 earnings call

• Over the past 12 months, net revenues grew nearly $6 billion or 23% in constant currency (excluding Farfetch). Gross profit grew 29% (excluding Farfetch and FC fire insurance gain in Q4). Adjusted EBITDA was $1.4 billion with a margin of 4.5% and over $1 billion in free cash flow. - Made significant changes to upgrade fulfillment and logistics processes, increasing same day or dawn deliveries by 45%, extending same-day delivery cutoff by 2 hours, expanding next-day Rocket Delivery to include installation services, increasing fresh assortment by over 30% with 100% free same-day and dawn delivery for fresh selection. - Invested in automation, nearly doubling the highly automated portion of fulfillment and logistics infrastructure in the past year, with room for further improvement. - International market Taiwan had strong performance in 2024 Q4 with net revenues growing 23% quarter-over-quarter, organic growth significant, and launched WOW membership program. - Farfetch acquisition: Losses shrunk dramatically to breakeven run rate, monthly visitors 49 million in over 190 countries. - 2025 strategy: Continue to put customers first, innovate relentlessly, invest in big opportunities with discipline, expect to expand margins through automation, technology, supply chain optimization, and scaling margin-accretive offerings.

Product Commerce segment: Revenue grew 9% year-over-year, 16% in constant currency. Gross profit grew 31% (24% excluding fire insurance gain). Active customers grew 10% year-over-year. Average spend per active customer grew 6% in constant currency. Developing Offerings segment: Revenue in Q4 grew roughly 300% year-over-year in both reported and constant currency amounts. Excluding Farfetch, it grew 124% or 136% year-over-year in constant currency. Consolidated gross profit: Grew 48% (29% excluding Farfetch and fire insurance gain). Adjusted EBITDA: Q4 was $421 million with a margin of 5.3%, full year was $1.4 billion with a margin of 4.5%. Product Commerce segment adjusted EBITDA in Q4 was $539 million with a margin of 7.8%. Developing Offerings Q4 adjusted EBITDA loss was $118 million, and in 2025, Developing Offerings is anticipated to incur adjusted EBITDA losses between $650 million to $750 million.

• Expect to expand margins in 2025 through greater utilization of automation and technology, further supply chain optimization, and scaling of margin-accretive offerings. - Product Commerce gross profit expected to grow faster than related constant currency revenues. - Developing Offerings anticipated to incur adjusted EBITDA losses between $650 million to $750 million in 2025. - Anticipate effective income tax rate to be between 50% to 55% in 2025, with cash tax obligation closer to 40%.

• Macro environment uncertainty could impact top line growth. - Uncertainty in integrating Farfetch completely and achieving expected synergies. - Risk that technology investments may not deliver the expected growth in revenues and margins as anticipated.

Q: Over the past several months, both government data and third-party data have indicated an elevated slowdown of domestic e-commerce market growth this fourth quarter. Have you seen the similar trend in your Product Commerce GMV growth year-to-date? I would appreciate if you share a bit more color on the macro impact on your top line growth outlook in 2025. And I appreciate your guidance of 20% top line growth, but I just wonder between the breakdown between the Product Commerce versus Developing Offering revenue growth? And my second question is about your FLC business, which has emerged a strong growth driver. Management guided FLC is margin accretive, but can you please give a bit more color on the FLC margin profile trend going into 2025?

