Q3 2024 Coupang Inc Earnings Call
The End
Crystal: Hello everyone, my name is Crystal and I will be your conference operator today. At this time, I would like to welcome everyone to the coupon, 2024, 3rd quarter earnings conference call.
Crystal: Online to been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session.
Crystal: 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.
Crystal: Now I'd like to turn the call over to Mike Parker by President of Investor Relations. You may be in your conference.
Mike Parker: Thanks, Operator. Welcome everyone to Cooperung's third quarter, 2024 earnings conference call. I'm pleased to be joining the call today by our founder and CEO, Bom Kim, and our CFO, Gaurav Anand.
Crystal: 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.
Crystal: Certain statements made on today's call include forward-looking statements. Axel will result make different materialy.
Crystal: A digital information about factors that could potentially impact our financial results is included in today's press release and then our filings with the SEC, including our most recent annual report on Form 10K and subsequent filings.
Crystal: During today's call we may present both Gap and Nongap Financial Mesters.
Crystal: A digital disclosure regarding these non-gab measures, including reconciliations of these measures to the most comparable gab measures, are included in our earnings release, our slides of company this webcast, and our SEC filings, which are posted on the company's investor relations website.
Crystal: And now I'll turn the call over to Bom.
Bom: Thanks everyone for joining us today. Before we review our results for the third quarter in detail, I'd like to start with three key takeaways.
Bom: First, or strong and consistent growth and expanding margins are the result of years of investment and a relentless drive to break trade-offs.
Crystal: To do the hard things that deliver an ever-improving experience for our customers and operational excellence, not one at the expense of the other.
Crystal: Second.
Crystal: Our growth in product commerce is fueled primarily by deeper engagement from our existing customer cohorts.
Crystal: Driven in large part by selection expansion in both established categories and newer offerings like fresh and fulfillment and logistics by coupon or FLC. Over the long term, growth from existing courts will be supplemented by the converging spend of new active customer courts.
Crystal: 3. Our nation offerings like each Taiwan play and far fetch, along with adds an FLC, continue to march forward on the positive trajectory that we've seen throughout the year.
Crystal: It's important to note that with each of these offerings we're still in the very early stages of the journey and with each step we've become even more encouraged by their potential to create meaningful moments of wow for customers and deliver attractive returns
Crystal: Now, a few highlights from our results for the quarter.
Crystal: This quarter, Constantine currency revenues grew 32% over last year, or 25% excluding far fetch, which we acquired earlier this year.
Crystal: This marks yet another quarter of at least 20% constant currency growth, which we've been able to do in 14 out of the 15 quarters we've reported since our IPO.
Crystal: And still, we continue to represent just a small percentage of the massive commerce opportunity in the market's research.
Crystal: We believe the growth opportunity in the years to come is so largely untat with much of it yet to be realized.
Crystal: Active customers in product commerce grilla day.
Crystal: Up to 11% year over year. It's important to note that our growth continues to be driven primarily by the increasing spend of our existing customers.
Crystal: We continue to see higher engagement as we add more selection on rocket and provide more services. Again, this quarter, all of our customer cohorts increase their spend at strong levels, even our oldest and highest spending cohorts.
Crystal: And currently only a quarter of our customers purchase in nine or more categories, out of the more than 20 categories we offer.
Crystal: We're still in the process of discovering what the potential spend is for all of our cohorts, including our oldest.
Crystal: One driver of the expanding court spent is the compounding valuable allow membership savings program.
Crystal: All-well members increasingly see the value of wow and the many benefits they receive on coupon, including access to free shipping, free dawn and same day delivery, free returns, free content on play, free eats delivery and free rocket fresh deliveries.
Crystal: We see the higher levels of engagement reflected in the order frequency of our while members, which is nine times that of our non-wild customers.
Crystal: And our most mature lawmakers, the Spend on average over two and a half times that of our newest lawmakers.
Crystal: Our mission is to provide the best overall customer experience by offering the best in selection savings and service.
Crystal: And we believe there's a significant opportunity to break the trade-off between selection and service as there's still a lot of selection that is yet to become available on rocket delivery.
