Hello, everyone. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome everyone to the Coupang 2024 Second Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. [Operator Instructions] Now, I'd like to turn the call over to Mike Parker, Vice President of Investor Relations. You may begin your conference.

Thanks, operator. Welcome, everyone, to Coupang' Second Quarter 2024 Earnings Conference Call. I'm pleased to be joined on the call today by our Founder and CEO, Bom Kim; our CFO, Guarav Anand. The following discussion, including responses to your questions, reflects management's views as of today's date only. We do not undertake any obligation to update or revise this information except as required by law. Certain statements made on today's call include forward-looking statements. Actual results may differ materially. Additional information about factors that could potentially impact our financial results is included in today's press release and in our filings with the SEC, including our most recent annual report on Form 10-K and subsequent filings. During today's call, we may present both GAAP and non-GAAP financial measures. Additional disclosures regarding these non-GAAP measures, including reconciliations of these measures to the most comparable GAAP measures are included in our earnings release, our slides accompanying this webcast, SEC filings, which are posted on the company's Investor Relations website. And now, I'll turn the call over to Bom.

Thanks, everyone, for joining us today. Before we dive into the results for Q2, here are three takeaways from another strong quarter. First, our results continue to be driven by years of investment and innovation to provide what we believe is the best retail customer experience on the planet. Second, our focus on innovation and operational excellence help us break traditional trade-offs so we can provide that superior customer experience at the lowest cost and in turn, strengthen growth and profitability. One example we delivered the vast majority of our fresh orders using ecobags that replaced almost all of the delivery-related disposable packaging. That saves us packaging cost, helps the environment and allows us to provide free delivery within hours and do so profitably. That's just one example of how large to provide the best customer experience at the lowest cost and generate growth while expanding profitability, not one at the expense of other. Third, our developing offerings are generating strong growth and exciting momentum for the future. Our historical investments in product commerce were misunderstood at the time, but today helped generate the strong growth in cash flows you see each quarter. We believe our investments in developing offerings are building the next set of offerings that will further compound our growth and cash flow generation in the future. Now, a few numbers to highlight from our second quarter performance. This quarter, we grew constant currency revenues 30% over last year or 23% excluding Farfetch, which we acquired in Q1 of this year. And adjust for the fulfillment and logistics by coupon or FLC accounting change we've been in Q2 of last year, the growth would have been 660 bps higher than the 23% constant currency growth rate, excluding Farfetch. Our product commerce active customers grew 12% year-over-year. It's…

Thanks Bom. This quarter, we saw a continuation of the strong momentum across our business that we reported in Q1. In Q2, we again delivered robust growth in revenue, product commerce active customers, gross profit and adjusted EBITDA. As we go through the numbers, I want to remind everyone of our acquisition Farfetch that was completed at the end of January this year. Q2 dividend the first quarter consolidating three full months of Farfetch operating reserves with no Farfetch financials included in the prior year comp. Wherever possible, I will provide results for the quarter with and without Farfetch to highlight the performance of our existing business and the impact from the Farfetch acquisition. Our total net revenues grew 25% year-over-year in Q2 or 18% excluding the impact of Farfetch. Adjusting for the effects of changes in foreign currency total net revenue grew 30% or 23% excluding Farfetch. As a reminder, beginning in Q2 last year, we made certain changes to FLC revenue accounting. Changing the accounting from gross to net on a prospective basis. Adjusting for the impact of this change, the growth would have been 660 bps higher than the 23% constant currency growth rate excluding Farfetch. Within our product commerce segment, Q2 revenues grew 13% year-over-year, or 18% in constant currency. This growth rate would have been 680 bps higher after existing for the FLC accounting change. With the total retail spend in Korea growing at just 1%, Coupon continues to be a growing value destination for consumers and the primary source of consistent growth for sellers and suppliers in Korea. Net revenues for product commerce active customers grew 5% over the year in constant currency. This includes the short-term dilutive impact of the large number of new product commerce active customers we have added over the…

[Operator Instructions]. Your first question comes from the line of Stanley Yang. Your line is open.

Thanks for the opportunity to ask the question. Congratulations on strong results on major core metrics line items. My first question is about product commerce margin, which saw strong margin expansion in the second quarter. Can you please provide more color on the margin drivers in the second quarter? And also overall in 2024, what are the current major tailwind and headwind for your tele-commerce margin trend is rapidly growing FSC, increasing margin accuracies? My second question is about the Eats side. So the Eats market share gain momentum seems to be even stronger in the second quarter. Is Eats stand-alone margin improving with the economy of scale? That's my first question on this note. Sub-question on the first question, second question. And going forward, will you prioritize top line focused margin -- market share gain strategy going forward? Or do you look for more balanced strategy between the growth and profitability?