A: Hi Stanley, thanks for your question. I think with macro, we understand that there is some uncertainty in the macro environment. We've seen cycles like this before, including a couple of years ago when we were coming out of COVID. I think our outlook for growth continues to remain strong. Keep in mind, we're still a relatively small share of the overall retail market, just a small fraction. And what's driving our expansion is not a one-time bump or cycle, but deep and increasing engagement from our customers. The spend of every single coin of our customers, even our oldest, continues to compound each year. And that's driven by our continuous improvement of selection, service, and price. We expect that our focus on these four value proposition drivers will support our growth -- continue to support our growth. And as we've mentioned, we expect our Q1 growth to remain consistent relatively to our -- the growth that you've seen in Q4 to be in line with Q4, excluding Farfetch. Our strategy remains the same through any phase of these cycles. We provide customers with the best experience at the lowest price. Whatever the macroeconomic environment may be, and we've seen uncertainty like this before, as long as we deliver that, we're confident we can continue to outpace the market's growth significantly for years to come. On FLC, our focus right now is on optimizing the service levels for our customers and our merchants. We continue to see strong momentum in FLC. The trends that we've shared over the past few quarters have only continued and FLC is still growing at a high multiple of our overall business. We're encouraged by the strong rate of adoption that we're seeing from merchants who are increasingly recognizing the benefits of leveraging our operational capabilities to serve customers better and that, in turn, helps their business thrive. Our focus right now is to invest in enhancing that service. There's still a lot more to build out to improve the selection and convenience for our customers, which will, in turn, drive higher levels of engagement and lead to even greater growth opportunities for merchants and suppliers.

Q: Firstly on Eats, I believe Coupang is adjusting the platform fee and could you help us quantify the impact coming from these changes? And is that included in your -- reflected on your Developing Offering guidance, adjusted EBITDA loss guidance range. The second question is on tech spending. Obviously, we are continuing to see a rise in OG&A driven by these drivers. But when can we expect some moderation of pace in the investment? Could that maybe come within 2025 or should it be a little bit more long-term? And what's the -- could you explain to us what the specific benefits that the consumers are or the merchants may have coming from these investments?

A: Thanks Eric. I'll take that. So, Eric, we believe we partnered really well with all our stakeholders in Eats, the restaurants, drivers, and customers. As a general practice, we don't comment on the individual profitability of each of these components in our segment. But in Eats, we see many opportunities to continue improving the customers' offering as we have done as well as improving our operations. So, in Eats, we provide free delivery with zero additional fees in any form to our customers. We offer merchants what we believe to be the lowest fees and commission of any food delivery service in the world. With that, we are committed to build a strong partnership with our restaurant and delivery partners and striving to improve the experience for our customers. And moving on to your next question, Eric, on the overhead expense. So, the OG&A expense as a percentage of revenue has increased versus last year, but this increase is primarily driven due to the inclusion of Farfetch and the related acquisition and restructuring costs. But as we discussed last quarter, we also increased the tech and infrastructure expenses to build a stronger foundation for future scalability. So, we are excited about potential and the potential that we are seeing to drive significant growth in revenues and margins through these increased investments in AI and automation, primarily supporting our Product Commerce business. So, we do expect OG&A expenses will decline over time as a percentage of revenue. I think the guidance we are giving is the near to medium term, right? Bom Kim: And Eric I'll address your last question about the benefits or the gains that customers and merchants -- what they may or could expect from our investments here. And machine learning and generative AI, in particular, continue to be a core part of our strategy. They have contributed to some of the results that you've seen in the past. And we're deploying them throughout our business. We expect them to have an impact on the trillions of predictions we make every day from search, ads, catalog, our engineering, operations, among many others. And we're already seeing benefits and an even greater potential for improvements to come. So, we'll continue to invest to leverage AI to enhance the customer experience and improve operational efficiencies. And as always, as with all of our investments, we continue to test and iterate and invest only where we're convinced of the potential for attractive returns.

Q: First is on Farfetch. If maybe management can share what the ambition -- now that the restructuring phase appears to be done, what's the strategy going forward will be? And whether Farfetch could see potentially an integration of Farfetch into Coupang or with the Korean consumers, is my first question? The second question is just kind of on the CapEx investment outlook. I'm assuming that the increase in coverage in Korea is not as fast as it was in the past, given that we already have nationwide coverage. And hence, should we expect the same cadence of CapEx spending going forward? Or is there a chance that, that could be adjusted or a shift to investments outside of just pure coverage?

