Coupang 4Q24 Business Update

(Speedwell Members can download a PDF of this post here).

4Q24 Business Commentary.

Coupang reported 4Q24, closing another year of strong growth and further entrenching their dominance as an ecommerce leader in South Korea.

For 4Q24 CPNG grew revenues +21% y/y versus +25% y/y last Q (FXN). For the full year, revenues reached $30.3bn, increasing +24% y/y or +29% y/y FXN adjusted.

Product Commerce revenues were $6.9bn, a slight deceleration to +16% y/y versus +20% y/y last Q (FXN)

Driving their strong revenue growth is a mix of continued growth in spend per customer, an increase in active customers, and their Developing Offerings finding success.

The most important factor though for their core ecommerce business is the fact that Coupang customer spend is still growing, even amongst their oldest cohort of customers.

Coupang 4Q24 Presentation.

As we noted in our prior update, Coupang only has to “execute on priorities very much within their competency—namely expanding selection and FLC—in order to continue to grow.” Coupang simply adding more selection and increasing the adoption of their fulfillment service has helped drive higher customer spend.

CFO Gaurav Anand noted on the call that the oldest cohort of customers grew more than +20%, with their newest customers at a fraction of the spend of their oldest customers. This means that as customers simply shop more on Coupang, they will end up buying more on the site overtime. This sort of growth is much less risky than growth that assumes success with a new offering or opening up a new market.

Incredibly, they also have started adding installation services to “thousands of items from large appliances, furniture, electronics to even tires for automobiles. A customer who realizes that she needs new tires on her car can purchase them online from home and have them delivered and installed the very next day.” Such a service not only increases the number of items that Coupang can sell, but directly attacks many specialty stores that historically could help differentiate on service. (As a reminder, South Korea relative to the U.S. has many fewer specialty chain stores to begin with).

New selection and services helps drive growth in active customers, which reached 22.8mn this quarter, up from 22.5mn last Q and +10% y/y.

In addition to growing customer spend, they continue to improve operational efficiency. They revealed that some logistics and fulfillment changes helped them increase by 45% the number of deliveries that were either same day or dawn deliveries.

The net result of these improvements has been improving gross margins, despite large investments.

Adj. gross margin was 29% versus 28.1% last Q. For the full year, gross profits grew +43% y/y to $8.8bn, representing a margin of 28%. This is an improvement of 260bps y/y.

Their full year adjusted EBITDA of $1.4bn, includes losses of ~$630mn from their Developing Offerings (Primarily Coupang Eats, Play, and Taiwan).

Their Developing Offerings are being well received with this segment’s revenues growing +136% y/y (FXN) to $1.1bn, excluding Farfetch. On Taiwan, their only other market they have a significant presence in, Coupang noted that the response since launching Rocket Delivery in Taiwan has been “impressive”. They also said they “closed out 2024 with significant moment, with net revenues in 4Q growing +23% q/q”. Furthermore, they clarified that the “vast majority of growth was organic”. This is encouraging as Taiwan is their best shot of developing a similar fully integrated ecommerce service in a market outside of South Korea in the immediate future.  

Combining their Developing Offering losses, their full year adjusted EBITDA margin is 4.9%, which is about half way there to their 10%+ target. Just within their Product Commerce segment though they are currently at 7.5% adj. EBITDA margin. While we prefer to look at their profits on an EBIT as a % of GMV basis to wash out the 1P/ 3P accounting impact and to burden earnings for depreciation, Coupang has made clear profitability progress with Product Commerce margins increasing 100bps y/y.

We will move through some call notes before moving onto the valuation.

Call Notes.

Delivery Service Updates

  • “Made significant changes to upgrade our fulfillment and logistics processes, which enabled us this quarter to increase by +45% the deliveries that were either Same  Day or Dawn.”
  • Extended the order cutoff for Same -Day Delivery by 2 hours
  • Expanded next -day Rocket Delivery to now provide customers with next day installation services on thousands of items from large appliances, furniture, electronics to even tires for automobiles
    • “A customer who realizes that she needs new tires on her car can purchase them online from home and have them delivered and installed the very next day.”
  • Increased fresh assortment by over +30% this quarter, which now includes fresh flower delivery
  • Bringing Dawn and Fresh Delivery to more remote areas in the market, including Jeju Island.

Efficiency

  • “In the process of upgrading our fulfillment and logistics network this year, we were able to eliminate waste in our processes and improve line -haul costs by 16%”
  • “Made significant investments to streamline operations, nearly doubling the portion of our fulfillment and logistics infrastructure that is highly automated in the past year alone”
    • “we’ve only just begun to tap automation’s full potential. The percentage of our total infrastructure that is highly automated is still just in the low teens.”

