Coupang is drawing market attention by launching a large-scale share buyback program despite posting its worst earnings shock since its listing in the first quarter. Critics argue that the company should prioritize improving its deteriorating financial position over shareholder returns. Industry observers interpret the move as a decisive bet by Coupang to defend its plunging share price as it faces legal risks including a securities class-action lawsuit.
According to a first-quarter report filed by Coupang's parent company Coupang Inc. with the U.S. Securities and Exchange Commission (SEC) on Thursday, Coupang Inc.'s board of directors earlier this month approved an additional $1 billion share buyback program on top of the existing $1 billion program. Coupang Inc. also repurchased 20.4 million Class A common shares in the first quarter for a total of 572.8 billion won ($391 million, based on the quarterly average exchange rate of 1,465.16 won per dollar). The company is proceeding as scheduled with the $1 billion buyback program announced a year earlier while also deciding to conduct additional share repurchases over the next year.
Coupang previously conducted share buybacks worth 118.7 billion won ($81 million) and 237.3 billion won ($162 million) in the third and fourth quarters of last year, respectively. As a result, the total scale of share buybacks Coupang has announced going forward, by simple calculation, has grown to around 2 trillion won ($1.366 billion).
The timing of the share buybacks is noteworthy. Coupang posted a first-quarter operating loss of 354.5 billion won ($242 million), its largest deficit in four years and three months. The company swung to a loss from an operating profit of 233.7 billion won ($154 million) a year earlier. Net loss reached 389.7 billion won ($266 million).
Financial pressure is also mounting. As of the first quarter, Coupang's free cash flow turned negative at 161.2 billion won ($110 million), as capital expenditures exceeded cash generated from operations. Short-term borrowings surged to 2.4497 trillion won ($1.672 billion) this year from 1.4066 trillion won ($960 million) last year. Cash and cash equivalents stand at 9.2305 trillion won ($6.3 billion), which is not yet at a level to raise immediate liquidity concerns, but the market expects financial soundness could weaken if the earnings shock continues.
Industry analysts say the intent to defend the share price underlies Coupang's aggressive buyback push despite weak earnings and growing financial pressure. As Coupang's shares have plunged in the wake of a massive personal data breach, concerns are growing that the company's ability to respond to the securities class-action lawsuits filed in the United States could be weakened. Since those lawsuits argue that Coupang's failure to disclose the personal data breach in a timely manner caused the share price to plunge, reducing the extent of the share price decline could work in Coupang's favor in future legal proceedings.
Coupang's share price has indeed been halved since the data breach, having traded at around $30 last November. The stock closed at $15.96 on the New York Stock Exchange (NYSE) on Tuesday (local time). That is a relatively sluggish performance compared with the S&P 500, the benchmark U.S. index, which has risen 9.28% since the end of November last year.
Coupang Inc. Chairman Bom Kim's expression of confidence in the business during the first-quarter earnings conference call, despite the earnings shock, is also seen as an effort to calm shareholder concerns. "About 80% of customers who had left the WOW Membership have returned," Kim said. "We are confident in the fundamental long-term profit growth potential of the business."
Lee Jun-seo, a professor of business administration at Dongguk University, said, "From Coupang's perspective, the company appears to have proactively undertaken share buybacks within a range it can withstand. With public sentiment and investor sentiment unfavorable recently, this can be interpreted as an intent to deliver a shareholder return message to the market."
