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Coupang, Inc. - Quarter Report: 2021 June (Form 10-Q)



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 2021
or
☐     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File No. 001-40115
cpng-20210630_g1.jpg
COUPANG, INC.
(Exact name of Registrant as specified in its charter)
Delaware27-2810505
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)

Tower 730, 570, Songpa-daero, Songpa-gu, Seoul
Republic of Korea 05510
+82 (2) 6150-5422
(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading Symbol(s) Name of Each Exchange on Which Registered
Class A Common Stock, par value $0.0001 per shareCPNGNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer☐Accelerated filer☐
Non-accelerated filer☒Small reporting company ☐
Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of July 30, 2021, there were 1,560,782,244 shares of the registrant’s Class A common stock and 174,802,990 shares of the registrant’s Class B common stock, each with a par value of $0.0001 per share, outstanding.
                        


COUPANG, INC.
Form 10-Q
For the Quarterly Period Ended June 30, 2021
TABLE OF CONTENTS
Page









1


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (“Form 10-Q”) contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this Form 10-Q, including statements regarding our future results of operations or financial condition, business strategy and plans, and objectives of management for future operations are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “toward,” “will,” or “would,” or the negative of these words or other similar terms or expressions. These forward-looking statements include, but are not limited to, statements concerning the following:
•the COVID-19 pandemic and its impact on our business, operations, and the markets and communities in which we, our customers, suppliers, and merchants operate;
•our expectations regarding our future operating and financial performance;
•the continued growth of the e-commerce market and the increased acceptance of online transactions by potential customers;
•the size of our addressable markets, market share, and market trends;
•our ability to compete in our industry;
•our ability to manage expansion into new markets and offerings;
•our ability to effectively manage the continued growth of our workforce and operations;
•the sufficiency of our cash and cash equivalents, and investments to meet our liquidity needs;
•our ability to retain existing suppliers and merchants and to add new suppliers and merchants;
•our suppliers’ and merchants’ ability to supply high-quality and compliant merchandise to our customers;
•our relationship with our employees and the status of our workers;
•our ability to maintain and improve our market position;
•our ability to operate and manage the expansion of our fulfillment and delivery infrastructure;
•the effects of seasonal trends on our results of operations;
•our ability to effectively manage our exposure to fluctuations in foreign currency exchange rates;
•our ability to attract, retain, and motivate skilled personnel, including key members of our senior management;
•our ability to stay in compliance with laws and regulations, including tax laws, that currently apply or may become applicable to our business both in Korea and internationally and our expectations regarding various laws and restrictions that relate to our business;
•the anticipated cost of food, energy, labor, and other costs associated with our business, including the losses and costs associated with the fire that damaged our Deokpyeong fulfillment center;
•the increased expenses associated with being a public company;
•the outcomes of any claims, litigation, governmental audits, inspections, and investigations;
•our intended use of the net proceeds from our initial public offering; and
•the other factors set forth under “Risk Factors” in this Form 10-Q.
We caution you that the foregoing list may not contain all of the forward-looking statements made in this Form 10-Q.
2


You should not rely on forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, and results of operations. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors described in the section titled “Risk Factors” and elsewhere in this Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Form 10-Q. The results, events, and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements.
In addition, statements such as “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this Form 10-Q. While we believe such information provides a reasonable basis for these statements, such information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements.
The forward-looking statements made in this Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Form 10-Q to reflect events or circumstances after the date of this Form 10-Q or to reflect new information, actual results, revised expectations, or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments.
Investors and others should note that we may announce material business and financial information to our investors using our investor relations website (ir.aboutcoupang.com), our filings with the Securities and Exchange Commission, webcasts, press releases, and conference calls. We use these mediums, including our website, to communicate with investors and the general public about our company, our products, and other issues. It is possible that the information that we make available on our website may be deemed to be material information. We therefore encourage investors and others interested in our company to review the information that we make available on our website.
3


Part I. Financial Information
Item 1.  Financial Statements (Unaudited)
COUPANG, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except shares/units)
(unaudited)
June 30, 2021December 31, 2020
Assets
Current assets:
Cash and cash equivalents$4,284,933 $1,251,455 
Restricted cash171,321 144,949 
Accounts receivable, net129,043 71,257 
Inventories1,230,414 1,161,205 
Other current assets212,462 211,848 
Total current assets6,028,173 2,840,714 
Long-term restricted cash4,430 4,898 
Property and equipment, net1,055,732 1,017,947 
Operating lease right-of-use assets1,238,697 1,011,255 
Goodwill4,090 4,247 
Long-term lease deposits and other243,388 188,271 
Total assets$8,574,510 $5,067,332 
Liabilities, redeemable convertible preferred units and stockholders'/members’ equity (deficit)
Current liabilities:
Accounts payable$3,199,812 $2,907,918 
Accrued expenses129,946 115,606 
Deferred revenue71,962 65,259 
Short-term borrowings172,368 156,678 
Current portion of long-term debt470,404 67,576 
Current portion of long-term operating lease obligations245,864 207,196 
Other current liabilities245,470 212,477 
Total current liabilities4,535,826 3,732,710 
Long-term debt4,132 353,342 
Long-term operating lease obligations1,072,241 859,477 
Convertible notes— 589,851 
Defined severance benefits and other159,682 135,203 
Total liabilities5,771,881 5,670,583 
Commitments and contingencies (Note 9)
Redeemable convertible preferred units, no par value; no units authorized, issued or outstanding, and no liquidation preference as of June 30, 2021; 1,448,632,049 units authorized, 1,372,898,443 units issued, 1,329,464,982 units outstanding, and aggregate liquidation preference of $3,584,028 as of December 31, 2020
— 3,465,611 
Stockholders'/members’ equity (deficit)
Common units, no par value; no units authorized, issued or outstanding as of June 30, 2021; 264,166,544 units authorized, 114,566,705 units issued, and 105,822,205 units outstanding as of December 31, 2020
— 45,122 
Class A common stock, $0.0001 par value, 10,000,000,000 shares authorized and 1,560,775,682 shares issued and outstanding as of June 30, 2021; Class B common stock, $0.0001 par value, 250,000,000 shares authorized and 174,802,990 shares issued and outstanding as of June 30, 2021; no shares of Class A and Class B common stock authorized, issued and outstanding as of December 31, 2020
173 — 
Additional paid-in capital7,749,463 25,036 
Accumulated other comprehensive loss(25,446)(31,093)
Accumulated deficit(4,921,561)(4,107,927)
Total stockholders'/members’ equity (deficit)2,802,629 (4,068,862)
Total liabilities, redeemable convertible preferred units and stockholders'/members’ equity (deficit)$8,574,510 $5,067,332 
The accompanying notes are an integral part of these condensed consolidated financial statements
4


COUPANG, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(in thousands, except per share amounts)
(unaudited)
Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
Net retail sales$3,994,506 $2,421,448 $7,801,549 $4,657,910 
Net other revenue483,608 192,632 883,425 369,429 
Total net revenues4,478,114 2,614,080 8,684,974 5,027,339 
Cost of sales3,819,620 2,174,345 7,293,974 4,157,309 
Operating, general and administrative1,173,430 534,953 2,173,252 1,038,885 
Total operating cost and expenses4,993,050 2,709,298 9,467,226 5,196,194 
Operating loss(514,936)(95,218)(782,252)(168,855)
Interest income1,907 3,082 2,847 8,245 
Interest expense(5,848)(26,196)(30,671)(52,711)
Other income (expense), net373 16,366 (3,453)6,125 
Loss before income taxes(518,504)(101,966)(813,529)(207,196)
Income tax expense97 84 105 207 
Net loss(518,601)(102,050)(813,634)(207,403)
Less: premium on repurchase of redeemable convertible preferred units— (57,863)— (92,734)
Net loss attributable to Class A and Class B common stockholders$(518,601)$(159,913)$(813,634)$(300,137)
Net loss attributable to Class A and Class B common stockholders per share, basic and diluted$(0.30)$(5.81)$(0.74)$(11.56)
Weighted-average shares used in computing net loss per share attributable to Class A and Class B common stockholders, basic and diluted1,743,109 27,539 1,092,626 25,974 
Other comprehensive income (loss):
Foreign currency translation adjustments, net of tax(351)603 14,621 (1,685)
Actuarial (loss) gain on defined severance benefits, net of tax(9,892)35 (8,974)73 
Total other comprehensive income (loss)(10,243)638 5,647 (1,612)
Comprehensive loss$(528,844)$(101,412)$(807,987)$(209,015)

The accompanying notes are an integral part of these condensed consolidated financial statements
5


COUPANG, INC.
CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED UNITS AND STOCKHOLDERS’/MEMBERS’ EQUITY (DEFICIT)
(in thousands)
(unaudited)
Redeemable Convertible Preferred UnitsCommon UnitsClass A and Class B Common StockAdditional
Paid-in
Capital		Accumulated Other Comprehensive
Loss		Accumulated
Deficit		Total Stockholders'/Members' Equity (Deficit)
UnitsAmountUnitsAmountSharesAmount
Balance as of December 31, 20201,329,465$3,465,611 105,822$45,122 —$— $25,036 $(31,093)$(4,107,927)$(4,068,862)
Net loss—— —— —— — — (295,033)(295,033)
Foreign currency translation adjustments, net of tax—— —— —— — 14,972 — 14,972 
Actuarial gain on defined severance benefits, net of tax—— —— —— — 918 — 918 
Issuance of common units, equity-based compensation plan—— 22,90138,968 —— — — — 38,968 
Equity-based compensation—— —2,974 —— — — — 2,974 
Impact of Corporate Conversion and IPO
Conversion of common units into Class A and Class B common stock—— (128,723)(87,064)128,64813 87,051 — — — 
Conversion of redeemable convertible preferred units into Class A and Class B common stock(1,329,465)(3,465,611)—— 1,329,465133 3,465,478 — — 3,465,611 
Issuance of Class A common stock, net of underwriting discounts and offering costs—— —— 100,00010 3,416,809 — — 3,416,819 
Conversion of convertible notes into Class A common stock—— —— 171,75017 609,982 — — 609,999 
Issuance of common stock, equity-based compensation plan subsequent to Corporate Conversion and IPO—— —— 2,680— 4,767 — — 4,767 
Equity-based compensation subsequent to Corporate Conversion and IPO—— —— —— 83,992 — — 83,992 
Balance as of March 31, 2021—$— —$— 1,732,543$173 $7,693,115 $(15,203)$(4,402,960)$3,275,125 
Net loss—— —— —— — — (518,601)(518,601)
Foreign currency translation adjustments, net of tax—— —— —— — (351)— (351)
Actuarial loss on defined severance benefits, net of tax—— —— —— — (9,892)— (9,892)
Issuance of common stock, equity-based compensation plan—— —— 3,036— 6,002 — — 6,002 
Equity-based compensation—— —— —— 50,346 — — 50,346 
Balance as of June 30, 2021—$— —$— 1,735,579$173 $7,749,463 $(25,446)$(4,921,561)$2,802,629 
The accompanying notes are an integral part of these condensed consolidated financial statements
6


Redeemable Convertible Preferred UnitsCommon UnitsClass A and Class B Common StockAdditional
Paid-in
Capital		Accumulated Other
Comprehensive
Income		Accumulated
Deficit		Total Stockholders'/Members' Deficit
UnitsAmountUnitsAmountSharesAmount
Balance as of December 31, 20191,348,313$3,468,554 70,702$— —$— $25,036 $7,642 $(3,565,590)$(3,532,912)
Net loss—— —— —— — — (105,353)(105,353)
Foreign currency translation adjustments, net of tax—— —— —— — (2,288)— (2,288)
Actuarial gain on defined severance benefits, net of tax—— —— —— — 38 — 38 
Issuance of common units, equity-based compensation plans—— 5,1935,193 —— — — — 5,193 
Repurchase of common units—— (680)(1,366)—— — — — (1,366)
Repurchase of preferred units(7,242)(1,937)—(10,305)—— — — (24,566)(34,871)
Equity-based compensation—— —6,478 —— — — — 6,478 
Balance as of March 31, 20201,341,071$3,466,617 75,215$— —$— $25,036 $5,392 $(3,695,509)$(3,665,081)
Net loss—— —— —— — — (102,050)(102,050)
Foreign currency translation adjustments, net of tax—— —— —— — 603 — 603 
Actuarial gain on defined severance benefits, net of tax—— —— —— — 35 — 35 
Issuance of common units, equity-based compensation plans—— 18,6182,869 —— — — — 2,869 
Repurchase of preferred units(11,606)(1,006)—(3,249)—— — — (54,614)(57,863)
Equity-based compensation—— —10,345 —— — — — 10,345 
Balance as of June 30, 20201,329,465$3,465,611 93,833$9,965 —$— $25,036 $6,030 $(3,852,173)$(3,811,142)

The accompanying notes are an integral part of these condensed consolidated financial statements
7


COUPANG, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Six Months Ended June 30,
20212020
Operating activities:
Net loss$(813,634)$(207,403)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization94,326 53,255 
Provision for severance benefits66,028 29,892 
Equity-based compensation137,312 16,725 
Paid-in-kind interest and accretion of discount on convertible notes20,148 42,818 
Inventory and fixed asset losses due to fulfillment center fire284,825 — 
Non-cash operating lease expense121,779 62,684 
Non-cash others17,406 24,621 
Change in operating assets and liabilities:
Accounts receivable, net(62,381)(1,797)
Inventories(267,191)(208,086)
Other assets(79,439)(62,410)
Accounts payable396,485 324,738 
Accrued expenses9,778 (7,680)
Deferred revenue9,136 13,617 
Other liabilities(87,044)(6,264)
Net cash (used in) provided by operating activities(152,466)74,710 
Investing activities:
Purchases of property and equipment(315,496)(101,123)
Proceeds from sale of property and equipment125 222 
Other investing activities9,790 2,164 
Net cash used in investing activities(305,581)(98,737)
Financing activities:
Proceeds from issuance of Class A common stock upon initial public offering, net of underwriting discounts3,431,277 — 
Deferred offering costs paid(11,618)— 
Repurchase of common units and preferred units— (97,043)
Proceeds from issuance of common stock/units, equity-based compensation plan49,737 8,062 
Proceeds from short-term borrowings and long-term debt115,408 158,907 
Repayment of short-term borrowings and long-term debt(27,465)(15,253)
Other financing activities(981)(893)
Net cash provided by financing activities3,556,358 53,780 
Effect of exchange rate changes on cash and cash equivalents, and restricted cash(38,928)(28,422)
Net increase in cash and cash equivalents, and restricted cash3,059,383 1,331 
Cash and cash equivalents, and restricted cash, as of beginning of period1,401,302 1,371,535 
Cash and cash equivalents, and restricted cash, as of end of period$4,460,685 $1,372,866 
Supplemental disclosure of cash-flow information:
Cash paid for income taxes (net of refunds)$(267)$82 
Cash paid for interest$8,085 $10,865 
Non-cash investing and financing activities:
(Decrease) increase in property and equipment-related accounts payable and accrued expenses$(8,738)$48,751 
Conversion of common units into Class A and Class B common stock$87,064 $— 
Conversion of redeemable convertible preferred units into Class A and Class B common stock$3,465,611 $— 
Conversion of convertible notes into Class A common stock$609,999 $— 
The accompanying notes are an integral part of these condensed consolidated financial statements
8



