Q1 2022 Coupang Inc Earnings Call
As required by law.
Certain statements made on today's call include forward looking statements you should not place undue reliance on forward looking statements actual results may differ materially. Please.
Please refer to today's earnings release as well as the risks and uncertainties described in our most recent annual report.
On Form 10-K filed with the SEC on March three 2022 and in other filings made with the SEC for information about factors, which could cause our actual results to differ materially from those forward looking statements.
During today's call, we will present, both GAAP and non-GAAP financial measures as a.
Minder. These numbers are unaudited and may be subject to change.
Additional disclosures regarding these non-GAAP measures, including reconciliations of non-GAAP measures to the most comparable GAAP measures are included in our earnings release, and our SEC filings, which are posted on the company's Investor Relations website at IR dot about coupons dot com.
And now I'll turn the call over to Bob.
Thanks, everyone for joining us today, let me begin with a few highlights from our first quarter operating results on a consolidated basis Q1 constant currency revenues grew 3% quarter over quarter and 32% year over year.
Our Q1 growth rate continues to be multiples of the E. Commerce segment, and we're confident that we'll continue to grow significantly faster than the segment for years to come.
Our active customers grew to over $18 million, an increase of 13% year over year and our unmatched customer experience is driving even deeper engagement all of our cohorts. Even our oldest are still compounding at a fast rate and our oldest active customers are spending on coupon over 60%.
<unk> of their total estimated online spend today.
We're excited about our significant growth potential in what is projected to be the third largest e-commerce opportunity in the world exceeding $290 billion.
By 2025.
In the first quarter. We also recorded the highest gross profit and gross margin in the history of the company generating over $1 billion in gross profit and exceeding 20% and gross margin.
That represents a 42% improvement in gross profit year over year, and an over 450 basis point improvement in margin quarter over quarter.
Driven largely by initiatives around process improvement automation and supply chain optimization.
As a result, our consolidated adjusted EBITDA recorded an improvement of $194 million from Q4 of 2021.
As we previewed in our last earnings call. We begin reporting our operating results. This quarter in two segments, one product commerce, which represents our core e-commerce and fresh offerings and to developing offerings, which represents our more nascent initiatives like eats video Fintech and international expansion.
Pension.
First on product commerce.
We provided guidance in our last call that product commerce would be adjusted EBITDA profitable in late 2022, we're pleased to report that in the first quarter, we were adjusted EBITDA profitable.
A $72 million improvement year over year, and a $128 million improvement quarter over quarter.
Product Commerce gross profit grew 42% year over year and gross profit margin increased to approximately 330 basis points from Q4 to reach 22% in Q1, our highest ever.
Both core and fresh improvements powered these gains even as both experienced significant year over year and quarter over quarter growth.
While we saw some headwinds from inflation and supply chain disruptions in the past quarter.
Our results were net positive due to improvements around process and technology utilization of capacity supply chain optimization and continued scaling of advertising among other areas.
Most are part of continuous improvement programs that were launched before 2022.
The progress of some were obscured in past quarters by short term disruptions and timing of investments others accelerated as we directed resources that were previously supporting the explosive growth and operational challenges brought on by the pandemic.
Some headwinds will likely persist, but we will continue to strive for operational excellence and we remain confident in our ability to drive the inputs that we control in our business.
We communicated in our prior earnings call that the trajectory towards our long term adjusted EBITDA target would become more evident in our progress this year.
Looking forward, we expect product commerce to remain profitable and for adjusted EBITDA to continue its march upwards over time.
However, the rate of improvement will not always be as dramatic as the results produced by these programs will materialize unevenly each quarter.
We believe continued improvements in operational efficiency supply chain optimization and scaling of merchant services. Among other drivers will expand our consolidated adjusted EBITDA margins to at least 7% and potentially higher than 10% over the long term.
On growth, our flywheel and product commerce continues to build momentum.
Product Commerce revenues grew at 30% year over year on a constant currency basis, and 2% quarter over quarter. In spite of the product E. Commerce segment in Korea, growing 8% year over year and negative 5% quarter over quarter.
Our share of product E Commerce growth increased every quarter in 2021 and that share was even higher in the first quarter of this year.
