COUPANG, INC.
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our consolidated financial
statements and related notes appearing elsewhere in this Annual Report on Form
10-K ("Form 10-K"). This discussion, particularly information with respect to
our future results of operations or financial condition, business strategy and
plans, and objectives of management for future operations, includes
forward-looking statements that involve risks and uncertainties as described
under the heading "Special Note Regarding Forward-Looking Statements" in this
Form 10-K. You should review the disclosure in Part I-Item 1A. "Risk Factors" in
this Form 10-K for a discussion of important factors that could cause our actual
results to differ materially from those anticipated in these forward-looking
statements.
Overview
We are a leading e-commerce player in Korea . We believe that we are the
preeminent online destination in the market because of our broad selection, low
prices, and exceptional convenience across our owned inventory selection as well
as products offered by third-party merchants. Our unique end-to-end fulfillment,
logistics, and technology network enables Rocket Delivery, which provides free,
next-day delivery for orders placed anytime of the day, even seconds before
midnight-across millions of products. Our structural advantages from complete
end-to-end integration, investments in technology, and scale economies generate
higher efficiencies that allow us to pass savings to customers in the form of
lower prices. The capabilities we have built provide us with opportunities to
expand into other offerings and geographies.
We believe the true measure of our success will be shareholder value created
over the long term. Our long-term investments in building a differentiated
technology-orchestrated network and customer-facing functionality have helped
build a business that we expect will deliver significant growth and cash flows
at scale. We have in turn reinvested to expand into new offerings successfully,
such as with our owned-inventory selection, Rocket WOW membership, Rocket Fresh ,
and Coupang Eats , among others. We will continue to reinvest cash flows
generated by our established offerings into new initiatives and innovations for
our customers. We plan to invest and maximize value for customers and
shareholders in the long term over optimizing our short-term results.
Initial Public Offering
OnMarch 15, 2021 , we completed our IPO in which we issued and sold 100,000,000 shares of our Class A common stock at an IPO price of$35.00 per share. We received net proceeds of$3.4 billion after deducting underwriting discounts of$69 million and other offering costs. Immediately prior to effectiveness of the Company's IPO registration statement on Form S-1,Coupang, LLC , aDelaware limited liability company, converted into aDelaware corporation pursuant to a statutory conversion, which changed our name toCoupang, Inc. ("Corporate Conversion"). As a result of the Corporate Conversion and IPO, our redeemable convertible preferred units ("preferred units") and common units (which included common units designated as profits interests ("PIUs")), in each case, automatically converted into an equal number of shares of Class A or Class B common stock, except with respect to a conversion adjustment to certain PIUs, which reduced the outstanding common units designated as PIUs that converted into the shares of Class A common stock. Also, our convertible notes were automatically converted into 171,750,446 shares of our Class A common stock. For additional information related to the Corporate Conversion and IPO, see Note 11 - "Redeemable Convertible Preferred Units and Stockholders'/Members' Equity (Deficit)" and Note 9 - "Convertible Notes and Derivative Instrument" in Part II, Item 8 - "Financial Statements and Supplementary Data" in our consolidated financial statements. Fulfillment Center Fire OnJune 17, 2021 , a fire extensively damaged the Company's Deokpyeong fulfillment center (the "FC Fire") resulting in a loss of the inventory, building, equipment, and other assets at the site. Inventory and property and equipment losses from the FC Fire of$158 million and$127 million were recognized in "Cost of sales" and "Operating, general and administrative", respectively, during the second quarter of 2021. The Company is insured on property losses from the FC Fire, however, whether and to what extent the Company may recover insurance proceeds on these losses is currently unknown, and as such, no insurance recoveries have been recognized. During the second quarter of 2021, the Company also incurred or accrued other costs directly related to the FC Fire of$11 million . The FC Fire resulted in an increase to our net loss of$296 million for the year endedDecember 31, 2021 . 50
--------------------------------------------------------------------------------
Table of Contents
Key Financial and Operating Highlights:
Year Ended December
31,
(in thousands) 2021 2020 % Change
Total net revenues $ 18,406,372 $ 11,967,339 54 %
Total net revenues, constant currency(1) $ 17,850,617 $ 12,115,179 49 %
Gross profit(2) $ 2,951,128 $ 1,986,237 49 %
Net loss(4) $ (1,542,590) $ (463,157) NM(3)
Net loss margin (8.4) % (3.9) %
Adjusted EBITDA(1) $ (747,636) $ (357,144) 109 %
Adjusted EBITDA margin(1) (4.1) % (3.0) %
Net cash (used in) provided by operating
activities $ (410,578) $ 301,554 NM(3)
Free cash flow(1) $ (1,082,377) $ (182,569) NM(3)
_____________
(1)Total net revenues, constant currency; total net revenues growth, constant
currency; adjusted EBITDA; adjusted EBITDA margin; and free cash flow are
non-GAAP measures. See "Non-GAAP Financial Measures and Reconciliations" below
for the reconciliation of the Non-GAAP measures with their comparable amounts
prepared in accordance with accounting principles generally accepted in the
United States of America ("U.S. GAAP").
(2)Gross profit is calculated as total net revenues minus cost of sales, and for
the year ended December 31, 2021 includes $158 million related to inventory
losses from the FC Fire.
(3)Non-meaningful.
(4)Net loss for the year ended December 31, 2021 includes $296 million in losses
recognized during the second quarter of 2021 related to the FC Fire.
Key Business Metrics and Non-GAAP Financial Measures
We review the key business and financial metrics discussed below. We use these measures to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans, and make strategic decisions.
Key Business Metrics
Three Months Ended December 31,
(in thousands, except net revenues per Active
Customer) 2021 2020 2019
Active Customers 17,936 14,850 11,791
Total net revenues per Active Customer $ 283 $ 256 $ 161
Active Customers
As of the last date of each reported period, we determine our number of Active
Customers by counting the total number of individual customers who have ordered
at least once directly from our apps or websites during the relevant period. A
customer is anyone who has created an account on our apps or websites,
identified by a unique email address. The change in Active Customers in a
reported period captures both the inflow of new customers as well as the outflow
of existing customers who have not made a purchase in the period. We view the
number of Active Customers as a key indicator of our potential for growth in
total net revenues, the reach of our network, the awareness of our brand, and
the engagement of our customers.
