Earnings Call Transcript - CPNG Q3 2025

Operator, Operator

Hello, everyone. My name is Christoph and I will be your conference operator today. At this time, I would like to welcome everyone to the Coupang 2025 Third Quarter Earnings Conference Call. Now I'd like to turn the call over to Mike Parker, Vice President of Investor Relations, you may begin your conference.

Michael Parker, Vice President of Investor Relations

Thanks, operator, and welcome, everyone, to Coupang's Third Quarter 2025 Earnings Conference Call. I'm pleased to be joined on the call today by our Founder and CEO, Bom Kim; and our CFO, Gaurav Anand. The following discussion, including responses to your questions, reflects management's views as of today's date only. We do not undertake any obligation to update or revise this information except as required by law. Certain statements made on today's call may include forward-looking statements. Actual results may differ materially. Additional information about factors that could potentially impact our financial results is included in today's press release and in our filings with the SEC, including our most recent annual report on Form 10-K and subsequent filings. As we share our third quarter 2025 results on today's call, the comparisons we make to prior periods will be on a year-over-year basis, unless otherwise noted. We may also present both GAAP and non-GAAP financial measures. Additional disclosures regarding these non-GAAP measures, including reconciliations of these measures to the most comparable GAAP measures are included in our earnings release, our slides accompanying this webcast, and our SEC filings, which are posted on the company's Investor Relations website. And now I'll turn the call over to Bom.

Bom Suk Kim, CEO

Thanks, everyone, for joining us today. Before we walk through our third quarter results in detail, I'd like to start with a few highlights. This quarter continues our strong steady trajectory, delivering growth and expanding margins yet again. We delivered 18% year-over-year growth in consolidated revenues or 20% in constant currency, expanding to $9.3 billion for the quarter. We also saw a robust year-over-year growth in margins with gross profit margins expanding over 50 basis points to 29.4% and adjusted EBITDA margins expanding 10 basis points to 4.5%. This was driven primarily by our Product Commerce segment, where we grew both gross profit and adjusted EBITDA margins by more than 200 basis points over last year. Our results this quarter continue to demonstrate our conviction that Korea remains a remarkably durable growth opportunity with a largely untapped runway ahead. We continue to see broad-based strength across our customer cohorts. The resiliency of that compounding customer spend over time is a reflection of the deep investments we've made with an obsession to create the best customer experience found anywhere in the world with the broadest selection, the fastest and most reliable delivery, and the highest level of savings for our customers. Looking ahead, we believe one of the biggest opportunities to expand our customer value proposition and drive future growth is broadening selection across both first-party and marketplace offerings. On the first-party side, we're onboarding new brands at an accelerating pace, but there's still tremendous runway ahead. Many products in our first-party catalog aren't yet sourced directly from brand partners. Deepening those direct relationships will allow us to provide more choice, better value, and greater convenience for our customers. Turning now to FLC, which continues to grow at remarkable levels where we're only beginning to unlock its full potential. We're making massive investments in FLC to bring more convenience and savings to merchants, which in turn brings more selection, convenience, and savings to our customers. This allows us to expand deeper into newer categories like furniture, fashion, and sporting goods, enhancing the breadth and depth of selection available to customers. Our commitment to continuously improving the customer experience goes hand-in-hand with our focus on driving operational excellence. We're aggressively accelerating the deployment of automation technologies across our logistics and fulfillment network, which remains at low levels relative to its potential. Enabled by our culture of process and technology innovation, this automation is already improving service levels and operating costs, and we expect it will become an even more powerful driver of both in the years ahead. Beyond automation, we continue to innovate across our operations to enhance convenience and sustainability. We've recently begun the deployment of reusable eco-bags beyond Fresh, extending them to non-Fresh orders as well. When we deliver orders in reusable eco-bags, customers receive their items directly in their door side pouches, no boxes to unpack, no packaging to throw away, making the experience cleaner, simpler, and more sustainable. It's a small but powerful example of how innovation, operational discipline, and customer wow can reinforce one another. The success we're seeing in Product Commerce is a result of years of strategic investments and disciplined execution focused on breaking trade-offs for customers. We see similar potential for each of the nascent initiatives within Developing Offerings. In Taiwan, our momentum continues to accelerate, generating exciting year-over-year and quarter-over-quarter revenue growth again this quarter. Our focus on building the best overall customer experience is gaining meaningful traction with consumers, driving higher levels of adoption and retention. These levels of customer adoption in Taiwan are similar to those we saw at the same stage in building our retail business in Korea, reinforcing our confidence in its long-term potential. As we look forward, we expect the continued growth in Taiwan to be driven primarily by two factors: first, our rapidly expanding selection. While still very early, we're making considerable progress in growing our first-party assortment. We also began rolling out our 3P marketplace recently, which we expect will allow us to significantly expand selection, increasing the value proposition for consumers. And second, we've begun building out our own last-mile logistics in Taiwan. While it's still early, the team has made impressive progress this past quarter. We've seen significant growth in the share of our volume being delivered through our own last-mile logistics, creating the potential for us to approach the levels of speed and reliability that customers have come to expect from Coupang in Korea. As we continue to invest and scale our newer offerings, we're committed to remaining disciplined in our capital allocation. We'll continue to test and learn, leaning in only where we see clear evidence that we can deliver sustained customer wow and attractive long-term cash flows. This has been our approach since the early days of investing in product commerce, and it will continue to guide how we invest in developing offerings. With that, I'll turn it over to Gaurav to walk through the financials in more detail.