Crystal: Just one small example, this quarter we launched our Lux, our new Luxury offering, which gives customers access to some of the most in-demand luxury beauty brands.
Crystal: We've partnered directly with luxury brands to provide a new kind of white glove service.
Crystal: Customers interact with the most exclusive brands in Arlox's rich and sophisticated shopping environment and receive products via rockets next or send a delivery in elevated packaging custom designed exclusively for Arlox.
Crystal: It's just another example of the latest selection and service we've added to our customers to light and there's much more to come.
Crystal: We continue to see impressive momentum and that they'll see offering.
Crystal: which also expands the selection that customers can enjoy with free rocket delivery.
Crystal: are both in units, sellers and overall volumes in FLC continued this quarter at the strong pace we've seen throughout the year. Each of them growing over 130% year over year.
Crystal: FLC is also in the early stages of its growth trajectory, and we believe it will be a significant part of our growth story for years to come.
Crystal: Now, a few words on developing offerings. As I previously noted, we continued to see our initiatives advancing on the positive trajectory that we've seen throughout the year.
Crystal: With Fort Fetch, our team is making significant progress in driving operational efficiency through disciplined execution.
Crystal: As we stated earlier this year, our goal was to achieve new break even profitability by the end of the year. We hit that milestone this quarter.
Crystal: We're also excited about the strong response we're seeing from each customers who have embraced the exceptional service and value that we're providing through our food delivery offering.
Crystal: In Taiwan, we're partnering directly with more and more brands to expand selection and inventory for our customers and where we've added meaningful supply we've seen from Madagoras.
Crystal: We're excited to redefine what customers in Taiwan can expect from online retail and to alter the growth trajectory of the brands with whom we partner as we've demonstrated many times in the past.
Crystal: In the context of the massive and untapped potential that lies ahead, we're just getting started.
Crystal: Our ability to capture that opportunity will depend on our ability to stay focused on the relentless pursuit of customer, while and operational excellence.
Crystal: Now, I'll turn the call over to Gaurav to review the results of the quarter in greater detail.
Gaurav: Thanks, Bom. In Q3, we continue the trend of strong results that we have delivered throughout this year.
Crystal: A customer continued to engage with coupon with expanding momentum, which is demonstrated by the results we are reporting this quarter. Sustained growth in revenues, product-combat active customers, Gaurav profit and adjusted a bit.
Crystal: Before I go through the numbers for the quarter in detail, I need to highlight a few items to provide more context to the comparative numbers we are reporting.
Crystal: First, I remind you of our Farfetch Acquisition completed earlier in Q1 of this year. Where possible I will provide results with and without Farfetch.
Crystal: And second, the FLC accounting change that began in Q2 of last year, no longer impacts are quarterly year-over-year comparative results. As a result, FLC adjustments to quarterly year-over-year revenue growth rates are no longer needed.
Crystal: This quarter are total net revenues group 27% year over year or 20% excluding the impact of our fish.
Crystal: A Concerned Currency Growth, adjusting for the effects of changes in foreign currencies was 32% or 25% exuring partage.
Crystal: During Q3, the total retail spent in Korea was relatively flat year over year. This compares to a product commerce segment which through revenue at 16% year over year or 20% in constant currency.
Crystal: This product commerce, Concent currency revenue growth of 20% is consistent with the growth in our overall product commerce volume.
Crystal: As we continue to be very small portion of the total commerce spend in Korea, we see a massive runway for growth ahead of us.
Crystal: We continue to see strong growth in the average spend levels of a customer's risk quarter.
Crystal: Net revenues per product commerce active customers grew 4% year over year in Q3 or 8% in constant currency. This was impacted by the short term dilution from newer active customers that historically have lowered spend levels in their early quarters.
Crystal: And as one noted earlier, we continue to see the spend levels of all our cohorts increase, even our oldest and highest spending cohorts.
Crystal: are developing offerings segment, continue the similar momentum that we have seen throughout this year.
Crystal: Q3, developing offerings segment revenues grew nearly 350% year over year or over 350% in constant currency.