COUPANG, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1.     Basis of Presentation and Summary of Significant Accounting Policies
Description of Business
Coupang, Inc. (“Coupang”), together with its wholly-owned subsidiaries (collectively, the “Company,” “we,” “us,” or “our”), is a Delaware corporation, which owns and operates an e-commerce business that primarily serves the Korean retail market. Through the Company’s mobile applications and Internet websites, the Company offers products and services that span a wide range of categories, including home goods and décor, apparel and beauty products, fresh food and grocery, sporting goods, electronics, restaurant order and delivery, travel, and everyday consumables, which are offered through a fully integrated fulfillment and logistics infrastructure. The Company’s main operations, including procurement, marketing, technology, administrative functions, and fulfillment and logistics infrastructure, are predominantly located in South Korea, with some support services performed in China, Singapore, and the United States.
Initial Public Offering
On March 15, 2021, the Company completed its initial public offering (“IPO”) in which it issued and sold 100,000,000 shares of its Class A common stock at a price of $35.00 per share. The Company received net proceeds of approximately $3.4 billion from the IPO after deducting underwriting discounts of $69 million and other offering costs.
Immediately prior to effectiveness of the Company’s IPO registration statement on Form S-1, Coupang, LLC, a Delaware limited liability company, converted into a Delaware corporation pursuant to a statutory conversion, which changed the Company’s name to Coupang, Inc. (“Corporate Conversion”).
As a result of the Corporate Conversion and IPO, the Company’s redeemable convertible preferred units (“preferred units”) and common units (which included common units designated as profits interests (“PIUs”)), in each case, automatically converted into an equal number of shares of Class A or Class B common stock, except with respect to a conversion adjustment to certain PIUs, which reduced the outstanding common units designated as PIUs that were converted into shares of Class A common stock. Also, the Company’s convertible notes were automatically converted into shares of Class A common stock. For additional information related to the Company’s Corporate Conversion and IPO, see Note 10 — "Redeemable Convertible Preferred Units and Stockholders'/Members' Equity (Deficit)" and Note 8 — "Convertible Notes and Derivative Instrument."
Fulfillment Center Fire
On June 17, 2021, a fire extensively damaged the Company’s Deokpyeong fulfillment center (“FC Fire”) resulting in a loss of the inventory, building, equipment, and other assets at the site. Inventory and property and equipment losses from the FC Fire of $158 million and $127 million were recognized in “Cost of sales” and “Operating, general and administrative”, respectively, for the three and six months ended June 30, 2021. The Company is insured on property losses from the FC Fire, however, whether and to what extent the Company may recover insurance proceeds on these losses is currently unknown, and as such, no insurance recoveries have been recognized. The Company has also accrued for other costs directly related to the FC Fire of $11 million. The FC Fire resulted in an increase to our net loss of $296 million for the three and six months ended June 30, 2021.
Basis of Presentation and Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated.
The condensed consolidated balance sheet as of December 31, 2020 included herein was derived from the audited consolidated financial statements as of that date. The accompanying unaudited condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to state fairly the Company’s financial position, results of operations and comprehensive loss, redeemable convertible preferred units and stockholders’/members’ equity (deficit), and cash flows for the periods presented, but are not necessarily indicative of the results of operations to be anticipated for any future annual or interim period. Certain information and note disclosures normally included in the annual consolidated financial
9


statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. The unaudited condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes included in the final prospectus dated March 10, 2021, as filed with the SEC pursuant to Rule 424(b) under the Securities Act of 1933, as amended (File No. 333-253030) (“Final Prospectus”).
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates, which include, but are not limited to, equity-based compensation, inventory valuation, income taxes, defined severance benefits, and revenue recognition. Actual results could differ materially from those estimates. We based our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Given the global economic climate and additional or unforeseen effects from the COVID-19 pandemic, these estimates become more challenging, and actual results could differ materially from these estimates.
Segment Information
The Company’s Chief Operating Decision Maker (“CODM”) is its Chief Executive Officer. The Company has determined that it operates in one operating segment and one reportable segment. The CODM reviews financial information presented on a consolidated basis for purposes of making operating decisions, allocating resources, and evaluating financial performance.
Equity-based Compensation
The Company accounts for equity-based employee compensation arrangements in accordance with U.S. GAAP, which requires compensation expense for the grant-date fair value of equity-based awards to be recognized over the requisite service period. The Company determines the fair value of equity-based awards granted or modified on the grant date or modification date using appropriate valuation techniques. Forfeitures are estimated using historical experience at the time of grant and revised in subsequent periods if actual forfeitures differ from initial estimates.
Prior to the IPO, the grant-date fair value of equity-based awards was primarily determined using the estimated fair value of the Company's previously issued common units. Common unit fair value estimates were developed by considering numerous objective and subjective factors that required judgment. Subsequent to the IPO, the Company determines the fair value of its Class A common stock using the market closing price on the grant date.
During the first quarter of 2021, the Company changed its policy for recognizing equity-based compensation expense from the graded vesting attribution method of accounting to the straight-line attribution method of accounting for its equity-based compensation arrangements with service only vesting conditions. For additional information, see Note 2 — "Change in Accounting Principle."
Restricted Stock Units
The Company had previously granted restricted equity units under its 2011 Equity Incentive Plan (“2011 Plan”), which vest upon the satisfaction of both a service-based condition and a performance-based condition. In connection with the Company’s Corporate Conversion, the outstanding awards were converted into restricted stock units (“RSUs”). Following the IPO and Corporate Conversion, the Company has granted RSUs that vest upon the satisfaction of a service-based condition as defined in the Company’s 2021 Equity Incentive Plan (“2021 Plan”). The grant-date fair value of each RSU, net of estimated forfeitures, is recognized as expense over the requisite service period.
Stock Options
The Company had previously granted unit options under the 2011 Plan, which vest over a service period of generally four years. In connection with the Company’s Corporate Conversion, the outstanding awards were converted into stock options. The grant-date fair value of each stock option award, net of estimated forfeitures, is recognized as expense over the requisite service period. The Company estimates the fair value of stock options granted using the Black-Scholes option-pricing model, which requires the input of subjective assumptions, including the expected stock price volatility over the expected term of the award, actual and projected employee stock option exercise behaviors, the risk-free interest rate for the expected term of the award, and expected dividends. The risk-free interest rate is based on the yields of U.S. Treasury securities with maturities similar to the expected term of the options for each option group. The assumptions used to determine the fair value of the option awards
10


represent management’s best estimates. These estimates involve inherent uncertainties and the application of management’s judgment.
Profits Interests
Prior to the IPO, the Company granted common units designated as PIUs that vested upon the satisfaction of a service-based condition and with respect to certain awards, which vesting accelerated upon the occurrence of the IPO. The grant-date fair value of the PIUs, net of estimated forfeitures, were recognized as expense over the requisite service period.
Concentration of Credit Risk
Cash and cash equivalents, restricted cash and accounts receivable are potentially subject to concentration of credit risk. Cash and cash equivalents, and restricted cash are placed with several financial institutions that management believes are of high credit quality, of which 69% were held at three financial institutions as of June 30, 2021. The Company’s gross accounts receivable include amounts concentrated with four payment processing companies representing 55% of gross accounts receivable at June 30, 2021.
Recent Accounting Pronouncements Adopted
In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” which removes certain exceptions for performing intraperiod allocation, recognizes deferred taxes for investments, and calculates income taxes in interim periods. The standard reduces complexity in certain areas, including franchise taxes that are partially based on income and accounting for tax law changes in interim periods. The ASU is effective for public companies for fiscal years beginning after December 15, 2020, with early adoption permitted. We adopted this ASU effective January 1, 2021. The adoption of the ASU did not have a material impact on our condensed consolidated financial statements.
Recent Accounting Pronouncements Yet To Be Adopted
In August 2020, the FASB issued ASU 2020-06, “Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40).” The standard reduces the number of models used to account for convertible instruments, amends diluted earnings per share (“EPS”) calculations for convertible instruments, and amends the requirements for a contract (or embedded derivative) that is potentially settled in an entity's own shares to be classified in equity. The amendments add certain disclosure requirements to increase transparency and decision-usefulness about a convertible instrument's terms and features. Under the amendment, the Company must use the if-converted method for including convertible instruments in diluted EPS as opposed to the treasury stock method. The ASU is effective for public companies for fiscal years beginning after December 15, 2021. Early adoption is allowed under the standard with either a modified retrospective or full retrospective method. The Company does not expect a material impact from the adoption of the ASU on our condensed consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” In January 2021, the FASB clarified the scope of this guidance with the issuance of ASU 2021-01, “Reference Rate Reform: Scope.” ASU 2020-04 provides optional expedients and exceptions to account for contracts, hedging relationships and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate if certain criteria are met. ASU 2020-04 may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. The Company is currently evaluating future impacts that may result from the potential adoption of ASU 2020-04.
2.     Change in Accounting Principle
In the first quarter of 2021, the Company changed its policy for recognizing equity-based compensation expense from the graded vesting attribution method of accounting to the straight-line attribution method of accounting for its equity-based compensation arrangements with service only vesting conditions.
The Company believes the straight-line attribution method of accounting for equity-based compensation expense for awards with service only vesting conditions is preferable because it more appropriately reflects how awards are earned over an employee’s service period and is the predominant method used in its industry.
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Comparative financial statements for prior periods have been adjusted to apply the straight-line attribution method retrospectively. The following table presents the comparative effect of the change in accounting method and its impact on the Company’s condensed consolidated statements of operations:
Three Months Ended June 30, 2020Six Months Ended June 30, 2020
(in thousands, except for per share amounts)
As ReportedAs AdjustedAs ReportedAs Adjusted
Total net revenues$2,614,080 $2,614,080 $5,027,339 $5,027,339 
Cost of sales2,174,377 2,174,345 4,157,368 4,157,309 
Operating, general and administrative537,877 534,953 1,043,692 1,038,885 
Total operating cost and expenses2,712,254 2,709,298 5,201,060 5,196,194 
Operating loss(98,174)(95,218)(173,721)(168,855)
Loss before income taxes(104,922)(101,966)(212,062)(207,196)
Income tax expense84 84 207 207 
Net loss(105,006)(102,050)(212,269)(207,403)
Net loss attributable to Class A and Class B common stockholders$(162,869)$(159,913)$(305,003)$(300,137)
Net loss attributable to Class A and Class B common stockholders per share, basic and diluted(1)
$(5.91)$(5.81)$(11.74)$(11.56)
Weighted-average number of Class A and Class B common shares outstanding used in computing per share amounts, basic and diluted(1)
27,53927,53925,97425,974
Comprehensive loss$(104,368)$(101,412)$(213,881)$(209,015)
____________
(1)As reported net loss per share reflects the retrospective adjustments from the Corporate Conversion described in Note 14 — "Net Loss per Share."
The following table presents the comparative effect of the change in accounting method and its impact on the Company’s condensed consolidated balance sheets:
As of December 31, 2020
(in thousands)As ReportedAs Adjusted
Stockholders'/members’ equity (deficit)
Common units$54,950 $45,122 
Additional paid-in capital25,036 25,036 
Accumulated other comprehensive loss(31,093)(31,093)
Accumulated deficit(4,117,755)(4,107,927)
Total stockholders'/members’ equity (deficit)$(4,068,862)$(4,068,862)
There was no net impact to the amounts reported for net cash used in/provided by operating, investing or financing activities in the condensed consolidated statements of cash flows for prior periods as a result of the change in accounting method. However, for the six months ended June 30, 2020, net loss and equity-based compensation expense in cash flows from operating activities each decreased $5 million to reflect the change in accounting method. The cumulative effect of the change in accounting method had no net impact on stockholders’/members’ equity (deficit) as of January 1, 2020, the beginning of the earliest year presented in the condensed consolidated financial statements.
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3.    Net Revenues
Details of total net revenues were as follows:
Three Months Ended June 30,Six Months Ended June 30,
(in thousands)2021202020212020
Net retail sales$3,994,506 $2,421,448 $7,801,549 $4,657,910 
Third-party merchant services430,231 162,499 781,165 314,011 
Other revenue53,377 30,133 102,260 55,418 
Total net revenues$4,478,114 $2,614,080 $8,684,974 $5,027,339 

This level of revenue disaggregation takes into consideration how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. Net retail sales are recognized from online product sales to consumers. Third-party merchant services represent commissions, advertising, and delivery fees earned from merchants that sell their products through the Company’s online business. Other revenue includes revenue earned from our various other offerings.
Contract liabilities consist of deferred revenue and liabilities from customer loyalty credits, which are included in accrued expenses on the condensed consolidated balance sheets. The Company recognized revenue of $60 million and $27 million for the six months ended June 30, 2021 and 2020, respectively, which were included in deferred revenue on the consolidated balance sheets as of December 31, 2020 and 2019, respectively. Revenue recognized from customer loyalty program liabilities as of December 31, 2020 and 2019 were not material for the six months ended June 30, 2021 and 2020, respectively.

4.    Property and Equipment, net
The following summarizes the Company’s property and equipment, net:
(in thousands)
June 30, 2021December 31, 2020
Land$147,698 $142,403 
Buildings80,953 181,529 
Equipment and furniture484,780 473,775 
Leasehold improvements236,244 172,864 
Vehicles161,536 165,073 
Software34,954 48,136 
Construction in progress246,082 169,789 
Property and equipment, gross1,392,247 1,353,569 
Less: Accumulated depreciation and amortization(336,515)(335,622)
Property and equipment, net$1,055,732 $1,017,947 

For the three months ended June 30, 2021 and 2020, depreciation and amortization expense on property and equipment was $47 million and $28 million, respectively. For the six months ended June 30, 2021 and 2020, depreciation and amortization expense on property and equipment was $94 million and $53 million, respectively.
Property and equipment under construction, which primarily consists of construction of fulfillment centers, is recorded as construction in progress until it is ready for its intended use; thereafter, it is transferred to the related class of property and equipment and depreciated over its estimated useful life.
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5.    Leases
The Company is obligated under operating leases primarily for vehicles, equipment, warehouses, and facilities that expire over the next eleven years. These leases generally contain renewal options. Because the Company is not reasonably certain to exercise these renewal options, or the renewal options are not solely within the Company’s discretion, the options are not considered in determining the lease term, and the associated potential option payments are excluded from expected minimum lease payments. The Company’s leases generally do not include termination options for either party or restrictive financial or other covenants.
The Company’s finance leases as of June 30, 2021 and December 31, 2020 were not material and are included in property and equipment, net, on the Company's condensed consolidated balance sheets.
The components of operating lease cost were as follows:
Three Months Ended June 30,Six Months Ended June 30,
(in thousands)2021202020212020
Operating lease cost$84,355 $43,809 $159,752 $77,328 
Variable and short-term lease cost7,907 4,836 16,889 9,980 
Total operating lease cost $92,262 $48,645 $176,641 $87,308 

Supplemental disclosure of cash flow information related to leases were as follows:
Six Months Ended June 30,
(in thousands)
20212020
Cash paid for the amount used to measure the operating lease liabilities$128,892 $63,377 
Operating lease assets obtained in exchange for lease obligations$358,204 $341,920 
Net increase (decrease) to operating lease ROU assets resulting from remeasurements of lease obligations$27,278 $(9,226)

The assumptions used to value leases for the periods presented were as follows:
June 30, 2021December 31, 2020
Operating leases weighted-average remaining lease term6.2 years6.2 years
Operating leases weighted-average discount rate6.03 %5.88 %
As of June 30, 2021, the Company had entered into operating leases that have not commenced with future minimum lease payments of $424 million, that have not been recognized on the Company's condensed consolidated balance sheets. These leases have non-cancellable lease terms of 2 to 10 years.
6.    Fair Value Measurement
Fair value represents the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP established a hierarchy framework to classify the fair value based on the observability of significant inputs to the measurement. The levels of the fair value hierarchy are as follows:
Level 1: Observable inputs such as quoted prices in an active market for identical assets or liabilities.
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Level 2: Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities in active markets, quoted prices in markets that are not active or inputs other than the quoted prices that are observable either directly or indirectly for the full term of the assets or liabilities.
Level 3: Unobservable inputs in which there is little or no market data and that are significant to the fair value of the assets or liabilities.
The following table summarizes the Company's financial assets and financial liabilities that are measured at fair value on a recurring basis:
June 30, 2021
(in thousands)Level 1Level 2Level 3Total
Financial assets:
Cash and cash equivalents
Money market trust$483,755 $— $— $483,755 
Money market funds35,293 — — 35,293 
Restricted cash
Time deposit107,500 — — 107,500 
Money market trust63,821 — — 63,821 
Long-term restricted cash
Time deposit1,929 — — 1,929 
Money market account2,501 — — 2,501 
Total financial assets$694,799 $— $— $694,799 