Net Revenues per Active Customer
Net revenues per Active Customer is the total net revenues generated in a period
divided by the total number of Active Customers in that period. A key driver of
growth is increasing the frequency and the level of spend of Active Customers
who are shopping on our apps or websites. We therefore view net revenues per
Active Customer as a key indicator of engagement and retention of our customers
and our success in increasing the share of wallet.
51--------------------------------------------------------------------------------
Table of Contents
Non-GAAP Financial Measures and Reconciliations
We report our financial results in accordance withU.S. GAAP. However, management believes that certain non-GAAP financial measures provide investors with additional useful information in evaluating our performance. These non-GAAP financial measures may be different than similarly titled measures used by other companies. Our non-GAAP financial measures should not be considered in isolation from, or as substitutes for, financial information prepared in accordance withU.S. GAAP. Non-GAAP measures have limitations in that they do not reflect all the amounts associated with our results of operations as determined in accordance withU.S. GAAP. These measures should only be used to evaluate our results of operations in conjunction with the correspondingU.S. GAAP measures.
Free Cash Flow
Free cash flow is defined as cash flow from operations less purchases of property and equipment, plus proceeds from sale of property and equipment. We believe that free cash flow is an additional and useful indicator of liquidity that provides information to management and investors about the amount of cash generated from our core operations that, after purchases and sales of property and equipment, can be used for strategic initiatives, including investing in our business and strengthening our balance sheet. Free cash flow has limitations as an analytical tool and should not be considered in isolation or as substitutes for analysis of otherU.S. GAAP financial measures, such as net cash provided by operating activities. A limitation of free cash flow is that it may be calculated differently by other companies in our industry, limiting its usefulness as a comparative measure. We expect our free cash flow to fluctuate in future periods as we invest in our business to support our plans for growth.
Adjusted EBITDA and Adjusted EBITDA Margin
During the first quarter of 2021, we began using adjusted EBITDA and adjusted EBITDA margin as non-GAAP financial measures. Adjusted EBITDA is defined as net income/(loss) for a period before depreciation and amortization, interest expense, interest income, income tax expense (benefit), other income (expense), net, equity-based compensation, impairments, and other items that we do not believe are reflective of our ongoing operations. Adjusted EBITDA margin is defined as adjusted EBITDA as a percentage of total net revenues. We use adjusted EBITDA and adjusted EBITDA margin as key measures to evaluate and assess our performance and allocate internal resources. We believe adjusted EBITDA and adjusted EBITDA margin are frequently used by investors and other interested parties in evaluating companies in the e-commerce industry for period-to-period comparisons as they remove the impact of certain items that are not representative of our core business, such as material non-cash items and certain variable charges. However, other companies may calculate adjusted EBITDA and adjusted EBITDA margin in a manner different from ours and therefore they may not be directly comparable to similar terms used by other companies. Adjusted EBITDA and adjusted EBITDA margin are not measures of financial performance underU.S. GAAP and should not be considered as alternatives to cash flow from operating activities or as measures of liquidity or alternatives to net income/(loss) as indicators of operating performance or any other measures of performance derived in accordance withU.S. GAAP. Adjusted EBITDA and adjusted EBITDA margin have limitations as analytical tools, and you should consider them in addition to, and not in isolation or as substitutes, for analysis of our results as reported underU.S. GAAP.
Constant Currency Revenue and Constant Currency Revenue Growth
The effect of currency exchange rates on our business is an important factor in understanding period-to-period comparisons. Our financial reporting currency is theU.S. dollar ("USD") and changes in foreign exchange rates can significantly affect our reported results and consolidated trends. For example, our business generates sales predominantly in Korean Won ("KRW"), which are favorably affected as the USD weakens relative to the KRW, and unfavorably affected as the USD strengthens relative to the KRW. We use constant currency revenue and constant currency revenue growth for financial and operational decision-making and as a means to evaluate comparisons between periods. We believe the presentation of our results on a constant currency basis in addition toU.S. GAAP results helps improve the ability to understand our performance because they exclude the effects of foreign currency volatility that are not indicative of our actual results of operations. Constant currency information compares results between periods as if exchange rates had remained constant. We define constant currency revenue as total revenue excluding the effect of foreign exchange rate movements, and use it to determine the constant currency revenue growth on a comparative basis. Constant currency revenue is calculated by translating current period revenues using the prior period exchange rate. Constant currency revenue growth (as a percentage) is calculated by determining the increase in current period revenue over prior period revenue, where current period foreign currency revenue is translated using prior period exchange rates. 52
--------------------------------------------------------------------------------
Table of Contents
These results should be considered in addition to, not as a substitute for, results reported in accordance withU.S. GAAP. Results on a constant currency basis, as we present them, may not be comparable to similarly titled measures used by other companies and are not a measure of performance presented in accordance withU.S. GAAP.