Crystal: Exceeding far-fetch, developing offerings, segment revenues grew over 145% or 155% in constant currency.
Crystal: We remain confident about the potential for each of the initiatives within developing offerings as demonstrated by the consistent momentum and strong customer response we have seen throughout the year.
Crystal: We reported another record quarter with 2.3 billion dollars in gross profit representing 45% year over year growth and a gross profit margin of 28.8%.
Crystal: Exploring Farfetch, we delivered 2.1 billion in gross profit, going at 33% year over year with a margin of 28.1%.
Crystal: This represents a margin improvement of over 270 basis points versus last year.
Crystal: I would also like to emphasize the importance of growth and growth profit as a primary indicator of our overall underlying growth. Given the evolving mix of various offerings, services and channels within our business.
Crystal: Within our product commerce segment, we saw growth profit growth of 28% year over year to $2.1 billion, and a growth profit margin of 30%.
Crystal: This represents an improvement of more than 280 basis points over the last year.
Crystal: The one primarily by similar factors that we have seen driving margin expansion throughout the year.
Crystal: We continue to see benefits from increased efficiencies across operations, including benefits from greater utilization of automation and technology, further supply chain optimization and the scaling of margin a creative offering.
Crystal: On a quarter of a quarter basis, Thurder Commerce Cross Profit margin decreased 30 basis points versus Q2.
Crystal: This is largely due to quarterly situations in our business, including some seasonal impact.
Crystal: As we have pointed out in the past, margins may continue to be uneven quarter over quarter, but we expect our profit margins to continue expanding over time.
Crystal: This quarter, we saw a 355-based point increase in OGNA expense as a percentage of revenue versus last year. This increase was primarily due to the inclusion of far-fetch.
Crystal: Anand's related acquisition and researching costs.
Crystal: We are also investing in technology and infrastructure to build a stronger foundation for future scaleability.
Crystal: The higher investment into tech and infrastructure as a percentage of revenues is driven by timing and does not reflect a structural change in our operating costs.
Crystal: As we have demonstrated many times before, we expect to generate leverage on these investments as we scale and OGNA will decline over time as a percentage of revenue.
Crystal: We generated $132 million of income before income taxes in Q3 and a $70 million of net income at 3-bit table to coupon stockholders.
Crystal: This resulted in diluted earnings per share of four cents, excluding far-fetched net income attributable to coupon shareholders was approximately $18 million for the quarter and diluted earnings per share was six cents.
Crystal: On a consolidated basis, we reported $343 million of registered EBITDA Discoater.
Crystal: Anand, other things, this excludes the non-dickering acquisition and restructuring cost related to far-fetch.
Crystal: are adjusted a bit the margin for the quarter was 0.4%.
Crystal: On a trailing 12-month basis, we generated adjusted EBITDA of $1.2 billion with a margin of 4.3%.
Crystal: Excluding Farfetch, we reported 345 million dollars of adjusted EBITDA in Q3 and $1.3 billion over the trailing 12 months.
Crystal: We are trailing 12 months adjusted a bit the margin of 4.7%. We continue to be confident in our ability to consistently deliver expanding, consolidated margin on an annual basis going forward.
Crystal: Our product commerce segment delivered $470 million of registered EBITDA Discoater with a margin of 6.8%. This represents a year over year margin expansion of 12 basis points and a decrease of 142 basis points versus last quarter.
Crystal: This quarter over quarter decrease is due in part to the fluctuations in fulfilment related operational costs, as well as increases in technology related costs this quarter.
Crystal: This increase in technology spend represents an adjustment to our historical spend levels and we expect to generate operating leverage against these costs over time as we scale.
Crystal: For developing offerings, a segment-adjusted EBITDA in Q3 was $127 million loss for the quarter, improving $34 million year-over-year and $73 million quarter-over-quarter.
Crystal: While we expect to continue to see some unevenness in the level of losses from quarter to quarter, the improvements we saw this quarter are most notably driven from improvements in both EADS and FARFETCH.
Crystal: With regards to Farfetch, we are excited to report that we hit our goal of achieving near break-even profitability.
