Coupang : First Quarter 2025 Earnings Call Transcript

Published: 2025-05-07 04:12:41 ET CPNG

Published on 05/07/2025 at 04:12

Thanks, operator. Welcome, everyone, to Coupang's first quarter 2025 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'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. 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.

As we share our first quarter 2025 results on today's call, the comparisons we make to prior periods will be on a year-over-year basis, unless otherwise noted. We may also 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, our 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 Bom.

Thanks, everyone, for joining us today. Let me begin with a few highlights.

We began the year with a strong start in Q1, with consolidated revenue growing 11% or 21% on a constant currency basis. We also delivered strong expansion in margins, with gross profit margin growing 217 basis points to 29.3%, and adjusted EBITDA margins improving nearly 90 basis points to 4.8%. Over the trailing twelve months, we generated $1.5 billion in adjusted EBITDA and over $1 billion in free cash flow.

Our consistent trend of delivering both strong growth and margin expansion is the result of years of investment and a determination to deliver the best customer experience at the lowest cost.

That's most evident in our Product Commerce segment, where our focus on expanding selection, lowering prices, and raising the bar on delivery experience has powered sustained growth at high multiples of the overall Korean retail market.

On the selection front, we've seen a positive response from our customers as we've focused on adding more of the selection they want on Rocket, across all price points in both our established and newer categories. In beauty for example, this quarter we've onboarded esteemed brands such as Kiehl's, Dolce & Gabbana, and Jo Malone, joining existing brands like Estee Lauder and Lancome, to the delight of our R.LUX customers. This is in addition to other popular brands we've welcomed across many other categories, including Swarovski, Converse, Wedgewood, Royal Copenhagen and Nespresso. This selection expansion is driving strong engagement from our customers, where we saw the number of customers purchasing in 9 or more categories grow over 25% this quarter.

Our teams continue to expand the reach of our signature Rocket Delivery service, providing more customers with access to even more selection with Same Day, Dawn, or Next Day delivery. That creates a virtuous cycle: as we invest in delivering more selection faster with greater reliability, customers reward us with a greater share of their retail spend, which in turn attracts even more selection.

Fulfillment and Logistics by Coupang, or FLC, strengthens that virtuous cycle for our marketplace sellers, improving the delivery experience for marketplace products and accelerating seller growth. This quarter we saw strong momentum in FLC with

sellers, selection, and overall volumes all growing at multiples of our overall business. While we still have much to do to optimize this offering, it has quickly become a tremendous growth engine for sellers who want to tap into the speed, convenience, and efficiencies we offer. By handling storage, packing, shipping, and even returns for our third-party merchants, FLC dramatically lowers the barriers to success for tens of thousands of small businesses.

Behind the scenes, we're constantly refining our operations. Our investments in technology, innovation, automation and robotics are generating substantial benefits across our business. For example, this quarter we saw benefits from advances in our automated picking, packing and sorting systems, and machine learning utilization that deploys inventory with more precise prediction of demand. This, coupled with

our focus on operational excellence, enables us to continually improve the customer experience while also lowering the cost of service.

Today, Product Commerce has become a thriving enterprise, delivering consistent growth alongside expanding margins. But that didn't happen overnight-it's the result of years of strategic investments and disciplined execution, even at times when progress wasn't immediately visible. Likewise, the investments we're making in Developing Offerings are building the foundation for even greater growth and profitability in the future.

One of these exciting opportunities is Taiwan. We see enormous potential to deliver the same jaw-dropping WOW experiences that have resonated so strongly with consumers in Korea. We're making significant progress in expanding our selection and forging direct relationships with suppliers, including global brands like Coke, Pepsi, P&G, and Unicharm, as well as many of the local brands so important to Taiwanese customers. This helped drive an expansion in selection of nearly 500% this quarter.

And customers in Taiwan are responding. They're coming back more frequently, and spending more each time they visit. We also launched our WOW membership program this quarter in Taiwan. This program offers members tremendous value and savings, which, similar to our WOW membership program in Korea, drives higher levels of spend from WOW members.

We're excited about the investments we're making in Taiwan. Our continued investment in the market reflects our rising confidence in what we're seeing on the ground-and we trust our shareholders will share that excitement. As we continue to allocate capital with the same level of discipline that has defined our success in the early years, we believe these investments will follow the same trajectory as Product Commerce, creating significant shareholder value over the medium and long-term.

For Farfetch, we're positioning the business for its next phase of expansion. At its heart, Farfetch is about bringing the world's best assortment and experience in luxury to customers wherever they live around the world. We made significant progress over the past few quarters streamlining both the operations and customer offerings that align with this strategy. And these changes are already yielding encouraging results.

Eats is another area where this quarter we continued to sustain the momentum that we saw throughout 2024. Our vision for Eats is simple: to wow customers with the best customer experience in food delivery, by providing them with the broadest

selection, great value, and the fastest and most reliable delivery.

As always, we continue to execute across these initiatives in line with our core operating principles: customer obsession, operational excellence, and disciplined investment. We recognize the tremendous potential before us and we're eager to continue delivering results for our customers and shareholders.

And now, I'll turn the call over to our CFO, Gaurav Anand, who will walk you through the financial results of the quarter in more detail.

Thanks, Bom. We saw a strong start to the year in Q1, continuing the momentum we ended last year with, in terms of durable growth in both revenues and profitability.