The following tables present the reconciliations from each
Free Cash Flow
Year Ended December 31,
(in thousands) 2021 2020 2019
Net cash (used in) provided by operating $ (410,578) $ 301,554 $ (311,843)
activities
Adjustments:
Purchases of property and equipment (673,663) (484,630) (217,823)
Proceeds from sale of property and equipment 1,864 507 3,543
Free cash flow $ (1,082,377) $ (182,569) $ (526,123)
Net cash used in investing activities $ (675,525) $
(520,654)
Adjusted EBITDA and Adjusted EBITDA Margin
Year Ended December 31,
(in thousands) 2021 2020 2019
Total net revenues $ 18,406,372 $ 11,967,339 $ 6,273,263
Net loss (1,542,590) (463,157) (696,885)
Net loss margin (8.4) % (3.9) % (11.1) %
Adjustments:
Depreciation and amortization 201,480 127,519 70,908
Interest expense 45,358 107,762 96,907
Interest income (8,645) (10,991) (19,135)
Income tax expense 1,002 292 (241)
Other (income) expense, net 10,913 (149,900) (22,569)
Equity-based compensation 249,345 31,331 20,823
FC Fire Losses 295,501 - -
Adjusted EBITDA $ (747,636) $ (357,144) $ (550,192)
Adjusted EBITDA margin (4.1) % (3.0) % (8.8) %
Constant Currency Revenue and Constant Currency Revenue Growth
Year Ended December 31,
(in thousands) 2021 2020 2019
Total net revenues $ 18,406,372 $ 11,967,339 $ 6,273,263
Total net revenues growth 54 % 91 % 55 %
Adjustment:
Exchange rate effect (555,755) 147,840 372,587 Total net revenues, constant currency$ 17,850,617 $ 12,115,179 $ 6,645,850 Total net revenues growth, constant currency 49 % 93 % 64 % 53
--------------------------------------------------------------------------------
Table of Contents
Year Ended December 31,
(in thousands) 2021 2020 2019
Net retail sales $ 16,487,975 $ 11,045,096 $ 5,787,090
Net retail sales growth 49 % 91 % 52 %
Exchange rate effect (497,832) 136,447 343,712
Net retail sales, constant currency $ 15,990,143 $ 11,181,543 $ 6,130,802
Net retail sales growth, constant currency 45 % 93 % 61 %
Net other revenue $ 1,918,397 $ 922,243 $ 486,173
Net other revenue growth 108 % 90 % 91 %
Exchange rate effect (57,923) 11,393 28,875
Net other revenue, constant currency $ 1,860,474 $ 933,636 $ 515,048
Net other revenue growth, constant currency 102 % 92 % 102 %
Impact of COVID-19
The COVID-19 pandemic and resulting global disruptions have affected our
business, as well as those of our customers, merchants, and suppliers. To serve
our customers while also providing for the safety of our employees, we have
adapted numerous aspects of our logistics and infrastructure, transportation,
supply chain, purchasing, and third-party merchant processes. We also made
numerous process updates across our operations and adapted our fulfillment and
delivery infrastructure to implement additional employee and customer safety
measures. We have experienced and may continue to experience a net positive
impact on our sales and consumer demand for our products and services following
changes in consumer purchasing behavior and the implementation of governmental
orders to mitigate the spread of COVID-19.
The global impact of COVID-19 continues to rapidly evolve, and we will continue
to monitor the situation and the effects on our business and operations closely.
Further, we do not yet know the full extent of potential impacts of the pandemic
on our business or operations, including the impact of any future developments
related to the duration and scope of the pandemic, any ongoing effects on
consumer demand and spending patterns, ongoing logistics and fulfillment related
labor constraints and costs including costs to attract and retain employees, or
other impacts as a result of the pandemic, and whether these or other currently
unanticipated consequences of the pandemic are reasonably likely to materially
affect our results of operations, cash flows, or financial condition. These
drivers make it challenging to reasonably quantify the direct impact the
pandemic has had, or may have in the future, on our business versus those
impacts that may have been, or may be, indirectly related to the pandemic. For
additional details, refer to Part I-Item 1A. "Risk Factors" contained elsewhere
in this Form 10-K.
Components of Results of Operations
Total Net Revenues
We categorize our revenue as (1) net retail sales and (2) net other revenue.
Total net revenues incorporate reductions for estimated returns, promotional
discounts, and earned loyalty rewards and exclude amounts collected on behalf of
third parties, such as value added taxes. We periodically provide customers with
promotional discounts to retail prices, such as percentage discounts and other
similar offers, to incentivize increased customer spending and loyalty. These
promotional discounts are discretionary and are reflected as reductions to the
selling price and revenue recognized on each corresponding transaction. Loyalty
rewards are offered as part of revenue transactions to all retail customers,
whereby rewards are earned as a percentage of each purchase, for the customer to
apply towards the purchase price of a future transaction. We defer a portion of
revenue from each originating transaction, based on the estimated standalone
selling price of the loyalty reward earned, and then recognize the revenue as
the loyalty reward is redeemed in a future transaction, or when they expire. The
amount of the deferred revenue related to these loyalty rewards is not material.
Net retail sales represent the majority of our total net revenues which we earn
from online product sales of our owned inventory to customers. Net other revenue
includes revenue from commissions earned from merchants that sell their products
through our apps or websites. We are not the merchant of record in these
transactions, nor do we take possession of the related inventory.
54--------------------------------------------------------------------------------
Table of Contents
Net other revenue also includes consideration from online restaurant ordering and delivery services performed by us, as well as advertising services provided on our apps or websites. We also earn subscription revenue from memberships to our Rocket WOW membership program, which provides customers with access to benefits such as access toRocket Fresh , no minimum spend for Rocket Delivery, free shipping on returns, and access to Coupang Play content streaming, which is also included in net other revenue.
Cost of Sales
Cost of sales primarily consists of the purchase price of products sold directly to customers where we record revenue gross, and includes logistics costs. Inbound shipping and handling costs to receive products from suppliers are included in inventory and recognized in cost of sales as products are sold. Additionally, cost of sales includes outbound shipping and logistics related expenses, delivery service costs from our restaurant delivery business, and depreciation and amortization expense.
Operating, General and Administrative Expenses
Operating, general and administrative expenses include all our operating costs excluding cost of sales, as described above. More specifically, these expenses include costs incurred in operating and staffing our fulfillment centers (including costs attributed to receiving, inspecting, picking, packaging, and preparing customer orders), customer service related costs, payment processing fees, costs related to the design, execution, and maintenance of our technology infrastructure and online offerings, advertising costs, general corporate function costs, and depreciation and amortization expense.
Interest Expense
Interest expense primarily consists of interest on our short-term borrowings and long-term debt, our convertible notes issued in our 2018 convertible note financing, and finance lease liabilities.
Other (Expense) Income, net
Other (expense) income, net consists primarily of changes in fair value recorded on the derivative instrument and foreign currency gains and losses.
