Q4 2023 Coupang Inc Earnings Call

Operator: Hello, everyone. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome everyone to the Coupang 2023 fourth quarter earnings conference call. All lines have been placed on mute to prevent any background noise.

Hello, everyone. My name is Kristen.

Your conference operator today at this time I would like to welcome everyone to the coupon 2023 fourth quarter earnings Conference call.

All lines have been placed on mute to prevent any background noise.

Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number five on your telephone keypad. If you would like to withdraw your question, press star and the number five once again.

After the Speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press star followed by the number five on your telephone keypad.

If you would like to withdraw your question press Star and the number five once again.

Operator: Now, I'd like to turn the call over to Mike Parker, Vice President of Investor Relations. You may begin your conference. Thanks, operator.

Now I'd like to turn the call over to Mike Parker, Vice President of Investor Relations you May begin your conference.

Thanks, operator.

Mike Parker: Welcome everyone to Coupang's fourth quarter 2023 earnings conference call. I'm pleased to be joined on the call today by our founder and CEO, Bom Kim, and our CFO, Gaurav Anand. The following discussion, including responses to your questions, reflects management's views as of today only. We do not undertake any obligation to update or revise this information except as required by law. Certain statements made on today's call include forward-looking statements, and actual results may differ materially.

Everyone to coupons fourth quarter 2023 earnings conference call.

I'm pleased to be joined on the call today by our founder and CEO, Bob Kim and our CFO Gordon on the.

The following discussion including responses to your questions reflects management's views as of today's date only.

We do not undertake any obligation to 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.

Mike Parker: 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 reconciliations of these measures to the most comparable GAAP measures, are included in our earnings release, the slides accompanying this webcast, and our SEC filings, which are posted on the company's investor relations website. Now, I'll turn the call over to Bob.

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 reconciliations of these measures to the most comparable GAAP measures are included in our earnings release.

Slides accompanying this webcast and our SEC filings, which are posted on the company's Investor Relations website.

And now I'll turn the call over to Bob.

Bob: Thank you 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 forms the foundation for long-term growth, profitability, and ultimately free cash flow, which serves as the basis for long-term shareholder value. In 2023, our growth in both active customers and revenues accelerated every quarter. In Q1, we began the year with 5% year-over-year growth in active customers. In Q4, our active customers grew 16% year-over-year.

Thanks to 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 a while for customers across selection price and service formed the foundation for long term growth profitability and ultimately free cash flow, which serves as the basis of long term shareholder value.

In 2023, our growth in both active customers and revenues accelerated every quarter in.

In Q1, we began the year with 5% year over year growth in active customers in Q4, our active customers grew 16% year over year.

Bob: And the spend of every annual customer cohort is growing over 15%, even our oldest cohort. In Q1, our revenues grew at 20% year-over-year on a constant currency basis. Apples to apples, without the FLC accounting change we made in Q2, our Q4 revenue growth rate would have been over 900 basis points 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 ProductCommerce, 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 percent. Our share dilution has remained at around 1 percent in each of the three years since we became a public company, including the year of our IPO.

And the spend of every annual customer cohort is growing over 15%, even our oldest cohorts.

In Q1, our revenues grew at 20% year over year on a constant currency basis apples to apples without the SLC accounting change we made in Q2, our Q4 revenue growth rate would have been over 900 basis points 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 one 3% or share dilution has remained at around 1% in each of the three years since we became a public company, including the year of our IPO.

Bob: And our free cash flow generation for 2023 totaled $1.8 billion, even after investing over $450 million in our developing offerings. Our cash balance today stands at over five and a half billion dollars. Sizable 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 trade-offs and deliver a wow experience to customers. For example, rocket delivery was an entirely new competency.

And our free cash flow generation for 2023 totaled $1 8 billion EBIT.

Even after investment of over $450 million and our developing offerings.

Our cash balance today stands at over five and a half billion.

Billion.

Sizable 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 patients 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 wasn't entirely new competency, we had never purchased and manage the inventory open fulfillment centers assembled a nationwide logistics fleet or built bespoke.

Bob: We had never purchased and managed inventory, opened fulfillment centers, assembled a nationwide logistics fleet, or built bespoke technology to orchestrate one-day delivery on our unique, integrated network. With the success of this new capability, we were able to add incremental initiatives that have expanded our impact, like dog delivery. 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. 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 the investment.

Technology to orchestrate one day delivery on our unique integrated network.

With the success of this new competency, we were able to add incremental initiatives that have expanded our impact like dawn delivery.

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.

Our bar for investments remains incredibly high we only invest when we have conviction that our opportunities to reach meaningful scale and deliver high returns on capital we look for confirming evidenced at each stage of investment if they don't meet our high thresholds, we reduce or exit investments and when we see strong signals.

Bob: 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 which we continue to make significant investments in infrastructure and technology. Customers responded enthusiastically to the expanding selection on Rocket. In Q4, our FLC volumes doubled year over year, and the number of participating merchants in FLC jumped 80%. Small and medium enterprises, or SMEs, who do not have access to physical 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 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 coupon or F. L. C for which we continue to make significant investment in infrastructure and technology.

Customers responded enthusiastically to expanding selection on rocket in Q4, our FMC volumes doubled year over year, and the number of participating merchants and SLC jumped 80%.