December 31, 2020
(in thousands)Level 1Level 2Level 3Total
Financial assets:
Cash and cash equivalents
Money market trust$629,393 $— $— $629,393 
Money market funds35,641 — — 35,641 
Restricted cash
Time deposit144,949 — — 144,949 
Other current assets
Time deposit18,382 — — 18,382 
Long-term restricted cash
Time deposit4,898 — — 4,898 
Total financial assets$833,263 $— $— $833,263 
Financial liabilities:
Derivative instrument$— $— $— $— 
Total financial liabilities$— $— $— $— 

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The following table summarizes information about the significant unobservable inputs used in the fair value measurement of the Company’s derivative instrument:
(in thousands)
December 31, 2020
Fair ValueValuation TechniqueUnobservable InputsInput Amount
Derivative instrument$— Valuation of convertible notes with and without the derivative instrument. Incorporates a discounted cash flow model and option pricing model.Discount rate14 %
Equity value: Long-term revenue growth rate3.5 %
Equity value: Revenue market multiple
1.3x - 1.5x
7.    Short-Term Borrowings and Long-Term Debt
Details of carrying amounts of short-term borrowings were as follows:
(in thousands)Borrowing LimitJune 30, 2021December 31, 2020
Maturity DateInterest rate (%)
January 07, 2022
CD interest rate (91 days) + 3.25
$132,744 $132,744 $137,868 
December 06, 2021 – June 25, 20223.25 –4.0043,672 39,955 19,117 
Total principal short-term borrowings $176,416 $172,699 $156,985 
Less: unamortized discounts(331)(307)
Total short-term borrowings $172,368 $156,678 

The Company’s short-term borrowings generally include lines of credit with financial institutions to be drawn upon for general operating purposes.
In December 2019, the Company entered into a one-year revolving facility agreement, secured by the Company’s inventori4es. As of June 30, 2021, the $133 million revolving facility was secured by $1.2 billion of the Company’s inventories. Prior to the expiration of the original term of the revolving facility in January 2021, the Company exercised an option that allowed it to extend the maturity of the borrowing facility for an additional 364 days from the expiration date. The revolving facility bears interest at the average of final quotation yield rates for 91-day KRW-denominated bank certificate of deposit (“CD interest rate”) plus 3.25%, and has a commitment fee of 0.75% on the undrawn portion. Under the facility agreement, Coupang Corp., one of the Company’s wholly-owned subsidiaries, is restricted from loaning money to its parent, Coupang, Inc.
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Details of carrying amounts of long-term debt were as follows:
(in thousands)June 30, 2021December 31, 2020
Maturity DateInterest rate (%)Borrowing Limit
February 27, 2024(1)
(5)
$1,000,000 $— $— 
July 21, 2021 – March 26, 2023(2)
3.10 –5.1045,335 34,357 50,713 
November 28, 2021(3)
5.208,402 8,402 19,199 
December 23, 2021 – April 4, 2022(4)
3.50 –8.50478,762 433,982 354,963 
Total principal long-term debt$1,532,499 $476,741 $424,875 
Less: current portion of long-term debt(470,404)(67,576)
Less: unamortized discounts(2,205)(3,957)
Total long-term debt$4,132 $353,342 
_____________
(1)Relates to the Company’s new revolving credit facility as described below.
(2)The Company entered into various loan agreements with fixed interest rates for general operating purposes.
(3)In November 2019, the Company entered into a fixed-rate term loan facility agreement, secured by certain of the Company’s accounts receivable. At June 30, 2021, the Company had $3 million deposited in a trust account for repayment guarantee purposes, which is classified as short-term restricted cash on the condensed consolidated balance sheets. Principal and interest are to be paid on a monthly basis.
(4)In March 2017, the Company entered into a term loan facility agreement. As of June 30, 2021, the Company was required to pledge $345 million of certain land, building, inventories, and short-term financial instruments as collateral against any borrowed amounts. However, as a result of the FC Fire, the building and inventories were extensively damaged, and on August 4, 2021, the Company amended the agreement to be a cash-secured loan. Interest accrues at fixed rates on outstanding borrowings under separate tranches within the term loan facility. Additionally, as of June 30, 2021, the Company had deposited $7 million into time deposits, which is classified as short-term restricted cash. Principal is to be paid at maturity and interest is to be paid on a quarterly basis.
(5)Borrowings under the new revolving credit facility bear interest, at the Company’s option, at a rate per annum equal to (i) a base rate equal to the highest of (A) the prime rate, (B) the higher of the federal funds rate or a composite overnight bank borrowing rate plus 0.50%, or (C) an adjusted LIBOR for a one-month interest period plus 1.00% or (ii) an adjusted LIBOR plus a margin equal to 1.00%.
During February 2021, the Company entered into a new three-year senior unsecured credit facility (the “new revolving credit facility”) providing for revolving loans in an aggregate principal amount of up to $475 million (which automatically increased to an aggregate principal amount of $950 million based on the Company receiving at least $2.0 billion in net proceeds from its IPO). The new revolving credit facility provides the Company the right to request incremental commitments up to $1.25 billion, subject to customary conditions. During March 2021, the aggregate principal amount of the Company’s new revolving credit facility increased to an aggregate principal amount of $1.0 billion as a result of its IPO. As of June 30, 2021, there was no balance outstanding on the new revolving credit facility.
The new revolving credit facility contains customary affirmative and negative covenants, including certain financial covenants. The new revolving credit facility is guaranteed on a senior unsecured basis by all material restricted subsidiaries of the Company, subject to customary exceptions. Borrowings under the new revolving credit facility are not permitted to the extent any amounts are drawn under our existing revolving credit facility.
The Company was in compliance with the covenants for each of its borrowings and debt agreements as of June 30, 2021, except for its term loan facility agreement of $265 million due April 4, 2022. As a result of the FC Fire described in Note 1 — "Basis of Presentation and Summary of Significant Accounting Policies," the building and inventories pledged as collateral were extensively damaged resulting in collateral falling below the required minimums. The term loan facility agreement was amended on August 4, 2021, to replace the original collateral with $203 million in cash secured as collateral and to repay $71 million of outstanding principal balance. The amendment, which took place within the cure period, subsequently resulted in the Company being in compliance with its term loan facility agreement.
During August 2021, the Company entered into a new $177 million three-year term loan agreement. The Company pledged $212 million of certain land and buildings as collateral against the loan. The loan bears interest at a fixed rate of 3.155%.
The Company’s long-term debt is recorded at amortized cost. The fair value is estimated using Level 2 inputs based on the Company’s current interest rate for similar types of borrowing arrangements. The carrying amount of the long-term debt approximates its fair value as of June 30, 2021 and December 31, 2020 due primarily to the interest rates approximating market interest rates.
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Future principal payments for long-term debt as of June 30, 2021 were as follows:
(in thousands)
Long-term debt
Remainder of 2021$39,128 
2022437,380 
2023233 
2024— 
2025— 
Thereafter— 
Total$476,741 
8.    Convertible Notes and Derivative Instrument
From February 23, 2018 to May 16, 2018, the Company issued convertible notes in an aggregate principal amount of $502 million (total proceeds of $507 million, which included a total net funding premium at issuance), the majority of which were purchased by existing unitholders of the Company’s preferred units, with a maturity equal to the earlier of (a) the fourth anniversary from the first issuance date, (b) the consummation of a liquidity event, or (c) upon an event of default, as defined in the LLC Agreement. In connection with the Company’s IPO in March 2021, the principal balance and the accrued interest on the convertible notes were automatically converted into 171,750,446 shares of the Company’s Class A common stock.
The convertible notes had an annual effective interest rate of 16.99%. The Company did not incur interest expense on the convertible notes for the three months ended June 30, 2021. The Company recorded interest expense from its convertible notes for the three months ended June 30, 2020 of $22 million, consisting of $14 million of contractual interest expense and $8 million of debt discount amortization. The Company recorded interest expense from its convertible notes for the six months ended June 30, 2021 and 2020 of $20 million and $43 million, respectively, consisting of $15 million and $27 million of contractual interest expense and $5 million and $16 million of debt discount amortization, respectively.
The convertible notes contained embedded derivatives that allowed or required the holders of the convertible notes to convert them into a variable number of the Company’s equity securities for a value equal to a significant premium over the then principal and accrued interest balance. These embedded derivatives were bifurcated and accounted for separately as a single, compound derivative instrument. The convertible notes did not convert to common shares based on this embedded feature, rather they converted based on a price calculated by dividing $6.3 billion with the number of common equity securities, on an as-converted and as-exercised basis, outstanding on the closing of the IPO. Following the convertible notes conversion to shares of Class A common stock, the embedded derivatives no longer exist. There was no change in fair value of the derivative instrument during the six months ended June 30, 2021. The change in fair value of the derivative instrument resulted in a gain of $17.8 million and a loss of $(0.1) million for the three and six months ended June 30, 2020, respectively, which was recognized in the condensed consolidated statements of operations and comprehensive loss within “Other income (expense), net.”
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9.    Commitments and Contingencies
Commitments
The following summarizes the Company’s minimum contractual commitments as of June 30, 2021:
(in thousands)Unconditional purchase obligations (unrecognized)Long-term debt (including interest)Operating leasesTotal
Remainder of 2021$83,843 $50,210 $155,960 $290,013 
2022116,809 446,356 305,755 868,920 
202395,011 234 270,126 365,371 
202490,116 — 234,556 324,672 
202590,000 — 183,873 273,873 
Thereafter30,000 — 456,316 486,316 
Total undiscounted payments$505,779 $496,800 $1,606,586 $2,609,165 
Less: lease imputed interest(288,481)
Total lease commitments$1,318,105 

