Coupang Inc., the parent company of Coupang, reported an operating loss exceeding 1.83 trillion won ($1.4 billion) for the first three quarters of this year. This figure surpasses the losses recorded in 2021, which was the company's largest annual deficit to date, and is nearly equivalent to the total operating profit earned over the past three years. The decline in profitability is attributed to a series of setbacks, including fines related to a data breach and costs from a logistics center fire. While Coupang has set a goal to restore profitability by mid-next year, uncertainties remain due to potential regulatory actions and increased marketing expenses.
According to Coupang's third-quarter earnings report released on November 4, the company generated revenue of $9.962 billion (14.22 trillion won), a 7% increase compared to the same period last year. When excluding currency fluctuations, the growth rate is 11%. However, the operating loss for the quarter was 642.3 billion won, a stark contrast to an operating profit of 224.5 billion won during the same period last year. This marks the third consecutive quarter of losses, following losses of 354.5 billion won in the first quarter and 835 billion won in the second quarter.
For the first three quarters of this year, the cumulative operating loss reached 1.8318 trillion won, nearing the total operating profit of 1.8987 trillion won projected for the three years from 2023 to 2025. Additionally, the cumulative net loss for the first three quarters stands at 1.9608 trillion won, surpassing the previous annual record of 1.764 trillion won set in 2021.
The decline in performance has been significantly impacted by costs associated with recent incidents and regulatory fines. In the second quarter, Coupang accounted for a fine of 624.7 billion won imposed by the Personal Information Protection Commission. In the third quarter, an additional 354 billion won in costs related to a fire at its Incheon logistics center in July was incurred. However, even excluding these one-time costs, the operating loss widened from 219.2 billion won in the second quarter to 288.3 billion won in the third quarter.
The profitability of Coupang's core businesses, including Rocket Delivery and Rocket Fresh, has notably deteriorated. The adjusted EBITDA for the product commerce segment in the third quarter was 549.5 billion won, a 45% decrease from the same period last year. The adjusted EBITDA margin also fell to 4.6%, down 4.24 percentage points from a year earlier, effectively halving.
During the earnings conference call, Coupang Inc. Chairman Kim Beom-seok identified supply chain disruptions, fixed costs associated with logistics facilities, and increased marketing expenses to attract back lost customers as key factors contributing to the decline in profitability. He explained that the actual volume processed was lower than anticipated, leading to increased cost burdens compared to the logistics facilities built in anticipation of demand prior to the data breach incident. In the third quarter, Coupang's cost of goods sold ratio was 74.3%, up 3.7 percentage points from the same period last year.
Kim stated, "None of these factors should be viewed as structural issues. Some are short-term investments chosen by the company, while others are temporary headwinds." He expressed optimism that by mid-next year, the growth rate and profitability of product commerce would approach levels seen before the data breach incident. According to Coupang, the number of Wow members reached an all-time high in the third quarter, and the number of active customers in product commerce increased by 2% to 25.2 million.
Coupang is also expanding its investment in its Taiwan operations. The number of Wow members in Taiwan has more than doubled compared to the same period last year, and the areas eligible for early morning delivery have expanded to cover more than half of the local population. Coupang Inc. has raised its forecast for adjusted EBITDA losses in its growth business segment from the previous estimate of $1 billion to between $1.05 billion and $1.1 billion due to increased logistics infrastructure investments.
The outlook for Coupang's fourth-quarter performance remains uncertain. Potential regulatory actions from the Fair Trade Commission regarding demands for best price guarantees and allegations of tying practices could pose additional challenges. The specifics of any fines and their amounts have yet to be determined. Coupang faces the dual challenge of improving profitability through customer recovery and logistics efficiency while navigating regulatory uncertainties.
* This article has been translated by AI.
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