Small and medium enterprises, or Smes, who do not have access to physical shelves in traditional retail and lots of capital to build their own technology and infrastructure account for over 80% of our merchant base and MLC today.

Bob: 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 for growth, scale, and impact is Taiwan. We're excited about the opportunity to challenge trade-offs 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 compound at an incredible rate, more than doubling over the last two quarters alone. It's a pace of adoption and growth that exceeds what we experienced in Korea over the same period of time after the launch of the rocket. In Taiwan, we're able to leverage the advanced technology learnings and processes, among other assets that we've developed over many years.

We are delighted to share with these enterprises 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 while customers in a geography with an attractive retail market.

Since launching rocket in October of 2022.

<unk> customers and revenues have continued to compound at an incredible rate more than doubling over the last two quarters alone.

It's the pace of adoption and growth that exceeds what we experienced in Korea over the same period of time after the launch of rocket.

In Taiwan, we are able to leverage the advanced technology learnings and processes. Among other assets that we've developed over many years, we expect that to enable us to reach profitability in Taiwan faster than we did in Korea.

Bob: We expect that to enable us to reach profitability in Taiwan faster than we did in Korea. 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.

Many of our incremental investments benefit from our already strong customer cohort behavior, our cohorts continuously expand their levels of spend across coupon.

With our new categories and offerings, we have the ability to further expand the spending and engagement potential of all of our customers.

<unk> is a great example, since we launched the while membership savings program in early Q2, we've seen our order volumes double every month, we have 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 to.

Bob: 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' positive underlying unit economics, along with scale, to drive cash generation in the future. What is equally exciting is the positive externalities we've seen in customer engagement across our products and offerings. Just as purchasing in one category helps spur engagement in other categories, we've seen higher engagement on Eats lead to higher engagement in product commerce. 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 is positive underlying unit economics, along with scale to drive cash generation in the future.

What is equally exciting is the positive externalities, we've seen in customer engagement across our products and offerings just as purchasing in one category helps spur engagement in other categories, we've seen higher engagement on eats lead to higher engagement and product commerce.

We also see this engagement pattern with play our video streaming service play was the most downloaded app in Korea, and all categories on both iOS and Android in 2022 and 2023. It's also delighted customers by not just broadcasting, but creating from scratch unprecedented lifespan.

Bob: It's also delighted customers by not just broadcasting but creating 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 broadcasts in Korea will be available exclusively to WoW members. This will mark the first time that regular season MLB games will be played in Korea.

<unk> events and Korea, some of the most streamed live sporting events over the past two years in Korea have been unique sports matches created an exclusively streamed by play with.

For the first time ever.

We're able to see Neymar Holland and so on.

Clay in Korea, with international franchises, like Manchester City, PSG and Tottenham Spurs. This spring the Dodgers and Padre as we will open the regular season with two games and sold for which tickets and live broadcast in Korea will be available exclusively to all members.

This will mark the first time the regular season MLB games have ever been played in Korea.

Bob: And last, a note about Parfait. While we weren't seeking an acquisition, we came across a rare opportunity to buy a sector-leading service with $4 billion in GMV for a $500 million investment. We hope in a few years we'll be having the conversation about how Coupang turned far-fetched into a business that transformed the customer experience around luxury fashion while also providing strategic value for Coupang. It's too early for that conversation today.

And last a note about farfetch, while we weren't seeking an acquisition we came across a rare opportunity to buy a sector, leading service with $4 billion in <unk> for a $500 million investment.

We hope in a few years, we'll be having a conversation about how coupon turned farfetch into a business that transformed the customer experience around luxury fashion, while also providing strategic value for coupons.

It's too early for that conversation today.

Bob: 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 achieve far-fetched 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.

Even if that full potential has 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 that remains by far our greatest prospect and priority.

Gaurav: Each of those opportunities is 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. Thanks Don.

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 coupons.

Now I will turn the call over to grow to review the financials in more detail.

Andrew Baum.

Gaurav: 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.

We saw an even greater acceleration in customer engagement.

Green button million active customers.

Active customer growth accelerated in the quarter and Clinique really three eliminating the 16, both NPL will yield growth in Q4.

Thats the highest <unk> seen in the past all year.

<unk> now have $14 million, while members of going to be 7% last year, reflecting the broadening the completion of the tremendous value that Walgreens, Hawaii, but our members.

Gaurav: Our total net revenues of $6.6 billion grew 23% year-over-year, or 20% in constant currency; adjusted for the FLC impact, our growth would have been 940 basis points higher than the 20% constant currency revenue growth rate reported. Adjusting for this accounting change, constant currency revenue grew at an increasingly faster rate each successive quarter of 2023. The accounting change is due to the change in FLC accounting that we have highlighted earlier.

Our total net revenue of $6 $6 billion.

People have been dealing with young people.

In constant currency.

Adjusting for that it does the impact would have been 940 basis points higher than the current peoples and constant currency revenue globally reported.

Adjusting for this accounting teens constant currency revenue.

Increasingly.

Each quarter of 2023.

Doug I think discipline is.

The change in accounting that we have highlighted earlier it will continue to adversely affect our reported revenue globally.