Unconditional purchase obligations include legally binding contracts with terms in excess of one year that are not reflected on the consolidated balance sheets. These contractual commitments primarily relate to technology related service contracts and software licenses. For contracts with variable terms, we do not estimate the total obligation beyond any minimum pricing as of the reporting date.
Legal Matters
From time to time, the Company may become party to litigation incidents in the ordinary course of business. The Company assesses the likelihood of any adverse judgments or outcomes with respect to these matters and determines loss contingency assessments on a gross basis after assessing the probability of incurrence of a loss and whether a loss is reasonably estimable. In addition, the Company considers other relevant factors that could impact its ability to reasonably estimate a loss. A determination of the amount of reserves required, if any, for these contingencies is made after analyzing each matter. The Company's reserves may change in the future due to new developments or changes in strategy in handling these matters. Although the results of litigation and claims cannot be predicted with certainty, the Company currently believes that the final outcome of legal matters will not have a material adverse effect on its business, consolidated financial position, results of operations, or cash flows. Regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources, and other factors.
10.    Redeemable Convertible Preferred Units and Stockholders'/Members' Equity (Deficit)
Prior to the Corporate Conversion, the Company’s Limited Liability Company Agreement (“LLC Agreement”), as amended and restated on April 11, 2019, authorized the issuance of 1,448,632,049 preferred units, which were convertible into the same number of common voting units issued upon conversion of the preferred units, as well as the issuance of 264,166,544 common units.
Pursuant to the Corporate Conversion and IPO:
•1,196,605,432 preferred units and 85,579,584 common units (which include 22,443,220 PIUs), in each case, automatically converted into an equal number of shares of Class A common stock, except with respect to a conversion adjustment which reduced the outstanding common units designated as PIUs by 75,862 common units, and excluding any such preferred units and common units (including any PIUs) held by Mr. Bom Suk Kim; and
•132,859,550 preferred units held by Mr. Kim and 43,143,440 common units (all of which were designated as PIUs) held by Mr. Kim, in each case, converted into an equal number of shares of Class B common stock.
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On March 15, 2021, the Company completed its IPO, in which it issued and sold 100,000,000 shares of its Class A common stock at a price of $35.00 per share. The Company received net proceeds of approximately $3.4 billion from its IPO after deducting underwriting discounts of $69 million and other offering costs. Also, the owner of our Class B common stock converted 1,200,000 shares of Class B common stock into Class A common stock, which were sold in the IPO.
Our certificate of incorporation provides for two classes of common stock, and authorizes shares of undesignated preferred stock, the rights, preferences, and privileges of which may be designated from time to time by our board of directors. Our authorized capital stock consists of 10,000,000,000 shares of Class A common stock, par value $0.0001 per share; 250,000,000 shares of Class B common stock, par value $0.0001 per share; and 2,000,000,000 shares of undesignated preferred stock, par value $0.0001 per share. No preferred stock was issued and outstanding as of June 30, 2021 and December 31, 2020.
The shares of Class A common stock and Class B common stock are identical, except with respect to voting, conversion, and transfer rights. Each share of Class A common stock is entitled to one vote. Each share of Class B common stock is entitled to twenty-nine votes. In addition, each share of our Class B common stock will convert automatically into one share of our Class A common stock upon any transfer, whether or not for value, except certain transfers to entities, to the extent the transferor retains sole dispositive power and exclusive voting control with respect to the shares of Class B common stock.
Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss includes all changes in equity during a period that have yet to be recognized in income. The major components are foreign currency translation adjustments and actuarial gains (losses) on the Company’s defined severance benefits. As of June 30, 2021 and December 31, 2020, the ending balance in accumulated other comprehensive loss related to foreign currency translation adjustments was $10 million and $(4) million, respectively, and the amount related to actuarial gains (losses) on defined severance benefits was $(36) million and $(27) million, respectively.
11.    Equity-based Compensation Plans
Our board of directors adopted the 2021 Plan in February 2021, which was approved by our stockholders in February 2021. The 2021 Plan provides for the granting of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance awards, and other equity-based awards (or the cash equivalent thereof). Initially, the maximum number of shares of the Company’s Class A common stock that may be issued under the 2021 Plan is 215,103,732 shares. In addition, the number of shares of the Company’s Class A common stock reserved for issuance under the 2021 Plan may be increased on January 1 of each calendar year, starting on January 1, 2022 through January 1, 2031, in an amount equal to 5% of the total number of shares of the Company’s capital stock outstanding on the last day of the calendar month before the date of each automatic increase, or a lesser number of shares determined by the Company’s board of directors.
Shares subject to stock awards granted under the 2021 Plan that expire or terminate without being exercised in full, or that are paid out in cash rather than in shares, do not reduce the number of shares available for issuance under the 2021 Plan. Additionally, shares become available for future grant under the 2021 Plan if they were issued under stock awards under the 2021 Plan and the Company repurchases them or they are forfeited.
RSUs
The Company had previously granted restricted equity units under the 2011 Plan, which vest upon the satisfaction of both a service-based condition and a performance-based condition. In connection with the Company’s Corporate Conversion and IPO, the outstanding awards were converted into RSUs.
For the RSUs with the performance condition satisfied upon the completion of the Company’s IPO, the Company recorded $41 million in equity-based compensation expense for the six months ended June 30, 2021, consisting primarily of a cumulative catch-up adjustment related to such awards based on the full or partial fulfillment of requisite service periods. Unrecognized equity-based compensation expense related to these awards will be recorded over the remaining requisite service period.
During the six months ended June 30, 2021, the Company granted 14.0 million RSUs. The weighted-average grant-date fair value of these RSUs was $32.89. RSUs generally vest over 2 to 4 years from the vesting start date, subject to the recipient remaining an employee of the Company at each vesting date.
As of June 30, 2021, the Company had $461 million of unamortized compensation costs related to all unvested RSU awards. The unamortized compensation costs are expected to be recognized over a weighted-average period of approximately 3.2 years, net of estimated forfeitures.
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Stock Options
The Company had previously granted unit options under the 2011 Plan, which vest upon the satisfaction of a service-based condition. In connection with the Company’s Corporate Conversion and IPO, the outstanding awards were converted into stock options.
The Company’s stock options are granted with exercise prices equal to the estimated fair value of the common shares at the date of grant. The stock options generally expire ten years from the grant date. During the six months ended June 30, 2021, the Company granted 6.6 million options. The weighted-average grant-date fair value of these options was $8.83. Outstanding vested stock options were 11.0 million and 31.2 million as of June 30, 2021 and December 31, 2020, respectively.
The total unrecognized compensation expense related to unvested stock options was $61 million, which will be recognized over the weighted-average remaining service period of approximately 2.5 years, net of estimated forfeitures.
PIUs
Prior to the IPO, the Company granted common units designated as PIUs that vested upon the satisfaction of a service-based condition and with respect to certain awards, vesting accelerates upon the occurrence of an IPO. Holders of vested PIUs had similar rights to those of common unit holders. The PIUs (with the exception of those granted to the Company’s Chief Executive Officer, which convert into an equal number of shares of Class B common stock) convert to shares of Class A common stock at a ratio based on the excess of the per common unit value of the Company at the time of a Corporate Conversion over the per common unit value designated at the grant date of the PIUs (the participation threshold), as specified in the underlying award agreements. All outstanding PIUs automatically converted into 22,367,358 shares of Class A common stock and 43,143,440 shares of Class B common stock at the time of the Corporate Conversion. Furthermore, the accelerated vesting condition of all unvested PIUs were satisfied upon the completion of the Company's IPO and thus, the Company recorded $25 million in equity-based compensation related to the accelerated vesting of PIUs for the six months ended June 30, 2021. The Company did not incur equity-based compensation related to PIUs for the three months ended June 30, 2021.
Equity-based Compensation Expense
Stock options and RSUs are measured at the estimated fair value on the measurement date, which is typically the grant date. In the first quarter of 2021, the Company changed its policy for recognizing equity-based compensation expense from the graded vesting attribution method of accounting to the straight-line attribution method of accounting for its equity-based compensation arrangements with service only vesting conditions. For additional information, see Note 2 — "Change in Accounting Principle."
The following table presents the effects of equity-based compensation, as retrospectively adjusted for the change in accounting principle described above, in the condensed consolidated statements of operations and comprehensive loss:
Three Months Ended June 30,Six Months Ended June 30,
(in thousands)2021202020212020
Cost of sales$2,744 $103 $4,353 $285 
Operating, general and administrative47,602 10,242 132,959 16,440 
Total$50,346 $10,345 $137,312 $16,725 
12.    Income Taxes
The Company’s tax provision or benefit from income taxes for interim periods is determined using an estimate of our annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter we update our estimate of the annual effective tax rate, and if our estimated tax rate changes, we make a cumulative adjustment. No income tax benefit was accrued for jurisdictions where the Company anticipates incurring a loss during the full fiscal year as the related deferred tax assets were fully offset by a valuation allowance. The Company’s resulting effective tax rate differs from the applicable statutory rate primarily due to the valuation allowance against its deferred tax assets.
The Company is subject to income taxation through certain of its subsidiaries predominantly in the United States, China, South Korea, and Singapore.
Income tax expense for the three months ended June 30, 2021 and 2020 was $0.1 million and $0.1 million, respectively. Income tax expense for the six months ended June 30, 2021 and 2020 was $0.1 million and $0.2 million, respectively.
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Significant judgment is required in evaluating the Company’s tax positions and determining its provision for income taxes. The impacts of uncertain tax positions are recognized only after determining a more-likely-than-not probability that the uncertain tax positions will not withstand challenge, if any, from the relevant taxing authorities. The Company did not have any material uncertain tax positions as of June 30, 2021 and 2020.
13.    Defined Severance Benefits
Defined severance benefits are for employees of the Company’s Korean subsidiaries. The Korean subsidiaries offer defined benefits to provide severance payments to all employees that leave the Company based on employment length and pay rate.
The following table provides the components of net periodic benefit costs and the portion of these costs charged to expense:
Three Months Ended June 30,Six Months Ended June 30,
(in thousands)
2021202020212020
Current service costs$32,224 $14,758 $62,779 $29,179 
Interest expense591 316 1,185 640 
Amortization of:
Prior service credit23 — 46 — 
Net actuarial loss918 36 2,018 73 
Net periodic benefit costs charged to expense$33,756 $15,110 $66,028 $29,892 
s
14.    Net Loss per Share
The Company computes net loss per share using the two-class method required for multiple classes of common stock and participating securities. As the liquidation and dividend rights are identical, the undistributed earnings or loss are allocated on a proportionate basis to each class of common stock, and the resulting basic and diluted net loss per share attributable to common stockholders are therefore the same for Class A and Class B common stock on both an individual and a combined basis. Basic net loss per share is computed using the weighted-average number of shares of Class A and Class B common stock outstanding during the period. Diluted net loss per share is computed using the weighted-average number of shares of Class A and Class B common stock and potentially dilutive Class A and Class B potential common shares outstanding during the period. The Company's basic and diluted net loss per share are the same because the Company has generated net loss to common stockholders. During the three and six months ended June 30, 2020, the Company repurchased certain preferred units at a premium over the carrying values, which increased net loss attributable to common stockholders.
As discussed in Note 1 — "Basis of Presentation and Summary of Significant Accounting Policies," immediately prior to the IPO, the Company completed the Corporate Conversion. The Corporate Conversion resulted in a change of equity interests from common units to shares of common stock, but no change in relative shareholder rights, rank, or value before and after this reorganization transaction. As such, the Corporate Conversion of common units was considered equivalent to a stock split and requires retrospective treatment for net loss per share purposes. All share and per share information has been retroactively adjusted to reflect the Corporate Conversion for all periods presented. PIUs outstanding prior to the Corporate Conversion were considered compensatory arrangements that were settled with shares of Class A or Class B common stock at the time of the Corporate Conversion and have been included as outstanding shares subsequent to that date. Similarly, any preferred units that were converted in accordance with their terms into shares of Class A or Class B common stock at the time of the Corporate Conversion have also been included as outstanding shares subsequent to that date.
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The following table presents the calculation of basic and diluted net loss per share:
Three Months Ended June 30,Six Months Ended June 30,
(in thousands, except per share amounts)
2021202020212020
Numerator:
Net loss$(518,601)$(102,050)$(813,634)$(207,403)
Less: premium on repurchase of redeemable convertible preferred units— (57,863)— (92,734)
Net loss attributable to Class A and Class B common stockholders$(518,601)$(159,913)$(813,634)$(300,137)
Denominator:
Weighted-average shares used in computing net loss per share attributable to Class A and Class B common stockholders, basic and diluted1,743,109 27,539 1,092,626 25,974 
Net loss attributable to Class A and Class B common stockholders per share, basic and diluted$(0.30)$(5.81)$(0.74)$(11.56)

The following have been excluded from the computation of basic and diluted net loss per share attributable to Class A and Class B common stockholders as their effect would have been anti-dilutive:
Three Months Ended June 30,Six Months Ended June 30,
(in thousands of equivalent common shares)
2021202020212020
Convertible debt— 160,011 — 160,011 
Redeemable convertible preferred units— 1,329,465 — 1,329,465 
Equity compensation awards47,817 63,603 53,968 62,027 
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Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q (“Form 10-Q”), as well as our consolidated financial statements and related notes included in our final prospectus filed with the Securities and Exchange Commission (the “SEC”) pursuant to Rule 424(b) under the Securities Act of 1933, as amended (“Securities Act”), (File No. 333-253030) on March 11, 2021 (“Final Prospectus”). This discussion, particularly information with respect to our future results of operations or financial condition, business strategy and plans, and objectives of management for future operations, includes forward-looking statements that involve risks and uncertainties as described under the heading “Special Note Regarding Forward-Looking Statements” in this Form 10-Q. You should review the disclosure in Part II—Item 1A. "Risk Factors" in this Form 10-Q for a discussion of important factors that could cause our actual results to differ materially from those anticipated in these forward-looking statements.
Overview
We are a leading e-commerce player in Korea. We believe that we are the preeminent online destination for e-commerce in the market because of our broad selection, low prices, and exceptional convenience across our owned inventory selection as well as products offered by third-party merchants. Our unique end-to-end fulfillment, logistics, and technology network enables Rocket Delivery, which provides free, next-day delivery for orders placed anytime of the day, even seconds before midnight—across millions of products. Our structural advantages from complete end-to-end integration, investments in technology, and scale economies generate higher efficiencies that allow us to pass savings to customers in the form of lower prices.
Initial Public Offering
On March 15, 2021, we completed our initial public offering (“IPO”) in which we issued and sold 100,000,000 shares of our Class A common stock at an IPO price of $35.00 per share. We received net proceeds of $3.4 billion after deducting underwriting discounts of $69 million and other offering costs.
Immediately prior to effectiveness of the Company’s IPO registration statement on Form S-1, Coupang, LLC, a Delaware limited liability company, converted into a Delaware corporation pursuant to a statutory conversion, which changed our name to Coupang, Inc. (“Corporate Conversion”).
As a result of the Corporate Conversion and IPO, our redeemable convertible preferred units (“preferred units”) and common units (which included common units designated as profits interests (“PIUs”)), in each case, automatically converted into an equal number of shares of Class A or Class B common stock, except with respect to a conversion adjustment to certain PIUs, which reduced the outstanding common units designated as PIUs that converted into the shares of Class A common stock. Also, our convertible notes were automatically converted into 171,750,446 shares of our Class A common stock. For additional information related to the Corporate Conversion and IPO, see Note 10 — "Redeemable Convertible Preferred Units and Stockholders'/Members' Equity (Deficit)" and Note 8 — "Convertible Notes and Derivative Instrument."
Fulfillment Center Fire
On June 17, 2021, a fire extensively damaged our Deokpyeong fulfillment center (“FC Fire”), resulting in a loss of the building, equipment, inventory, and other assets at the site. Inventory and property and equipment losses from the FC Fire of $158 million and $127 million were recognized in “Cost of sales” and “Operating, general and administrative”, respectively, for the three and six months ended June 30, 2021. Whether and to what extent we may recover insurance proceeds to cover these losses is currently unknown, and as such, no insurance recoveries have been recognized. We have also accrued for other costs directly related to the FC Fire of $11 million. The FC Fire resulted in an increase to our net loss of $296 million (“FC Fire Losses”) for the three and six months ended June 30, 2021.
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Key Financial and Operating Highlights:
(in thousands)Three Months Ended June 30,Six Months Ended June 30,
20212020% Change20212020% Change
Total net revenues$4,478,114 $2,614,080 71 %$8,684,974 $5,027,339 73 %
Total net revenues, constant currency(1)
$4,115,480 $2,735,098 57 %$8,041,965 $5,295,330 60 %
Gross profit(2)
$658,494 $439,735 50 %$1,391,000 $870,030 60 %
Net loss(4)
$(518,601)$(102,050)
NM(3)
$(813,634)$(207,403)
NM(3)
Net loss margin(11.6)%(3.9)%(9.4)%(4.1)%
Adjusted EBITDA(1)
$(122,147)$(57,030)114 %$(255,113)$(98,875)158 %
Adjusted EBITDA margin(1)
(2.7)%(2.2)%(2.9)%(2.0)%
Net cash provided by (used in) operating activities$30,883 $(240,010)(113)%$(152,466)$74,710 
NM(3)
Free cash flow(1)
$(137,687)$(272,851)(50)%$(467,837)$(26,191)
NM(3)
Trailing twelve months ended June 30,
(in thousands)20212020% Change
Net cash provided by operating activities$74,378 $47,068 58 %
Free cash flow(1)
$(624,215)$(196,005)
NM(3)
_____________
(1)Total net revenues, constant currency; total net revenues growth, constant currency; adjusted EBITDA; adjusted EBITDA margin; and free cash flow are non-GAAP measures. See “Non-GAAP Financial Measures and Reconciliations” below for the reconciliation of the Non-GAAP measures with their comparable amounts prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
(2)Gross profit is calculated as total net revenues minus cost of sales, and includes $158 million related to inventory losses from the FC Fire for the three and six months ended June 30, 2021.
(3)Non-meaningful.
(4)Net loss includes $296 million related to FC Fire Losses for the three and six months ended June 30, 2021.
Key Business Metrics and Non-GAAP Financial Measures
We review the key business and financial metrics discussed below. We use these measures to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans, and make strategic decisions.
Key Business Metrics
Three Months Ended
(in thousands, except net revenues per Active Customer)June 30, 2020September 30, 2020December 31, 2020March 31, 2021June 30, 2021
Active Customers13,487 13,987 14,850 16,037 17,022 
Total net revenues per Active Customer$194 $224 $256 $262 $263 
Active Customers
As of the last date of each reported period, we determine our number of Active Customers by counting the total number of individual customers who have ordered at least once directly from our apps or websites during the relevant period. A customer is anyone who has created an account on our apps or websites, identified by a unique email address. The change in Active Customers in a reported period captures both the inflow of new customers as well as the outflow of existing customers who have not made a purchase in the period. We view the number of Active Customers as a key indicator of our potential for growth in total net revenues, the reach of our network, the awareness of our brand, and the engagement of our customers.
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Net Revenues per Active Customer
Net revenues per Active Customer is the total net revenues generated in a period divided by the total number of Active Customers in that period. A key driver of growth is increasing the frequency and the level of spend of Active Customers who are shopping on our apps or websites. We therefore view net revenues per Active Customer as a key indicator of engagement and retention of our customers and our success in increasing the share of wallet.
Non-GAAP Financial Measures and Reconciliations
We report our financial results in accordance with U.S. GAAP. However, management believes that certain non-GAAP financial measures provide investors with additional useful information in evaluating our performance. These non-GAAP financial measures may be different than similarly titled measures used by other companies.
Our non-GAAP financial measures should not be considered in isolation from, or as substitutes for, financial information prepared in accordance with U.S. GAAP. Non-GAAP measures have limitations in that they do not reflect all the amounts associated with our results of operations as determined in accordance with U.S. GAAP. These measures should only be used to evaluate our results of operations in conjunction with the corresponding U.S. GAAP measures.
Free Cash Flow
Free cash flow is defined as cash flow from operations less purchases of property and equipment, plus proceeds from sale of property and equipment. We believe that free cash flow is an additional and useful indicator of liquidity that provides information to management and investors about the amount of cash generated from our core operations that, after purchases of property and equipment, can be used for strategic initiatives, including investing in our business and strengthening our balance sheet. Free cash flow has limitations as an analytical tool and should not be considered in isolation or as substitutes for analysis of other U.S. GAAP financial measures, such as net cash provided by operating activities. A limitation of free cash flow is that it may be calculated differently by other companies in our industry, limiting its usefulness as a comparative measure. We expect our free cash flow to fluctuate in future periods as we invest in our business to support our plans for growth.
Adjusted EBITDA and Adjusted EBITDA Margin
During the first quarter of 2021, we began using adjusted EBITDA and adjusted EBITDA margin as non-GAAP financial measures. Adjusted EBITDA is defined as net income/(loss) 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. Adjusted EBITDA margin is defined as adjusted EBITDA as a percentage of total net revenues. We use adjusted EBITDA and adjusted EBITDA margin as key measures to evaluate and assess our performance and allocate internal resources. We believe adjusted EBITDA and adjusted EBITDA margin are frequently used by investors and other interested parties in evaluating companies in the e-commerce industry for period-to-period comparisons as they remove the impact of certain items that are not representative of our core business, such as material non-cash items and certain variable charges. However, other companies may calculate adjusted EBITDA and adjusted EBITDA margin in a manner different from ours and therefore they may not be directly comparable to similar terms used by other companies. Adjusted EBITDA and adjusted EBITDA margin are not measures of financial performance under U.S. GAAP and should not be considered as alternatives to cash flow from operating activities or as measures of liquidity or alternatives to net income/(loss) as indicators of operating performance or any other measures of performance derived in accordance with U.S. GAAP. Adjusted EBITDA and adjusted EBITDA margin have limitations as analytical tools, and you should consider them in addition to, and not in isolation or as substitutes, for analysis of our results as reported under U.S. GAAP.
Constant Currency Revenue and Constant Currency Revenue Growth
The effect of currency exchange rates on our business is an important factor in understanding period-to-period comparisons. Our financial reporting currency is the U.S. dollar (“USD”) and changes in foreign exchange rates can significantly affect our reported results and consolidated trends. For example, our business generates sales predominantly in Korean Won (“KRW”), which are favorably affected as the USD weakens relative to the KRW, and unfavorably affected as the USD strengthens relative to the KRW. We use constant currency revenue and constant currency revenue growth for financial and operational decision-making and as a means to evaluate comparisons between periods. We believe the presentation of our results on a constant currency basis in addition to U.S. GAAP results helps improve the ability to understand our performance because they exclude the effects of foreign currency volatility that are not indicative of our actual results of operations.
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Constant currency information compares results between periods as if exchange rates had remained constant. We define constant currency revenue as total revenue excluding the effect of foreign exchange rate movements, and use it to determine the constant currency revenue growth on a comparative basis. Constant currency revenue is calculated by translating current period revenues using the prior period exchange rate. Constant currency revenue growth (as a percentage) is calculated by determining the increase in current period revenue over prior period revenue, where current period foreign currency revenue is translated using prior period exchange rates.
These results should be considered in addition to, not as a substitute for, results reported in accordance with U.S. GAAP. Results on a constant currency basis, as we present them, may not be comparable to similarly titled measures used by other companies and are not a measure of performance presented in accordance with U.S. GAAP.
The following tables present the reconciliations from each U.S. GAAP measure to its corresponding non-GAAP measure for the periods noted:
Free Cash Flow
Three Months Ended June 30,Six Months Ended June 30,Trailing Twelve Months Ended June 30,
(in thousands)202120202021202020212020
Net cash provided by (used in) operating activities$30,883 $(240,010)$(152,466)$74,710 $74,378 $47,068 
Adjustments:
Purchases of property and equipment(168,665)(33,018)(315,496)(101,123)(699,003)(246,822)
Proceeds from sale of property and equipment95 177 125 222 410 3,749 
Free cash flow$(137,687)$(272,851)$(467,837)$(26,191)$(624,215)$(196,005)
Net cash used in investing activities$(155,099)$(34,531)$(305,581)$(98,737)$(727,498)$(241,362)
Net cash provided by (used in) financing activities$50,674 $(60,499)$3,556,358 $53,780 $3,681,080 $(13,708)

