Coupang Inc., the U.S. parent company of Coupang, posted an operating loss of nearly 1.2 trillion won in the first half of this year, marking its largest deficit since going public. Customer metrics are showing signs of recovery as users who had left Coupang following a personal data breach return, but large-scale fines weighed on the company's results.
Coupang Inc. expects the profitability of its core business to gradually return to normal beginning next year. However, negative factors continue to mount, including losses from the recent Incheon logistics center fire, additional tax burdens from a tax investigation, and litigation costs, suggesting considerable obstacles remain before profitability recovers.
According to a consolidated earnings report Coupang Inc. filed with the U.S. Securities and Exchange Commission (SEC) the previous day, second-quarter revenue reached 13.3007 trillion won (based on a won-dollar exchange rate of 1,501.89 won), up 11.1% from 11.9763 trillion won a year earlier, the company said on the 6th. However, profitability declined sharply as the company posted an operating loss of 835 billion won, its largest on a quarterly basis since its 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 its cumulative first-half operating loss to 1.1895 trillion won. This is equivalent to the combined operating profit Coupang Inc. earned over the past two years.
The second-quarter net loss also came in at 856 billion won, swinging to a deficit. The net loss was nearly three times last year's full-year net profit of 303 billion won. Cash generation also weakened. Cumulative operating cash flow over the trailing 12 months was about 2.1402 trillion won, down 726.9 billion won from a year earlier.
The Personal Information Protection Commission's imposition in June of fines totaling 624.6 billion won over reasons including the customer personal data breach enlarged the operating loss. In addition, some costs, including about 1.7 trillion won in vouchers Coupang provided as customer compensation, were also reflected in the quarter.
Even excluding one-time costs such as fines, the profitability of the product commerce segment, which includes Rocket Delivery and Rocket Fresh, declined significantly. The segment's adjusted EBITDA margin was 5.1%, down 3.9 percentage points from a year earlier. Coupang Inc. explained that actual revenue fell short of plans while logistics capacity built in line with demand projected before the data breach was maintained, and that increased promotional spending to win back customers dragged down profitability.
Still, Coupang Inc. said customer metrics are recovering to levels seen before the data breach and forecast that profitability would improve starting next year. The number of active customers in the product commerce segment rose from 23.9 million in the first quarter to 24.7 million in the second quarter. Average spending per active customer also increased from 439,540 won to 452,060 won over the same period. Gaurav Anand, chief financial officer of Coupang Inc., stressed during the second-quarter earnings conference call the previous day that "the margin pressure we are currently experiencing is relatively short-term in nature and does not reflect structural change."
However, many hurdles remain, including costs from the logistics center fire and additional fines. Losses from the fire at the Seoknam-dong logistics center in Incheon will be reflected in third-quarter results. Coupang Inc. estimated the scale of losses, including the logistics center's inventory assets, fixed assets, and seller inventory compensation, at about 350 billion won. Coupang Inc. said it plans to file insurance claims but noted there may be additional liabilities or costs that are currently unidentified or cannot be quantified.
In addition, an additional tax burden from a tax investigation remains. Coupang Inc. said its Korean subsidiary Coupang Fulfillment Services (CFS) received notice of approximately 300 billion won in additional taxes following a tax investigation by the Seoul Regional Tax Office.
Additional fines are also anticipated. In June, the Fair Trade Commission rejected a 60 billion won mutual growth plan and consent decree request that Coupang Eats had proposed regarding allegations of demanding most-favored treatment. A "tying" case, in which Coupang Eats was linked to the Wow membership to force users to use its delivery app service, is also expected to be reviewed within the year. Legal costs to respond to class-action lawsuits filed in the United States are another burden.
Bom Kim, chairman of the board of Coupang Inc., said during the second-quarter earnings conference call that day, "The way we operate our business by calculating logistics utilization rates and economies of scale is what normally drives double-digit growth, but when a sudden shock occurs, its impact can appear more pronounced in results." He added, "This year's recovery pattern will not appear in a straight line."