Active customers grew over 36% over the past two years, but the number of customers buying six or more categories increased over 70% in the same time period.
And the percentage of active customers using three or more coupon offerings nearly tripled over last year.
One of our fastest growing offerings as rocket fresh the largest national online grocery service in the market rockets fresh offers customers. What we believe is the largest selection of fresh groceries in Korea delivered to their doors within hours of purchase via same day or Don delivery enabled by a national network of <unk>.
Old chain fulfillment centers and proprietary delivery logistics.
Just three full years of operation removed from launch rocket fresh delivers billions of dollars in orders on an annualized basis and the number of customers using rocket fresh increased 50% year over year in Q1.
However, just 35% of coupons total active customers used the offering in Q1, which highlights the significant opportunity ahead.
Wow membership also continues to attract more members and deepen their engagement with coupons.
We estimate that Wow is by far the largest paid subscription service in the market with three or four times. The number of paid members as the next largest e-commerce or retail membership program.
We've added seven new services and benefits to the program since its launch three years ago and more on the way.
We're on a journey to make while an indispensable part of our customers' lives.
Just as offerings like rocket fresh and while we have delivered more value to customers on the foundation of a rocket delivery network fulfillment and logistics by coupon LLC promises to compound the value of rocket delivery for customers by increasing the selection available on the network exponentially.
Our <unk> merchants spend also continues to grow at a multiple of the overall E Commerce segment, and we see an opportunity to accelerate penetration by improving our merchant facing tools and services.
We're excited about the potential impact of scaling our merchant services, including FSC in the years to come.
Second on developing offerings.
Revenues from our developing offerings segment increased 79% year over year on a constant currency basis, driven chiefly by our <unk> offering.
As we mentioned in our last earnings call. Our primary focus in eats is on improving profitability meaningfully to position us to be more efficient in our next phase of expansion.
The progress of related efforts were reflected in the adjusted EBITDA for the segment, which improved $66 million quarter over quarter.
We expect <unk> to continue to make improvements and losses in developing offerings to decrease further.
While our focus in each this past quarter has been primarily on improving operating leverage. We're also encouraged by the underlying strength of customer engagement and the offerings.
Our newer each customers are increasing their order frequency in line with our more mature customers, whose order frequency levels. We believe are exceeding those of leading global peers.
We're also exploring synergies between <unk> and our other offerings to amplify these unmatched levels of engagement.
Developing offerings includes initiatives outside of <unk> that have the potential to expand our opportunity beyond the E Commerce segment beyond the $290 billion projected by 2025.
Specifically, we are investing in initiatives to capture additional spend in areas like video Fintech and international.
We will continue to execute in all of these areas in line with our operating tenants, which we previously shared in the second quarter of last year, one we exist to deliver new moments of while for customers to we don't start with what looks easy.
Work backwards from imagining jaw dropping customer experiences and we embrace the hard work required to challenge trade offs that customers take for granted.
Three we will employ technology process innovation and economies of scale to create amazing customer experiences and drive operating leverage and significant cash flows over time.
Sure, we always prioritize growth and long term cash flows and.
And five we are disciplined capital allocators, we start with small investments then test and iterate rigorously we.
We invest more capital over time in opportunities that have the best long term cash flow potential.
2022 is off to a good start the momentum in our business is becoming clearer with each passing quarter and we expect our investments in both customer offerings as well as an operational excellence to continue to create new moments of wyle and improve our operating leverage now I will turn the call over to <unk> to go through the <unk>.
<unk> and our outlook in more detail.
Boom.
Our demand was strong even as conditions surrounding COVID-19 started to normalize in.
In the first quarter <unk> and the other audio and constant currency.
The foreign currency impact is 22% year over year on a reported basis.
We are currently at an annualized run rate of over $20 billion in revenue.
Unparalleled customer offerings continued to attract new customers and drive strong customer retention.
Net revenue per customer increased 8% year over year on a reported basis and 16% on a constant currency basis as more customers continue to be more engaged across all categories and offerings.
Q1, gross profit increased to a record high of over $1 billion.
42% increase year over year.
This represents the best performance in the company's history.
This helped drive the improvement in adjusted EBITDA losses to $91 million.
And a minus one 8% EBITDA margin for the quarter.