Crystal: We generated $1.8 billion in operating cash flow and $935 million of free cash flow over the trailing 12 months.
Crystal: This represents a decrease of $578 million in trailing 12-month free cash flow versus the prior quarter.
Crystal: There is no structural change in our free cash flow generation, and this variance is driven primarily by certain non-recurring working capital benefits that we previously communicated were in the prior trailing 12-month period, as well as the timing of significant capital expenditure payments.
Crystal: The majority of the increase in CAPEX relates to infrastructure investments that we are making in Korea.
Crystal: which creates some unevenness in the timing and levels of spend. We are exploring strategies to reduce the capital intensity of our real estate operations while also maintaining operational control over these strategic assets.
Crystal: This quarter, we reported an effective income tax rate of 52%, driven by consolidation of pre-tax losses in far-fetched and non-deductible expenses.
Crystal: As a reminder, this is just an accounting tax rate as we expect our cash tax obligations this year to be closer to 20-25% excluding far-fetched losses.
Crystal: Our teams delivered another strong quarter in Q3.
Crystal: One that demonstrates our commitment to driving durable growth and investing to deliver long-term value to both customers and shareholders.
Crystal: Operator, we are now ready to begin the Q&A.
Speaker Change: At this time, I would like to remind everyone, in order to ask a question, press star then
Speaker Change: The first question comes from Eric Cha from Goldman Sachs. Your line is now open.
Eric Cha: All right, thank you for the opportunity and congrats on a good result in a tough quarter.
Eric Cha: I have two questions on developing offerings. First one is...
Eric Cha: that the developing offerings loss has come down quite a bit this quarter compared to the previous quarter. Could you elaborate on some of the moving pieces and could you also provide some colour into what fourth quarter trend might be in terms of the loss?
Crystal: And if you could get a hint into the trend next year, that would really help.
Eric Cha: The second question is on Farfetch specifically.
Eric Cha: It's nice to see Farfetch has already reached close to a break-even this quarter. Can we be expecting some maybe profits into the fourth quarter and for the next year? And what would be the synergy between Coupang and Farfetch? Thank you.
Eric Cha: Thank you.
Speaker Change: Hi Eric, thanks for your question. On developing offerings, it's worth highlighting that due to the nature of our investments there, the timing of expenses with the various components may fluctuate quarter to quarter as they have in the past.
Speaker Change: I don't think there's anything material enough to update on that front and certainly for the fourth quarter. On far fetch,
Speaker Change: You know, as Gaurav shared and I shared earlier, we're very happy that the Farfetch team has achieved the end-of-year goal of near break-even adjusted EBITDA in Q3. We're proud of the speed and especially its scale and the discipline with which the team has executed so far this year.
Speaker Change: There's still more work to do there, and our goal is to finish the job of stabilization through the remainder of the year. Next year, we'll begin to assess other opportunities, including synergies with Coupang, and we look forward to sharing updates at the appropriate time.
Speaker Change: The next question comes from Seon Park with Morgan Stanley. Your line is now open.
Seon Park: James Lee, Jiong Shao, Bom Kim, Gaurav Anand.
Speaker Change: Thank you. Bye.
Crystal: Thank you.
Speaker Change: Thank you.
Speaker Change: I'm sorry, I don't think I caught most of that question. Zeyon, would you mind repeating the question, please?
Zeyon: Can you hear me right now? Yes.
Speaker Change: Okay, so...
Speaker Change: So the question is on the OG&A cost, which...
Speaker Change: I know Gaurav had explained that, you know, there are seasonal factors in there, as well as spending on technology and automation. I just wanted to get a sense of, you know, how much...
Speaker Change: you know, maybe of that it's temporary compared to structural, especially for the technology spend. You know, usually, I guess, technology spend is...
Speaker Change: accounted for as amortization on some kind of a capital spend? Is that kind of what has been influencing the higher ODNA? That's my first question.
Speaker Change: The second question, I'm not sure if it's going to be readily available, but if we were
Speaker Change: SLP and have it on a growth basis, do you have a sense of what the year-on-year growth would have been for the third quarter? Thank you.
