Coupang losses widen on soaring costs to fend off rivals

SEOUL (BLOOMBERG) - Coupang, South Korea's leading e-commerce company, reported a wider loss in the fourth quarter of last year as the company continued to aggressively spend on infrastructure and services in the face of intensifying competition.

Operating losses increased to US$396.6 million (S$537 million) for the quarter ended Dec 31 last year, compared with US$130.9 million in 2020, according to a statement on Thursday (March 3). Sales rose 34 per cent to US$5.1 billion, while the number of active clients increased 21 per cent. The net loss was US$405 million in the period.

During the coronavirus pandemic, Coupang's growth accelerated as people spent more time at home, ordering more products and food through the company's rapid-delivery network. In order to support that growth and to compete against local e-commerce rivals, the company spent more than one trillion won (S$1.13 billion) last year on distribution centres, according to Coupang.

In addition to capacity expansion, the company said costs rose in the fourth quarter to add labour and Covid-19-related cleaning and social distancing measures. Infections in South Korea soared to new highs in the period.

"We've seen improvements and we don't think at this moment this is a structural or permanent constraint," chief executive Bom Kim said during a conference call after the earnings were released.

Coupang, backed by Japan's SoftBank Group, pulled off a blockbuster initial public offering in New York a year ago, with shares soaring more than 40 per cent in a matter of days. But its stock has plummeted since then as investors grew concerned about its ability to improve profitability in the near term.

"We expect to grow significantly faster than the e-commerce segment as we have in the last several years," said Mr Kim. "The overall market opportunity appears to only be getting bigger."

As part of its effort to boost earnings, Coupang increased the monthly cost of its Wow subscription for new members to 4,990 won. Although the hike only applies to customers who join from this year, analysts expect it will eventually also be levied on current members.

The company said on Thursday that it had about nine million paid Wow members at the end of last year. If Coupang expands the membership fee hike to about five million members, it may contribute around 125 billion won to sales and profits, Kiwoon Securities analyst Park Sang-joon said in a note on Dec 30, when Coupang announced the membership price increase.

Still, it may not be sufficient to lead to a profit turnaround, he added.