Gaurav Anand, CFO

Thanks, Bom. I'll start this quarter by giving an update on the key operating results for each of our two segments and then speak to our results on a consolidated basis. First, with Product Commerce, where we again delivered durable growth this quarter, even accelerating versus the growth rates we saw last quarter. Net revenues were $8 billion, increasing 16% year-over-year or 18% on an FX-neutral or constant currency basis, primarily reflecting the strong growth in customer spend we saw across our first-party and marketplace offerings, including FLC. The growth in net revenues this quarter did benefit somewhat from the timing shift of the major holiday season in Korea year-over-year. We generated a 10% growth in active customers this quarter, but the growth in net revenues was driven primarily by increased spending from our existing customers. Our continued investments into enhancing the overall customer experience from expanding selection to lower prices and faster delivery times are driving even deeper levels of spend across all our customer cohorts. As our marketplace offering, including FLC, continues to grow faster than 1P, our revenue growth rate in Product Commerce doesn't fully capture our overall growth. The growth in gross profit may be, in some ways, a better measure. This quarter, we generated gross profit of $2.6 billion in Product Commerce, up 24% year-over-year or 26% in constant currency. Gross profit margin was 32.1% for the quarter, expanding over 210 basis points versus last year. This margin expansion was driven by the scaling of our margin-accretive categories and offerings as well as further supply chain optimization. On a quarter-over-quarter basis, we saw a 46 basis point decrease in gross profit margin due primarily to increased operational costs from seasonal weather-related impacts that we often see in Q3 versus Q2 as well as some fluctuations in product category mix between quarters. Product Commerce also delivered significant growth in segment adjusted EBITDA reporting $705 million in segment adjusted EBITDA for the quarter, up 50% over last year. This represents a margin of 8.8%, an increase of over 200 basis points year-over-year. On a quarter-over-quarter basis, segment adjusted EBITDA margin decreased 21 basis points due mostly to the related decline in gross profit margin, which was partially offset by further operational efficiencies. Turning to Developing Offerings. We generated net revenue of $1.3 billion, increasing 32% over last year or 31% on an FX-neutral basis. This was primarily led by the accelerating triple-digit growth rate in Taiwan as well as the robust growth we continue to see in Eats. Developing Offerings' gross profit for the quarter was $156 million, a decrease of 22% over last year, reflecting the continued investments we are making into the early-stage initiatives within Developing Offerings. Segment adjusted EBITDA for Developing Offerings was a loss of $292 million, driven by the increased level of investments required to support the growing momentum we are seeing, most notably in Taiwan. We previously guided for full year Developing Offerings' adjusted EBITDA losses of $900 million to $950 million this year. We now expect to come around the higher end of that range due to continued momentum we are seeing, especially Taiwan. These investment levels continue to demonstrate our increasing confidence in the potential for each of these offerings. Now on to our consolidated results. We generated total net revenues of $9.3 billion, growing 18% on a reported basis and 20% on a constant currency basis. This is consistent with our full year guidance of total net revenue growth of roughly 20% in constant currency. This quarter, we reported consolidated gross profit of $2.7 billion, increasing 20% or 22% on an FX-neutral basis. Gross profit margin expanded to 29.4%, up over 50 basis points versus last year, but decreasing nearly 70 basis points versus last quarter. This quarter-over-quarter decrease is due mostly to the seasonal weather-related impacts in Product Commerce and the further investments we are making in growth initiatives within Developing Offerings. While margins may be uneven quarter-over-quarter, we continue to see significant room for margin expansion over time. This quarter, OG&A expense was 27.6% of total net revenues versus 27.5% last year. This slight increase is primarily due to the relative increase in operations cost within Developing Offerings, consistent with our levels of investment to support these various growth initiatives. We generated $162 million in operating income, an increase of $53 million over last year or roughly 50%. Our operating income margin was 1.7%, expanding 36 basis points year-over-year. Net income attributable to Coupang's stockholders was $95 million, resulting in a diluted earnings per share of $0.05. This includes an effective income tax rate of 42% in the quarter, which is elevated in part due to the losses in our early-stage operations, including Taiwan. We now expect a temporarily elevated full year effective tax rate of 60% to 65% consistent with our expectation for the cash tax rate for the year. Over the long term, we continue to expect to normalize to an effective tax rate closer to 25%. On a consolidated basis, we generated adjusted EBITDA of $413 million, up 20% over last year with an adjusted EBITDA margin of 4.5%. This results in margin expansion of 10 basis points over last year and a decrease of 56 basis points over last quarter. This quarter-over-quarter decrease is primarily due to increased level of investments in Developing Offerings. While we may continue to see periods of variability in margin expansion quarter-over-quarter, we expect that consolidated margins will continue expanding on an annual basis for the foreseeable future, inclusive of our investments into Developing Offerings. Finally, on cash flows, where we delivered robust growth in both operating and free cash flow this quarter. For the trailing 12 months, operating cash flow was $2.4 billion, growing 30% over last year. Free cash flow grew 36% to $1.3 billion for the trailing 12 months compared to $1.6 billion in adjusted EBITDA generated over the same time period. Stepping back, this quarter represents another example of our ability to generate robust top line growth, continued margin expansion, and strong cash generation while maintaining disciplined capital allocation. This is a result of our team's relentless focus on wowing customers and delivering operational excellence.