Income Tax Expense
We are subject to income taxes predominantly inKorea , as well as inthe United States and other foreign jurisdictions in which we do business. Foreign jurisdictions have different statutory tax rates than those inthe United States . Additionally, certain of our foreign earnings may also be taxable inthe United States . Accordingly, our effective tax rate is subject to significant variation and can vary based on the amount of pre-tax income or loss. For example, the impact of discrete items and non-deductible expenses on our effective tax rate is greater when our pre-tax income is lower. We have a valuation allowance for our net deferred tax assets, including federal and state net operating loss carryforwards, and tax credits. We expect to maintain these valuation allowances until it becomes more likely than not that the benefit of our deferred tax assets will be realized by way of expected future taxable income inKorea andthe United States . 55
--------------------------------------------------------------------------------
Table of Contents
Results of Operations
Year Ended December 31,
(in thousands) 2021 2020 2019
Net retail sales $ 16,487,975 $ 11,045,096 $ 5,787,090
Net other revenue 1,918,397 922,243 486,173
Total net revenues 18,406,372 11,967,339 6,273,263
Cost of sales 15,455,244 9,981,102 5,240,041Operating, general and administrative 4,445,090 2,502,231
1,675,145
Total operating cost and expenses 19,900,334 12,483,333 6,915,186 Operating loss (1,493,962) (515,994) (641,923) Interest income 8,645 10,991 19,135 Interest expense (45,358) (107,762) (96,907) Other (expense) income, net (10,913) 149,900 22,569 Loss before income taxes (1,541,588) (462,865) (697,126) Income tax expense (benefit) 1,002 292 (241) Net loss$ (1,542,590) $ (463,157) $ (696,885)
Year Ended
Net Retail Sales
Net retail sales increased$5.4 billion or 49% (45% on a constant currency basis) for the year endedDecember 31, 2021 , when compared to the prior year. The increase was primarily due to a 15% growth in our Active Customers in 2021, as well as 30% growth (26% on a constant currency basis) in our net retail sales per Active Customer during that same period, driven by increased customer engagement across more product categories. In addition, the growth in net retail sales for the year endedDecember 31, 2021 was impacted by the comparison to the year endedDecember 31, 2020 , which benefited from an elevated increase in sales due to COVID-19 related changes in consumer behavior.
Net Other Revenue
Net other revenue for the year endedDecember 31, 2021 increased$996 million or 108% (102% on a constant currency basis) compared to the prior year. The increase was primarily due to a 15% growth in our Active Customers in 2021, as well as 81% growth (75% on a constant currency basis) in our net other revenue per Active Customer during that same period, driven by the continued expansion of newer offerings and increased merchants and related product selection on our marketplace. Cost of Sales Cost of sales for the year endedDecember 31, 2021 increased$5.5 billion or 55% compared to the prior year. The increase was attributable to increased product and logistics costs resulting from increased sales and customer demand as well as$158 million in inventory losses related to the FC Fire. Cost of sales as a percentage of revenue increased from 83.4% for the year endedDecember 31, 2020 to 84.0% for the year endedDecember 31, 2021 primarily due to costs related to the FC Fire and higher labor and operations costs, partially offset by a shift to higher margin revenue categories. The portion of the FC Fire loss that was recorded within cost of sales as a percentage of revenue was 0.9% for the year endedDecember 31, 2021 .
Operating, General and Administrative Expenses
Operating, general and administrative expenses for the year endedDecember 31, 2021 increased$1.9 billion or 78%, compared to the prior year. The increase primarily reflects higher employee costs, to support growth and expansion of newer initiatives, increased advertising expenses following a significant decline in the prior year due to the initial impacts of COVID-19, higher stock compensation of$208 million related to a cumulative catch-up adjustment for awards that vested upon the completion of our IPO and additional grants in the current year reflecting a higher fair value over the previous period, as well as property, equipment and other losses of$138 million recognized related to the FC Fire. These expenses as a percentage of revenue increased from 20.9% for the year endedDecember 31, 2020 to 24.1% for the year endedDecember 31, 2021 primarily related to higher employee costs, advertising expense, and impact from the FC Fire. 56
--------------------------------------------------------------------------------
Table of Contents Interest Expense Interest expense for the year endedDecember 31, 2021 decreased$62 million or (58)% compared to the prior year period. The decrease was primarily attributable to the conversion of our convertible notes into shares of our Class A common stock as a result of the Corporate Conversion and IPO during the first quarter of 2021. Other (Expense) Income, Net
Other (expense) income, net for the year ended
Year Ended
Net Retail Sales
Net retail sales for the year endedDecember 31, 2020 increased$5.3 billion , or 91% (93% on a constant currency basis), as compared to the year endedDecember 31, 2019 . The increase was primarily due to a 18% growth in our Active Customers in 2020, as well as 62% growth (64% on a constant currency basis) in our net retail sales per Active Customer during that same period, driven by a continual increase in product selection and additional offerings provided to our customers. Also impacting the increase in net retail sales was changes in consumer behavior in response to the COVID-19 pandemic.
Net Other Revenue
Net other revenue for the year endedDecember 31, 2020 increased$436 million , or 90% (92% on a constant currency basis), as compared to the year endedDecember 31, 2019 . The increase was primarily due to the 18% growth in our Active Customers in 2020, as well as a 61% growth (63% on a constant currency basis) in our net other revenue per Active Customer during that same period, driven by an increase in merchants on our marketplace, and related offerings and product selection. Also impacting the increase in net other revenue was changes in consumer behavior in response to the COVID-19 pandemic.
Cost of Sales
Cost of sales for the year endedDecember 31, 2020 increased$4.7 billion , or 91%, as compared to the year endedDecember 31, 2019 . The increase was attributable to increased product and logistics costs resulting from increased sales. Cost of sales as a percentage of revenue slightly improved from 83.5% in 2019 to 83.4% in 2020, primarily due to efficiencies of scale in our supply chain and direct sourcing from manufacturers, offset by additional COVID-19 related expenses in our logistics network and product costs.
Operating, General and Administrative Expenses
Operating, general and administrative expenses for the year endedDecember 31, 2020 increased$827 million , or 49%, as compared to the year endedDecember 31, 2019 . The increase was primarily due to an increase in fulfillment center capacity, technology infrastructure and general corporate costs to support our overall growth, as well as additional expenses associated with the COVID-19 pandemic and related safety measures. These expenses as a percentage of revenue decreased from 26.7% in 2019 to 20.9% in 2020, due primarily to our ability to continue to generate leverage from the scale of our growing operations, and lower spending on advertising as a result of the COVID-19 pandemic.
Interest Expense
Interest expense for the year endedDecember 31, 2020 increased$11 million , or 11%, as compared to the year endedDecember 31, 2019 . The increase was primarily attributable to an increase in interest expense on our convertible notes due to compounding paid-in-kind interest at higher average rates during 2020.