Adjusted EBITDA and Adjusted EBITDA Margin
Three Months Ended June 30,Six Months Ended June 30,
(in thousands)2021202020212020
Total net revenues$4,478,114 $2,614,080 $8,684,974 $5,027,339 
Net loss(518,601)(102,050)(813,634)(207,403)
Net loss margin(11.6)%(3.9)%(9.4)%(4.1)%
Adjustments:
Depreciation and amortization46,942 27,843 94,326 53,255 
Interest expense5,848 26,196 30,671 52,711 
Interest income(1,907)(3,082)(2,847)(8,245)
Income tax expense97 84 105 207 
Other (income) expense, net(373)(16,366)3,453 (6,125)
Equity-based compensation50,346 10,345 137,312 16,725 
FC Fire Losses295,501 — 295,501 — 
Adjusted EBITDA$(122,147)$(57,030)$(255,113)$(98,875)
Adjusted EBITDA margin(2.7)%(2.2)%(2.9)%(2.0)%

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Constant Currency Revenue and Constant Currency Revenue Growth
Three Months Ended June 30,Six Months Ended June 30,
(in thousands)2021202020212020
Total net revenues$4,478,114 $2,614,080 $8,684,974 $5,027,339 
Total net revenues growth71 %86 %73 %82 %
Adjustment:
Exchange rate effect(362,634)121,018 (643,009)267,991 
Total net revenues, constant currency$4,115,480 $2,735,098 $8,041,965 $5,295,330 
Total net revenues growth, constant currency57 %94 %60 %92 %
Impact of COVID-19
The COVID-19 pandemic and resulting global disruptions have affected our business, as well as those of our customers, merchants, and suppliers. To serve our customers while also providing for the safety of our employees, we have adapted numerous aspects of our logistics and infrastructure, transportation, supply chain, purchasing, and third-party merchant processes. We have experienced and may continue to experience a net positive impact on our sales and consumer demand for our products and services following changes in consumer purchasing behavior and the implementation of governmental orders to mitigate the spread of COVID-19, which has resulted in higher levels of customer engagement.
In addition, since the initial outbreak of COVID-19, we have made numerous process updates across our operations and have adapted our fulfillment and delivery infrastructure to implement additional employee and customer safety measures, including enhanced cleaning and physical distancing, personal protective gear, disinfectant spraying, and temperature checks. These measures have been implemented to minimize the risk of spread of COVID-19 to our workers, our customers, and the communities in which we operate, and we may take further actions as may be required by government authorities or that we determine are in the best interests of our workers, customers, merchants, and suppliers.
The global impact of COVID-19 continues to rapidly evolve, and we will continue to monitor the situation and the effects on our business and operations closely. Specifically, the COVID-19 pandemic has worsened in Korea during the course of 2021, and the country is currently in strict lockdown, which could result in increased fulfillment center closures and labor shortages. In addition, the FC Fire reduced our excess capacity, creating capacity constraints when COVID-related shutdowns have occurred. We do not yet know the full extent of potential impacts of the pandemic on our business or operations or on the global economy, including the impact on our business and operations as a consequence of any future developments related to the duration and scope of the pandemic, any recurrence of the disease, the actions taken in response to the pandemic, the scale and rate of economic recovery from the pandemic, new variants that have emerged or may emerge in the future, subsequent waves of infection, along with the adoption and effectiveness of vaccines, any ongoing effects on consumer demand and spending patterns, or other impacts of the pandemic, and whether these or other currently unanticipated consequences of the pandemic are reasonably likely to materially affect our results of operations, cash flows, or financial condition. For additional details, refer to Part II—Item 1A. “Risk Factors” contained elsewhere in this Form 10-Q.
Components of Results of Operations
Total Net Revenues
We categorize our revenue 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, 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
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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 provides customers with access to benefits such as access to Rocket Fresh, no minimum spend for Rocket Delivery, and free shipping on returns, which is also included in net other revenue.
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, and depreciation and amortization expense.
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.
Interest Expense
Interest expense primarily consists of interest on our short-term borrowings and long-term debt, our convertible notes issued in our 2018 convertible note financing, and finance lease liabilities.
Income Tax Expense
The Company’s tax expense or benefit from income taxes for interim periods is determined using an estimate of our annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter we update our estimate of the annual effective tax rate, and if our estimated tax rate changes, we make a cumulative adjustment. We are subject to income taxes in the United States and foreign jurisdictions in which we do business. These 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 will vary depending on the relative proportion of foreign to domestic income, use of foreign tax credits, changes in the valuation of our deferred tax assets and liabilities and changes in tax laws.

