CPNG: 3Q24 Business Update

Coupang—Korea's #1 ecommerce platform—keeps growing, WOW members still increasing spend, developing offerings progressing

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Coupang reported 3Q24 earnings and the stock fell -12% after the release.

Revenue, excluding the FarFetch acquisition, was +25% on a FX-neutral basis.

Comment: There are a lot of different revenue numbers floating around so let us add some context. While they disclose revenue impacts from FX and the FarFetch acquisition in the press release, they also disclose the impact of the FLC accounting change in the slides—which began in 2Q23. While they now have lapped the change, increased adoption of FLC now has a smaller impact to revenues because it is recorded on a net basis, not principal basis as it was prior. (More on this accounting treatment in page 21 of our report).

This quarter’s +25% y/y growth compares to last quarter’s +23% y/y growth. Looking just at the Product Commerce segment they grew +20% y/y in 3Q24 versus +18% y/y in 2Q24, but we cannot call it an acceleration of revenue growth. Last quarter they noted that the 18% figure would have been 660bps higher without the FLC accounting change and in the slides, they disclosed that change would be 380bps for this quarter. This comes out to 3Q24 revenue growth of +24% versus last quarter’s 25%, a slight deceleration.

Gross profit, excluding FarFetch, increased +33% y/y and gross margin declined sequentially 20bps to 28.1%.

Comment. Cost of sales increased +21% y/y versus reported GAAP revenue growth of +27%, suggesting that the sequential margin compression could be distorted by the mentioned revenue changes. Mix shift from 1P to 3P also causes distortions to gross margin. However, we would expect it to generally be accretive to margins.

Adjusted EBITDA was 4.4%, down 10bps sequentially.  

Comment. Product commerce compressed 140bps q/q from 8.2% adjusted EBITDA margin to 6.8%. They attribute this to fluctuating fullfilment costs and an increase in tech spend. Developing Offerings improved from -22% adjusted EBITDA margin to -13%. The total loss from Developing Offerings in 3Q24 was -$127mn, an improvement of ~$70mn q/q.

TTM Operating cash flow was $1.8bn, down $805mn y/y. TTM free cash flow was was even more depressed, decreasing $920mn to $935mn. The difference is accounted for by an increase in capex ($665mn in PPE YTD).

Comment. Readers of our report might remember that we called out how free cash flow was temporarily inflated, and we are starting to see an unwinding of that dynamic. Bom Kim noted on the 3Q23 earnings call that “generally, we expect that free cash flow on a TTM basis will be closer to the levels of adjusted EBITDA generated”. In our report we noted that accounts payable as a % of revenue jumped from 13% in 2020 to 21% in 2023. This quarter it fell to 19%. They note the majority of the capex was due to Korean infrastructure investments.

Lastly, they dropped a press release noting that Bom Kim set up a 10b5-1 plan to sell 15mn shares (and he will separately donate 2mn). They note it is in part to satisfy tax obligations. After these sales he will still own just under ~9% of the company or ~158mn shares.

General Business Commentary.

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*At the time of this writing, one or more contributors to this report has a position in CPNG. Furthermore, accounts one or more contributors advise on may also have a positions in CPNG. This may change without notice.