Coupang Inc

Results of Operations

(1)Includes results of operations of Farfetch from acquisition date, January 30, 2024.

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 in Korea, 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. Prior to the second quarter of 2023 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.

The following table presents our total net revenues by segment.

The increase in Product Commerce net revenues for the three and nine months ended September 30, 2024 is primarily due to continued growth in both our total net revenues per Product Commerce Active Customer and Product Commerce Active Customers, increasing 4% and 11% year-over-year, respectively driven by increased customer engagement within and across more product categories. The growth rate for the nine months ended September 30, 2024 was partially offset by a 5% net revenue decline from our transition of FLC merchants to new contracts now recognized on a net basis.

The increase in Developing Offerings for the three and nine months ended September 30, 2024 is primarily due to incremental revenues from our acquisition of Farfetch in the first quarter of 2024 of $439 million and $1.2 billion, respectively. The remaining increase is primarily due to our growth initiatives in Eats and 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 for the three and nine months ended September 30, 2024 primarily reflects higher volume from increased sales and customer demand. Additionally, the acquisition of Farfetch increased cost of sales by $256 million and $679 million for the three and nine months ended September 30, 2024, respectively. Cost of sales as a percentage of revenue decreased from 74.7% for both the three and nine months ended September 30, 2023 to 71.2% and 71.6% for the three and nine months ended September 30, 2024, respectively, primarily due to further operational efficiencies, continued supply chain optimization, and an increased percentage of revenues earned from higher margin revenue categories and offerings. Cost of sales as a percentage of revenue also benefited from the inclusion of Farfetch, which operates with a higher gross profit margin, resulting in a 0.8% reduction of cost of sales as a percentage of revenue from both the three and nine months ended September 30, 2023. These benefits were partially offset by 0.6% and 1.0% impacts, respectively, from our other 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 for the three and nine months ended September 30, 2024 primarily reflects increases in technology and infrastructure costs to support our continued growth. Additionally, the acquisition of Farfetch increased operating costs for the three and nine months ended September 30, 2024 by $213 million and $706 million, respectively. The increase for nine months ended September 30, 2024, also includes the impact of the administrative fine of $121 million. These expenses as a percentage of revenue increased from 23.9% and 23.4% for the three and nine months ended September 30, 2023 to 27.5% and 27.9% for the three and nine months ended September 30, 2024 primarily consisting of 1.2% and 1.8% due to the inclusion of Farfetch, which operates with a higher expense margin. The remainder of the increase is due primarily to the increased technology and infrastructure costs. Specific to the nine months ended September 30, 2024, there is a 0.5% impact due to the administrative fine.

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Interest Income

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

Interest income for the three and nine months ended September 30, 2024 increased $5 million and $39 million compared to the prior year periods, primarily due to higher interest rates combined with higher average cash balances.

Income Tax Expense

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 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 global intangible low-taxed income (GILTI) inclusion.

The increase in our effective tax rate for the three and nine months ended September 30, 2024 is primarily due to the loss before income taxes incurred by Farfetch with no offsetting tax benefit and the prospective impact of releasing the valuation allowance on our Korean deferred tax assets in the fourth quarter of 2023. Specific to the nine months ended September 30, 2024, our effective tax rate also increased due to the impact of the non-deductible KFTC administrative fine.

Our effective rates for the three and nine months ended September 30, 2024 and 2023 differed from the federal statutory rate due to the impact of valuation allowances on our deferred tax assets, and tax credits used for the period, the impact of the administrative fine, and the mix of our income 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.

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.

Product Commerce

The increase for the three and nine months ended September 30, 2024 was primarily due to the increase in net revenues described above.

Developing Offerings

The decreased loss for the three months ended September 30, 2024 was the result of growth in revenue, as discussed above, combined with improved margins, partially offset by $2 million of incremental adjusted EBITDA loss from Farfetch. The increased loss for the nine months ended September 30, 2024 in Developing Offerings adjusted EBITDA was the result of increased investments in our Eats and Taiwan offerings, higher content costs for our Coupang Play offering and $64 million of incremental adjusted EBITDA losses from Farfetch.