Results of Operations
Three Months Ended June 30,Six Months Ended June 30,
(in thousands)2021202020212020
Net retail sales$3,994,506 $2,421,448 $7,801,549 $4,657,910 
Net other revenue483,608 192,632 883,425 369,429 
Total net revenues4,478,114 2,614,080 8,684,974 5,027,339 
Cost of sales3,819,620 2,174,345 7,293,974 4,157,309 
Operating, general and administrative1,173,430 534,953 2,173,252 1,038,885 
Total operating cost and expenses4,993,050 2,709,298 9,467,226 5,196,194 
Operating loss(514,936)(95,218)(782,252)(168,855)
Interest income1,907 3,082 2,847 8,245 
Interest expense(5,848)(26,196)(30,671)(52,711)
Other income (expense), net373 16,366 (3,453)6,125 
Loss before income taxes(518,504)(101,966)(813,529)(207,196)
Income tax expense97 84 105 207 
Net loss$(518,601)$(102,050)$(813,634)$(207,403)
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Three Months Ended June 30,Six Months Ended June 30,
(in thousands)2021202020212020
Net retail sales$3,994,506$2,421,448$7,801,549$4,657,910
Net retail sales growth65 %86 %68 %82 %
Exchange rate effect(323,875)112,092(577,603)248,298
Net retail sales, constant currency$3,670,631$2,533,540$7,223,946$4,906,208
Net retail sales growth, constant currency52 %94 %55 %91 %
Net other revenue$483,608$192,632$883,425$369,429
Net other revenue growth151 %83 %139 %90 %
Exchange rate effect(38,759)8,926(65,406)19,693
Net other revenue, constant currency$444,849$201,558$818,019$389,122
Net other revenue growth, constant currency 131 %92 %121 %100 %
Net Retail Sales
Net retail sales increased $1.6 billion or 65% (52% on a constant currency basis), and $3.1 billion, or 68% (55% on a constant currency basis), for the three and six months ended June 30, 2021, respectively, when compared to the prior year periods. The increase was primarily due to continued growth in our Active Customers, as well as in net retail sales per Active Customer, driven by increased customer engagement across more product categories. In addition, the year-over-year growth in net retail sales for the three and six months ended June 30, 2021 was impacted by the comparison to the three and six months ended June 30, 2020, which benefited from the initial increase in sales due to COVID-19 related changes in consumer behavior.
Net Other Revenue
Net other revenue for the three and six months ended June 30, 2021 increased $291 million or 151% (131% on a constant currency basis), and $514 million or 139% (121% on a constant currency basis), respectively, compared to the prior year periods. The increase was primarily due to growth in our Active Customers in the first and second quarters of 2021, as well as growth in our net other revenue per Active Customer during those same periods, driven by the continued expansion of newer offerings and increased merchants on our marketplace and related product selection.
Cost of Sales
Cost of sales for the three and six months ended June 30, 2021 increased $1.6 billion or 76%, and $3.1 billion or 75%, respectively, compared to the prior year periods. The increase was attributable to increased product and logistics costs resulting from increased sales as well as $158 million in inventory losses related to the FC Fire. Cost of sales as a percentage of revenue increased from 83.2% and 82.7% for the three and six months ended June 30, 2020, respectively, to 85.3% and 84.0% for the three and six months ended June 30, 2021, respectively, primarily due to costs related to the FC Fire. The portion of the FC Fire loss that was recorded within cost of sales as a percentage of revenue was 3.5% and 1.8% for the three and six months ended June 30, 2021, respectively.
Operating, General and Administrative Expenses
Operating, general and administrative expenses for the three and six months ended June 30, 2021 increased $638 million or 119%, and $1.1 billion, or 109%, respectively, compared to the prior year periods. The increase primarily reflects higher employee costs to support growth and new initiatives, as well as property, equipment and other losses recognized related to the FC Fire. These expenses as a percentage of revenue increased from 20.5% to 26.2% for the three months ended June 30, 2021 related primarily to the FC Fire, and increased from 20.7% to 25.0% for the six months ended June 30, 2021 primarily related to higher employee costs and the FC Fire.
Interest Expense
Interest expense for the three and six months ended June 30, 2021 decreased $20 million or (78)%, and $22 million or (42)%, respectively, compared to the prior year periods. The decrease was primarily attributable to the conversion of our convertible notes into shares of our Class A common stock as a result of the Corporate Conversion and IPO during the first quarter of 2021.
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Liquidity and Capital Resources
Liquidity
As of June 30, 2021 and December 31, 2020, we had stockholders’ equity and members’ (deficit) of $2.8 billion and $(4.1) billion, respectively. We anticipate that we will continue to incur losses for the next few years. We expect that our investment into our growth strategy will continue to be significant, including with respect to the expansion of our fulfillment, logistics, and technology capabilities. As part of this expansion to fulfill anticipated future customer demand, we plan to build several new fulfillment centers over the next few years. We have entered into construction contracts, substantially all of which are expected to be completed within one year. These contracts have remaining capital expenditures commitments of $44 million as of June 30, 2021. We expect that our future expenditures for both infrastructure and workforce-related costs will exceed several billion dollars over the next several years.
Our primary source of funds has been, and we expect it to continue to be, cash generated from our net revenues, supplemented through debt financing and sales of our equity securities. We had total cash and cash equivalents and restricted cash of $4.5 billion as of June 30, 2021, compared to $1.4 billion as of December 31, 2020.
During the first quarter of 2021, we completed our IPO, in which we issued and sold 100,000,000 shares of our Class A common stock at a price of $35.00 per share. We received net proceeds of approximately $3.4 billion from the IPO after deducting underwriting discounts of $69 million and other offering costs.
Six Months Ended June 30,
(in thousands)20212020
Net cash (used in) provided by operating activities$(152,466)$74,710 
Net cash used in investing activities(305,581)(98,737)
Net cash provided by financing activities3,556,358 53,780 
Effect of exchange rate changes on cash and cash equivalents and restricted cash(38,928)(28,422)
Net increase in cash and cash equivalents, and restricted cash$3,059,383 $1,331 
Cash and cash equivalents, and restricted cash, as of beginning of period$1,401,302 $1,371,535 
Cash and cash equivalents, and restricted cash, as of end of period$4,460,685 $1,372,866 
Operating Activities
Our net cash used in operating activities was $(152) million for the six months ended June 30, 2021, representing a change of $(227) million, compared to $75 million of net cash from operations for the six months ended June 30, 2020. The year-over-year change in operating cash flow was primarily driven by a $(133) million reduction in cash flows due to changes in operating assets and liabilities, consisting of increases in accounts receivable and investments in inventory of $(61) million and $(59) million, respectively, as a result of higher sales volume and expanded available selection for customers, and a decrease in other liabilities of $(81) million from the timing of payments for employee withholdings and operating lease liabilities, partially offset by a $72 million impact from timing of payments on accounts payable. Also contributing to the increase in cash used in operating activities was a $(606) million increase in net loss partially offset by a $512 million increase in our non-cash expenses contributing to the net loss for the six months ended June 30, 2021.
Investing Activities
Our net cash used in investing activities was $(306) million for the six months ended June 30, 2021, representing an increase of $207 million, or 209%, as compared to $(99) million used in investing activities for the six months ended June 30, 2020. This increase was mainly driven by a $214 million increase in purchases of property and equipment, primarily related to investments in our fulfillment and logistics infrastructure, including purchases of building and land, as well as technology equipment and capabilities. For the six months ended June 30, 2021, purchases of land and buildings comprised $129 million of the $315 million in total purchases of property and equipment.
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Financing Activities
Our net cash provided by financing activities for the six months ended June 30, 2021 increased $3.5 billion, compared to the six months ended June 30, 2020. This increase was primarily driven by $3.4 billion of proceeds, net of underwriting discounts of $69 million and other offering costs, from the issuance of 100,000,000 shares of our Class A common stock upon the completion of our IPO, a $42 million increase in cash proceeds from the issuance of common stocks/units related to equity awards and $97 million in repurchases of common units and preferred units in the prior period, partially offset by a $43 million decrease in proceeds from debt and short-term borrowings, net of issuance costs.
We believe that existing cash and cash equivalents, restricted cash, available borrowings under our short-term borrowings, and long-term debt will be sufficient to meet our anticipated cash requirements for at least the next 12 months. However, we may need additional cash resources in the future if we find and pursue opportunities for investment, acquisition, strategic cooperation, or other similar actions, which may include investing in technology, our logistics and fulfillment infrastructure, or related talent. If we determine that our cash requirements exceed our amounts of cash on hand or if we decide to further optimize our capital structure, we may seek to issue additional debt or equity securities or obtain credit facilities or other sources of financing. This financing may not be available on favorable terms, or at all.
Capital Resources
Our short-term borrowings generally include lines of credit with financial institutions available to be drawn upon for general operating purposes.
In February 2021, we entered into a new three-year senior unsecured credit facility (the “new revolving credit facility”) providing for revolving loans in an aggregate principal amount of up to $475 million (which automatically increased to an aggregate principal amount of $950 million based on us receiving at least $2.0 billion in net proceeds from our IPO). The new revolving credit facility provides us the right to request incremental commitments up to $1.25 billion, subject to customary conditions. During March 2021, the aggregate principal amount of our new revolving credit facility increased to $1.0 billion as a result of our IPO. As of June 30, 2021, there was no balance outstanding on the new revolving credit facility.
Borrowings under the new revolving credit facility bear interest, at our option, at a rate per annum equal to (i) a base rate equal to the highest of (A) the prime rate, (B) the higher of the federal funds rate or a composite overnight bank borrowing rate plus 0.50%, or (C) an adjusted London interbank offered rate (“LIBOR”) for a one-month interest period plus 1.00% or (ii) an adjusted LIBOR plus a margin equal to 1.00%. We are also required to pay other customary fees for a credit facility of this size and type, including letter of credit fees, an upfront fee, and an unused commitment fee. The new revolving credit facility contains a number of covenants that, among other things, restrict our ability to:
•incur or guarantee additional debt;
•make certain investments and acquisitions;
•make certain restricted payments and payments of certain indebtedness;
•incur certain liens or permit them to exist; and
•make fundamental changes and dispositions (including dispositions of the equity interests of subsidiary guarantors).
Each of these restrictions is subject to various exceptions.
The new revolving credit facility requires us to (i) maintain a ratio of secured indebtedness to total consolidated tangible assets of less than 35%, if we have $1 or more of revolving loans or any unreimbursed drawn letters of credit outstanding under the new revolving credit facility at the end of each fiscal quarter and (ii) maintain a minimum amount of liquidity of at least $625.0 million (or $312.5 million to the extent the aggregate commitment of the new revolving credit facility is $500 million).
The new revolving credit facility is guaranteed on a senior unsecured basis by certain material restricted subsidiaries of Coupang, Inc. (including Coupang Corp.), subject to customary exceptions. The new revolving credit facility also contains certain customary affirmative covenants and events of default for facilities of this type.
As a result of the FC Fire, property and inventory pledged as collateral was extensively damaged. The $265 million facility loan agreement due April 4, 2022 was amended on August 4, 2021, to replace the original collateral with $203 million in cash secured as collateral and repay $71 million of outstanding principal balance.
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During August 2021, we entered into a new $177 million three-year term loan. We have pledged $212 million of certain land and buildings as collateral against the loan. The term loan bears interest at a fixed rate of 3.155%.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet financing arrangements or any relationships with unconsolidated entities or financial partnerships, including entities sometimes referred to as structured finance or special purpose entities, that were established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Critical Accounting Policies and Estimates
We prepare our financial statements in accordance with U.S. GAAP. Preparing these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates.
Our significant accounting policies are discussed in Note 2 — “Significant Accounting Policies” to our consolidated financial statements included in the Final Prospectus. There have been no significant changes to these policies and estimates for the six months ended June 30, 2021, except as described in Note 1 — "Basis of Presentation and Summary of Significant Accounting Policies" and Note 2 — "Change in Accounting Principle" to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Recently Adopted Accounting Pronouncements
See Note 1 — "Basis of Presentation and Summary of Significant Accounting Policies" to the condensed consolidated financial statements included elsewhere in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Item 3.   Quantitative and Qualitative Disclosures about Market Risk
In addition to the risks inherent in our operations, we are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily the result of fluctuations in interest rates, foreign currency, and credit.
Interest Rate Risk
As of June 30, 2021, we had cash, cash equivalents, and restricted cash of $4.5 billion. Interest-earning instruments carry a degree of interest rate risk. We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure. Our interest rate risk arises primarily from our short-term borrowings. Borrowings issued at variable rates expose us to variability in cash flows. Our policy, in the management of interest rate risk, is to strike a balance between fixed and floating rate financial instruments as well as our cash and cash equivalents and any short-term investments we may hold. The balance struck by our management is dependent on prevailing interest rate markets at any point in time.
Our borrowings generally include lines of credit with financial institutions, some of which carry variable interest rates. An assumed hypothetical 10% change in prevailing interest rates would not have a material impact on our results of operations for either the three or six months ended June 30, 2021. Any future borrowings incurred under the new revolving credit facility would accrue interest at a floating rate based on a formula tied to certain market rates at the time of incurrence.
Foreign Currency Risk
We have accounts on our foreign subsidiaries’ ledgers, which are maintained in the respective subsidiary’s local currency and translated into USD for reporting of our consolidated financial statements. As a result, we are exposed to fluctuations in the exchange rates of various currencies against the USD and other currencies, including the KRW.
Transactional
We generate the majority of our revenue from customers within Korea. Typically, we aim to align costs with revenue denominated in the same currency, but we are not always able to do so. As a result of the geographic spread of our operations and due to our reliance on certain products and services priced in currencies other than KRW, our business, results of operations, and financial condition have been and will continue to be impacted by the volatility of the KRW against foreign currencies.
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Translational
Coupang, Inc.’s functional currency and reporting currency is the USD. The local and functional currency for our Korean subsidiary, Coupang Corp., which is our primary operating subsidiary, is the KRW. The other subsidiaries predominantly utilize their local currencies as their functional currencies. Assets and liabilities of each subsidiary are translated into USD at the exchange rate in effect at the end of each period. Revenue and expenses for these subsidiaries are translated into USD using average rates that approximate those in effect during the period. Consequently, increases or decreases in the value of the USD affect the value of these items with respect to the non-USD-denominated businesses in the consolidated financial statements, even if their value has not changed in their original currency. For example, a stronger USD will reduce the reported results of operations of non-USD-denominated businesses and conversely a weaker USD will increase the reported results of operations of non-USD-denominated businesses. An assumed hypothetical 10% adverse change in average exchange rates used to translate foreign currencies to USD would have resulted in a decline in total net revenues of $402 million and $779 million and a decrease in net loss of $39 million and $52 million for the three and six months ended June 30, 2021, respectively.
At this time, we do not, but we may in the future, enter into derivatives or other financial instruments in an attempt to hedge our foreign currency risk. It is difficult to predict the impact hedging activities would have on our results of operations.
Credit Risk
Our cash and cash equivalents, deposits, and loans with banks and financial institutions are potentially subject to concentration of credit risk. We place cash and cash equivalents with financial institutions that management believes are of high credit quality. The degree of credit risk will vary based on many factors, including the duration of the transaction and the contractual terms of the agreement. As appropriate, management evaluates and approves credit standards and oversees the credit risk management function related to investments.
Item 4.   Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of June 30, 2021, our disclosure controls and procedures were evaluated, under the supervision and with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), to assess whether they are effective in providing reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure and to provide reasonable assurance that such information is recorded, processed and reported within the time periods specified in the SEC’s rules and forms.
Based on this evaluation, our CEO and CFO concluded that our disclosure controls and procedures were not effective as of June 30, 2021, due to the material weaknesses in our internal control over financial reporting, as further described below. As a result, our management has performed additional analyses, reconciliations, and other post-closing procedures and has concluded that, notwithstanding the material weaknesses in our internal control over financial reporting, our condensed consolidated financial statements for the periods covered by and included in this Quarterly Report on Form 10-Q fairly state, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with U.S. GAAP.
Previously Reported Material Weakness
As disclosed in Part II—Item 1A. "Risk Factors" contained elsewhere in this Quarterly Report on Form 10-Q, we previously identified material weaknesses in our internal control over financial reporting related to (i) the design and effectiveness of information technology general controls, (ii) inadequate segregation of duties, and (iii) inadequate internal control over the timely preparation and review of account reconciliations. We have concluded that these material weaknesses arose because we did not have sufficient qualified accounting resources, formalized processes, and policies necessary to satisfy the accounting and financial reporting requirements of a public company. We have determined that these control deficiencies constituted material weaknesses in our internal control over financial reporting. A material weakness is a deficiency or combination of deficiencies in our internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our consolidated financial statements would not be prevented or detected on a timely basis. These deficiencies could result in additional misstatements to our consolidated financial statements that would be material and would not be prevented or detected on a timely basis.
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Remediation Plan
Management has developed and is executing a remediation plan to address the previously disclosed material weaknesses. We are actively engaged in the remediation of each of the outstanding material weaknesses, including utilizing the assistance of outside advisors where appropriate.
To remediate the existing material weaknesses, additional time is required to demonstrate the effectiveness of the remediation efforts. The material weaknesses cannot be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.
Changes in Internal Control over Financial Reporting
We are taking actions to remediate the material weaknesses relating to our internal control over financial reporting. There was no change in our internal control over financial reporting that occurred during the quarter ended June 30, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
Our management, including our CEO and CFO, do not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Due to inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
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Part II.   Other Information
Item 1.   Legal Proceedings
From time to time, we are subject to legal proceedings, claims, litigation, governmental audits, inspections, investigations, and other various proceedings in the ordinary course of business. We have received, and may in the future continue to receive, claims, litigation, governmental audits, inspections, and investigations relating to issues such as employment and labor, worker classification and assignment, worker pay, hours and benefits, labor relations including union and collective bargaining issues, employment authorization and immigration, worker safety, intellectual property (including patent, trademark, and copyright), product safety, personal injury, privacy, information security, tax compliance, import/export regulations, foreign exchange regulations, licenses and permits, food safety, medical products, drugs and devices, financial services, antitrust and fair trade matters, consumer protection, and environmental issues.
The results of any current or future claims, litigation, governmental audits, inspections, or investigations cannot be predicted with certainty. Regardless of the outcome, these claims and proceedings could have an adverse impact on us because of defense and settlement costs, diversion of management resources, harm to our brand and reputation, and other factors.
The most significant of our current legal proceedings are described below and risks relating to legal matters are described elsewhere in this Form 10-Q, see “Item 1A. Risk Factors.”
Korean Fair Trade Investigations
In 2019, LG Household & Healthcare (“LGHH”) filed a complaint with the Korean Fair Trade Commission (“KFTC”) alleging that we violated the Korean Act on Fair Transactions in Large Retail Business and Monopoly Regulation and Fair Trade Act (“Korean Fair Trade Act”). The complaint claimed, among other allegations, that we engaged in unfair returns of LGHH products, illegally requested that LGHH disclose confidential business information, and unfairly refused to do business with LGHH.
Following the complaint, the KFTC opened an investigation and conducted two probes at our office in July 2019 and October 2020. We provided documents and other evidence in cooperation with the investigation. In addition to LGHH’s allegations, the scope of the investigation includes our negotiations and contracting with retail suppliers generally. The KFTC Commissioners conducted a full panel hearing on August 11, 2021 to determine whether any violations were committed and to decide on possible sanctions.