Other (Expense) Income, Net
Other (expense) income, net for the year endedDecember 31, 2020 increased$127 million , or 564%, as compared to the year endedDecember 31, 2019 . The increase was primarily due to a gain of$150 million from a change in the value of our derivative instrument for the year endedDecember 31, 2020 compared with a$(37) million loss for the year endedDecember 31, 2019 . Offsetting the increase from the change in derivative values was a$(21) million decrease in foreign currency gains and a$36 million gain on forward sale contracts that occurred in 2019. 57
--------------------------------------------------------------------------------
Table of Contents
Quarterly Results of Operations
The following table presents our unaudited selected consolidated quarterly results of operations for the eight quarters endedDecember 31, 2021 . These unaudited selected consolidated quarterly results of operations have been prepared on the same basis as our audited consolidated financial statements included elsewhere in this Form 10-K. The operating results for any quarter are not necessarily indicative of results for any future period. Our business is affected by seasonality, which historically has resulted in higher sales volume during our fourth quarter. The quarterly results were as follows: Three Months Ended (in thousands, except for per share September 30, December 31, amounts) March 31, 2021 June 30, 2021 2021 2021 Total net revenues$ 4,206,860 $ 4,478,114 $ 4,644,705 $ 5,076,693 Cost of sales 3,474,354 3,819,620 3,890,178 4,271,092 Operating, general and administrative 999,822 1,173,430 1,069,639 1,202,199 Total operating cost and expenses 4,474,176 4,993,050 4,959,817 5,473,291 Operating loss (267,316) (514,936) (315,112) (396,598) Loss before income taxes (295,025) (518,504) (323,911) (404,148) Income tax expense 8 97 66 831 Net loss (295,033) (518,601) (323,977) (404,979) Net loss attributable to Class A and Class B common stockholders$ (295,033) $
(518,601)
Net loss attributable to Class A and Class B common stockholders per share, basic and diluted $ (0.68)$ (0.30) $ (0.19) $ (0.23) Weighted-average number of Class A and Class B common shares outstanding used in computing per share amounts, basic and diluted 434,917 1,743,109 1,747,255 1,752,238 Three Months Ended (in thousands, except for per share September 30, December 31, amounts) March 31, 2020 June 30, 2020 2020 2020 Total net revenues$ 2,413,259 $ 2,614,080 $ 3,136,507 $ 3,803,493 Cost of sales(1) 1,982,964 2,174,345 2,669,552 3,154,241 Operating, general and administrative(1) 503,932 534,953 683,192 780,154 Total operating cost and expenses 2,486,896 2,709,298 3,352,744 3,934,395 Operating loss (73,637) (95,218) (216,237) (130,902) Loss before income taxes (105,230) (101,966) (172,978) (82,691) Income tax expense 123 84 21 64 Net loss (105,353) (102,050) (172,999) (82,755) Net loss attributable to Class A and Class B common stockholders$ (140,224) $
(159,913)
Net loss attributable to Class A and Class B common stockholders per share, basic and diluted(2) $ (5.74)$ (5.81) $ (5.91) $ (2.38) Weighted-average number of Class A and Class B common shares outstanding used in computing per share amounts, basic and diluted(2) 24,409 27,539 29,284 34,749 ____________
(1)During the first quarter of 2021, the Company changed its policy for recognizing equity-based compensation expense from the graded vesting attribution method of accounting to the straight-line attribution method of accounting for its equity-based compensation arrangements with service only vesting conditions. Comparative financial statements for prior periods have been adjusted to apply the
58
--------------------------------------------------------------------------------
Table of Contents
straight-line attribution method retrospectively. Refer to Note 2 - "Change in Accounting Principle" in Part II, Item 8 - "Financial Statements and Supplementary Data" for further information on this change in accounting policy.
(2)As reported net loss per share for prior periods reflect the retrospective adjustments from the Corporate Conversion described in Note 15 - "Net Loss per Share" in Part II, Item 8 - "Financial Statements and Supplementary Data."
Liquidity and Capital Resources
Liquidity
As ofDecember 31, 2021 and 2020, we had stockholders' equity and members' (deficit) of$2.2 billion and$(4.1) billion , respectively. We anticipate that we will continue to incur losses for the next few years. We expect that our investment into our growth strategy will continue to be significant, including with respect to the expansion of our fulfillment, logistics, and technology capabilities. As part of this expansion to fulfill anticipated future customer demand and continuation to expand services, we plan to build several new fulfillment centers. We have entered into various new construction contracts for capital projects which are expected to be completed over the next three years. These contracts have remaining capital expenditures commitments of$514 million as ofDecember 31, 2021 . We expect that our future expenditures for both infrastructure and workforce-related costs will exceed several billion dollars over the next several years. Our primary sources of liquidity are cash on hand, supplemented through various debt financing arrangements and sales of our equity securities. We had total cash and cash equivalents and restricted cash of$3.8 billion as ofDecember 31, 2021 , compared to$1.4 billion as ofDecember 31, 2020 . Additionally, the Company has$1.0 billion available under its new revolving credit facility as described below. During the first quarter of 2021, we completed our IPO, in which we issued and sold 100,000,000 shares of our Class A common stock at a price of$35.00 per share. We received net proceeds of approximately$3.4 billion from the IPO after deducting underwriting discounts of$69 million and other offering costs. Year Ended December 31, (in thousands) 2021 2020 2019 Net cash (used in) provided by operating activities $
(410,578)
(675,525) (520,654) (218,224)
Net cash provided by financing activities 3,576,850 178,502 1,184,104
Effect of exchange rate changes on cash and cash
equivalents and restricted cash (81,702) 70,365 (22,412)
Net increase in cash and cash equivalents, and
restricted cash $ 2,409,045 $ 1,401,302
$ 3,810,347
Year Ended
Operating Activities
Our net cash used in operating activities was$(411) million for the year endedDecember 31, 2021 , representing a change of$(712) million , compared to$302 million of net cash from operations for the year endedDecember 31, 2020 . The change in operating cash flow was primarily driven by a$(452) million reduction in cash flows due to changes in operating assets and liabilities, consisting of increases in accounts receivable and investments in inventory of$(116) million and$(24) million , respectively, as a result of higher sales volume and expanded available selection for customers, and a decrease in other liabilities and accounts payable of$(108) million and$(337) million , respectively, offset by an increase in accrued expenses of$156 million from the timing of payments for operating lease liabilities, payables and accrued expenses. Also contributing to the increase in cash used in operating activities was a$(1.1) billion increase in net loss partially offset by a$820 million increase in our non-cash expenses contributing to the net loss for the year endedDecember 31, 2021 .