Gaurav: It will continue to adversely affect our reported revenue growth rate for the next couple of quarters as it will comp against quarters with the previous accounting treatment. However, 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 a massive opportunity for us to continue to wow even our oldest customers with new selections at the best prices and a best-in-class delivery experience. In addition, each successive annual cohort is starting with higher levels of spend and growing even faster. We saw a 3% increase in constant currency net revenues per active customer. While all our annual cohorts are going over 15% year-over-year, our new active customers are naturally at much lower levels of spend than the mature cohorts.

A couple of quarters as they will call against quarter.

Previous accounting treatment.

It is important to highlight that.

<unk> annual cohort.

Over 15, both thing.

Even our oldest cohort continue to grow above that rate demonstrating that that has been a massive opportunity for us to continue to evolve even upward lift customers with new connection at the best spaces and a best in class delivery experience.

Hey, Madison.

A new cohort.

I think with higher levels of spend and growing even faster.

Before people with an increase in constant currency net revenues per active customer.

While all of our new cohorts are going also people together with you.

I think customers are maximally at much lower levels of spend the endometrial cohort.

Gaurav: The large number of new active customers we have added over the last few quarters has had a short-term diluted impact on the average spend per active customer. However, we believe a large amount of growth will continue to come from the spend of newer cohorts converging to the much higher spends of the oldest cohorts, whose spend levels also continue to climb. In our product commerce segment, revenues grew 21% on a reported basis and 18% in constant currency.

We have added over the last few quarters has a short term dilutive impact on the average spend per active customer we believe a lot of that model.

We'll continue to come from the end of your cohort converging to the much higher spend.

The oldest cohort.

The spend levels also continued to climb.

And that vertical segment.

The 1% on a reported basis.

In constant currency.

Gaurav: This growth is being driven by deeper pen penetration across many categories and offerings, higher spend levels per customer, and increasing adoption of new 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 a growth journey in Korea as Coupang currently represents a very small fraction of the projected 560 billion dollars of total commerce spent in Korea by 2027. As Bob noted, we are also excited about the increasing momentum we are generating in developing offerings. Its segment revenue grew 105% year-over-year on a reported basis and 102% in constant currency.

This growth is being driven by deeper penetration.

Penetration across many categories and offering.

Highest level customer and increasing adoption of our new product offering.

Vernon Commerce globally continues to compound at high multiples of the growth rate of both.

The retail spend in Korea, which grew at group within this quarter.

We believe we are.

In the very early stages of our growth in Korea as coupons currently represent a very small fraction of that.

$560 billion of fourth ecommerce spin inquiry out by Glenn It really Senate.

As Bob noted we are.

Excited about the increasing momentum we had.

And reading and developing offerings.

Segment revenue grew and then people have been dealing with a year on a reported basis and one.

In constant currency.

Gaurav: Along with other signals, this growth demonstrates the vast potential we are seeing from this portfolio of nascent initiatives, especially in East 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 efficiency across our operations through improvements in our logistics network and greater utilization of automation and technology, and building AI. We also continue to benefit from further optimisation in our supply chain and the scaling of margin-accretive offerings, including ads. While these tailwinds were partially offset by the continued investment in selection expansion and increased investment in developing offerings this quarter, we see significant runway ahead of us to continue delivering margin expansion through each of these initiatives. OG&A expense as a percentage of revenue increased 120 basis points this quarter versus last year. This change was due to an estimated 170 basis points negative impact from the FLC accounting change.

Along with other signals.

We will demonstrate that putting sort of USB.

Portfolio of Nathan initiative, especially India and Taiwan.

We delivered a record $1 7 billion and gross profit.

Increase could be duplicative in dealing with this.

The presence of gross profit margin of $25, six closing, improving 60 basis points year over year, and 30 basis points quarter over quarter.

We are driving efficiency across the operation improvements in our logistics network and greater utilization of automation and technology and.

Including AI.

Also continued to benefit from further optimization in our supply chain.

Scaling of margin accretive offering.

<unk>.

While these buildings were partially offset by the continued investment and so that's an expansion and increased investment in developing offerings this quarter.

We see significant runway.

To continue delivering margin expansion.

Each of these initiatives.

G&A expense as a percentage of revenue increased 120 basis points this quarter versus last year.

This was due to an estimated 70 basis point negative impact.

The FMC accounting team.

Gaurav: 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 billion and diluted earnings per share of $0.57, largely impacted by the 895 million dollars in tax reserve adjustment. This adjustment had a $0.49 impact on diluted EPS. Removing the impact of the one-time tax reserve adjustment, our diluted EPS for the quarter would have been $0.08.

This quarter, we recorded a nonrecurring adjustment of $895 million.

Changes in tax related reserve.

The release of valuation allowances related to certain deferred tax assets.

Historical net operating losses.

This resulted in an income tax net benefit of $861 million for the quarter.

Recently, the net income of $1 billion and diluted earnings per share of 57 thing.

Largely impacted by the $895 million in taxes assessments.

<unk> had a pretty nice impact on diluted EPS have.

Removing the impact of one time taxes, though adjustment our diluted EPS for the quarter would have been <unk>.