A: Bom Kim: So, let me start with Farfetch. We're pleased with the early progress we've seen at Farfetch. We focused on operational improvements that, as you point out, have helped turn large losses at this time -- sorry, at the time of our acquisition to profitability today. We'll continue to leverage resources and capabilities across the company when helpful and also explore synergies. But most of all, we want to finish the job of streamlining our operations and sharpening Farfetch's execution around customer experience. We're committed to delivering exceptional experiences for luxury customers, boutiques, and brands. That and operational rigor will set Farfetch on the path to sustainable growth and leadership in the global luxury retail market. It won't happen overnight, but we're excited about what's ahead there. Gaurav Anand: Yes. And I'll take the CapEx question. On levels of CapEx, as a percentage of revenue has historically remained relatively consistent over time and leveraging as we scale. And we are very disciplined on how and where we invest our CapEx into. The majority of our CapEx investment is related to building our capacity to support our growth in both Korea and now Taiwan. And that's why we measure it as a percentage of revenue, indicating the growth. The inherent peaks and lead-times naturally create some unevenness in the timing. But overall, we continue and expect to continue to leverage CapEx as a percentage of revenue.

Q: First is on your developing offering guide. I want to -- I was hoping you can elaborate a bit on your guide of $650 million to $750 million investments. So, I want to be clear, I suspect you have Farfetch in it. Just rough -- the Farfetch run rate is about $120 million profit. Does that mean the rest of the old kind of core developing offering, the loss should be $750 million to $850 million? I want to make sure my math or my understanding is correct. And it will be helpful to all of us if you can talk about like what are you thinking of investment directionally for Taiwan or Eats and for play in 2025 vis-à-vis 2024? And recently, you entered into Japan food delivery as well according to some media reports, could you talk about the rationale there, especially when you exited Japan a couple of years ago and the level of investment you are looking to do for the Japanese food delivery market? Sorry for the long-winded question. Second question, it's a quick one, at least, a shorter one. Your investment intensity last year was very good. As a result, more than -- sorry, the year before last year, for example, you more than doubled your EBITDA margin. But last year, the EBITDA margin went up only slightly because of the intense investments. I was wondering for 2025, do you feel like -- because these investment cycles, they come in kind of different magnitude from year-to-year. I was just wondering for 2025, do you think the investment intensity is going to be similar to 2024 or is it going to be less or more?

A: Bom Kim: Hi Jiong, thanks for the question. I think there's a lot of things in your question. In fact, I'll try to address as many of it as I can. I think it's important to remember the Developing Offerings is really a collection of investments. We are investing in services and offerings that we believe strengthen our customer value proposition and also generate attractive returns for our shareholders in the long-term. Many of these initiatives are gaining solid momentum and already contributing to our long-term strategy. I think to your specific question about Farfetch, I think I would point out that there are some one-off benefits in Q4. So, I think Q4 generally is seasonally a high profit period for that offering. But the more important point here, I think, is to take a step back and whether it's Farfetch or Japan, which you mentioned, I think that's one of several investment opportunities that we have in our Developing Offerings. We evaluate a lot of opportunities and the select few cases that we do make an investment. And across all of these initiatives, our approach is consistent. Really, it's one of disciplined execution. We're focusing on ensuring that these investments are driven by two things; one, a clear customer demand for our differentiation; and two, a strong path to operational excellence. When the evidence doesn't meet our expectations, we'll be disciplined and reevaluate as we have in the past. And when we do invest more, and I want to emphasize invest, we hope our shareholders are excited because it's a reflection of our growing confidence from what we're seeing on the ground that will deliver a WOW experience for customers and an attractive return for our shareholders. Our investments for Developing Offerings across all of these initiatives in 2025 is expected to be about between $650 million and $750 million. And there's still a lot to learn across each of these initiatives, and they're all at various stages but where we are investing more, we hope it's a reflection of the confidence. I hope you see it as a reflection of our growing conviction that we are delivering -- we have a line of sight to delivering a clear WOW experience and attractive returns for our shareholders. Gaurav Anand: Then on your third question on EBITDA margin expansion, I believe you are referring to the OpEx investment. And we have discussed that a few minutes ago. We continue to be disciplined. We made decisions to invest and we do expect OG&A expenses will decline over time in the near to medium term.