Taiwan

  • “Launched our full stack e -commerce service Rocket Delivery in Taiwan in late 2022, and the customer response has been impressive.”
  • “Closed out 2024 with significant momentum, with net revenues in the fourth quarter growing +23% q/q, operating at substantial scale
    • “Vast majority of that growth was organic, a testament to the differentiated customer experience that we’re building.”
  • Recently launched WOW Membership

Farfetch

  • “When we acquired Farfetch at the beginning of 2024, it was losing hundreds of millions of dollars annually and facing declining growth metrics. Yet within this challenge, we saw a rare opportunity”
  • “Farfetch’s losses have shrunk dramatically to a breakeven run rate today, and this significant turnaround was achieved with minimal loss of scale. Farfetch continues to attract 49 million monthly visitors in over 190 countries around the world”

Forex

  • “Worth highlighting that we have seen a significant weakening of the Korean won versus the US dollar reaching its lowest levels in over 10 years”

Outlook

  • “We expect to expand margins in 2025 through greater utilization of automation and technology, further supply chain optimization, and the scaling of margin accretive offerings.”
  • “We’re still in the early stages of capturing the full growth and potential of our core offerings”
  • “We have a robust pipeline of initiatives, but we carefully prioritize those that we believe can meet our high bar for customer impact and long -term returns”
  • “On our outlook for 2025. We anticipate our constant currency consolidated growth rates for the full year to be about +20% y/y, within the range of our 2024 Q4 constant currency growth rate, excluding Farfetch”
    • Since FLC continues to grow  faster than Product Commerce revenue, and is recorded on a net basis versus gross prior, Product Commerce gross profit will grow faster than the related constant currency revenues.
    • “Developing Offerings, we anticipate incurring adjusted EBITDA losses between $650 million to $750 million in 2025”
    • “Regarding income tax expense, we anticipate we will continue to experience the temporarily high effective tax rate between 50% to 55% in 2025. As a reminder, this is just an accounting effective tax rate. We expect our cash tax obligation to be closer to 40%.”

Valuation.

Since last quarter the stock is up slightly, but a high net cash amount reduces their enterprise value, making the reverse DCF essentially the same. (With the exception of large stock price swings, we would expect the reverse DCF to be basically unchanged quarter to quarter).

Before moving into the Reverse DCF, at a high level we can see that they currently generate $2bn of adjusted EBITDA (before losses). D&A currently is 1.4% of revenue or, rounded up, about $450mn. At a 25% tax rate, this implies Coupang currently trades around 36x earnings, excluding losses. However, achieving the low end of their 10% EBITDA margin guidance, would drop this figure to 27x. This valuation assumes that their Developing Offerings are loss neutral. At this mature margin valuation, it would only take about 1 to 1.5 years of growth at their current  trajectory for Coupang to trade at a market multiple.

Now moving onto the Reverse DCF. As we noted prior, we do not sensitize around EBIT margin, but rather EBIT as a % of GMV. We do this to be agnostic to the distortions of 1P vs 3P accounting. This method makes the most sense to us because the unit profits of a 1P vs 3P transaction should be the same overtime, even if 3P shows a higher margin %.

Below is our range of “GMV Profit Margin” we sensitized around. In our report we estimated 2023 GMV at $38bn (with a range of $35-42bn). We start our DCF with a 2024 GMV estimate that is 15% higher, or at ~$44bn. (Remember, we have now converted to USD and growth rates converted back into dollars are lower than their FX-neutral growth rate).

The growth rates below are then applied to our GMV estimate of ~$44bn.

Below is the outputs of the reverse DCF at the current valuation. These figures should be thought of as the return an investor will receive if they owned the entire company and received all excess cash.

Note that we are only explicitly valuing the Korean ecommerce operations in this analysis. Coupang Eats, Play, Farfetch, their Taiwan operations, or other possible new initiatives could become valuable in the future, giving potential Coupang investors several call options.

In short, Coupang continues to execute superbly and we will let Bom Kim have the last word.

We named our research firm Speedwell after the ship that helped ferry passengers to the Mayflower. The idea is that we want to help you get into the position to take the journey, but ultimately, we are not going to go with you. There should be no illusions—you are on your own with the decisions you make. It is an investors job to judge for themselves whether they believe the potential for profits are worth the potential risks that could materialize.

*At the time of this writing, one or more contributors to this report has a position in CPNG. Furthermore, accounts one or more contributors advise on may also have a position in CPNG. This may change without notice.