Gaurav: For our consolidated operations, we reported $294 million of adjusted EBITDA this quarter and $1.1 billion for the full year. The Q4 adjusted EBITDA margin was 4.5%, representing a 50 basis point improvement year-over-year, which includes a 40 basis point benefit from the FLC accounting chain. 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 the last year and includes 60 basis points of benefit from the FLC accounting chain. The growth in margins was also driven by the expansion in gross profit margins this quarter, as well as improvements in efficiencies across our operations that we are harvesting from our many years of investments in infrastructure, technology, and operational excellence. We believe we are still in the early stages of realizing the full margin potential of the business. In our developing offerings segment, the adjusted EBITDA loss was $150 million, increasing $95 million year-over-year but decreasing $10 million quarter-

For our consolidated operations, we reported $294 million of adjusted EBITDA, This quarter and $1 $1 billion for the full year.

Existing EBITDA margin.

<unk>.

Good thing, a 50 basis point improvement year over year.

Which includes a 40 basis point benefit from the FMC accounting team.

Vernon Commerce segment delivered $444 million of adjusted EBITDA, an improvement of nearly 70% over the previous year.

This resulted in a seven 1% margin.

We've expanded 90 basis points over the last year and includes a 60 basis point benefit from the FSC accounting change.

The growth in margin was also driven by the expansion in gross profit margin this quarter as well as improvements in efficiencies.

Cost of operations that we are harvesting from our many years of investment in infrastructure technology and operational excellence.

I believe we are building.

These stages of realizing the fluid margins within the business.

Living offerings segment.

EBITDA loss of $150 million, increasing $95 million a year.

Using $10 million quarter over quarter.

We ended the year with.

$5 $6 billion in cash an improvement of more than two people within the over last year.

This was the result of that you think $7 billion in operating cash flow and $1 $8 billion of steel for the full year.

Gaurav: We ended the year with roughly $5.6 billion in cash, an improvement of more than 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 working capital benefits, among other factors.

This is significantly higher than the $1 $1 billion of adjusted EBITDA. This year.

Some onetime and seasonal working capital benefit among other factors.

As we have previously communicated.

That overtime.

No on a TTM basis will be closer to the levels of adjusted EBITDA generated.

Now a few come in on our outlook for 2024.

Gaurav: As we have previously communicated, we expect that over time, cash flow on a TPM 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 anticipate incurring adjusted EBITDA losses in developing offerings of approximately $650 million in 2024. Excluding losses related to partners

<unk> existing credit quality, the strong growth, we expect our growth rate going forward will be more consistent with the average growth rate, we have seen over the past year.

We anticipate getting adjusted EBITDA losses in developing offering.

Approximately $650 million and <unk> 24.

Excluding losses relating to Farfetch.

And as Bill noted, we do not anticipate incremental investment in phosphates beyond the high quality communicated investment to get it to profitability.

We continue to expect growing adjusted EBITDA margins on a yearly basis, excluding farfetch.

New to the $895 million taxes of it just mean, we recorded this quarter.

Gaurav: And as BoM noted, we do not anticipate incremental investment in Farfetch beyond our already communicated investment to get it to profitability. We continue to expect growing adjusted EBITDA margins on an annual basis, excluding part-time. 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 to 50 percent in 2024. This is just an accounting effective tax rate, as we expect our cash tax obligation to be closer to 20 to 25 percent.

Debate, we will experience.

The effective tax rate between 45% to 50% in 'twenty 'twenty four.

This is just an accounting thing.

I think they've actually.

We expect our cash tax obligation.

Further to 20% to 25%.

Over the mid to long term.

The normalized effective tax rate.

Those are two type of thing.

One on.

I'm extremely proud of our team would work over many years is responsible for the results. We have enjoyed this past year.

We are confident our teams will remain committed to executing our passion for customer experience.

Gaurav: Over the mid to long term, we expect to normalize to an effective tax rate of closer to 25% Bom and I are extremely proud of our team whose work over many years is responsible for the results we have enjoyed this past year. We are confident our teams will remain committed to executing with a passion for customer experience and operational excellence to deliver on the vast potential ahead.

Don't think of excellence to deliver under that.

Operator, we are already to begin the Q&A.

At this time I would like to remind everyone in order to ask a question press star and the number five on your telephone keypad.

If he would like to withdraw your question press Star and the number five once again.

Please limit your questions to two per person, we'll pause for just a moment to compile the Q&A roster.

Operator: We are now ready to begin the Q&A. At this time, I would like to remind everyone that in order to ask a question, press star, then the number five on your telephone keypad. If you'd like to withdraw your question, press star and the number five once again. Please limit your questions to two per person.

Your first question comes from the line of Stanley Yang with Jpmorgan. Your line is open.

Yeah.

Thank you for the opportunity to ask the questions congratulations on pizza dessert.

Quota I have two questions with regard to 2000 and for the full guidance.

Stanley Yang: We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Stanley Yang with JP Morgan. Your line is open.

First question is about your product commerce strategy and the margin outlook.

Stanley Yang: Thank you for the opportunity to ask the questions. Congratulations on the good results for the fourth quarter. I have two questions with regard to the 2024 guidance.

You have focused on the selection increase and the new merchant Onboarding in 2023, which I think paid off in light of strong user and top line and the market share gains but.

