Coupang's first-quarter earnings shock has been attributed to customer compensation costs stemming from a personal data breach and logistics cost burdens. While the impact of one-off expenses was significant, concerns have also emerged that the company's growth momentum may be slowing. With regulatory and legal risks mounting, including the Fair Trade Commission's designation of a controlling shareholder, some observers interpret management uncertainty as having reached its highest level since the company's founding.
According to an announcement Tuesday by Coupang Inc., the U.S.-listed parent company, Coupang recorded an operating loss of 354.5 billion won (based on an average exchange rate of 1,465.16 won per dollar) in the first quarter, the largest in four years and three months. First-quarter revenue growth also came in at just 8% year-on-year, marking the first break in the double-digit growth streak the company had maintained since its U.S. listing. The direct cause of the earnings deterioration was a 1.685 trillion won customer compensation program launched in January. In addition, as customer demand declined following the data breach, idle facility operating costs and inventory holding costs were incurred.
Bom Kim, chairman of Coupang Inc.'s board of directors, said in a conference call, "Most of the voucher issuance costs related to the data breach for customer compensation were reflected in the first quarter, and some will also be reflected in the second quarter." He added, "Facility expansion and supply chain plans are adjusted based on predictable customer patterns and demand trends, but when external factors [the data breach] disrupt these patterns, we end up bearing idle facility and inventory costs."
Losses also widened in the Developing Offerings segment, which includes Rocket delivery in Taiwan, Farfetch and Coupang Eats. Revenue in the segment reached approximately 1.946 trillion won, up 28% year-on-year, but adjusted EBITDA loss, which gauges underlying business strength, stood at approximately 482 billion won, with the loss expanding 96% from a year earlier. While the top line grew, investment burdens and business expansion costs pressured profitability.
Active customer numbers, a key indicator of Coupang's future profitability, showed signs of recovery, but analysts say it will take time before growth returns to previous levels. In the first quarter, active customers in Coupang's Product Commerce segment, which includes Rocket delivery, totaled 23.9 million, down 700,000 from the previous quarter.
Kim also said, "We have recovered approximately 80% of the Wow membership members lost following the data breach, but fundamental recovery will take time." He added, "Even as customers are normalizing, the aftermath of the temporary suspension of growth over several months will continue to weigh negatively on earnings."
Despite the slowdown in growth pace, Coupang plans to maintain its mid- to long-term growth strategy. In particular, the company emphasized that it would expand its Rocket delivery product lineup to improve customer experience and raise service levels by introducing automation and artificial intelligence (AI) to its logistics and delivery networks. It also plans to improve its cost structure through network operation efficiency and supply chain optimization.
The issue is that, beyond slowing profitability, regulatory and legal risks have piled up as compounding negatives. The possibility of a large fine from the Personal Information Protection Commission remains, and with some political circles discussing restrictions on dawn delivery, uncertainty is growing around logistics services, Coupang's core competitive edge. Legal risks are also expanding. Class-action lawsuits simultaneously underway in both Korea and the U.S. could increase legal costs and damage liability risks. Coupang retained Kirkland & Ellis, the world's largest law firm, in February to respond to the U.S. class-action suit and is reported to have commenced discovery procedures in June.
In addition, the regulatory environment surrounding corporate governance has been further tightened, which is expected to act as a burden across Coupang's business. The Fair Trade Commission recently changed Coupang's designated controlling shareholder from the corporate entity to Chairman Kim, enabling the government to review transactions with related parties such as relatives and executives, disclosures, private benefit seeking and favoritism in contract awards across the business.
Coupang, which has opposed the decision, has stated it will file an administrative lawsuit. Coupang Chief Financial Officer Gaurav Anand said in the conference call, "We are reviewing all obligations Coupang must bear and are maintaining continuous communication with regulatory authorities."