Operator, Operator

We are now ready to begin the Q&A.

Eric Cha, Analyst

I have two. And the first one is, given the launch of Naver, Kurly partnership recently, I was wondering if Coupang saw any impact on its Fresh GMV or any other metrics for that matter impacting the momentum. And second question is, I think Gaurav mentioned about the tailwind we had for Product Commerce GMV in the third quarter related to how the holiday was positioned. In reverse, should we be expecting some sort of a headwind in the fourth quarter due to this? And could you give us some idea how substantial that could be?

Bom Suk Kim, CEO

Eric, thanks for your questions. On Fresh, the strong trajectory that we've spoken to about Fresh earlier this year has only continued. Its growth remains well above that of our overall business. That's the result of years of investment to create a wow experience for our customers to be able to offer what we believe is the best selection in Fresh with both dawn and same-day delivery available nationwide, add to that low prices and free shipping for orders above just $11, we think that's an exciting value proposition for customers. Of course, there's plenty of competition in this space, as you noted, both online and offline. Unlike luxury products, for example, there's no shortage of stores and sites that carry Fresh. That's why we remain focused and obsessed with continuous innovation to enhance the customer experience and to make Fresh even more affordable for customers.

Operator, Operator

The next question is from...

Bom Suk Kim, CEO

I'm sorry. I'm sorry. I'm sorry, Christa. Sorry, I think we're having some technical problems.

Gaurav Anand, CFO

Sorry, Eric, on your question regarding Chuseok. The timing of Chuseok this year fell between third and fourth quarter and the length of holiday, which varies from year to year, drove some impacts on compatibility. This is in large timing dynamic and our underlying demand trends remain solid. So we continue to expect our full year consolidated growth rates to be in line with our guidance that we have communicated throughout this year and to come in at roughly 20% year-over-year growth in constant currency.