Hi, Stanley. Thanks for the questions. On product commerce, as you mentioned, Q2, we generated -- we recorded significant improvements, generating nearly $2 billion of gross profit, margin of 30%, which represents an improvement of over 300 bps year-over-year. The drivers of that margin expansion continue to be the same that we've seen over the last several quarters and years. These are improvements, continuous improvements in our operations and supply chain, scaling of margin accretive offerings, greater utilization of automation technology, including AI. And we still have a lot of opportunity to improve on these variables. That's one reason why we provided the long-term guidance of over 10% adjusted EBITDA and we pointed this out in the past, margins may be uneven quarter-to-quarter, but we expect our profit margin to continue its march upwards over time towards that target. On Eats, as you point out, we've continued to see strong momentum there, great adoption and increasing frequency from WOW members who are discovering each because of our unlimited free delivery benefit. It's important to note that we're doing that while also continuing to improve our cost structure. That's aided by the benefits of scale, our focus on operational excellence. Eats is currently unit economics positive, and we see that only continuing to improve at each scale. And as is the case with out of commerce, we're obsessed with providing customers with selection, service and savings, not one at the expense of the other. We'll continue to focus on breaking trade-offs between selection, service, savings between growth and economics to provide the best experience in restaurant delivery and commerce more broadly.

Stanley, you had one more question between on FLC margins. So I'll just jump in here. So as Bom had mentioned in his note, we are excited about the progress FLC is making. In Q2, the number of sellers joining FLC grew 25% quarter-over-quarter and were 150% year-over-year. The overall FLC is accretive from a margin perspective but there are still many areas that need improvement. We are making investments to onboard merchants, and we'll continue to improve our suboptimal processes and tech system there.

Your next question comes from the line of Eric Cha. Your line is open.

Yes, thank you. Thank you or the opportunity to ask question. I have two. The first question is on Developing Offering. So I've noticed the Developing Offering loss has increased to $20 million in second quarter. So just simply extrapolating this for the year, would you say there's a potential for Coupang to go, meaningfully go over $7 million to $50 million loss guidance for Developing Offerings. And it would be helpful if you could elaborate a little bit more on the key, the moving parts for the bigger loss compared to first quarter? And my second question is around G&A for Product Commerce. It seems like gross profit margin increase been the key driver for the adjusted EBITDA margin improvement for Product Commerce lately. And we don't really have much insight into the cadence of G&A for Product Commerce going forward. So could you explain on what the drivers are for the G&A increase and when we could expect some operating leverage coming from this slide. Thank you.

Yes, Eric, thanks for your questions. So on Developing Offerings, last year, we updated our full year guidance of adjusted EBITDA losses of roughly $750 million this year, including Farfetch. So while the timing of these expenses within the various components of Developing Offerings, may fluctuate quarter-to-quarter, we still believe our full year actual results will be in line with the guidance that we have previously provided. On overhead expenses, our expenses as a percentage of revenue this quarter increased versus last year. This was primarily due to the inclusion of Farfetch, it's related restructuring costs. The increased investments in developing offerings as well estimated $121 million administered fifth time that we previously mentioned. Within our core operations, we are also investing in technology and infrastructure to build a stronger foundation for future scalability. So while these investments may temporarily decrease our operating margins in the near-term, we will leverage on these costs in the next couple of years and we believe they will create long-term value as they help us better serve customers and support our future growth.

The next question is from Seyon Park from Morgan Stanley. Your line is open.

Hi, thank you for the opportunity. I also have two questions. First of all, just to follow up on what Dan had asked. I think this quarter, the gross profit margin improvement for product commerce was particularly more impressive and so maybe -- I know that the mix of operational efficiencies and the faster growth of higher-margin products is the drivers. Could you maybe share just a little bit of color as to, for this quarter within those drivers, what was particularly more evident. My second question is with regards to Taiwan, and I'm very cognizant that management would not like to give any forward-looking, I guess, guidance on Taiwan. But at least looking back, can we at least get a sense as to how far Coupang's services have been rolled out in Taiwan, what is available, what is not available, what kind of coverage you have, next morning delivery? Is that available in Taiwan into most residents, can you get some sense on that, please? Thank you.

