Coupang widens net loss to $105M as Farfetch, fine erode profit

Coupang posted a net loss of $105 million during the second quarter, hit by the losses generated by its subsidiary Farfetch

Coupang delivery trucks [YONHAP]

Coupang posted a net loss of $105 million during the second quarter, hit by losses generated by its investment in Farfetch and an estimated fine of $121 million by Korea’s Fair Trade Commission (FTC) for allegedly manipulating its search algorithms.

This marks the e-commerce operator's second consecutive net loss.

The New York-listed company reported an operating loss of $25 million compared to a profit of $147.6 million in the same period last year.

The company’s revenue for the April-June period stood at $7.3 billion, up 25 percent year on year, or 18 percent excluding the impact of Farfetch, making it the first time for Coupang's revenue to exceed the equivalent of 10 trillion won.

Coupang acquired a stake in the London-based online luxury shopping company Farfetch — which was facing financial difficulties — for $500 million last December.

The e-commerce giant is also currently being investigated for allegedly manipulating its algorithm from February 2019 to July of last year to give a promotional boost to at least 64,250 items from its private brands or directly purchased by Coupang for retail sales. Among the products that appeared on the top of search results were also those with low sales and items from sellers that promised to pay rebate fees to the e-commerce company. Local media Yonhap News reported Wednesday that the FTC sent a final resolution to the company, including a record-high 162.8 billion won fine, up from the previously announced 140 billion won fine.

“Our growth today and tomorrow is powered primarily by the increasing spending of our existing customers,” Coupang CEO Bom Kim said, adding that the company still has “massive” future growth opportunity since the e-commerce company “still accounts for a small percentage of overall retail spending.”

“The spending [of customers] will go up as we increase the selection across all categories, improve our service and continue to expand savings for our customers.”

Coupang posted earnings per share of $0.07, higher than market analyst expectations of $0.01 per share.

The company’s expenses as a percentage of revenue also increased this quarter versus the same period last year, which the company attributed to “related restructuring costs” for Farfetch.

Coupang emphasized that its goal is to have Farfetch close to positive adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) remains but admitted that the process is “in the very early stages.”

“We are also investing in technology and infrastructure to build a stronger foundation for future scalability,” Coupang’s Chief Financial Officer Gaurav Anand said. “So while these investments may temporarily decrease our operating margins in the near term, we will leverage [as] they create long-term value.”

Update, Aug. 7: Added details about investments, comments from CEO.

BY CHO YONG-JUN [cho.yongjun1@joongang.co.kr]