Stanley Yang, Analyst

I have a question about the Taiwan market. The e-commerce market in Taiwan is challenging to gauge due to the lack of company and industry data. Can you provide an estimate of your e-commerce market share in Taiwan and its growth rate? Additionally, I am curious about your operating loss trends in Taiwan moving forward, especially with the significantly increased loss guidance for Development Offerings this year. Do you anticipate your operating loss will rise or fall next year? When do you expect the losses to peak and begin to decline in Taiwan?

Bom Suk Kim, CEO

Stanley, thanks for your question. It's very early in Taiwan and probably too early to go into a lot of details on a number of areas. What I can share is that Taiwan has exceeded our expectations this year and remains one of our fastest-growing opportunities. We're focused right now at this stage on creating the best possible customer experience. And our ambition is to deliver the same wow experience there that we've been able to deliver and customers have come to love in Korea. And we're seeing real traction. We're seeing strong customer adoption and engagement and that's translating into both accelerating growth revenue and improving customer retention. Much of the momentum that we spoke about last quarter has only continued to build. And what gives us the most confidence is that the customer behavior in Taiwan from adoption to repeat purchase behavior looks remarkably similar to what we experienced in the early stages of our Korea retail journey. And we're very much early in our journey, but we're building real capabilities to wow our customers, including the rollout of our own last-mile network that we believe will serve as a foundation for durable growth over time. I want to point out that we're building this offering to generate the highest level of value, not only for customers, but shareholders as well. The momentum that we're seeing is exciting. The trajectory won't always be linear because we're focused on breaking real trade-offs to our customers and driving operational excellence. But overall, we're incredibly excited about Taiwan and the long-term potential there.

Seyon Park, Analyst

I have two questions. First, regarding Taiwan, you mentioned its similarities with Korea in the early stages, but there are differences as well. E-commerce penetration is considerably lower in Taiwan compared to Korea about 5 or 6 years ago. Investors familiar with Taiwan often point out the strong convenience store network, as traditional markets are more widely used. Additionally, there are restrictions on placing boxes in front of doors, requiring customers to pick them up directly. Do these differences influence how the company is addressing the market in Taiwan? My second question is about AI. Over the past six months, particularly the last month, we’ve seen significant developments in Korea, including Jensen Huang's commitment of 260,000 GPUs. What are Coupang's plans in the AI space? Are there intentions to purchase GPUs or build data centers for internal use or to provide services to customers?

Bom Suk Kim, CEO

Seyon, thanks for your question. I think there's a number of pieces there. Let me quickly touch on Taiwan. I think, of course, all markets have some nuances and differences. But in all the most meaningful areas, we see more similarities than differences. And I think you're seeing that reflected in the consumer response. Customers care about selection, service, price, and the service that we're providing, while still far from the service levels that we're providing in Korea, is resonating with customers, and we see that in the customer adoption and retention, the response. And it's exciting to see that. We'll continue to focus on improving those service levels and building the right capabilities to deliver that customer experience with operational excellence. And we remain confident that we'll be able to deliver a great experience, impactful moments of wow for customers and a great return for shareholders over time. On AI, I think we are focused on building our own internal AI computing infrastructure to support our operations and improve performance and cost efficiencies. We have some small effort to test and learn on making parts of that technology available externally. But we're not at the stage of having or discussing any real customer demand or capital plans there. I think in all that we do, we'll focus on practical applications, practical savings for the company primarily and remain disciplined in how we allocate resources and provide any updates there if there are any meaningful developments in the future. Generally speaking about AI, we've talked about this before, but AI has always been very central to operations, and that's only becoming more true. AI is developing and delivering tangible benefits across our operations, including in areas that relate to demand forecasting, automating fulfillment processes, optimizing delivery routes among many other applications. These advances are helping us reduce waste, improve productivity, and enhance the customer experience. We're confident that AI will deliver significant savings and improve our P&L over time. And we have many efforts underway that we expect to bear fruit along those lines. But for us, AI is also more than just about efficiency. It provides an exciting opportunity to raise the bar for service quality and customer satisfaction. And we're just as eager to expand our investment and experimentation cycles on that front. And as always, we'll be disciplined about where we invest, allocating our resources with a clear eye towards attractive returns.