Gaurav: The first question is about your product commerce strategy and the margin outlook. You have focused on increasing selection and new merchant onboarding in 2023, which I think paid off in light of strong user and top line and market share gains. But at the expense of the margin to a degree, moving on to 2024, do you plan to maintain such a selection increasing strategy? If so, do you expect the product commerce margin growth to sequentially soften in 2024? My second question is about your developing offering loss guidance of $650 million U.S. Is this inclusive of Farfetch? And I would appreciate if you provided a bit more color on the breakdown of each segment in terms of the Taiwan deeds and video.

But at the expense of the margin to a degree move moving on to 2024 do you plan to maintain such.

Selection increasing strategy.

If so do you expect the product commerce margin growth to sequentially softer in 2024.

My second question is about your day.

Developing operating loss guidance of $650 million.

Is this inclusive of Farfetch deal.

And.

Appreciate if you provide a bit more color of the breakdown of each segment.

In terms of the.

Taiwan East and video.

And and.

Gaurav: And when do you expect this developing offering loss to pick out and start stabilizing or declining? Hi Stanley, thank you for your questions on our strategy to increase selection and merchant acquisition. The levers that we've been focusing on for growth remain the same. We do see some impact from our selection expansion, but we are expanding margins through improvements in our logistics network and greater utilization of automation technology, including AI. During 2023, we generated $1.1 billion in adjusted EBIT DOLL while increasing margins by 250 BPS. Product commerce adjusted EBIT DOLL margin improved nearly 200 BPS to 7.1%.

And what when do you expect this developing often lost to pick out and start stabilizing or declining.

Certainly thank you for your questions.

All of them.

On our strategy to increase selection and merchant acquisition.

The levers that we've been focused on focusing on for growth remain the same.

We do see some impact from our selection expansion, but we are expanding margins through improvements in our logistics network and greater utilization of automation technology.

Leading AI during 2023, we generated $1 $1 billion in adjusted EBITDA, while increasing margins by 250 bps product commerce.

Adjusted EBITDA margin improved nearly 200 bps to seven 1%.

Gaurav: As we've stated in the past, margins may be uneven quarter to quarter, but you should see our profit margins continue their march upwards over time, expanding on an annual basis, excluding forfeit, and the improvements that we're driving come from years and years of investment in infrastructure, technology, and operational excellence. We're seeing these efficiency improvements across our operations. The underlying drivers of margin are strong, and there's still a lot of room for expansion. On developing offerings, the $650 million does not include Farfetch.

As we stated in the past.

Margins may be uneven quarter to quarter, but you should see our.

Profit margins continue its march upwards over time, expanding on an annual basis, excluding farfetch.

And the <unk>.

<unk> that we're driving.

Come from years and years of investment in infrastructure technology and operational excellence, we're seeing these efficiency improvements across our operations.

The underlying drivers of margin are strong and there's still a lot of room for expansion.

On developing offerings the $650 million.

Does not include Farfetch.

<unk>.

Gaurav: We anticipate that the majority of the increase in these investments will be in Taiwan. Even with these investments, we expect to continue expanding our EBITDA margin on a consolidated basis, excluding far fetch, in 2024. We continue to operate in line with the tenets we've shared in the past, and we will focus on opportunities where we can break tradeoffs and provide the best customer experience at the lowest cost. At each stage, we're evaluating with rigor and deciding which efforts demonstrate potential to achieve both meaningfully differentiated customer experiences and significant future cash flows. And only these initiatives are earning their way to more significant investments.

We anticipate.

That.

But the majority of the increase in these investments will be in Taiwan.

Even with these investments we expect to continue expanding our EBITDA margin on a consolidated basis, excluding farfetch in 2024.

We continue to operate in line with the tenants we've shared in the past we.

We will focus on opportunities, where we can break tradeoffs and provide the best customer experience at the lowest cost.

Each stage, we're evaluating with rigor and deciding which efforts demonstrate potential to achieve both meaningfully differentiated customer experience and significant future cash flows and only these initiatives are earning their way to more significant investments we have in the past and will continue to.

Gaurav: We have in the past and will continue to discontinue investments that do not demonstrate the potential to achieve these objectives. We are seeing positive signs in Taiwan, and where we see positive signals, we also won't be shy about investing more. As always, we'll continue to be disciplined and opportunistic to maximize long-term shareholder value. Your line is open.

Discontinue investments that don't do not demonstrate that potential to achieve these objectives, we are seeing positive signs.

In Taiwan, and we see positive signals, we also won't be shy about investing more as always we'll continue to be disciplined and.

And opportunistic to maximize long term shareholder value.

Our next question comes from the line of Eric Eric Chung with Goldman Sachs. Your line is open. Please ask your question.

Eric Cha: Please ask your question. Thank you for the opportunity to ask questions. I have two.

Thank you for the opportunity to ask questions I have two.

Eric Cha: The first is on Farfetch and capital allocation. I know you said it's a bit too early, but can you share what was the biggest factor that appeared attractive to you to acquire Farfetch? And also, what would be your general principle regarding capital allocation, including share buybacks?

First is on Farfetch and capital allocation I know you said it.

Too early but can.

Can you share what was the biggest factor that appeared attracted to you to acquire Fox ACH and also what would.

Your general principle regarding capital allocation, including share buybacks.