Speaker Change: On the OJNN, particularly the technology and automation or technology and infrastructure spend, as Gaurav mentioned earlier,
Speaker Change: We've always made and we continue to make investments there to build the foundation for future scalability.
Speaker Change: that that investment in tech and infrastructure accounted for this quarter does not reflect a structural change. It's really a matter of timing.
Speaker Change: and you may see some unevenness quarter to quarter because we just don't manage our business or our investment schedule with an eye towards quarterly numbers.
Speaker Change: So, again, it's a timing issue, not a structural one, and we expect to generate leverage, as we have in the past, on these investments, and we expect OG&A to decline over time as a percentage of revenue.
Speaker Change: On FLC, we've seen strong momentum throughout this year that's continued in 2.3. FLC's growth in units, sellers, and overall volumes
Speaker Change: So far, this year, each of them grew over 130% over a year, and I think what we can share is that FLC is still in its early stages, and it will continue to be a significant part of our growth for years to come.
Speaker Change: The next question is from Stanley Yang with J.P. Morgan. Your line is unmuted.
Stanley Yang: I'm sorry. I'm sorry. I'm sorry. I'm sorry. I'm sorry.
Stanley Yang: Okay, thank you for the opportunity. I have two questions. First question is on the product commerce margin side.
Stanley Yang: The margin expansion trajectory has been quite strong and consistent for some years on trailing perspective, although a bit of uneven like this quarter. Moving on to next year, do you expect product commerce margin expansion speed to remain similar to 2004 level or accelerate or decelerate?
Stanley Yang: and also among the margin drivers, will FLC be a more meaningful margin driver next year?
Stanley Yang: My second question is on the developing office side.
Stanley Yang: You already achieved your guidance of the far-fetched margin.
Stanley Yang: Any color on your margin mix trend during third quarter? Is it a bit of earlier, but curious about developing offering loss guidance in 2025?
Stanley Yang: That would be appreciated. Thank you.
Speaker Change: Hi Stanley, as you point out,
Speaker Change: Product commerce margin generated $470 million in adjusted EBITDA, which is an improvement of about 10 basis points year-over-year, but decreased 140 basis points versus Q2. So there's some quarterly fluctuation there.
Stanley Yang: And that's something that's been consistent with our performance in the past. We see this, we see these quarterly fluctuations in our business. And this quarter, it included some seasonal impact due to weather related expenses we often see in Q3 versus Q2.
Stanley Yang: and you know we provided long-term margin guidance for Justity Bidah which is over 10%. We continue to see a lot of upside in almost every part of our business.
Stanley Yang: expand margin accretive offerings.
Stanley Yang: improved processes among many other things to both.
Stanley Yang: enhance the customer experience and reduce waste. And I think you'll see some quarter-to-quarter unevenness, but we're confident of that long-term potential opportunity there.
Stanley Yang: on developing offerings. I think it's a, you know, we'll have more to share on our 2025
Stanley Yang: guidance or thoughts on 2025 and the upcoming quarter, but so far we're pleased with the progress we're making on Farfetch. But as I mentioned, the job is still not done. There's still more work to do and our focus remains on
Speaker Change: finishing the job of stabilization throughout the reindeer of the year.
Speaker Change: The next question.
Speaker Change: Once again, if you have a question, you may press star 5 on the telephone keypad.
Speaker Change: The next question comes from Jong Xiao. With Barclays, your line is open.
Jong Xiao: Thank you. I have a quick follow-up first and two questions if I may.
Jong Xiao: I think...
Speaker Change: Boehm, you mentioned earlier, of course, we understand the investments.
Speaker Change: go up and down from quarter to quarter.
Speaker Change: and I was just wondering because a lot of the investments seems to be in technology which tend to be amortized as we know and I was just wondering given the sort of a more intensive investments, intense investments in Q3 this quarter
Speaker Change: Was there anything like one time or this is just a base you're going to amortize that going forward and then you will grow out of that that margin to expand again so just try to get a little bit of extra color there if I may then I have two questions
Speaker Change: Sure, look, I think Gaurav can comment more on this, but we don't, we're not capitalizing our tech investments. So I think this amortization, depreciation question is...