Additionally, on June 28, 2021 the KFTC initiated a separate investigation (including an on-site probe on that date) into a potential violation of the Korean Fair Trade Act, including alleged unfair trade practices in our dealings with suppliers or merchants and the providing of preferential treatment for private labelled products sold by our subsidiary, Coupang Private Label Business (“CPLB”). We are diligently cooperating with these investigations, and actively defending our practices as appropriate.
Under Korean law, the issues addressed in the investigation can be resolved through civil, administrative, or criminal proceedings. The ultimate case resolution could include fines, orders to alter our processes or procedures, and criminal investigations or charges against individuals or the Company.
Korean Employment & Labor Investigations
Current and former employees have raised and will likely raise allegations with the Korean Ministry of Employment and Labor or the Occupational Health Safety and Health Agency relating to employment and labor issues. Examples of such issues include (but are not limited to) pay, hours, breaks, time off, deductions from wages, unfair dismissal, workplace harassment, workplace sexual harassment, health and safety, and union activities. Under Korean law, labor-related allegations can be raised to or resolved by civil, administrative, or criminal proceedings.
We intend to vigorously defend these legal proceedings and believe we have meritorious defenses to each. While we do not currently believe that the outcome of these matters will have a material adverse effect on its business, financial position, results of operations, or cash flows, the Company can provide no assurance as to the scope and outcome of these matters and whether our business, financial position, results of operations, or cash flows will not be materially adversely affected.
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Item 1A.   Risk Factors
Investing in our securities involves a high degree of risk. You should consider and read carefully all of the risks and uncertainties described below, as well as other information included in this Form 10-Q, including the sections titled “Special Note Regarding Forward-Looking Statements” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our condensed consolidated financial statements and related notes appearing elsewhere in this Form 10-Q, before making an investment decision. The risks and uncertainties described below may not be the only ones we face. Our business operations could also be affected by additional factors that apply to all companies operating globally. The occurrence of any of the following risks or additional risks and uncertainties not presently known to us or that we currently believe to be immaterial could materially and adversely affect our business, financial condition, results of operations, and liquidity. In such case, the price per share of our Class A common stock could decline, and you could lose some or all of your original investment.
Summary Risk Factors
Investing in our Class A common stock involves a high degree of risk because our business is subject to numerous risks and uncertainties, as further described below. The occurrence of any such risks could adversely affect our business, financial condition, results of operations, and prospects. The principal factors and uncertainties that make investing in our Class A common stock speculative or risky include, among others:
•our results of operations may fluctuate significantly, which makes our future results of operations difficult to predict and could cause our results of operations to fall below expectations;
•we may be unable to effectively manage the continued growth of our workforce and operations, including the development and management of new business initiatives;
•our business is rapidly evolving, and we plan to continue to forgo short-term financial performance for long-term growth, which makes it difficult to evaluate our future prospects and predict our future results of operations, including our revenue growth rate;
•we have a history of net losses, including $(814) million and $(207) million for the six months ended June 30, 2021 and 2020, respectively, as well as an accumulated deficit of $(4.9) billion as of June 30, 2021, and we may not be able to generate sufficient revenues to achieve or maintain profitability in future periods;
•if we were to lose the services of members of our senior management team, we may not be able to execute our business strategy;
•the COVID-19 pandemic may adversely affect our business, operations, and the markets and communities in which we, our customers, suppliers, merchants, and advertisers operate;
•we face intense competition and could lose market share to our competitors if we do not innovate or compete effectively;
•because some of our operations are subject to Korean law, there are circumstances in which certain of our Korean affiliates’ executive officers may be held either directly or vicariously criminally liable for the actions of our Korean affiliates or our Korean affiliates’ executives and employees;
•some of our operations are subject to certain detailed and complex fair trade, labor, employment, and workplace safety laws and regulations, which continue to evolve and have and will continue to affect our operations and financial performance, could subject us to costs and penalties, and may affect our reputation;
•harm to our Coupang brand or our associated brands and marks (our “brand”) or reputation may occur if manufacturers and distributors from whom we buy products (“suppliers”) or the parties that sell their products on our marketplace (“merchants”) use unethical or illegal business practices, such as the sale of counterfeit or fraudulent products, or if our protocols with respect to such sales are perceived or found to be inadequate, which may also subject us to possible sanctions or penalties;
•any significant interruptions or delays in service on our apps or websites, or any undetected errors or design faults, could result in limited capacity, reduced demand, processing delays, and loss of customers, suppliers, or merchants;
•any failure to protect our apps, websites, networks, and systems against security breaches or otherwise protect our confidential information could damage our reputation and brand and may subject us to possible sanctions or penalties;
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•any failure to comply with privacy laws or regulations, or to fulfill privacy-related customer expectations in the jurisdictions where we operate, could damage our reputation and brand and business and may subject us to possible sanctions or penalties;
•we rely on Coupang Pay to conduct a substantial amount of the payment processing. If Coupang Pay’s services were limited, restricted, curtailed, or degraded in any way, or become unavailable to us or our customers for any reason, our business may be adversely affected;
•international relations, including escalations in tensions with North Korea, could adversely affect the Korean or global economies and demand for our products and services; and
•the dual class structure of our common stock will have the effect of concentrating voting control with Mr. Bom Suk Kim. This voting control will limit your ability to influence the outcome of important transactions and to influence corporate governance matters.
Risks Related to Our Limited Operating History and Growth
We have a history of net losses, we anticipate increasing expenses in the future, and we may not be able to generate sufficient revenue to achieve or maintain profitability, which would materially and adversely affect our business, financial condition, and results of operations.
We have a history of net losses, including $(814) million and $(207) million for the six months ended June 30, 2021 and 2020, respectively, as well as an accumulated deficit of $(4.9) billion as of June 30, 2021. While we have experienced significant revenue growth since our inception, we are not certain whether or when we will achieve or maintain profitability. We cannot assure you that we will be able to maintain or increase the revenue growth we have experienced during the COVID-19 pandemic. Our costs and expenses have increased, particularly during the COVID-19 pandemic, and such costs and expenses may continue to increase in future periods, which could negatively affect our future results of operations. In particular, we intend to continue to spend significant amounts to increase our customer base, increase the number and variety of merchandise and services we offer, expand our marketing channels, broaden our operations, develop additional fulfillment centers, hire additional employees and managers, and develop our technology and fulfillment infrastructure. These increased costs, including those related to the costs incurred due to COVID-19 safety and health measures and shipping and fulfillment costs, may adversely affect our operating expenses. Some of our initiatives to generate revenue are new and unproven, and any failure of these initiatives could adversely affect our results of operations.
In addition, we expect to invest in longer-term initiatives, which will likely impact our shorter-term results of operations. We may find that these efforts are more expensive than we currently anticipate, or we may encounter technological and other development delays. We will also face increased compliance costs associated with growth, the expansion of our customer base, and being a public company. Our efforts to grow our business may cost more than we expect, and we may not be able to increase our revenue enough to offset our increased operating expenses or to achieve or maintain profitability.
We may incur significant losses in the future for a number of reasons, including the other risks described in this “Risk Factors” section, and unforeseen expenses, difficulties, complications or delays, and other unknown events. If we are unable to achieve and sustain profitability, the value of our business and the price per share of our Class A common stock could decline.
Our limited operating history and evolving business make it difficult to evaluate our future prospects, including our revenue growth rate, as well as the risks and challenges we may encounter.
Our limited operating history and evolving business make it difficult to evaluate and assess our future prospects, as well as the risks and challenges that we may encounter. Although we launched our first website in 2010 and our first mobile application in 2011, our business has rapidly evolved over time. As a result, our ability to accurately forecast our future results of operations is limited and subject to a number of risks and uncertainties, including our ability to plan for and model future growth, and to expand our business in existing markets and enter new markets. In addition, we have experienced significant revenue growth in prior periods. You should not rely on the revenue growth of any prior quarterly or annual period as an indication of our future performance. Many factors may contribute to a decline in our growth rate, including market saturation, increased competition, slowing demand (especially once the COVID-19 pandemic tapers), the difficulty of capitalizing on growth opportunities, and the maturation of our business, among others. If our growth rate declines, investors’ perceptions of our business could be adversely affected and the price per share of our Class A common stock could decline.
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You should consider our business and prospects in light of the risks and difficulties we may encounter. These risks and difficulties include our ability to, among other things:
•attract, on a cost-effective basis, new customers who purchase merchandise and services from us at similar or higher rates and amounts as compared to existing customers;
•retain our existing customers and motivate their continued purchases from our apps and websites at rates and amounts consistent with or higher than their historical purchases;
•encourage customers to expand the categories of merchandise and services they purchase from us;
•retain and expand our network of suppliers and merchants;
•expand our fulfillment and logistics infrastructure and related operations;
•fulfill and deliver customer orders on time and in accordance with customer expectations, which may change over time;
•increase awareness of our brand;
•respond to changes in the way customers access and use the Internet and mobile devices;
•react to challenges from existing and new competitors;
•expand our business in new and existing markets;
•avoid interruptions or disruptions in our business;
•further develop our scalable, high-performance technology and fulfillment infrastructure that can efficiently and reliably handle increased usage, as well as the deployment of new features and the sale of new merchandise and services; and
•hire, integrate, and retain talented personnel.
If we fail to address the risks and difficulties that we face, including those associated with the challenges listed above and those described elsewhere in this “Risk Factors” section, our business, financial condition, and results of operations would be adversely affected.
In addition, because we have limited historical financial data and our business continues to evolve and expand, any predictions about our future revenue and expenses may not be as accurate as they would be if we had a longer operating history or operated a business that is not rapidly evolving and growing. We have encountered in the past, and will encounter in the future, risks and uncertainties frequently experienced by growing companies with limited operating histories and evolving businesses that operate in highly regulated and competitive industries. If our assumptions regarding these risks and uncertainties, which we use to plan and operate our business, are incorrect or change, or if we do not address these risks successfully, our results of operations could differ materially from our expectations, and our business, financial condition, and results of operations would be adversely affected.
We may experience significant fluctuations in our results of operations.
Our revenue and results of operations may fluctuate for a variety of reasons, many of which are beyond our control. These reasons include those described elsewhere in this “Risk Factors” section as well as the following:
•our ability to attract new and retain existing customers, increase sales to existing customers, and satisfy our customers’ demands;
•our ability to offer merchandise and services on favorable terms, manage inventory, and fulfill orders in a timely manner;
•the introduction or activities of competitive stores, apps, websites, merchandise, or services;
•the success of our growth and expansion efforts, including investments into new initiatives;
•variations in our level of merchandise and supplier returns;
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•the extent to which we offer fast and free delivery through Rocket Delivery, continue to offer a compelling value proposition to our customers, and provide additional benefits to our customers;
•factors affecting our reputation or brand image;
•the impact of the COVID-19 pandemic or other epidemics on our supply chain, operations and facilities, and employees, as well as consumer perception of our response to COVID-19 or other epidemics;
•the extent to which we finance our current operations and future growth, and the terms of any such financing;
•the timing, effectiveness, and costs of expansion and upgrades of our systems and infrastructure;
•the outcomes of legal proceedings and claims, which may include significant monetary damages, injunctive relief, personal liability (including criminal liability), sanctions, and penalties;
•the extent to which we invest in technology and content, fulfillment, and other expense categories;
•increases in our temporary or long-term costs such as labor and energy sources, packing supplies, and other goods not for resale;
•changes in laws, regulations, or other regulatory practices and enforcement in the countries where we operate;
•the extent to which our services are affected by spyware, viruses, phishing, and other spam emails, denial of service attacks, data theft, computer intrusions, outages, and similar events; and
•disruptions from natural or man-made disasters, extreme weather, geopolitical events and security issues (including terrorist attacks and armed hostilities), labor or trade disputes, and similar events.
Fluctuations in our revenues and results of operations may result in their failure to meet the expectations of analysts or investors, which could cause the price per share of our Class A common stock to decline. In addition, our revenue growth may not be sustainable and our growth rates may decrease. Our revenue and results of operations depend in part on the continued growth of demand for the products and services offered by us or our merchants, and on general economic and business conditions worldwide. A softening of demand, whether caused by changes in customer preferences or a weakening of the Korean or global economies, may adversely affect our revenue or growth rate, which could also cause the price per share of our Class A common stock to decline.
We may be unable to accurately forecast our revenue and plan our expenses in the future.
Our results of operations are difficult to forecast because they generally depend on, among other things, the volume, timing, and type of purchases made by our customers, all of which are uncertain and subject to change. Additionally, many of our expenses, including those related to our fulfillment operations, are fixed and, as a result, we may be unable to adjust our spending in a timely manner to compensate for any unexpected shortfall in revenue. Any failure to accurately predict revenue or to adjust our expenses could adversely affect our results of operations in any given quarter, or a series of quarters, which could cause the price per share of our Class A common stock to decline.
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Risks Related to Our Business and Our Industry
If we fail to timely identify or effectively respond to changing customer preferences and spending patterns, fail to expand the products being purchased by customers, or fail or are unable to obtain or offer appropriate categories of products, our relationship with our customers could be negatively affected, the demand for our products and services could decrease, and our revenue and results of operations may decline.
Our future revenue depends on continued demand for the types of goods that we and our merchants list on our apps and websites. The popularity of certain products, such as apparel, beauty, food, and consumer electronics may vary over time due to perceived availability, subjective value, and trends of customers and society in general. A decline in the demand for or popularity of certain products sold through our apps or websites without a corresponding increase in demand for different products that we or our merchants list on our apps or websites could reduce our revenue. In addition, short-lived demand for certain products may temporarily inflate the volume of those products listed on our apps and websites, placing a significant strain on our infrastructure and throughput capacity. These trends may also cause significant fluctuations in our results of operations from period to period. A failure to timely identify or effectively respond to changing consumer preferences and spending patterns, an inability to keep adequate inventory of the type of products being purchased by customers, failure to grow and retain the members of our Rocket WOW membership program, or a failure or inability to obtain or offer appropriate categories of products could negatively affect our relationship with customers and the demand for our products and services.
Our ability to locate qualified, economically stable suppliers and merchants who satisfy our requirements, and to acquire sufficient amounts of products in a timely and cost-efficient manner is critical to our business. Any failure to develop sourcing relationships with a broad and deep supplier base could adversely affect our business, financial condition, and results of operations.
Further, we offer our customers private-label products that are available through our apps and websites. The sale of private-label products subjects us to unique risks and heightens certain other risks, including potential product liability risks and mandatory or voluntary product recalls; potential liability with respect to our commercial relationships with subcontractors with whom we engage to manufacture certain of our private-label products; potential liability for incidents, including, but not limited to, the injuries of our subcontractors’ employees at manufacturing sites that we do not control; our ability to successfully protect our intellectual property rights and the rights of applicable third parties; and other risks generally encountered by entities that source, market, and sell private-label products.
If we are unable to successfully implement some or all of our major strategic initiatives in a timely manner, our ability to maintain and improve our market position may be adversely affected.
Our strategy is to continue to build on our market position by continuing to implement certain key strategic initiatives, which include the following:
•building our brand and further expanding our customer base;
•providing high-quality merchandise and services at attractive prices;
•focusing on customer satisfaction and our customers’ loyalty to our apps, websites, and programs, including our Rocket WOW membership program;
•expanding our product offerings; and
•enhancing our apps and websites and developing personalization tools to enhance our customers’ experience with our apps and websites.
We may not be successful in implementing any or all of these key strategic initiatives. If we are unable to successfully implement some or all of our key strategic initiatives in an effective and timely manner, our ability to maintain and improve our market position, and our competitive position, brand, and reputation may be harmed, which may have an adverse effect on our business, financial condition, and results of operations.
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If we fail to effectively manage our growth, our business, financial condition, and results of operations could be harmed.
We have experienced significant growth since our inception and expect our business to continue to grow if we are successful in implementing our key strategic initiatives. The growth of our business has required and will continue to require significant attention of our management and expenditure of resources. To effectively manage our growth, we must successfully implement our operational plans and strategies, improve and expand our infrastructure, and expand, train, and manage our employee and contractor base.
For example, we have rapidly increased our employee headcount to support the growth in our business, and we expect to continue to increase our headcount in the foreseeable future. To support our continued growth, we must effectively integrate, develop, and motivate a large number of new employees, while maintaining our corporate culture. In particular, we intend to continue to make substantial investments to expand our sales and technology personnel, which is challenging due to competition for such personnel.
In addition, the growth and expansion of our business and our variety of merchandise and services place significant demands on our management and other employees. For example, in an effort to increase customer engagement, we produce new versions of our apps and websites and communicate to our customers via email, mobile application push communications, and text messages. The continued growth of our business may require significant additional resources to continue these efforts, including increasing the size of our workforce, which may not scale in a cost-effective manner.
Similarly, we must effectively manage any retraction in parts of our business. Periodically, for reasons such as changing consumer preferences and other unforeseen circumstances, decisions may be made to discontinue investment in certain parts of our business. Such decisions require management effort to reorganize or reassign employees. In accordance with Korean law, employment contracts generally are not terminable at will unless an employee is deemed to be an “employer” (e.g., a registered director or an executive member-level employee), and employment and labor-related claims are common. If we fail to effectively manage retractions in our business or to successfully reorganize or reassign employees, our ability to meet our goals and our employee morale, productivity, and retention could suffer, which may have an adverse effect on our business, financial condition, and results of operations.
Our revenue depends on prompt and accurate billing processes. Our failure to grow our transaction-processing capabilities to accommodate the increasing number of transactions that must be billed on our apps and websites would materially harm our business and our ability to collect revenue.
Furthermore, we may need to enter into relationships with various strategic partners, websites, and other online service providers and other third parties necessary to support and grow our business. The increased complexity of managing multiple commercial relationships or entering into new relationships could lead to execution problems that could affect current and future revenue and operating margins.
Our current and planned systems, procedures and controls, personnel, and third-party relationships may not be adequate to support our future operations. Our failure to manage growth effectively or to enter into additional third-party relationships on a timely basis could have an adverse effect on our business, financial condition, and results of operations.