These results have come in Bob who are focused on driving efficiencies throughout operations.
As an example, this includes enhanced utilization of machine learning to better estimate delivery times and create more episodes boot assignments.
As well as increased investments in automation, including robotics within our fulfillment network.
As we look forward to the remainder of 2022, we expect to continue our momentum in driving meaningful profit improvements.
We guided in our last earnings call that we expect that adjusted EBITDA loss in 2020.
No more than $400 million.
In light of the trends in the business, including our first quarter performance. We are confident in our ability to exceed that adjusted EBITDA target this year.
We believe our product commerce profitability will continue to improve however.
However, the cadence and sequencing of our efforts will discern and potentially disproportionate benefit quarter to quarter.
As Bob mentioned, we will maintain a disciplined investment approach with our developing offerings like eats we deal in the national and Fintech.
We are optimistic about our ability to continue our strong trend of growing at multiples of the accordion E Commerce segment.
But we also recognize that that are unpredictable variables in the near term such as the impact of ongoing reopening here in Korea, and the pent up demand for travel.
We are more excited than ever about our opportunity to create long term enterprise value.
An early result in 2020.
Support our journey towards long term adjusted EBITDA margins of 7% to 10% on higher that <unk> guided to.
We believe that <unk> strong position in the market will only continue to spend them and drive our top line revenue potential.
And done well generate more opportunities to expand our operating leverage.
Moreover, much of our revenue opportunities ahead.
Templated and higher margin category and offerings.
We have the opportunity to add significant selection and less penetrated categories that are more profitable.
Greater scale increases our fixed costs eliminate and enables us to capture more efficiency through technology and automation.
Additionally, scaling maintenance services, including advertising offerings should also continue to drive higher margin growth.
In closing.
We are excited about the momentum we have built in the first quarter.
But even more excited about what is in front of us.
The buyer will be highlighted for substantial revenue and profit growth.
But give us confidence in our long term growth and adjusted EBITDA margin potential.
Operator, we are now ready to begin the Q&A.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.
Please limit your questions to two per person.
First question comes from the line of Eric <unk> with Goldman Sachs. Your line is open.
Hi, Thank you for the opportunity.
Two questions to ask.
Firstly on gross.
Gross profit margin and EBITDA trend first quarter, obviously very strong.
How do you anticipate the upcoming quarters trend.
For the two this year.
You briefly I think mentioned on the drivers, but more detailed elaboration would be helpful.
Second I realize that you've not changed your guidance can you confirm this for US please and if so.
Any chance during the year, whether there could be a change in guidance or maybe put it in different way any any changes in your investment plans into video Fintech in international and if I may add.
Also share this quarter as COVID-19 impact as well thank you.
Sure. Thanks, Eric.
So we had a strong first quarter in light of this first quarter performance.
Current trends.
We are very confident in our ability.
Exceed this additional EBITDA target that we gave this year.
The product commerce profitability.
We will continue to improve through the year.
The benefit that youll see quarter over quarter, maybe disproportionate.
And what is our plan.
In the developing services.
We don't intend to increase investments versus the plan.
So overall, we are confident in our ability to exceed the adjusted EBITDA.
Okay.
Now on the improvement side.
Most of the 450 bps improvement came from continuous improvement programs as I mentioned that were launched before this year around process and technology.
Around supply chain optimization.
Other other drivers and some of these efforts as I've mentioned in the past were happening in the backdrop, there were obscured by short term disruptions or timing of investments and some of these accelerated.
This past quarter as more resources were directed towards them.
Previously been dedicated to dealing with pandemic related challenges.
These.
<unk> just mentioned, we expect product commerce segment to remain profitable for us to continue to show improvement over time of course, the impact won't be equal every quarter.
But reduce expect to see benefits continue to come from greater economies of scale.
Improved operational excellence from these projects that I mentioned, a growth of higher margin categories and services. These are the same drivers that that drove the record improvement.
Our highest gross margin in the company's history. This past quarter and they are the same drivers that give us confidence.
And our ability to achieve 7% to 10% or higher adjusted EBITDA margins in the long run.
And I think on <unk>, but I don't have the exact number there is some COVID-19 a cross sell of course.
Got it.