Bob: Second, is competition. There's a heightened interest in competition in the market, it seems related to the rise in Chinese cross-border e-commerce platforms. And when you look at your cohort behavior, do you see any impact in user attrition? And also, more importantly, do you see any impact on basket size among your cohorts related to this competition? Thank you.

Second is on competition.

Any heightened interest and competition in the market and change related to the rise in Chinese cross border E Commerce platforms.

And.

When you look at your cohort behavior do you see any impact to use attrition and also more importantly, do you see any impact on basket size. Among your cohorts related to this competition. Thank you.

Bob: Hi Eric, thanks for the question. Luxury is a very large market segment, and it's one that hasn't been captured in any meaningful way by e-commerce players yet. We know the marketplace. We know operations.

Eric Thanks for the question.

Luxury is a very large market segment and it's one that hasn't been captured in any meaningful way by E Commerce players yet.

We know marketplace.

We know operations, we know how to focus on and drive innovation around customer experience and we saw business that we thought if we're better at those things could be much more valuable and if run differently could create possibly billions of dollars of equity value. We also saw potential for strategic value for our existing coupon.

Bob: We know how to focus on and drive innovation around the customer experience. And we saw businesses that we thought, if they were better at those things, could be much more valuable, and if run differently, could create possibly billions of dollars of equity value. We also saw potential for strategic value for our existing Coupang business, but it's just too early to have a more in-depth conversation beyond that today. You know, M&A is not our strategy. I'll remind you that we weren't looking; we were not looking to do a deal.

Business.

But it's just too early to have a more in depth.

Conversation.

Beyond that today.

M&A is not our strategy.

Remind you that we weren't looking we were not looking to do a deal. This was a very opportunistic situation.

Bob: This was a very opportunistic situation where moving quickly afforded us the opportunity to buy Farfetch at a very attractive price. Our strategy remains growing organically, our very small share in our existing markets into a much larger share over time. We have so much opportunity in our existing markets for Coupang that our core strategy remains organic growth. On your second question... around competition.

We're moving quickly afforded us the opportunity to buy farfetch at a very attractive price.

Our strategy remains growing organically or very small share in our existing markets.

Into much larger share over time, we have so much opportunity in our existing markets for coupons.

Our core strategy remains organic growth.

On your second question.

Around competition.

Bob: We continue to believe our success is determined primarily by our execution on improving the customer experience and operational excellence. It's important to point out that we still have just a single-digit share of the over $560 billion projected retail market. We just have a massive opportunity in front of us. And the market is large enough to support many winners. Retail has been and continues to be dynamic and highly competitive, with many players ranging from traditional offline retailers to large Chinese competitors and a constant stream of new entrants, both domestic and international. Customers are always going to seek the best selection, the best price, and the best service. And they have a lot of alternatives, whether down the street or across the border from China, a five minute walk or a finger swipe away.

We continue to believe our success is determined primarily by our execution on improving customer experience and operational excellence.

Important to point out that we still have just single digit share of the over 560 billion dollar.

Projected retail market, just a massive opportunity in front of us and the market is large enough.

To support many winners.

Retail has been and continues to be dynamic and highly competitive.

With many players ranging from traditional offline retailers to large Chinese competitors and a constant stream of new entrants.

Domestic and international customers are always going to seek the best selection, the best price and the best service and they have a lot of alternatives, whether down the street or across the border from China, a five minute walk or a finger swipe away. So we have to constantly find new moments of wildfire customer.

Bob: So we have to constantly find new moments of wow for our customers to fight for and earn their loyalty every day. That's what we spend all of our energy obsessing about. And we see the result of our efforts in our cohort behavior, where, as I mentioned earlier, every one of our cohorts is growing over 15%, even our oldest cohort. Again, we still have just a single-digit share of a massive retail market opportunity, and we'll remain laser-focused on customer experience and operational excellence to capture our share of that opportunity. I'll point out one more time as well that we have a large, our newer cohorts are also joining at higher levels of spend and increasing spend faster than new customers in the past, and we've added a large number of new active customers over the last few

To fight for and earn their loyalty everyday.

That's what we spend all of our energy obsessing about.

We see the result of our efforts in our cohort behavior.

Where as I mentioned earlier every one of our cohorts is growing over 15%, even our oldest cohorts.

Again, we still have just single digit share of a massive retail market opportunity.

And we will remain laser focused on.

Customer experience and operational excellence to capture.

Our share of that of that opportunity.

I will point out one more time as well, but we have a large our newer cohorts are also joining at higher levels of spend and increasing spend faster than new customers in the past.

And we've added a large number of new active customers over the last few quarters that large mix of new customers.

Bob: That large mix of new customers portends a large amount of future growth as the spend of newer cohorts converts to much higher levels of spend, and the spend levels of the older cohorts also continue to climb. But that will, of course, be over a longer time frame. Your next question comes from the line of Seon Park with Morgan Stanley. Your line is open.

Per tonnes, a large amount of future growth as the spend of newer courts converged to much higher levels of spend and the spend levels of the older cohorts.

Also continue to climb but that will be of course over a longer timeframe.

Your next question comes from the line of Sam Park with Morgan Stanley. Your line is open.

Yeah.