Investing Activities
Our net cash used in investing activities was$(676) million for the year endedDecember 31, 2021 , representing an increase of$155 million , or 30%, as compared to$(521) million used in investing activities for the year endedDecember 31, 2020 . This increase was mainly driven by a$189 million increase in purchases of property and equipment, primarily related to our fulfillment 59
--------------------------------------------------------------------------------
Table of Contents
and logistics infrastructure, including increased purchases of building and land, as well as higher investments in technology equipment and capabilities. For the year endedDecember 31, 2021 , purchases of land and buildings comprised$215 million of the$674 million in total purchases of property and equipment. For the year endedDecember 31, 2020 , purchases of land and buildings comprised$102 million of the$485 million in total purchases of property and equipment.
Financing Activities
Our net cash provided by financing activities for the year endedDecember 31, 2021 increased$3.4 billion , compared to the year endedDecember 31, 2020 . This increase was primarily driven by$3.4 billion of proceeds, net of underwriting discounts of$69 million and other offering costs, from the issuance of 100,000,000 shares of our Class A common stock upon the completion of our IPO, a$34 million increase in cash proceeds from the issuance of common stocks/units related to equity awards and$97 million in repurchases of common units and preferred units in the prior period, and a$147 million increase in proceeds from debt and short-term borrowings, net of issuance costs, partially offset by a$(297) million increase in repayments of debt and short-term borrowings.
Year Ended
Operating Activities
Our net cash provided by operating activities was$302 million for the year endedDecember 31, 2020 , representing an increase of$613 million , or 197%, as compared to$(312) million of cash used in operations for the year endedDecember 31, 2019 . The improvement in our operating cash flows was primarily driven by a$326 million increase from changes in operating assets and liabilities, primarily driven by a$649 million increase in accounts payable, partially offset by a$225 million increase in inventory and a$132 million increase in other assets to support the overall growth in our business. Also contributing to the improvements in the cash flow from operating activities was a$234 million decrease in net loss, due in large part to a 91% increase in total net revenues with a slightly improved cost of sales margin. In addition, there was a$54 million improvement in our operating cash flow from non-cash expenses affecting the net loss in 2020, mainly attributable to a$240 million increase in various non-cash related expenses, partially offset by a$(187) million change in the fair value of our derivative instrument.
Investing Activities
Our net cash used in investing activities was$(521) million for the year endedDecember 31, 2020 , representing an increase of$302 million , or 139%, as compared to$(218) million used in investing activities for the year endedDecember 31, 2019 . This increase was mainly driven by a$267 million increase in purchases of property and equipment. Our capital expenditures primarily related to investments in our fulfillment and logistics infrastructure, as well as technology equipment and capabilities.
Financing Activities
Our net cash provided by financing activities for the year endedDecember 31, 2020 decreased$1.0 billion , or (85)%, as compared to the year endedDecember 31, 2019 . This decrease was primarily driven by a$1.5 billion decrease in cash proceeds from the issuance of common units and preferred units, net of issuance costs, primarily from a$1.5 billion issuance of Class J preferred units in 2019, partially offset by a$310 million reduction in repayments of debt and short-term borrowing and a$155 million increase in proceeds from debt and short-term borrowings, net of issuance costs. We believe that our sources of liquidity will be sufficient to meet our anticipated cash requirements for at least the next 12 months. However, we may need additional cash resources in the future if we find and pursue opportunities for investment, acquisition, strategic cooperation, or other similar actions, which may include investing in technology, our logistics and fulfillment infrastructure, or related talent. If we determine that our cash requirements exceed our amounts of cash on hand or if we decide to further optimize our capital structure, we may seek to issue additional debt or equity securities or obtain credit facilities or other sources of financing. This financing may not be available on favorable terms, or at all.
Capital Resources
We have entered into material unconditional purchase obligations. These
contractual commitments primarily relate to technology related service
contracts, fulfillment center construction contracts and software licenses.
Refer to Note 10 - "Commitments and Contingencies"" in Part II, Item 8 -
"Financial Statements and Supplementary Data" for disclosure of our future
commitments. We generally enter into term loan facility agreements to finance
the construction of our fulfillment centers. These agreements may require that
we provide for collateral equal to or greater than the amount borrowed under the
arrangement. As we continue to build additional fulfillment centers, we expect
our borrowings under debt financing arrangements to continue to increase. The
Company also has material operating leases which expire over the next ten years.
Total minimum contractual
60
--------------------------------------------------------------------------------
Table of Contents
commitments due within the next 12 months were$991 million as ofDecember 31, 2021 . Additionally, we have open purchase orders for inventories that are primarily due in the next twelve months, and they are generally cancellable, in full or in part, through the contractual provisions.
Our short-term and long-term borrowings generally include lines of credit with financial institutions available to be drawn upon for general operating purposes.
The following debt arrangements were entered into since
Term Loan Facilities
DuringAugust 2021 , we entered into a new$169 million three-year term loan. We have pledged$202 million of certain land and buildings as collateral against the loan. The term loan bears interest at a fixed rate of 3.155%. InOctober 2021 , the Company entered into a new two-year loan agreement to borrow up to$139 million to finance the construction of a fulfillment center. The Company pledged up to$167 million of certain existing land and a building to be constructed as collateral. The loan bears interest at a fixed rate of 3.45%. InNovember 2021 , the Company entered into a new five-year term loan facility agreement to borrow up to$47 million to finance the construction of a fulfillment center and a new three-year term loan facility agreement to borrow up to$23 million for general operating purposes. The Company pledged up to$85 million of certain existing land and buildings. The loans bear interest at a fixed rate of 3.78% and 3.68%, respectively. InDecember 2021 , the Company entered into a new two-year loan agreement to borrow up to$152 million to finance the construction of a fulfillment center. The Company pledged up to$182 million of certain existing land and a building to be constructed as collateral. The loan bears interest at a fixed rate of 3.87%.
