CoupangInc, the parent company of Coupang, swung to a loss in the first quarter with an operating loss of 350 billion won, and CoupangInc Chair Bom Kim said it will take more time to normalize results. He said short-term profitability was dragged down by compensation in the form of purchase vouchers following a personal information incident and inefficiencies in the logistics network, but the recovery in Wow membership, expansion of Rocket Delivery assortments, and investments in automation and artificial intelligence (AI) will restart the profitability improvement trend starting next year.
Kim said on the first-quarter earnings conference call for CoupangInc held on the 6th Korea time that for the product commerce business including Rocket Delivery, "it will take time for the year-over-year growth rate to fully reflect a fundamental recovery." Kim said, "Customer behavior is normalizing, but the temporarily halted growth over the past several months continues to negatively affect year-over-year results."
However, Kim emphasized that the recovery trend is clear. Kim said, "The trend in sales growth from January to March is running ahead of past trends, and year-over-year comps will continue to improve through the year," adding, "After the product commerce sales growth rate hit a bottom in January, year-over-year results improved each month, and the pace of improvement accelerated in February and March."
He also said many metrics tied to Wow membership have largely recovered. Kim said, "After the personal information incident, most existing customers and Wow members did not leave and increased their expenditure at a double-digit growth rate, and most customers have returned and recovered their pre-incident spending levels."
He added, "As of the end of April, with the re-enrollment of withdrawn members and an increase in new sign-ups, we have recovered about 80% of the Wow members lost after the incident," noting that sign-up and churn rates have returned to their historically stable levels.
◇ Profitability worsens on fallout from personal information leak
As factors behind the first-quarter deterioration in profitability, Kim cited customer purchase vouchers paid as part of the response to the personal information incident and temporary inefficiencies in the logistics network. Coupang ran a three-month compensation program granting purchase vouchers to all 33.7 million customers from Jan. 15, providing 50,000 won per person, totaling 1.685 trillion won. The amount used is deducted from sales. Kim said, "The impact of the purchase vouchers is one-off and mostly confined to the first quarter, with some effect lingering into early in the second quarter."
Regarding logistics, Kim said, "Coupang's capacity expansion and supply chain plans are drawn up with ample cushion, but when external variables such as a personal information incident disrupt the flow of customer demand, actual demand falls below plan, creating costs related to idle capacity and inventory." Kim added, "Once demand returns to a more predictable flow, capacity and the supply chain will also rebalance, and the related inefficiencies will naturally ease."
Kim stressed that the long-term margin improvement drivers remain intact. Kim said, "Improving operating efficiency across the network, optimizing the supply chain, continued investment in automation technology, and expanding higher-margin categories and products will drive long-term margin expansion," adding, "We expect annual margin expansion to resume starting next year."
◇ Medium- to long-term investments continue, including expansion of Rocket Delivery
Coupang plans to continue medium- to long-term investments even during the recovery phase. Kim said, "A substantial share of products customers want to buy is still not offered via Rocket Delivery," adding, "Combining the first-party catalog with Rocket Growth (FLC) is a path to significantly close that gap."
Automation and AI were also presented as core investment areas. Kim said, "The adoption of automation and AI across all services, including the logistics and delivery network, is raising service levels while cutting expense," and said it will contribute to improved customer experience and margin expansion going forward.
In growth businesses, Kim pointed to Taiwan as a key pillar. Kim said, "In Taiwan, we are building the foundation for a differentiated customer experience," adding, "Our own last-mile delivery network that guarantees next-day delivery currently covers most volumes, and its reach continues to expand."
Kim added, "Although the Rocket Delivery service in Taiwan is still in its early stages, customer response is positive, and customer retention is showing a trajectory similar to the early days when we were building the product commerce business in Korea."
Meanwhile, Coupang's first-quarter sales came to $8.504 billion, or about 12.4597 trillion won. The figure is up 8% from $7.908 billion a year earlier. Operating loss, however, was $242 million, or about 354.5 billion won. The company posted $154 million in operating profit in the same period last year but returned to a loss after one year.
Gaurav Anand, Coupang's chief financial officer (CFO), said, "The first-quarter results reflect the impact of the personal information incident, and that aligns with our previously stated guidance range of 5%–10% growth rate." Anand also said, "The core business has continued to strengthen, and the impact on product commerce will gradually diminish going forward."
Coupang projected that consolidated sales in the second quarter will rise about 9%–10% on a constant-currency basis. However, with short-term factors from the personal information incident continuing, the consolidated adjusted EBITDA margin is expected to fall 3%–4% year over year.