(Speedwell Members can download a PDF of this post here)
1Q25 Financials.
Net revenues were +11% or +21% y/y on a FX-neutral basis.
Gross profit margins improved y/y +217bps to 29.3%. In total gross profits grew +20% y/y or +31% y/y on a FX-neutral basis. As the accounting treatment between 1P and 3P distorts revenues, it makes more sense to focus on gross profits as a barometer of economic activity.
If we look at just product commerce segment revenues, they only grew +16% y/y on an FX adjusted basis, however gross profits were up +31% y/y when adjusted for FX. This difference is because of the emphasis on 3rd party merchants with increased adoption of FLC (their fulfillment service). As sales shift to 3P, the revenue recorded from those sales fall, but the gross profit dollars are generally unchanged.
Total Adjusted EBITDA margin was 4.8%, +88bps y/y. Product commerce segment EBITDA was up a similar amount y/y, driving them to reach 8% segment margins for the Q. As a reminder, their long term guidance is to reach 10%+ adjusted EBITDA margins.
TTM operating cash flow of $2bn was depressed by positive working capital dynamics in the comp period that rolled off and a ~$170mn developing offerings loss. TTM capex was $1bn, bringing FCF to ~$1bn.
They also announced their first stock repurchase program with $1bn authorized. Below you’ll find our call notes, business commentary, and then updated valuation.
Call Notes.
Selection
- Focused on adding more of the selection customers want on Rocket across all price points in both established and newer categories.
- In Beauty they onboarded brands such as Kiehl’s, Dolce & Gabbana and Jo Malone. This is in addition to other popular brands they’ve welcomed across many other categories, including Swarovski, Converse, Wedgwood, Royal Copenhagen and Nespresso. This selection in expansion is driving strong engagement from customers—they saw the number of customers purchasing in 9 or more categories grow over 25% this quarter.
FLC
- Saw strong momentum in FLC with sellers, selection and overall volumes all growing at multiples of our overall business.
- “While we still have much to do to optimize this offering, it has quickly become a tremendous growth engine for sellers who want to tap into the speed, convenience and efficiencies we offer. By handling storage, packing, shipping and even returns for our third-party merchants, FLC dramatically lowers the barriers to success for tens of thousands of small businesses”
Taiwan
- “Making significant progress in expanding our selection and forging direct relationships with suppliers, including brands.”
- This helped drive an expansion and selection of nearly 500% this quarter.
- Customers in Taiwan are responding. They’re coming back more frequently and spending more each time they visit.
- Launched our WOW membership program this quarter in Taiwan.
- This program drives higher levels of spend from WOW members.
- “Our continued investment in the market reflects our rising confidence in what we’re seeing on the ground, and we trust our shareholders will share that excitement”
- “Seeing strong growth there, both year-over-year and q/q. But we’d like for it to be much higher”
Farfetch
- “Farfetch is about bringing the world’s best assortment and experience in luxury to customers wherever they live around the world. We made significant progress over the past few quarters, streamlining both the operations and customer offerings that align with this strategy. And these changes are already yielding encouraging results.”
Eats
- “Eats is another area where this quarter, we continued to sustain the momentum that we saw throughout 2024. Our vision for Eats is simple, to wow customers with the best customer experience in food delivery by providing them with the broadest selection, great value and the fastest and most reliable delivery.”
- Eats’ performance continues to be very strong
- A lot of room for penetration to grow particularly outside of Seoul.
Tariffs
- “We have not experienced a meaningful impact on our business from recent global events. The underlying flow of inventory of our core business model is not highly susceptible to the recently announced tariffs on goods flowing into the U.S., and we have not observed a significant impact on our core consumer from recent events”
Business Commentary.
Coupang continues to execute strongly in their core business with simple things—like growing selection and FLC—supporting revenue growth. They noted that they added more brands this quarter and continue to work on forging direct relationships with suppliers. As we noted in our original research report, just adding more selection was sufficient to spawn more consumer purchasing—and that is exactly what we’ve seen. Relative to other growth vectors—like launching in new markets—this is sort of a high probability growth vector for further growth in spending per customer.
They noted that even their oldest cohort of customers continues to increase their spending. Active customers also grew to 23.4mn, +9% y/y and +0.6mn sequentially. Coupang continues to believe that the core commerce opportunity in Korea has far to go before they reach saturation. We estimate they are around just 10% of the total retail TAM (which they estimate at $500bn).
Notably missing from the results was any impact from tariffs or a macro slowdown. As their consumer’s are based in Korea, they are largely immune from the recently announced U.S. import tariffs. This could change with retaliatory tariffs (i.e. South Korea applying tariffs to imported US goods), but on the whole, it is unlikely that U.S-produced products are a very material portion of their sales.
On Taiwan, their only market they are focused on outside of South Korea, they noted that customers are coming back more frequently and spending more on each visit as they added +500% more selection. A WOW membership program was also launched in March, which can increase order frequency and total spend, just as was observed in South Korea.
Bom Kim noted that “our continued investment in the market reflects our rising confidence in what we’re seeing on the ground”. If Taiwan continues to see momentum, shareholders should prepare themselves for increased capex investments, much like we saw in South Korea as they built out their fulfillment footprint to execute on 7 hour delivery across millions of items.
Other offerings like Eats and Farfetch management seems equally positive on, noting “sustained momentum” in Eats and “encouraging results” with Farfetch. The Eats offering they are using to drive more WOW memberships and reduce churn. Farfetch in contrast seems to be their first foray into an offering that is not directly tied to the Coupang ecosystem.
In short, it was another strong quarter of results and execution. The question is though, what is priced in? To answer that we move to our valuation and reverse DCF.
Valuation.
YTD the stock is +19%, including a strong +10% after hours move (QQQ is -5% over the same period). We re-ran our DCF below for the higher stock price.
Note that when we calculate enterprise value, we include the value of operating leases, which is the source of most of their debt. Even including that, they have net cash of $2.6bn. This quarter they announced their first buyback authorization at $1bn.
Before moving into the Reverse DCF, at a high level we can see that they currently generate $2.1bn 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 37x earnings, excluding losses. However, achieving the low end of their 10% EBITDA margin guidance, would drop this figure to 28x. This valuation assumes that their Developing Offerings are loss neutral. At this mature margin valuation, it would only take about 1.5 years of growth at their current trajectory for Coupang to trade at a market multiple.
Now moving onto the Reverse DCF. 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 17% higher, or at ~$44bn. (As we get further from 2023, where we could estimate GMV with a relatively high degree of confidence, this calculation will get harder to do. We will have to find a new method to estimate GMV in the future). Also, remember, we have now converted to USD and the growth rates in dollars are lower than their FX-neutral growth rate. Overtime this shouldn’t be the case though.
We then apply the growth rates below to our GMV estimates. Getting a clean GMV growth rate is also tricky as revenue growth is weighed down by the emphasis on 3P over 1P lately. We can look at gross profit, but that will also be capturing operating leverage. Nevertheless, 1Q25 gross profits were growing +20% y/y (and +31% y/y on a FXN basis), so there is some basis to gravitate toward the higher growth scenarios.
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 material sources of shareholder value in the future, giving potential Coupang investors several call options.
It is an investor’s job to judge for themselves whether they believe the potential for profits are worth the potential risks that could materialize. 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.
*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.