New Revolving Credit Facility
InFebruary 2021 , we entered into a new three-year senior unsecured credit facility (the "new revolving credit facility") providing for revolving loans in an aggregate principal amount of up to$475 million (which automatically increased to an aggregate principal amount of$950 million based on us receiving at least$2.0 billion in net proceeds from our IPO). The new revolving credit facility provides us the right to request incremental commitments up to$1.25 billion , subject to customary conditions. DuringMarch 2021 , the aggregate principal amount of our new revolving credit facility increased to$1.0 billion as a result of our IPO. As ofDecember 31, 2021 , there was no balance outstanding on the new revolving credit facility. Borrowings under the new revolving credit facility bear interest, at our option, at a rate per annum equal to (i) a base rate equal to the highest of (A) the prime rate, (B) the higher of the federal funds rate or a composite overnight bank borrowing rate plus 0.50%, or (C) an adjusted London interbank offered rate ("LIBOR") for a one-month interest period plus 1.00% or (ii) an adjusted LIBOR plus a margin equal to 1.00%. We are also required to pay other customary fees for a credit facility of this size and type, including letter of credit fees, an upfront fee, and an unused commitment fee. The new revolving credit facility contains a number of covenants that, among other things, restrict our ability to:
•incur or guarantee additional debt;
•make certain investments and acquisitions;
•make certain restricted payments and payments of certain indebtedness;
•incur certain liens or permit them to exist; and
•make fundamental changes and dispositions (including dispositions of the equity interests of subsidiary guarantors).
Each of these restrictions is subject to various exceptions.
The new revolving credit facility requires us to (i) maintain a ratio of secured indebtedness to total consolidated tangible assets of less than 35%, if we have$1 or more of revolving loans or any unreimbursed drawn letters of credit outstanding under the new revolving credit facility at the end of each fiscal quarter and (ii) maintain a minimum amount of liquidity of at least$625.0 million (or$312.5 million to the extent the aggregate commitment of the new revolving credit facility is$500 million ). 61
--------------------------------------------------------------------------------
Table of Contents
The new revolving credit facility is guaranteed on a senior unsecured basis by certain material restricted subsidiaries ofCoupang, Inc. (includingCoupang Corp. ), subject to customary exceptions. The new revolving credit facility also contains certain customary affirmative covenants and events of default for facilities of this type.
Refer to Note 8 - "Short-Term Borrowings and Long-Term Debt" in Part II, Item 8 - "Financial Statements and Supplementary Data" for disclosure of our debt obligations, collateral, and covenants.
Critical Accounting Policies and Estimates
We have identified the following accounting policies we believe as the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of our operations. The application of these policies requires significant and complex management estimates, assumptions, and judgment, and the reporting of materially different amounts could result if different estimates or assumptions were used or different judgments were made. See Note 1 - "Description of Business and Summary of Significant Accounting Policies" to our consolidated financial statements appearing elsewhere in in Part II, Item 8 of this Form 10-K for a description of our other significant accounting policies. The preparation of our consolidated financial statements in conformity withU.S. GAAP requires our management to make estimates and judgments that affect the amounts reported in those consolidated financial statements and accompanying notes. Although we believe that the estimates we use are reasonable, given the inherent uncertainty involved in making those estimates and due to the impact and unforeseen effects on the global economy from the COVID-19 pandemic, those estimates required increased judgment, and actual results reported in future periods could differ from those estimates and assumptions. Revenue Recognition Our revenue principally consists of retail sales earned from our online product sales to customers, commissions earned on transactions through our online business, consideration from online restaurant ordering and delivery services, third-party advertising, and subscription fees. Revenue represents the amount of expected consideration we are entitled to receive upon the transfer of promised goods or services in the ordinary course of our activities and is recorded net of estimated returns, promotional discounts, earned loyalty rewards, and value added taxes. Consistent with the criteria of Accounting Standards Codification ("ASC") Topic 606, Revenue from Contracts with Customers, we recognize revenue when performance obligations are satisfied by transferring control of a promised good or service to a customer. For performance obligations that are satisfied at a point in time, we also consider the following indicators to assess whether control of a promised good or service is transferred to the customer: (i) right to payment; (ii) legal title; (iii) physical possession; (iv) significant risks and rewards of ownership; and (v) acceptance of the good or service. For performance obligations satisfied over time, we recognize revenue over time by measuring the progress toward complete satisfaction of a performance obligation. The application of various accounting principles related to the measurement and recognition of revenue requires us to make judgments and estimates. Specifically, complex arrangements with non-standard terms and conditions may require relevant contract interpretation to determine the appropriate accounting treatment, including whether the promised goods and services specified in a multiple element arrangement should be treated as separate performance obligations. Other significant judgments include determining whether we are acting as the principal or the agent from an accounting perspective in a transaction. For revenue contracts with multiple performance obligations, the transaction price is allocated to each performance obligation using the relative stand-alone selling price. We primarily determined stand-alone selling prices based on the prices charged to customers. For certain arrangements, we apply significant judgment in determining whether we are acting as the principal or agent in a transaction. We are acting as the principal if we obtain control over the goods and services before they are transferred to customers. Generally, when we are primarily obligated in a transaction and are subject to inventory risk or have latitude in establishing prices, or have several but not all of these indicators, we act as the principal and record revenue on a gross basis. We act as the agent and record the net amount as revenue earned if we do not obtain control over the goods and services before they are transferred to the customers.
Inventories and Cost of Sales
We account for our inventories, which consist of products available for sale,
using the weighted average cost method, and value them at the lower of cost or
net realizable value. This valuation requires management judgments, based on
currently available information, about the likely method of disposition, such as
through sales to individual customers, returns to product suppliers, or
liquidations, and expected recoverable values of separate inventory categories.
If changes in market conditions result
62--------------------------------------------------------------------------------
Table of Contents
in reductions to the estimated net realizable value of our inventory, we would increase our valuation in the period in which we made such a determination.
Cost of sales primarily consist of the purchase price of products sold to customers where we record revenue gross, and include logistics center costs. We include inbound shipping and handling costs to receive products from suppliers in inventory and recognize them in cost of sales as products are sold. Additionally, cost of sales includes outbound shipping and logistics related expenses, and delivery service costs from our restaurant delivery business, primarily where we are the delivery service provider, and depreciation and amortization. We receive consideration from suppliers for various programs, including rebates, incentives, and discounts, as well as advertising services provided on our apps and websites. We generally record these amounts received from suppliers to be a reduction of the prices we pay for their goods, and a subsequent reduction in cost of sales as the inventory is sold.