Hi Seyon, thanks for the questions. I think it's important to highlight that on our margin expansion, that we really are early on these variables -- on our improvement around these variables. There's still a lot of room. And so the reason why you continue to see these margin improvements happen over the last few years on a continuous basis. Now, there are fluctuations quarter-to-quarter. The improvement is not always in a straight line. But we believe we're on a long-term trajectory to continue to improve all of these variables over time to achieve our long-term guidance of over 10% adjusted EBITDA. On Taiwan, it is too early to share details, but I can share that we continue to be very encouraged by the momentum and progress we're seeing there. Our customer experience, selection service, savings, none of them were quite at the levels that we've now built in Korea yet, but we are able to start in a much better place. And that strong start is in part due to the fact that we're able to leverage in in Taiwan, a lot of what we've built Korea. And we start in a very different place. Our selection processes, fulfillment logistics optimization, supply chain management, our technology stack, all of these things, we've invested and refined over a decade. We're fortunate to be able to leverage a lot of that in Taiwan. So while we are early in the journey and the experience is not where we'd like to be yet, both on the customer experience and operational excellence. We're very excited about the momentum progress we're making, and we'll continue to be very disciplined with any increased level of spend, investing only when we're convinced about the returns we can generate. We're also pleased that we won't have to make the same kind of investments in many areas, because we're able to leverage the investments we've already made in current market. Just generally, the potential to create meaningful differentiation and customer experience and meaningful returns for our shareholders, we think is extremely high, we're very excited about the opportunity we see in Taiwan.

Thank you.

Your next question comes from the line of Jiong Shao from Barclays. Your line is open.

Thank you very much for taking my question. First, I have a follow-up question about the margin. I think Bom just talked about your long-term target of EBITDA margin of 10% or more. I was wondering, could you talk about, just for your 1P business, do you think that's also achievable? And in that sort of the margin guide, gross margin at feel Mike peers have highlighted this quarter was particularly strong. Do you feel there's more room to go, the higher margin categories. Could you talk about what are those categories? Are there new categories you think you're going to expect to further grow in those categories? My second question is about the WOW membership fee increase. I was wondering, I know the fee -- the higher fee kicked in beginning of August a few days ago for existing members. But as the new members, I think the higher fee kicked in three months ago. I was wondering if you could talk about in terms of the members signing up or the existing member churn, if any comments will be appreciated. Thank you.

Hi, Jiong, thanks for the questions. We see a lot of opportunity. I think both Gaurav mentioned earlier that we still represent a very small percentage of overall retail spend. There's a lot of expansion potential that we see in spend in almost every category. So that is just the general trend I think. We represent a very small percentage of a fragmented a massive $560 billion commerce opportunity. And that spend will go up as we increase selection across all those categories, improve our service and continue to expand savings for our customers. On WOW, we generally disclose our WOW membership numbers on an annual basis. So we will share more at year-end. And our focus continues to be on creating massive value surplus for our members. Maybe there's a good chance for us to expand a little bit on what value surplus is for our customers there. We create value surplus through WOW. There are 14 different benefits that we've built over the years and added to the program. As an example, let me just take one of those benefits, three delivery savings and parents with young children. As some of the most time and resource constrained customers in the market. For a monthly fee that's equivalent to roughly the cost of two deliveries, these customers save on 23 free deliveries a month. That's saving more than 10 times the amount they pay. And that's just from free delivery. Not including the savings they get on free returns, exclusive discounts, free video streaming and not to mention hours they say from skipping trips to the store better spend with their children. And we're really focused, laser-focused on increasing these benefits and savings to serve our existing customers to attract tens of millions of retail shoppers who have yet to join WOW. And that's where our focus is to -- to continue to strive make WOW a best deal on the planet for our customers.

[Operator Instructions] The next question comes from the line of James Lee with Mizuho. Your line is open.

Great. Thanks for taking my questions. Two here. One of free delivery given your market share gains, can you talk about some of the competitive responses you've seen in market. In terms of restaurant selections in general, maybe help us understand what do you plan to reach maybe parity with your number one peer in the market? And also in terms of potential M&A, I'm just wondering under what conditions would kind of acquisition make sense in the space? Thanks.

So the second question, when you said parity, James, could you clarify a parity on what you mentioned?

In terms of restaurant selection.

I see. We are, generally speaking, we are making we have -- we're continuing just to add selection. I would say that in some places, our selection is better, probably some place selection is, still has areas of improvement to go. I think the most important thing is that we continue to focus on all three of those pillars. The selection, service, savings, delivering on all three pillars of that has been key to winning long-term customer loyalty to continuing to unlock a lot of growth for the program. So I think that generally is our focus. There are no plans for M&A. I think we just are focused on interim execution in that space.

Great. Thank you.

There are no further questions. This concludes today's conference call. Thank you, and you may now disconnect.