[News Inside Companies] Coupang... From Capital Impairment Crisis to First Quarterly Profit

Coupang achieved profitability for the first time in the third quarter of this year.

South Korea's largest e-commerce company, Coupang, succeeded in turning a profit in the third quarter of this year. This marks the first profitable quarter since the introduction of the 'Rocket Delivery' service in 2014.

According to the earnings report Coupang filed with the U.S. Securities and Exchange Commission (SEC) on the 10th (Korean time), third-quarter revenue this year was $5.11334 billion (approximately 6.98 trillion KRW), operating profit was $77.42 million (approximately 106 billion KRW), and net income was $90.67 million (approximately 124 billion KRW). This is the first quarterly profit since 2014, and compared to an operating loss of about 365.3 billion KRW in the same period last year, it represents an improvement of over 400 billion KRW.

The logistics business margin rate improved significantly, rising 8 percentage points (P) year-over-year. Losses from new industries such as Coupang Play and fintech also improved by about 50%. Regarding this, Kim Beom-seok, Chairman of Coupang, said, "This is the result of seven years of investment in a unique logistics network integrating technology, logistics, and last mile (final delivery management)." He emphasized, "We will continue to invest in automation technologies including robotics to enrich customer experience while providing products at reasonable prices."

Attracting Investment from Silicon Valley Heavyweights... Writing the 'Rocket Growth' Legend

Coupang's first quarterly profit is a remarkable achievement reached 10 years after its founding and 8 years after launching its e-commerce service. Coupang started as an online shopping mall in 2010 alongside Wemakeprice and Tmon. Then, in 2014, it transformed into a distribution company by launching the next-day delivery e-commerce service called 'Rocket Delivery.'

Coupang logistics center staff working / Photo by Yonhap News

Distribution is a business that concentrates capital and manpower in logistics centers and transportation networks. Moreover, when Coupang entered the e-commerce market, it was already a battleground where several large corporations were engaged in fierce competition. At that time, Coupang, which was just a small player, adopted a growth strategy benchmarking U.S. startups.

In other words, like Silicon Valley startups such as Amazon and Netflix, Coupang attracted large investments from major U.S. venture capital (VC) firms and aggressively increased market share to secure a competitive advantage. Since 2014, Coupang's major investors have included Silicon Valley heavyweights such as Sequoia Capital ($100 million) and BlackRock ($300 million).

Coupang opened a new chapter in the domestic e-commerce market through Rocket Delivery. Consumers were enthusiastic about the simple system where pressing the 'Today Delivery' button meant arrival the next day. As of last year, just seven years after the service launch, Coupang grew into a giant company with about 18 million active customers and sales exceeding 20 trillion KRW.

Trillions Invested Despite Capital Erosion... Eight Years of 'Full Throttle'

However, the investment costs Coupang spent to attract customers with Rocket Delivery were beyond imagination. In the early stages, Coupang focused on marketing such as issuing discount coupons and sales events. Coupang's delivery workers, known as 'Coupangmen,' had to work tirelessly on weekdays and holidays, so their wages had to be better than competitors'.

As a result, despite explosive revenue growth, the 'actual money earned' was always limited. Until 2018, Coupang's margin rate was only in the 5% range. Typically, distribution companies have margin rates between 10% and 20%. Furthermore, annual investments of several hundred billion KRW in new logistics centers caused operating losses to balloon. Last year, losses peaked at 1.8 trillion KRW.

Therefore, Coupang's survival depended on whether it could find new investors before liquidity was completely depleted. In 2018, when it had exhausted all capital and entered a capital erosion state of 261 billion KRW, it narrowly secured a $2 billion (about 2.25 trillion KRW at the time) investment from SoftBank's VC arm, Vision Fund, and last year, it raised an additional $5 billion (about 5.5 trillion KRW at the time) through a U.S. Nasdaq listing.

Firefighters conducting extinguishing operations at the Coupang Deokpyeong Logistics Center fire site in Majang-myeon, Icheon City, last June / Photo by Yonhap News

Growing pains from rapid expansion were also significant. In June of the same year, a fire broke out at Coupang's logistics center in Icheon, Gyeonggi Province, and during firefighting efforts, a firefighter lost his life. This incident triggered serious political discussions about logistics center safety for e-commerce companies like Coupang. Persistent chronic deficit issues and the gradually cooling investor sentiment since last year also shackled Coupang's stock price. The stock price, which reached over $48 (about 65,000 KRW) at IPO, dropped to $16.29 (about 22,000 KRW) as of the closing price on the 9th, losing more than half its value.

Improving Margin Rates: Could It Be a Game Changer?

However, with Coupang achieving its first quarterly profit, there are expectations that the situation could turn around. U.S. investment bank Goldman Sachs recently stated in a report on Coupang, "Profitability is rapidly improving," and set a target stock price of $30 within the next year.

Some investors view Coupang's profit improvement positively because of its margin rate. The combination of aiming for the number one position in the domestic e-commerce market share, raising paid membership fees, and operating large-scale logistics infrastructure to achieve 'economies of scale' could dramatically improve Coupang's margin rate. In fact, Coupang's margin rate, which remained at 5% in 2018, soared to 16.2% last year and rose to 24% in the third quarter of this year.

This content was produced with the assistance of AI translation services.