Leases
We determine if an arrangement is a lease or contains a lease at inception. We
recognized lease liabilities based on the present value of the remaining lease
payments, discounted using the discount rate based on our incremental borrowing
rate ("IBR") or implicit rate (when available). The determination of the IBR
requires judgement. We primarily base the IBR for each lease on publicly
available information for companies within the same industry and with similar
credit profiles. We adjust the rate for the impact of collateralization, the
lease term, and other specific terms included in our lease arrangement. The IBR
is determined at the lease commencement and is subsequently reassessed upon a
modification to the lease agreement.
Equity-Based Compensation Expense and Valuation of Underlying Awards
We account for equity-based employee compensation arrangements in accordance
with the provisions of ASC Topic 718, Compensation - Stock Compensation, which
requires companies to estimate the fair value of equity-based payment awards on
the date of grant. Determining the fair value of equity-based awards can require
significant judgment.
Prior to the IPO, We issued equity awards in the form of unit options, profits
interests ("PIUs") and restricted equity units ("REUs") to certain employees and
consultants. We estimated the fair value of unit options using the Black-Scholes
valuation model, which requires inputs such as the fair value of our ordinary
units, risk-free interest rate, expected dividend yield, expected life, and
expected volatility. We estimated the fair value of PIUs and REUs based on our
estimated equity value for each unit class at the time of grant. The relevant
assumptions used to calculate the fair value of equity awards were evaluated and
revised, as necessary, to reflect market conditions and our historical
experience.
Subsequent to the IPO, we have issued equity awards in the form of restricted
stock units ("RSUs") to employees. We estimate the fair value of RSUs using the
market closing price on the grant date.
We record equity-based compensation expense in our consolidated statements of
operations and comprehensive loss over the requisite service period of the
award, net of estimated forfeitures, based on the fair value of such awards. The
expense is recognized on a straight-line basis for awards with only service
conditions, and on a graded vesting basis for awards with a service and
performance condition. We estimate the forfeiture rate based on historical
forfeitures of equity awards and adjust the rate to reflect changes when
necessary. We revise our estimated forfeiture rate if actual forfeitures
significantly differ from the initial estimates.
Determination of the Fair Value of Common Units
Prior to the IPO, as there had been no public market for our common units, the estimated fair value of our common units had been supported with input by third-party valuations with input of a combination of objective and subjective factors that management believes are relevant. These third-party valuations were performed in accordance with theAmerican Institute of Certified Public Accountants Accounting and Valuation Guide , Valuation of Privately-Held Company Equity Securities Issued as Compensation.
Our management has exercised reasonable judgment and considered numerous factors to determine the best estimate of fair value of our common units, including:
•valuations of comparable publicly traded companies;
•our operating and financial performance;
63--------------------------------------------------------------------------------
Table of Contents
•current business conditions and projections;
•the likelihood of achieving a liquidity event for the underlying equity instruments, such as an initial public offering or sale of our company, given prevailing market conditions;
•the prices of the recent redeemable convertible preferred unit sales by us to investors in arm's-length transactions;
•the price paid by us to repurchase outstanding units;
•the preferences held by our redeemable convertible preferred unit classes relative to those of our common units; and
•the lack of marketability of our common units.
We determined the fair value of our common units using the income and market approach valuation methods. The income approach estimates the enterprise value of our business based on our expectation of future cash flows discounted to their present values using a discount rate based on our weighted-average cost of capital. The market approach estimates the enterprise value of our business based on a comparison to a group of public companies with similar financial and operating characteristics. A representative market value multiple is determined and applied to our historical results and forecasts to estimate the enterprise value of our business. The enterprise value was then allocated to our common units using the option pricing method, under which our common units are considered to be a call option with a claim on the enterprise value at an exercise price equal to the remaining value immediately after the preferred units are liquidated. We also considered prior arm's length sales of our units as indicators of their fair value, including recent secondary transactions and repurchases of our outstanding units. Finally, we applied a non-marketability discount in consideration of the fact that unitholders could not freely trade the common units in the public markets. Application of these approaches involves the use of estimates, judgment, and assumptions that are highly complex and subjective, such as those regarding our expected future revenue and expenses, future cash flows, discount rates, market multiples, and the selection of comparable companies. Changes in any or all of these estimates and assumptions impact our valuations as of each valuation date and may have a material impact on the valuation of our common units.
Following the IPO, we determine the fair value of our common stock, on the grant date, using the closing price of our Class A common stock.
Defined Severance Benefits
We have severance benefits covering employees in
Actuarial valuations are used in determining amounts recognized in the financial statements for our severance benefit plans. These valuations incorporate the following significant assumptions:
•Discount rates; and
•Salary growth rates
Management believes that these assumptions are critical accounting estimates because significant changes in these assumptions could impact our results of operations and financial position. Management believes that the assumptions utilized to record its obligations under its plans are reasonable based on the plans' experience and advice received from its outside actuaries. We review the severance benefit plan assumptions annually and modify the assumptions based on current rates and trends as appropriate. The effects of such changes in assumptions are amortized as part of plan income or expense in future periods. At the end of each fiscal year, we determine the weighted-average discount rates and salary growth rates used to calculate the projected defined severance benefits obligation. The discount rates are an estimate of the current interest rate at which the benefit plan liabilities could be effectively settled at the end of the year. As ofDecember 31, 2021 , we determined the discount rates for the severance benefit plan used in determining the projected and accumulated benefit obligations to be 2.70% to 3.00%, as compared to 1.73% to 2.57% as ofDecember 31, 2020 . In estimating these rates, we review rates of return on high-quality corporate bond indices, which approximate the timing and amount of benefit payments. Assuming all other defined benefit plan assumptions remain constant, a one percentage point decrease in the discount rates would result in an immaterial change in benefit plan expense during 2022. As ofDecember 31, 2021 , we determined the salary growth rates for the severance benefit plan used in determining the projected and accumulated benefit obligations to be 5.00% to 5.24%, as compared to 1.48% to 5.00% as of 64
--------------------------------------------------------------------------------
Table of Contents
Recently Adopted Accounting Pronouncements
See Note 1 - "Basis of Presentation and Summary of Significant Accounting Policies" to the consolidated financial statements included elsewhere in Part II, Item 8 of this Annual Report on Form 10-K.
© Edgar Online, source
