Coupang CI. Photo courtesy of Coupang
Coupang Inc., the U.S. parent company of Coupang, posted an operating loss approaching 1.2 trillion won in the first half of this year, marking its largest deficit since its initial public offering. Users who had left Coupang following a personal data breach have returned, but massive fines have sharply worsened profitability. With cost burdens expected to continue for some time, including losses from a recent fire at an Incheon logistics center, a return to profitability is expected to face difficulties.
According to a consolidated earnings report Coupang Inc. filed with the U.S. Securities and Exchange Commission (SEC) on the 5th, second-quarter revenue reached 13.3007 trillion won (based on an exchange rate of 1,501.89 won per dollar), up 11.1% from 11.9763 trillion won a year earlier. However, profitability sharply reversed with an operating loss of 835 billion won. This marks the largest quarterly loss since the company’s listing on the New York Stock Exchange in 2021. Following an operating loss of 354.5 billion won in the first quarter, the company recorded losses for two consecutive quarters, bringing the cumulative operating loss for the first half to 1.1895 trillion won. This is equivalent to the combined operating profit Coupang Inc. earned over the past two years.
A fine of 624.6 billion won imposed by the Personal Information Protection Commission in June, citing the leak of customer personal information, enlarged the scale of the loss. In addition, some costs, including approximately 1.7 trillion won in vouchers Coupang provided for customer compensation, were also reflected in this quarter.
Profitability in the product commerce segment, which includes Rocket Delivery and Rocket Fresh, also declined significantly. The adjusted EBITDA margin for the segment was 5.1%, down 3.9 percentage points from a year earlier. Coupang Inc. explained that actual revenue fell below plan while logistics capacity built to meet anticipated demand before the data breach was maintained, and that increased promotional spending to win back customers weighed on profitability.
However, Coupang Inc. said customer metrics are recovering to pre-data breach levels and projected that profitability would improve starting next year. The number of active customers in the product commerce segment increased from 23.9 million in the first quarter to 24.7 million in the second quarter. The average purchase amount per active customer also rose from 439,540 won to 452,060 won over the same period. “The margin pressure we are currently experiencing is relatively short-term in nature and does not reflect a structural change,” Coupang Inc. Chief Financial Officer Gaurav Anand stressed.
Nevertheless, many hurdles remain, including cost expenditures from the logistics center fire and additional fines. Losses from the fire at the Seoknam-dong logistics center in Incheon are set to be reflected in third-quarter results immediately. Coupang Inc. estimated the scale of losses, including inventory assets, fixed assets, and seller inventory compensation at the logistics center, at approximately 350 billion won. An additional tax burden from a tax investigation also remains. Coupang Inc. disclosed that its Korean subsidiary Coupang Fulfillment Services (CFS) received notice of approximately 300 billion won in additional taxes as a result of a tax investigation by the Seoul Regional Tax Office.
Additional fines have also been signaled. In June, the Fair Trade Commission rejected a consent decree request in which Coupang Eats offered a 60 billion won mutual growth plan over allegations of demanding most-favored treatment. A “tying” case, in which the company allegedly forced users to use its delivery app service by linking Coupang Eats to WOW Membership, is also expected to be reviewed within the year. Legal costs to respond to class-action lawsuits filed in the United States are also a burden factor.
Bom Kim, chairman of the board of Coupang Inc., said at the second-quarter earnings conference call that day, “The way we operate our business by calculating logistics utilization rates and economies of scale is the driving force that normally enables double-digit growth, but when a sudden shock occurs, its impact can be more strongly reflected in results,” adding, “This year’s recovery pattern will not appear in a straight line.”