Coupang Inc

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(1)Non-meaningful.

A discussion regarding our financial condition and results of operations for 2022 compared to 2021 can be found under Part II, Item 7 — “Management's Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for 2022.

Total Net Revenues

We categorize our total net revenues 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. 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 is also included in net other revenue.

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Fulfillment and Logistics by Coupang (“FLC”) is a Product Commerce offering that enables participating merchants to leverage our end-to-end integrated logistics and fulfillment network. The previous contract terms with FLC merchants resulted in the transfer of control of the merchants’ products to us and Coupang is the seller of record in these transactions, whereby revenue is recorded on a gross basis (principal). Beginning in the second quarter of 2023, we changed the FLC program and related contracts with merchants, streamlining the overall process for merchants and us. As a result of these changes, control of these products is no longer transferred to the Company prior to sales. The change impacted how we recognize a portion of our revenue, from a gross basis (principal) to a net basis (agent). As of the end of the second quarter of 2023, the previous contract terms had expired, after which commissions and logistics and fulfillment fees earned from FLC merchants under the new contracts are recorded in net other revenue. This will continue to result in a prospective reduction in total net revenues associated with FLC compared to historical periods, with no significant corresponding impact on gross profit expected.

The following table presents our total net revenues by segment.

The increase in Product Commerce net revenues are primarily due to continued growth in our Active Customers and total net revenues per Active Customer, driven by increased product selection of our owned inventory, increased customer engagement across more product categories, and increased merchants available on our marketplace. This was partially offset by the net revenue impact of our transition of FLC merchants to new contracts now recognized on a net basis.

The increase in Developing Offerings net revenues are primarily due to our growth initiatives in Taiwan.

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 costs from our restaurant delivery business, and depreciation and amortization expense.

The increase in cost of sales primarily reflects higher volume from increased sales and customer demand. Cost of sales as a percentage of revenue decreased from 77.1% for 2022 to 74.6% for 2023 primarily due to further operational efficiencies, continued supply chain optimization, and an increased percentage of revenues earned from higher margin revenue categories and offerings, including the enhanced FLC program. These benefits were partially offset by the impacts from our growth initiatives in developing offerings.

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.

The increase in operating, general and administrative expenses primarily reflects increases in fulfillment costs due to growth in our business and slightly higher advertising expenses, reflecting growth in revenues. These expenses as a percentage of revenue were unchanged at 23.4% for 2022 and 2023 as continued operating efficiencies were offset by decreased revenues from the transition to the new FLC contracts beginning in the second quarter of 2023.

Interest Income

Interest income primarily consists of interest earned on our deposits held with financial institutions.

Interest income increased $125 million compared to the prior year. The increase in interest income was primarily due to higher interest rates in 2023 combined with our higher average cash and cash equivalent balances.

We are subject to income taxes predominantly in Korea, as well as in the United States and other foreign jurisdictions in which we do business. Foreign jurisdictions have different statutory tax rates than those in the United States. Additionally, certain of our

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foreign earnings may also be taxable in the 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, the relative proportion of foreign to domestic income, use of tax credits and changes in the valuation of our deferred tax assets and liabilities. Beginning in 2022, the Tax Cuts and Jobs Act, as currently enacted, requires taxpayers to capitalize research and development expenses with amortization periods over five and fifteen years, which has and is expected to continue to increase the amount of our GILTI inclusion.

Our effective income tax rate changed from an expense of 1.1% in 2022 to a benefit of (133.1)% in 2023 due to the release of the valuation allowance for our Korean deferred tax assets in 2023. Our effective tax rate differs from the federal statutory rate due to valuation allowances, net operating losses and tax credits used for the periods, partially offset by the mix of our income (loss) before income taxes generated across the various jurisdictions in which we operate, including the impact of international provisions of the Tax Cuts and Jobs Act and permanent differences from non-deductible expenses. We expect that our effective tax rate in future periods will continue to differ significantly from the applicable statutory rate.

During 2023, we continued to see improved and sustained profitability, which presents objective positive evidence for the realizability of certain deferred tax assets. As such, based on the overall analysis of the positive and negative evidence in each tax jurisdiction, during 2023 we released the valuation allowance related to the Korea net operating loss deferred tax assets. The release of the valuation allowance in 2023 resulted in recognition of a portion of our net deferred tax assets and a benefit to our provision for income taxes of $905 million. We expect this change to result in a subsequently higher effective tax rate until the net operating losses are fully utilized, but we do not expect that it will materially impact our cash tax payments and related liabilities.

In addition to U.S. tax law changes, our global operations make the tax rate sensitive to significant foreign tax law changes. A number of countries have begun to enact legislation to implement the OECD’s international tax framework, including Pillar Two global minimum tax regime. South Korea has enacted legislation to implement OECD framework including the Under-taxed Profit Rules (the “UTPR”) which may impose additional reporting and compliance obligations to our group effective from January 1, 2025. This minimum tax will be treated as a period cost in future years and did not impact operating results for 2023. We are continuing to monitor legislative developments and are in the process of evaluating the potential impact of Korean and other legislation on our results of future operations.

Segment Adjusted EBITDA

The operating performance measure of each segment is segment adjusted EBITDA. Segment adjusted EBITDA is defined as income (loss) before income taxes 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 associated with our segments.

(1)Non-meaningful.

The improvement in Product Commerce segment adjusted EBITDA was primarily due to an increase in net revenues, further operational efficiencies, improvements from supply chain optimization, and an increased percentage of revenues earned from higher margin revenue categories and offerings.

The increased loss in Developing Offerings segment adjusted EBITDA was the result of increased investments in our Eats and Taiwan offerings, and higher content costs for our Coupang Play offering. These losses were partially offset by efficiencies in delivery costs associated with Coupang Eats.