If we do not successfully operate and manage the expansion of our fulfillment and delivery infrastructure, our business, financial condition, and results of operations could be harmed.
We believe that our fulfillment and delivery infrastructure, including strategically located fulfillment centers, logistics centers, and delivery vehicles, coupled with our proprietary technology, is essential to our success. We operate our fulfillment and delivery infrastructure throughout Korea and maintain a single fulfillment center in the United States. We are in the process of obtaining and developing additional fulfillment and delivery infrastructure to increase our storage capacity, reduce delivery times, and further improve our workflow and processes.
If we do not expand and operate our fulfillment and delivery infrastructure successfully and efficiently, or there are delays in the expansion of our fulfillment and delivery operations, we could experience excess or insufficient fulfillment and delivery capacity in one or more locations, an increase in costs or impairment charges, or other adverse impacts. For example, we believe that our end-to-end delivery infrastructure, including the ability to control our last-mile delivery logistics, is a key competitive advantage. If our end-to-end delivery infrastructure, including last-mile delivery, is negatively affected in any manner, including, but not limited to, by the introduction of direct competitors with these capabilities or by legislation, legal rulings, or other regulation that may disrupt this service, our business, financial condition, and results of operations would be harmed.
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In addition, if we do not have sufficient fulfillment and delivery capacity, or we experience problems fulfilling and delivering orders in a timely manner, our customers may experience delays in receiving their purchases, which could harm our reputation and our relationship with our customers. For example, in June 2021, there was a fire at our Deokpyeong fulfillment center which caused extensive damage to our fulfillment center and may impact our near-term order fulfillment capacity.
We have designed, built, purchased, and/or leased our own fulfillment and delivery infrastructure, in addition to utilizing some third-party delivery resources. Our fulfillment and delivery infrastructure was designed to meet the specific needs of our business. If we continue to add fulfillment and delivery capabilities, add new offerings with different fulfillment or delivery requirements, or change the mix of merchandise that we sell, our fulfillment and delivery infrastructure will become increasingly complex, and operating it will become more challenging. Failure to successfully address such challenges in a cost-effective and timely manner could impair our ability to timely deliver our customers’ purchases and could harm our reputation and ultimately, our business, financial condition, and results of operations.
We anticipate the need to add additional fulfillment and delivery capacity as our business continues to grow. We cannot assure you that we will be able to locate suitable facilities on commercially acceptable terms in accordance with our expansion plans. If we are unable to secure new facilities for the expansion of our fulfillment operations or effectively control expansion-related expenses, our business, financial condition, and results of operations could be adversely affected.
If we grow faster than we anticipate, we may exceed our fulfillment and delivery capacity, we may experience problems fulfilling or delivering orders in a timely manner, or our customers may experience delays in receiving their purchases, which could harm our reputation and our relationship with our customers, and we may need to increase our capital expenditures more than anticipated and in a shorter time frame than we currently anticipate, which could represent a demand on, or drain of, our financial resources and require additional capital. See the risk factor titled “We may require additional capital to support the growth of our business, and this capital might not be available on acceptable terms, if at all.” below.
Our ability to expand our fulfillment and delivery capacity is dependent upon our ability to secure suitable facilities and recruit and retain qualified employees, Coupang Flex partners (independent delivery partners who have signed up to deliver packages on days and times of their own choosing), Eats Delivery Partners or EDPs (independent food delivery partners), and other workers, and there is no assurance that we will be able to secure such facilities or procure such personnel. Our expansion has also been affected by the spread of COVID-19 and related governmental orders. There have been and there may be future delays or increased costs associated with the spread and impact of COVID-19.
Many of the expenses and investments with respect to our fulfillment and delivery capacity are fixed, and any expansion of such fulfillment and delivery infrastructure will require additional investment of capital. We expect to incur higher capital expenditures in the future for our fulfillment and delivery operations as our business continues to grow. We would incur such expenses and make such investments in advance of expected sales, and such expected sales may not occur. Any of these factors could materially and adversely affect our business, financial condition, and results of operations.
We are dependent on the performance of certain members of management and other highly qualified and skilled personnel, and if we are unable to attract, retain, and motivate these and other well-qualified employees, our business could be harmed.
Our success depends largely upon the continued services of our executive officers, other key management team members, and key employees. From time to time, there may be changes in our executive management team or other key employees resulting from the hiring or departure of these personnel. Any of our executive officers or other key employees could terminate their employment with us at any time, and we cannot be assured of having reasonable prior notice. The loss of one or more of our executive officers or other key employees or the failure by our executive team, including any new hires that we may make, to work together effectively and to execute our strategy in a timely manner, could adversely affect our business, financial condition, and results of operations. We do not maintain key man life insurance with respect to any members of management or other employees.
We intend to hire additional qualified employees to support our business operations and planned expansion. Our future success depends, to a significant extent, on our ability to recruit, train, and retain qualified personnel. Since our industry is characterized by high demand and intense worldwide competition for talent and labor, we cannot assure you that we will be able to attract or retain qualified staff or other highly skilled employees that we will need to achieve our strategic objectives. Accordingly, such efforts will require significant time, expense, and attention, and new hires require significant training and time before they achieve full productivity. In addition to hiring new employees, we must continue to focus on developing, motivating, and retaining our best employees, many of whom are at-will employees, which means they may terminate their employment relationship with us at any time. Further, even if qualified new employees are hired and achieve individual effectiveness, we may be adversely affected by undue turnover in our employees.
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If we fail to identify, recruit, and integrate strategic personnel hires, our business, financial condition, and results of operations could be adversely affected. Any loss of members of our senior management team or key personnel could significantly delay or prevent the achievement of our business objectives and could harm our business and customer relationships. We may need to invest significant amounts of cash and equity to attract and retain new employees, and we may never realize returns on these investments. In addition, prospective and existing employees often consider the value of the equity awards they receive in connection with their employment. If the perceived value of our equity awards declines, experiences significant volatility, or increases such that prospective employees believe there is limited upside to the value of our equity awards, it may adversely affect our ability to recruit and retain key employees. If we are not able to retain and motivate our current personnel or effectively add and retain employees, our ability to achieve our strategic objectives, and our business, financial condition, and results of operations will be adversely affected.
Our culture has been critical to our success and if we cannot maintain this culture as we grow, our business could be harmed.
We believe that our culture, where the customer is at the beginning and the end in each decision we make, has been critical to our success. We may face a number of challenges that may affect our ability to sustain our corporate culture, including a potential failure to attract and retain employees who embrace and further our culture, any expansion into additional markets, competitive pressures that may divert us from our vision and values, and the integration of new personnel and businesses from acquisitions. If we are not able to maintain our culture as we continue to grow, our business, financial condition, and results of operations could be adversely affected.
Health epidemics, including the ongoing COVID-19 pandemic, have had, and could in the future have, an adverse impact on our business, operations, and the markets and communities in which we, our customers, suppliers, merchants, and advertisers operate.
Our business and operations could be adversely affected by health epidemics, including the ongoing COVID-19 pandemic, impacting the markets and communities in which we and our customers, suppliers, merchants, and advertisers operate. The COVID-19 pandemic has caused and continues to cause significant disruption to business and financial markets worldwide and has impacted global macroeconomic conditions. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, financial condition, and results of operations will depend on future developments that are highly uncertain and cannot be accurately predicted, and we may be unable to accurately forecast our revenue or financial results, particularly in light of new variants that have emerged and may continue to emerge, subsequent waves of infection, the timing, distribution, rate of public acceptance, and efficacy of vaccines and other treatments, the related impact on consumer confidence and spending, and the effect of governmental regulations imposed in response to the pandemic. There is no guarantee that a future outbreak of this or any other widespread epidemics or pandemics will not occur, or that global economies will recover, all of which could harm our business.
As a result of the COVID-19 pandemic, we have experienced and may continue to experience disruptions to our operations, including but not limited to utilization of our offices and fulfillment and delivery infrastructure, which may negatively impact our ability to fulfill orders in a timely manner, increase costs, harm our reputation, and ultimately, our business, financial condition, and results of operations. Specifically, the severity of the COVID-19 pandemic has worsened in Korea during the course of 2021, and the country is currently in strict lockdown, which could result in increased fulfillment center closures and labor shortages. In addition, the FC Fire reduced our excess capacity, creating capacity constraints when COVID-related shutdowns have occurred.
In response to the COVID-19 pandemic, we have had to modify our operations and adjust our services and technology. For example, our fulfillment and delivery operations now require implementation of social distancing measures as well as system-wide use of personal protective equipment. We have hired additional personnel and incurred additional costs to implement safety controls in response to the COVID-19 pandemic. We have also invested significant resources to design and implement technical and operational changes to date and may continue to do so for an indefinite period of time. Due to the size, scope, and geographically dispersed nature of our operations, the expenses we incur to protect the health and safety of our customers and employees may be higher than similar expenses incurred by companies in other industries. Measures taken across our business operations to address health and safety may not always be sufficient to prevent the spread of COVID-19. Certain employees in our offices, fulfillment centers, and logistics centers have tested positive for COVID-19 despite our best efforts to prevent the spread of COVID-19. We have received governmental inquiries and litigation in Korea with respect to these positive tests and the potential spread of COVID-19 at our locations. Beyond the preventative efforts against the transmission of COVID-19, we have incurred significant additional COVID-19-related costs to provide additional compensation to our employees and certain service providers and deliver products to customers. Therefore, if we were to face additional outbreaks, new variants, or transmission of COVID-19, we would face operational disruptions and incur additional expenses, including assisting customers and employees
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diagnosed with COVID-19 and further changing health and safety protocols and processes, which could adversely affect our business, financial condition, and results of operations.
While governmental restrictions imposed to limit the spread of COVID-19 and changing consumer behavior in light of the pandemic led to unprecedented demand for our products and services, demand may moderate over time as governmental restrictions are lifted and consumer mobility increases. We cannot assure you that we will be able to retain new suppliers, merchants, advertisers, and customers or maintain the current level of demand for our offerings over the long term, particularly after the effects of the pandemic taper. In addition, the growth in the demand for some products on our apps and websites during the COVID-19 pandemic has resulted in temporary shortages of certain products, which could negatively impact our reputation.
In response to the spread of COVID-19, we are requiring or have required substantially all of our sales, engineering, product, and general and administrative employees to work remotely on some or all work days to comply with applicable laws and to minimize the risk of transmission of COVID-19. We may take further actions as may be required by government authorities or that we determine are in the best interests of our employees and customers, including temporary closure of some of our facilities. We cannot guarantee that remote work arrangements will be effective. These arrangements could have a negative impact on our operations, the execution of our business plans, and the productivity and availability of key personnel and other employees necessary to conduct our business. Additionally, our business operations may be disrupted if a significant portion of our workforce is unable to work safely and effectively due to illness, quarantines, government actions, or other restrictions or measures responsive to the pandemic, or if members of senior management are unable to perform their duties for an extended period of time. If a natural disaster, power outage, connectivity issue, or other event were to occur that impacted our applicable employees’ ability to work remotely, it could cause substantial disruption to our business. Decreased effectiveness and availability of our team could adversely affect our financial condition and results of operations due to slow-downs in our sales cycles and recruiting efforts, delays in addressing performance issues, delays in product or technology development, delays and inefficiencies among various operational aspects of our business, including our financial organization, or other decreases in productivity that could seriously harm our business.
In addition to the office closures, the COVID-19 pandemic and related restrictions could continue to result in certain of our suppliers, merchants, and advertisers experiencing downturns or uncertainty in their own business operations or revenue, including closure of their operations temporarily, and in some cases permanently, which in turn may cause reductions or delays in their spending and may result in decreased revenue for us. Further, we may decide to postpone, cancel, or modify planned investments in our business in response to changes in our business as a result of the COVID-19 pandemic, which may impact our ability to attract and retain customers and our rate of innovation, either of which could harm our business. In addition, our facilities needs could evolve based on continuing changes and impact on work environments as a result of the COVID-19 pandemic, and we may not be able to alter our contractual commitments to accommodate such changes, which could cause us to incur additional costs or otherwise harm our business. The COVID-19 pandemic has also resulted in, and may in the future result in, disruptions to the global financial markets, which could negatively affect our access to capital and ultimately, our liquidity. In addition, a recession or market correction resulting from the continued spread of COVID-19 could have a significant impact on our customers’ disposable income, which would adversely affect our business.
The impacts of the COVID-19 pandemic continue to evolve, and we will continue to monitor the situation and the effects on our business and operations closely. We do not yet know the full extent of such impacts, particularly if the COVID-19 pandemic continues to persist, if new variants emerge, if there are subsequent waves of infection, along with the adoption and effectiveness of vaccines, and new public health measures are implemented. Given the uncertainty, we cannot reasonably estimate the impact on our future results of operations, cash flows, or financial condition. To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in this “Risk Factors” section. Any of the foregoing factors, or other effects of the pandemic or any other epidemic that are not currently foreseeable, could adversely impact our business, financial condition, and results of operations.
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Our expansion into new geographic markets and offerings and substantial increase in the number of our offerings may expose us to new and increased challenges and risks.
In recent years, we have expanded our offerings, including in consumer electronics, food and grocery, financial services, private-label brands, apparel, and travel, as well as expanded our reach into new geographic markets. Such expansion involves new risks and challenges and may require significant investments. Our lack of familiarity with new markets and new products and services and lack of relevant customer data relating to these new markets or offerings may make it more difficult for us to anticipate customer demand and preferences. We may misjudge customer demand and the potential profitability of a new market, product, or service. We may find it more difficult to inspect and control quality and ensure proper handling, storage, and delivery of new products. We may experience higher return rates on new products, customer complaints about new products and services, and costly liability claims as a result of selling such products and services, any of which would harm our brand and reputation as well as our results of operations. We may need to price aggressively to gain market share or remain competitive in new categories. It may be difficult for us to achieve profitability in the new product or service categories and our profit margin, if any, may be lower than we anticipate, which would adversely affect our results of operations. We cannot assure you that we will be able to recoup our investments in introducing any new product and service categories.
We operate in a highly competitive industry and we may be unsuccessful in competing against current and future competitors, which could have a negative impact on the success of our business.
The industry in which we operate is intensely competitive and we expect that competition will continue to increase. We currently and potentially compete with a wide variety of online and offline companies providing goods and services to customers and merchants, including traditional retailers and merchandisers, such as department stores, discount warehouses, direct retailers, and home-shopping channels. The Internet and mobile networks provide new, rapidly evolving, and intensely competitive channels for the sale of all types of goods and services. We compete in two-sided markets and must attract both customers as well as merchants to use our apps and websites. Customers who purchase goods and services through us have many alternatives, and merchants have other channels to reach customers. We expect competition to continue to intensify. Online and offline businesses compete with each other, and our competitors include a number of online and offline retailers with greater resources, large user communities, and well-established brands. As we respond to changes in the competitive environment, we may, from time to time, make pricing, service, or marketing decisions or acquisitions that may lead to dissatisfaction among customers and merchants, which could reduce activity on our apps or websites and adversely affect our results of operations.
We face increased competitive pressure online and offline. In particular, the competitive norm for, and the expected level of service from, retailers (including e-commerce retailers) and marketplaces has increased due to, among other factors, improved customer experience, greater ease of buying goods, lower (or no) shipping costs, faster shipping times, and more favorable return policies. In addition, certain online and offline businesses may offer goods and services to consumers and merchants that we do not offer. If we are unable to change our offerings in ways that reflect the changing demands of offline and online retailers and marketplaces, particularly at expected service levels, or compete effectively with and adapt to changes in larger retail businesses, our business, financial condition, and results of operations would be adversely affected.
Competitors may also be able to devote more resources to marketing and promotional campaigns, adopt more aggressive pricing policies, and devote more resources to offline shopping venues, websites, mobile applications, and systems development than we can. In addition, competitors may be able to innovate faster and more efficiently, and new technologies may increase the competitive pressures by enabling competitors to offer more efficient or lower-cost services.
Some of our competitors control other products and services that are important to our success, including credit card interchange, Internet search, and mobile operating systems. Such competitors could utilize complementary aspects of their businesses in order to provide a better shopping experience or make it difficult for customers to utilize our apps or websites, or change pricing, availability, or the terms or operation of service related to their products and services in a manner that impacts our competitive offerings. If we are unable to use or adapt to operational changes in such services, we may face higher costs for such services, encounter integration or technological barriers, or lose customers, which could cause our business, financial condition, and results of operations to be adversely affected.
In addition, certain manufacturers may limit or cease distribution of their products through online channels, such as our apps or websites. Manufacturers may attempt to use contractual obligations or existing or future government regulation to prohibit or limit e-commerce in certain categories of goods or services. Manufacturers may also attempt to enforce minimum resale price maintenance or minimum advertised price arrangements to prevent distributors and suppliers from selling on our apps, websites, or on the Internet generally, or drive distributors and suppliers to sell at prices that would make us less competitive. The adoption by manufacturers of policies, or their use of laws or regulations, in each case discouraging or restricting the sales of goods or
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services over the Internet, could force merchants to limit or stop selling certain products on our apps or websites, which could adversely affect our results of operations and result in loss of market share and diminished value of our brand.
Many of our competitors have, and potential competitors may have, competitive advantages such as longer operating histories, more experience in implementing their business plan and strategy, better brand recognition, popular offline locations, greater negotiating leverage, established supply relationships, significantly greater financial, marketing, and other resources. Our competitors may undertake aggressive marketing campaigns to enhance their brand name and increase the volume of business conducted through their stores or websites and make extensive investments to improve their stores or network and system infrastructure, including website design and