Seon Park: Hi, thank you for the opportunity. I kind of just wanted to maybe follow up on something Eric hinted at, but, you know, as you look at each quarter, I don't think, you know, over, I guess, the last two years, I don't think there's much doubt about execution. I think, you know, Bomb Yourself and the company have done a tremendous job in terms of executing. I guess, from an equity perspective, you know, obviously, we kind of have an overhang with some of the sell-downs that are coming from, you know, SoftBank and the like.

Hi, Thank you for the opportunity.

Just wanted to maybe follow up on I think it was a question that kind of Eric hinted on but.

As you look at each quarter I don't think over the last two years.

I don't think theres much doubt about execution I think.

Find yourself and the company has done a tremendous job in terms of executing.

From an equity perspective.

Obviously, we kind of have an overhang with Samsung.

And it sounds that sell down that's coming from Softbank and alike. So.

Seon Park: So, you know, now that the company is in a much more comfortable position with respect to free cash flow, can you maybe just share your thoughts on how you're thinking about, you know, some kind of way to address some of the share supply that continues to come to the market? You know, maybe if not immediate, maybe over the longer term, maybe how you're thinking about a potential share buyback or a tender to kind of address the supply would be very helpful in understanding the equities. Thank you. Yes, I'll take that.

<unk>.

Now that the company is in a much more comfortable position with respect to free cash flow.

Can you maybe just share your thoughts on how youre thinking about.

Some kind of a way to address some of the share supply that continues to come to the market.

Maybe if not immediate maybe over the longer term.

Maybe how you were thinking about a potential share buyback or a tender to kind of address the supply I think it would be very much.

Helpful in understanding the equities. Thank you.

Yes.

That.

Gaurav: You know, over the last year, then before even the IPO, we have been working with our investors closely to find a solution for everyone, for all shareholders. And we'll continue to do so. I think at this point, I think that's all we have to say on this, but that said, you know, with a company looking good, profitability improving, we are excited about all the investment opportunities, and we believe, you know, that will take care of itself. Our next question comes from the line of James Lee with Mizzou Health. Your line is now open.

And over the last year than before even the IPO, we have been looking about enlist those globally defined billing solution for everyone for all shareholders and we'll continue to do so.

I think at this point I think that's all we have to say on this.

But that said I would be like.

Company.

Looking good.

Profitability, improving and get excited about all the investment opportunities.

We believe that we will take care of itself.

Our next question comes from the line of James Lee with Mizuho. Your line is now open.

James Lee: Great. Thanks for taking my questions. I have two on Taiwan here.

Great. Thanks for taking my questions I have two on Taiwan here I was wondering if you guys can give more color on.

James Lee: I was wondering if you guys could give more color on the signals you guys saw in that market that gave you confidence to continue to lean in. And just curious, any learnings here that can help you adjust your execution tactically? And secondly, on your guidance on Ipada losses of $650 million, and relating to Taiwan investment, can you give us a sense, maybe at the end of this year, what kind of investment on the ground we should visualize, should we get a sense of, including selections, fulfillment centers, or even when it comes to local delivery? Thanks. Hi James.

Sink noticed you guys saw in that market that give you confidence to continue to lean in and just curious any learnings here that can help you adjust your execution tactically and secondly on your guidance on EBITDA loss of $650 million.

I won't be linked to Taiwan investment can you give a sense maybe at the end of this year.

Kind of investment on the ground should we should we visualized shall we get a sense off including like selections fulfillment center or even when it comes to local delivery. Thanks.

Bob: Thanks for your question. It's still early in Taiwan, but we are seeing strong momentum there. As I mentioned, we launched Rocket in October of 2022, and growth there has been faster so far than it was in Korea. And in just the last two quarters alone, we've seen active customers and revenues double. It's also worth noting that we are learning with every iteration.

Hi, James Thanks for your question.

It's still early in Taiwan, we are seeing strong momentum there.

As I mentioned, we launched rocket in October of 2022.

Growth there has been <unk>.

Faster so far than it was in Korea.

And in just the last two quarters alone, we've seen active customers and revenues doubled.

It's also worth note, noting that we are learning with every iteration.

Bob: But we're also leveraging so much from what we've built over many years in Korea. Everything from our selection, processes, and learnings, knowledge from building and optimizing fulfillment logistics, supply chain optimization, and the technology that we've built over a decade, that's all contributing to our scaling faster in Taiwan. And we also expect that they will help us reach profitability there faster. I think it's still too early to have a lot of conversations, but we're very excited by the progress we're making and the promise we're seeing on the ground there. Yeah, I think that's, yeah, I think at the right time, we'll have a deeper conversation, but we will be rigorous in our analysis, continue to assess at every stage, and invest only in the opportunities when we believe that our investments will generate a meaningful differentiation of customer experience and meaningful returns for our shareholders. I would like to remind everyone that, in order to ask a question, press the star, then the number five on your telephone keypad.

But we're also leveraging.

So much from what we've built over many years in Korea.

Everything from our selection processes and learnings.

From from building and optimizing fulfillment logistics supply chain optimization.

The technology.

So that we built over a decade.

That's all contributing to our scaling faster in Taiwan, and we also expect that they will help us reach profitability there faster.

I think it's still too early to have a lot of conversations, but we're very excited by the progress, we're making and the promise we're seeing on the ground there.