On impact of macro, we have not experienced a meaningful impact on our business from recent global events. The underlying flow of inventory of our core business model is not highly susceptible to the recently announced tariffs on goods flowing

into the U.S., and we have not observed a significant impact on our core consumer from recent events. However, we recognize that no economy is immune to the current global conditions, and we will continue to monitor closely changes in the macro environment.

Coming back, we grew total net revenues this quarter by 11% year-over-year, or 21% in constant currency. I should highlight that the Korean won weakened year-over-year versus the US dollar again in Q1, creating even more of a variance between reported revenue results in US dollars and those in constant currency. As a result, we believe it's important to review our growth on a constant currency basis.

Our growth in Korea continues to be driven by even deeper levels of spend across our customer cohorts. All of the cohorts, even our oldest, are increasing their spend at consistently high levels. We believe we are still far from realizing the full spend potential of each of our customer cohorts, as evidenced by our small share of total retail spend in Korea.

Our Product Commerce segment grew revenues 6% year-over-year, or 16% in constant currency. On a quarter-over-quarter basis, revenues grew 4% in constant currency.

Product Commerce Active Customers grew 9% year-over-year, which combined with a strong growth in average spend levels where constant currency revenues per active customer grew 6% year-over-year.

Developing Offerings segment revenues grew 67% year-over-year in Q1, or 78% in constant currency. This growth continues to be driven by the strong customer engagement we see in both Eats and Taiwan.

This quarter we generated $2.3 billion in consolidated gross profit, growing 20% year-over-year, or 31% in constant currency, with a gross profit margin of 29.3%. This represents a margin improvement of more than 210 basis points versus last year.

For Product Commerce, we delivered gross profit of $2.2 billion with a gross profit margin of 31.3%. This represents a margin improvement of over 300 basis points versus last year, and a nearly 30 basis points increase over last quarter, excluding the benefits of the FC fire insurance gain recorded last quarter. Gross profit dollars grew 17% year-over-year this quarter, or 28% in constant currency. As Bom previously noted, across Product Commerce we are seeing benefits from our

investments in process improvement, automation, and innovation, as well as continued improvements through our supply chain and growth in our margin accretive categories and offerings. We still see tremendous opportunity from these drivers and expect them to contribute to even further annual margin expansion in the quarters and years to come.

OG&A expense as a percentage of revenue was 27.3% this quarter, representing an increase of nearly 80 basis points over last year. This increase is primarily due to recent increased levels of spend on our technology and infrastructure as we continue to focus on building a stronger foundation for future scalability. We are encouraged by the tangible benefits we are beginning to see across our business from these investments, and we expect OG&A expenses will decline as a percentage of revenue in the near to medium term.

This quarter we generated $154 million of operating income, growing $114 million year-over-year, or nearly 300%. We also reported $107 million of net income attributable to Coupang stockholders. This resulted in 6 cents of diluted earnings per share.

We also reported $382 million of adjusted EBITDA on a consolidated basis this quarter, an increase of 36% over last year. The Q1 adjusted EBITDA margin was 4.8%, an increase of nearly 90 basis points, despite our increased investments into Developing Offerings. As we have shared previously, the initiatives driving margin improvement across our business are not focused on producing linear margin expansion from quarter-to-quarter, but we expect to consistently expand margins on an annual basis as we continue progressing towards our expected long-term margins of greater than 10%.

This eventual margin entitlement is best demonstrated in our Product Commerce segment, which delivered $550 million of adjusted EBITDA this quarter, with a margin of 8.0%. This represents a margin expansion of over 80 basis points year-over-year and just under 20 basis points quarter-over-quarter.

For Developing Offerings, we saw Q1 adjusted EBITDA losses of $168 million, reflecting an increased level of investment consistent with the 2025 guidance we provided last quarter. We continue to expect adjusted EBITDA losses for Developing Offerings for the full year to be between $650 million to $750 million.

On the trailing twelve-month basis, we generated $2.0 billion in operating cash flow and $1.0 billion of free cash flow. This represents a decrease in free cash flow of

$450 million versus last year, which is driven primarily by certain non-recurring working capital benefits that we previously communicated were in the prior period.

This quarter we reported an effective income tax rate of 47%, driven by the losses in our early-stage operations in Taiwan, as well as certain non-deductible expenses. As a reminder, this is just an accounting tax rate, as we expect our cash tax obligation

for the year to be closer to 40%. We anticipate we will continue to experience a temporarily high effective tax rate, between 50% to 55% for the full year.

We are also announcing today that our Board of Directors has approved a $1 billion share repurchase program as part of our broader capital allocation strategy. We view share repurchases as one of the many tools at our disposal, allowing us to act opportunistically when we believe we can take advantage of existing market conditions to generate meaningful returns for the shareholders. This is our debut repurchase program at scale, and it's important for us to have flexibility to take advantage of opportunities as they arise. We will be thoughtful and disciplined as it relates to the pace of our buybacks, which we'll consider in the context of our overall capital allocation priorities. We remain committed to generating the highest levels of long-term shareholder value.

Operator, we are now ready to begin the Q&A.

Disclaimer

Coupang Inc. published this content on May 06, 2025, and is solely responsible for the information contained herein. Distributed via Public Technologies (PUBT), unedited and unaltered, on May 07, 2025 at 07:46 UTC.