Jiong Shao, Analyst

Congratulations on achieving outstanding results. My first question is about Taiwan. Bom, you mentioned that one of the main areas for investment and future growth is in developing our 1P delivery logistics. Could you provide an approximate percentage of the GMV in Taiwan that currently utilizes your own 1P logistics? You also noted that growth will be linear, so I’m curious if, given your success in Korea, you believe that building out the 1P logistics in Taiwan can occur at an accelerated pace thanks to your experience. Additionally, do you think the percentage of GMV that goes through 1P logistics in Taiwan will eventually match that of Korea? My second question pertains to your technology investments. It seems that the EBITDA margins for Product Commerce this quarter were particularly strong. A few quarters ago, you mentioned initiating a technology investment cycle that appears to be tapering off around this time. Is the significant growth in EBITDA margins in Q3 indicative of the beginning of that tapering process?

Bom Suk Kim, CEO

Thank you, Jiong, for your questions. Regarding Taiwan, our logistics expansion is still in the early stages, and I believe it’s too soon to go into specifics. I will provide more information as we progress. You highlighted a point we've mentioned before: we have a competitive edge in Taiwan, as we can apply much of what we learned and developed in the Korean market to Taiwan. We are making significant strides in expanding our logistics there and anticipate rapid growth. In all these areas, our focus is not only on establishing strong capabilities to serve our customers effectively but also on achieving operational excellence. This has always been a crucial part of our success. We aim to provide the best customer experience with optimal operational efficiency. We are currently dedicated to building these capabilities, and as we advance, we will share more updates when appropriate.

Gaurav Anand, CFO

Yes. On your question on tech investment cycle and Product Commerce margins, Product Commerce margins are already around 9% and expanding on an annual basis. We see significant runway for further growth across the business from applying technology, AI, and automation to scaling these margin-accretive offerings and improving the core processes. And Bom mentioned earlier, we recently began rolling out reusable bags in general merchandise, which not only improves customer experience, but also enhances operating efficiency. So with many initiatives, we expect Product Commerce margins to move well past the 10% margins, and the consolidated margins would continue over time. On the tech investment, in the earlier quarters, we saw a relative increase in the tech-related spend in terms of percentage of total revenues. This was an important investment, enabling us to build a more scalable foundation for future growth. And we have also seen that increase in spend reduced in recent quarters. This quarter, the OG&A expense was 27.6% of total net revenue, up only 10 bps over last year and down nearly 70 bps over last quarter. So we are still investing in tech for future growth, but the pace of this investment has been slowing down. We expect that to continue, though there may be unevenness naturally quarter-to-quarter.

Wei Fang, Analyst

I have two. The first one I'll ask on Taiwan. I think you guys launched the WOW membership earlier this year with a 90-day no-cost promotion, right? Can you talk about what you have done so far? And how the retention after the 90 days, if any of them already hit the deadline already, given the fact that you now have outplayed the game with your last mile logistics? And second question is on, I wonder if management can talk just a little bit about your recent sponsorship for the APEC Summit 2025. How big is that one-off sponsorship spending? And what have you guys have learned so far?

Bom Suk Kim, CEO

I believe that the sponsorship for APEC is not a crucial business factor. I don't think there's much more to elaborate on, and I prefer not to highlight any specific aspect of what we do. We have various initiatives across the company, and I don't consider that as one of our key efforts. Regarding Taiwan, we are implementing our last mile logistics and introducing our WOW membership. We are making progress in offering customers service levels similar to those we provide in Korea, though we still have a way to go. For instance, with the WOW membership, we are only a few months in, but initial customer feedback has been positive. As I mentioned, we will keep enhancing the benefits of our WOW membership and improving our service quality. The customer response so far resembles what we experienced in the initial phase in Korea, which is the most exciting aspect for us. Our growth is largely driven by expanding our customer base and increasing spending, not solely through acquiring new customers. We are dedicated to enhancing the customer experience and making the WOW membership more attractive for customers in Taiwan going forward. Currently, our focus is on learning, improving, delivering more value to customers, and enhancing the overall customer experience every day.

Gaurav Anand, CFO

And let me clarify a little bit about the APEC sponsorship. We continue to partner and build working relationships with all countries, and especially with our presence in Taiwan, Japan and many global countries with Farfetch. I think it's a lever, as Bom mentioned, to partner and build relationships for future investment opportunities more than a direct business impact.

Operator, Operator

This concludes today's conference call. Thank you, and you may now disconnect.