Yes, I think thats, yes.

<unk> will have a deeper conversation, but it will be rigorous in our analysis continue to assess.

That sets at every stage.

And invest only in the opportunities.

And when we believe.

Our investments will generate a meaningful differentiation of customer experience and meaningful returns for our shareholders.

I would like to remind everyone in order to ask a question Press Star then the number five on your telephone keypad.

Okay.

Operator: We will now take our last question from the line of Jiong Shao with Barclays. Your line is now open. Thank you very much for taking my questions. Congratulations on the very strong results. I have two questions as well. A first...

We will now take.

Our last question from the line of.

Young shallow with Barclays. Your line is now open.

Thank you very much for taking my questions.

Congrats on the very strong results.

I have two questions as well.

Jiong Shao: Sorry, I have to ask about Farfetch again. I understand you said you were not ready to tell us a lot about it, but I was just wondering, sort of later on, how would you, accounting wise, where do you book the revenues and expenses from Farfetch, and how big is Korea in today's Farfetch business? And what about the other countries they are in?

Sorry, I have to ask about Farfetch again I understand.

You said you had already to cast a lot about it but I was just wondering.

Would you be able to talk about sort of.

Yeah.

Later on how we.

Accounting wise, what do you book, the revenues and expenses from Farfetch and how big is Korea in todays Farfetch business.

What about the other countries, they're in because couponing is clearly only in Korea, and Taiwan not in these other countries.

Jiong Shao: Because Coupang is clearly only in Korea and Taiwan, not in these other countries. What, I mean, just broadly speaking, what are you going to do over there? And then Farfetch, I think you said, you know, prepared a remark. If I'm not mistaken, I think you might have mentioned... The goal is for it to be self-funded; you are not going to spend your capital to kind of save the business per se. My second question is about the FLC or the accelerating growth for FLC, like you said, in the last three quarters. The growth for your FLC business, Delta, has been accelerating for the last three quarters since you changed accounting when your contracts really all got revised to the newer version by the end of Q2, but you still see the growth accelerate in Q3, Q4. I was just wondering what the drivers you see behind that acceleration and then any kind of outlook for that acceleration for the next quarter or two would be very helpful. Thank you so much.

I mean, just broadly speaking what are you going to do over there and then on phosphates is seeing you said in our prepared remarks.

If I'm not mistaken I think you might have mentioned.

The goal is for it to be self funded.

I'm going to spend your capital to kind of save the business per se.

My second question is about the FERC.

All of the accelerating growth for <unk> like you said in the last few quarters.

<unk>.

Growth for your <unk> business at the top right has been accelerating for the last three quarters since you've changed that county.

When when Youll contracts really all got a revised two to the new version by the end of Q2, but I do see the growth accelerating in Q3 Q4 I was just wondering what are the drivers you see behind that acceleration.

And then any kind of all look for that I've set a ratio of the next quarter or two will be very helpful. Thank you so much.

Okay.

So let me address the FMC question.

Bob: Let me address the FLC question first. First, our growth this quarter wasn't a reflection of any levers we pulled in this past quarter or specifically this past quarter or even recent quarters. It really represents customer adoption of our investment over many years into providing the best experience at the lowest price across the broadest assortment. We are investing in growing our selection. One of our initiatives is Fetch, excuse me, FLC. And we believe our growth is a reflection of that customer response. We think the growth is, broadly speaking, a reflection of not only the investments that we've made but also the stage that we're at in the market. We're still in the single-digit share of a $560 billion retail market. We're still very early, and it is a massive opportunity. And there are tens of millions of shoppers who have yet to join our W.O.W.

First our growth this quarter wasn't a reflection of any levers we pull.

In this past quarter or specifically this past quarter or even recent quarters.

Is it really represents customer adoption of our investment over many years.

Providing the best experience at the lowest price across the broadest assortment, we are investing and growing our selection in one of our initiatives is farfetch.

Excuse me LLC and we believe our growth is a reflection of that customer response, we think the growth is broadly speaking a reflection of not only the investments that we've made but also the stage that we're at in the market. We're still in the single digits share.

Of our $560 billion retail market.

It's <unk>.

We're still very early and it is a massive opportunity.

And there are tens of millions of shoppers, who have yet to join our raw membership.

Bob: membership. We are just at the early stage of our development and excited about the potential that we see ahead. On Farfetch, let me take that one.

Just at an early stage of our development.

Excited about the potential that we see ahead.

On Farfetch.

Let me take that one.

Gaurav: So we just finalized the deal a few weeks ago, and we are, you know, getting into the details. But in broad strokes, we will be consolidating it into our financials for a couple of months. On segment classification, we'll come back.

So we just finalize a few weeks ago and we are.

Getting into the details, but on broad strokes, we will be consolidated into our financials.

For a couple of months.

Segment does it because I will come back.

Gaurav: We probably will take a one-time restructuring charge in Q1, and we'll split it out, but more to come on that in the next call. There are no further questions. This concludes today's conference call. Thank you, and you may now disconnect. Thanks for watching!

The real Big one time restructuring charge in Q1.

And then split it out.

But more to come on that in the next call.

There are no further questions. This concludes today's conference call. Thank you and you may now disconnect.

[music].