In Q1.
But those are decreasing overtime.
Thank you.
Our next question comes from the line of James Lee with Mizuho. Your line is open.
Great. Thanks, My taking my question that cute here with.
With Covid cases start to come down can you guys talk about any changes in consumer behavior are you seeing any sort of shift to offline shopping or even to like services and distillate travel similar to what we see in the U S and if so which categories are you seeing most impact which category do you think is more resilient.
And second question Gaurav, I noticed quite a bit of outperformance that Cogs revenue, it's kind of flattish quarter over quarter, but costs came down quite a bit.
Can you parse that out for us for both the core product and developing business. Thanks.
On the Covid impact there is of course, a lot of variables at work here related to the.
The reopening around Covid, we're seeing internally a lot of evidence that the consumer behavior changes and the engagement level increases.
In Covid.
We are not temporary but for the long term and we're at a stage right now where our growth across all categories.
It is still at a.
Silver relatively strong.
Compared to the broader conditions our demand for example in Q1 was strong even as conditions around Covid started to normalize the product E Commerce segment in Korea for example.
The broader segment in constant currency was down was negative quarter over quarter, we were up.
Year over year of the product ecommerce segment was up only 8% and the broader E.
E Commerce.
Segment in Korea, 8% up year over year, our product commerce growth rate was nearly four times that at 30%.
There continues to be lots of unpredictable variables are related to the opening of the short term, but the long term trajectory is very clear to us that in any scenario. We will continue to grow significantly faster E Commerce segment.
And continue to gain share across all of our categories.
Yes.
We're on pace to gain significant share in an e-commerce market segment.
Expect it to approach nearly $300 billion in sales by 2025 and become the third largest e-commerce opportunity in the world after only the U S and China.
Or do you want to take that.
Yes.
James on the second question we did.
<unk> the split between <unk> commerce margin improvement and developing services margin improvement.
And as Bob highlighted earlier.
The overall margin improvement was both a pivots on the verdict commerce side.
Most of it came from our operational excellence.
Our supply chain improvements process improvements in that we exited earlier in the quarter.
On developing services the improvements came in.
Lots of ARPA gaming from East, while we continue to build on the other initiatives that we have.
I hope that answers your question.
Okay, great. Thank you.
As a reminder, if you would like to ask a question at this time. Please press star followed by the number one on your telephone keypad.
Question comes from the line of Peter Milliken with Deutsche Bank. Your line is open.
Great. Good morning, everybody My question is.
The share price is down close to three quarters.
Yes.
Thats happened to a lot of companies in that period of time.
But does that change what investors are demanding of U.
In terms of yield mandates rather initially with the land grab get dominance and then total adjacency.
Can you feel like this will completely on side with that or is that more of a balance of thereafter.
So I'll focus on getting to breakeven more quickly perhaps then.
And we would we would.
What's the target right now.
Thanks.
James I didn't hear the question as clearly I don't know if it was just on my end, but I think your question was around has our mandate has our strategy change given.
The changes in the stock market environment.
So I'm sorry, it was Peter sorry, Peter.
The result was that the question.
Broadly is that the question.
One of the one of the things we wanted to point out.
We have all we laid out our five operating tenants about a year ago, well before any changes in the in the market.
And we laid out exactly what we're focused on investing for the long term, creating customer Wow really breaking tradeoffs and also operational excellence, we have a culture I mean, it's really core in our DNA operational excellence, we want to create the best customer experience.
<unk>.
With the with the lease with the highest efficiency.
And I think we laid out the disciplined way in which we're going to allocate capital the rigorous way in which we were going to test and iterate and improve operational.
Excellent excellent and as we mentioned a lot of these programs that youre seeing.
Youre seeing the fruits of a lot of these.
More evidently in Q1.
But they were happening they were they were being produced by programs that started.
Many of them well before Q1.
We're are bearing fruit that was being obscured by a lot of short term disruptions lots of pandemic related disruptions that we had shared earlier.
So for.
For us our cultural our culture our strategy remains.
Consistent we are.
We're disciplined we're rigorous and we're also unafraid to take on a hard challenges to create customer while.
And operating leverage so.
We hope to show that and continue to show that and continue to demonstrate.
Yes.