Speaker Change: is a little bit surprising for us.
Speaker Change: there are no one-time these are these are this is part of our continued quarterly investment in technology and infrastructure we've you can look at our historical performance on that and certainly on OG&A but broadly that we
Speaker Change: have demonstrated and we continue to expect to generate leverage on it over time, you will see quarter-to-quarter some unevenness because we just don't manage our business to hit quarterly quarterly expectations on investments like this.
Speaker Change: I think that's some of the unevenness you're seeing and again we don't capitalize our tech investments so this is not an issue of amortization depreciation reflecting here and you know we're not talking about any big one-time investments here.
Speaker Change: Thank you.
Speaker Change: Okay, this is super helpful. Okay, that's great. That helps explain things.
Speaker Change: My questions are, one, I was hoping you could talk a little bit about your ad take rate. I know that has been a growth driver, high margin. If you can share some insight there in terms of
Speaker Change: James Lee, Jiong Shao, Bom Kim, Gaurav
Speaker Change: the range you currently are and where you think you can get to. My second question is that we have noticed
Speaker Change: You are doing some sort of a campaign or
Speaker Change: to sort of get some of the cross-border guys to do the Fulfill Buy Coupon Offering. Just say, hey, you know, we help deliver your products if you want to do cross-border. Is that something?
Speaker Change: sort of meaningful or is that just one of many many things you do day-to-day and we shouldn't pay too much attention to that?
Speaker Change: I think to your second point, there's a number of initiatives. There are initiatives big and small, so I think we're always trying to bring more selection to our customers. We're always trying to increase savings. We're always trying to improve services, and you'll see initiatives across the company on a number of fronts.
Speaker Change: there. On ads specifically, I think to your first question, it continues to be an important area of investment and innovation for us and it's going well.
Speaker Change: As we've said before, it's still a small percentage of our overall transaction volume and lower than the levels we see with our global peers.
Speaker Change: We're still in the developing stages of building out the full range of innovative tools and services that we believe we need to provide the best experience for both consumers and advertisers.
Speaker Change: Okay, thank you, Bob.
Speaker Change: We will now take our last question from the line of James Lee with Mizuho. Your line is open.
James Lee: All right, great. Thanks for taking my questions. Two over here. First on each.
James Lee: You guys call out improvement of losses this quarter. Maybe can you unpack that a little bit and, you know, maybe which aspect of the business you're seeing increased efficiency?
James Lee: And can you also comment on the market share and your progress on expanding the supply for the food delivery business? And secondly, on Taiwan, and maybe can you give us an update on the progress you made?
James Lee: in that region, kind of your market positioning and your efforts on resolving some of the quality of service issues currently facing the Taiwan e-commerce industry. Thank you.
Speaker Change: Hi James, I think the what we've shared on developing offerings improvement for fetch is the is the segment or the offering that we have shared that we've improved
Speaker Change: are our losses, specifically we've achieved...
Speaker Change: which was our target for end of the year, which I think it's worth noting again that, you know, it's, we're really proud of our, the Farfetch team for having
Speaker Change: but the job is also not finished.
Speaker Change: You know we continue to see a strong response from our customers to the value that we're providing and the service levels that we're providing. Our goal there is to provide customers with more choice.
Speaker Change: with a service that offers selection service and savings.
Speaker Change: and it's still very early and we'll share updates in the future when there are meaningful milestones or developments on that front.
Speaker Change: Taiwan, I think, as we've mentioned, you know, we are excited about the opportunity there, broadly.
Speaker Change: It's still early.
Speaker Change: There's momentum and progress. We're fortunate to be able to leverage there a lot of what we built in Korea over many years. That's certainly helping us scale, and we believe it will also help us generate operational efficiencies more quickly than we did in Korea.
Speaker Change: will all, as always, will be very disciplined with any increased levels of spend, investing more only when we are convinced about the returns we can generate, and we look forward to providing more updates there at the appropriate time in the future.
Speaker Change: Thank you. Thank you.
Speaker Change: There are no further questions. This concludes today's conference call. Thank you, and you may now disconnect.