economy
Entered 2024.05.08 18:22 Modified 2024.05.08 19:44 Ground A16
The raids of Ali and Temu…
Coupang operating profit 61% ↓ ‘earnings shock’First quarter net profit, first deficit in 7 quarters
Due to the increase in marketing costs in response to C-commerce
Sales increased by 28%, surpassing KRW 9 trillion for the first timeCompete by differentiating instead of ‘fighting back’ with extremely low prices
Kim Beom-seok “Buy 22 trillion Korean products this year”
Invest 5.5 trillion won to strengthen membership benefits
Coupang’s performance was at an ‘earnings shock’ level due to Chinese e-commerce offensives such as Ali Express (Ali) and Temu. Last quarter’s operating profit was ‘halved’, and net profit turned into a deficit for the first time in seven quarters. Instead of resisting the ultra-low price raid on Chinese products with ultra-low prices, Coupang plans to respond by using its strengths, such as fast delivery, discovering excellent Korean products, and strengthening membership benefits.
○ Profitability plummets due to higher costs
According to the performance report submitted by Coupang, which is listed on the New York Stock Exchange, to the US Securities and Exchange Commission (SEC) on the 8th, Coupang recorded an operating profit of $40 million (approximately 53.1 billion won) in the first. quarter. This is a sharp drop of 61% compared to the first quarter of last year, and profitability has declined significantly. In particular, net profit recorded a deficit of 31.8 billion won, the first quarterly deficit since a net loss of 90 billion won in the second quarter of 2022.
Coupang’s net profit in the first quarter, estimated by Wall Street in the United States, was in the range of 130 billion to 150 billion won. There were many analyzes that operating profit would also reach about 200 billion won. But really, it was only about a quarter. However, sales continued to grow rapidly, reaching $7.114 billion (about KRW 9.4505 trillion), an increase of 28% compared to the same period last year. It was slightly above market expectations (KRW 9.2061 trillion).
Coupang cited marketing cost expenditures due to the strong offensive of Chinese e-commerce as the reason for the sharp drop in profits. Recently, Coupang made large-scale investments to expand the benefits of its paid membership, WoW members. A representative example is spending tens of billions of money to win the broadcasting rights for the opening game of the US Major League Baseball (MLB) held in Korea last March. Coupang uploaded the broadcast of this game to ‘Coupang Play’, an online video (OTT) service that can only be viewed by WoW members. We also managed to strengthen the benefits of WoW members in the food supply sector. Wow members received a 10% discount coupon when they ordered through ‘Coupang Eats.’ Discount coupons were replaced with free shipping from mid-March.
Coupang founder Kim Beom-seok (pictured), chairman of the board of directors, said in a conference call after the results were announced, “If you look at Chinese e-commerce entry into Korea, you can see that the entry barrier for the delivery market is very low,” and added, “Users can quickly access other shopping options with one click.” “I was reminded that I could change,” she said.
○ Compete through product classification and differentiation
Coupang plans to compete with Chinese e-commerce through product distribution and differentiation. First, we will expand the rocket delivery area (next day delivery). We decided to invest 3 trillion won by 2026 to open eight new logistics centers in Gimcheon and Gwangju, Gyeongsangbuk-do. Through this, we intend to increase the area where it is possible to deliver rockets to 50 million people across the country by 2027. Rocket delivery is considered Coupang’s core competitiveness. Excluding sales from new businesses such as Farfetch, sales of products corresponding to its ‘main base’ Coupang increased by 20% in the first quarter of this year to KRW 8.6269 trillion, according to distribution industry analysis, which is due to the ‘power’ of distribution rockets’.
We also decided to increase purchases of products from Korean manufacturers and small and medium-sized businesses. Chairman Kim emphasized, “The number of purchases (direct purchase) of Korean products will increase by 5 trillion won, from 17 trillion won last year to 22 trillion won this year.” This means that we will respond to Ali and Temu’s low-priced Chinese products with premium Korean products. The benefits of Wow Club membership are also being strengthened. We decided to spend 5.5 trillion won this year just on free shipping, free returns, and exclusive discounts. This is an increase of 37.5% compared to the approximately 4 trillion won last year. In particular, the company judged that the free food delivery service that Coupang Eats started in March this year had a strong ‘lock-in’ effect.
Chairman Kim said, “This year will be an important year to strengthen the customer experience and expand critical support for manufacturing partners and small businesses,” adding, “We will continue to strive to provide new wow moments for customers across products, prices and services .” “He emphasized.
Reporter Ahn Jae-kwang ahnjk@hankyung.com
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