Our progress on both fronts in the quarters ahead.
That's very clear thank you.
Quick follow up on that on the core.
<unk>.
Eloping businesses, if I can say that you are still moving ahead in the same way on the more nascent businesses like say the media side is that still the case level, who will like that the higher <unk>.
And you need to.
But before you start putting more resources into something like that.
No we.
We have always had a we've outlined in our operating tenants how we.
Test and invest in.
<unk>.
Yes.
It's early in the international Fintech.
I think I think those are the services you mentioned it was a little I couldnt quite make it something like that yes.
Yes, yes.
Again, we have a you have a capped budgets with test within that we get proof of concept.
A concept we narrowed it before we scale it.
And that continues to be our operating framework.
In many of these areas look in cases like Fintech, it's an evergreen opportunity for us continues.
Areas with vast potential, but as our ecosystem build.
As our ecosystem.
That opportunity continues to grow and so we're patient and we are.
We're patient and we'll continue to with a very in.
In a very disciplined way test iterate and learn.
Got it. Thank you that's very cool.
Sure.
Your next question comes from the line of Stanley Yang with Jpmorgan. Your line is open.
Hi.
Thanks for my question, taking my question I have two questions can you share about the second quarter outpatient momentum in terms of top line growth and the Q2 margin trend and.
What will be the additional drivers of the margin improvement green screen to the second quarter or second half.
Do you expect the temporary setback on the GP margin in case of full reopening in second half and my next question is.
The labor supply issue.
So tight labor supply has been one of the key constraint of your margin side do you see any.
Visa visa.
Sure.
Supply issue in the first quarter and going forward.
<unk> will be additional room auto glass.
And or.
Do you expect any structural headwinds on this regard.
And what are the major initiatives to drive labor cost savings will enable efficiency increases.
That's too Mike those Mike two questions.
Yes, certainly so I think on upcoming quarter, there were lots of on growth or lots of unpredictable variables in the short term as we mentioned.
But.
Clear in Q1, what we continue to see is that we are and we will continue to grow significantly faster.
And then the ecommerce segment that that trajectory is becoming clearer and clearer to us every day.
<unk>.
And in fact, as we mentioned we grew our share of growth grew every quarter of last year that was even higher in Q1.
So I think while we can't speak and predict with precision in the near term I think we're very confident in the long term in any scenario, we will continue to gain significant.
A significant share and continue to.
Grow significantly faster than the market for the E Commerce segment.
For years to come.
You mentioned the drivers for margin improvement as you mentioned there were.
Process improvements and technology and automation improvements there were supply chain optimization.
There were also continued scaling of various services, what's exciting for us is that as we get bigger it is.
Becoming we're seeing more benefits coming from.
From economies of scale.
From.
More scale increases our ability to invest either in.
Software and hardware automation.
And efficiency projects.
Also our some of our biggest opportunities for growth are in higher margin categories and services.
No.
So for us growth in the future should be higher margin and Thats, what was really exciting.
About about growth and margin in the future I think going forward the impact or the improvement that the scale of improvement won't be as dramatic every quarter.
But we do expect.
To show steady improvement over time.
And as Gordon mentioned, you'll continue to see product commerce remain profitable show improvement you.
You will see developing offerings also continue to make improvements quarter over quarter.
You mentioned labor supply, we're not seeing any structural constraint.
Labor capacity of course, there was there are always challenges related to.
We've had record capacity in Q1, so far and we've been our investments and process improvements and technology improvements. Among other things have really helped us manage their of course variables. We don't control we mentioned in our.
In our.
Earlier statement that we did see some headwinds from inflation.
<unk> disruption, but we were able to offset a lot of that because of the improvements we're making on the.
On the drivers that we control and that's what continues to be.
The anchor of Av or optimism.
Going forward is that we are very confident in our ability to drive the inputs that we control.
And we believe.
They will continue to drive.
Our ability to achieve the 7% to 10% of our higher and adjusted EBITDA margins over the long term.
As a reminder, if you would like to ask a question at this time. Please press star followed by the number one on your telephone keypad, we'll pause for just a moment to compile any remaining questions.
There are no further questions. This does conclude today's conference call. Thank you for joining you may now disconnect.
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