10-Q 1 cpng-20210930.htm 10-Q cpng-20210930
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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: September 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-20210930_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 filerAccelerated filer
Non-accelerated filerSmall 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 November 4, 2021, there were 1,576,638,517 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 September 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, conference calls, and social media. We use these mediums 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. Notwithstanding the foregoing, the information contained on our website as referenced in this paragraph is not incorporated by reference into this Form 10-Q or any other report or document we file with the SEC.
3

Part I. Financial Information
Item 1.  Financial Statements (Unaudited)
COUPANG, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except shares/units)
(unaudited)
September 30, 2021December 31, 2020
Assets
Current assets:
Cash and cash equivalents$3,928,568 $1,251,455 
Restricted cash337,098 144,949 
Accounts receivable, net134,316 71,257 
Inventories1,212,198 1,161,205 
Other current assets299,153 211,848 
Total current assets5,911,333 2,840,714 
Long-term restricted cash4,341 4,898 
Property and equipment, net1,167,463 1,017,947 
Operating lease right-of-use assets1,259,962 1,011,255 
Goodwill3,900 4,247 
Long-term lease deposits and other240,271 188,271 
Total assets$8,587,270 $5,067,332 
Liabilities, redeemable convertible preferred units and stockholders'/members’ equity (deficit)
Current liabilities:
Accounts payable$3,216,880 $2,907,918 
Accrued expenses164,678 115,606 
Deferred revenue80,450 65,259 
Short-term borrowings168,052 156,678 
Current portion of long-term debt385,888 67,576 
Current portion of long-term operating lease obligations260,395 207,196 
Other current liabilities300,525 212,477 
Total current liabilities4,576,868 3,732,710 
Long-term debt169,333 353,342 
Long-term operating lease obligations1,103,478 859,477 
Convertible notes 589,851 
Defined severance benefits and other169,485 135,203 
Total liabilities6,019,164 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 September 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 September 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 1,575,551,659 shares issued and outstanding as of September 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 September 30, 2021; no shares of Class A and Class B common stock authorized, issued and outstanding as of December 31, 2020
174  
Additional paid-in capital7,813,384 25,036 
Accumulated other comprehensive income (loss)86 (31,093)
Accumulated deficit(5,245,538)(4,107,927)
Total stockholders'/members’ equity (deficit)2,568,106 (4,068,862)
Total liabilities, redeemable convertible preferred units and stockholders'/members’ equity (deficit)$8,587,270 $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 September 30,Nine Months Ended September 30,
2021202020212020
Net retail sales$4,137,136 $2,897,682 $11,938,685 $7,555,592 
Net other revenue507,569 238,825 1,390,994 608,254 
Total net revenues4,644,705 3,136,507 13,329,679 8,163,846 
Cost of sales3,890,178 2,669,552 11,184,152 6,826,861 
Operating, general and administrative1,069,639 683,192 3,242,891 1,722,077 
Total operating cost and expenses4,959,817 3,352,744 14,427,043 8,548,938 
Operating loss(315,112)(216,237)(1,097,364)(385,092)
Interest income2,603 1,267 5,450 9,512 
Interest expense(7,376)(25,712)(38,047)(78,423)
Other (expense) income, net(4,026)67,704 (7,479)73,829 
Loss before income taxes(323,911)(172,978)(1,137,440)(380,174)
Income tax expense66 21 171 228 
Net loss(323,977)(172,999)(1,137,611)(380,402)
Less: premium on repurchase of redeemable convertible preferred units   (92,734)
Net loss attributable to Class A and Class B common stockholders$(323,977)$(172,999)$(1,137,611)$(473,136)
Net loss attributable to Class A and Class B common stockholders per share, basic and diluted$(0.19)$(5.91)$(0.87)$(17.47)
Weighted-average shares used in computing net loss per share attributable to Class A and Class B common stockholders, basic and diluted1,747,255 29,284 1,313,234 27,085 
Other comprehensive income (loss):
Foreign currency translation adjustments, net of tax24,266 (2,956)38,887 (4,641)
Actuarial gain (loss) on defined severance benefits, net of tax1,266 36 (7,708)109 
Total other comprehensive income (loss)25,532 (2,920)31,179 (4,532)
Comprehensive loss$(298,445)$(175,919)$(1,106,432)$(384,934)

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)$2,802,629 
Net loss— — — — — (323,977)(323,977)
Foreign currency translation adjustments, net of tax— — — — 24,266 — 24,266 
Actuarial gain on defined severance benefits, net of tax— — — — 1,266 — 1,266 
Issuance of common stock, equity-based compensation plan— — 14,7761 7,783 — — 7,784 
Equity-based compensation— — — 56,138 — — 56,138 
Balance as of September 30, 2021$ $ 1,750,355$174 $7,813,384 $86 $(5,245,538)$2,568,106 
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)
Net loss— — — — — (172,999)(172,999)
Foreign currency translation adjustments, net of tax— — — — (2,956)— (2,956)
Actuarial gain on defined severance benefits, net of tax— — — — 36 — 36 
Issuance of common units, equity-based compensation plans— 1,9363,161 — — — — 3,161 
Equity-based compensation— 7,292 — — — — 7,292 
Balance as of September 30, 20201,329,465$3,465,611 95,769$20,418 $— $25,036 $3,110 $(4,025,172)$(3,976,608)

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)
Nine Months Ended September 30,
20212020
Operating activities:
Net loss$(1,137,611)$(380,402)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization145,866 85,551 
Provision for severance benefits100,649 48,856 
Equity-based compensation193,450 24,017 
Paid-in-kind interest and accretion of discount on convertible notes20,148 66,569 
Revaluation of derivative instrument (70,032)
Inventory and fixed asset losses due to fulfillment center fire284,825  
Non-cash operating lease expense187,926 105,512 
Non-cash others32,786 40,352 
Change in operating assets and liabilities:
Accounts receivable, net(75,958)(41,234)
Inventories(308,559)(413,619)
Other assets(182,375)(153,416)
Accounts payable561,528 948,051 
Accrued expenses50,604 41,145 
Deferred revenue13,015 8,037 
Other liabilities(94,126)(24,299)
Net cash (used in) provided by operating activities(207,832)285,088 
Investing activities:
Purchases of property and equipment(505,554)(314,941)
Proceeds from sale of property and equipment960 222 
Other investing activities(2,218)(35,629)
Net cash used in investing activities(506,812)(350,348)
Financing activities:
Repurchase of common units and preferred units (97,043)
Proceeds from issuance of Class A common stock upon initial public offering, net of underwriting discounts3,431,277  
Deferred offering costs paid(11,618) 
Proceeds from issuance of common stock/units, equity-based compensation plan57,521 11,223 
Proceeds from short-term borrowings and long-term debt308,772 220,649 
Repayment of short-term borrowings and long-term debt(111,472)(24,913)
Other financing activities(2,289)(1,379)
Net cash provided by financing activities3,672,191 108,537 
Effect of exchange rate changes on cash and cash equivalents, and restricted cash(88,842)(6,236)
Net increase in cash and cash equivalents, and restricted cash2,868,705 37,041 
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$4,270,007 $1,408,576 
Supplemental disclosure of cash-flow information:
Cash paid for income taxes$1,088 $155 
Cash paid for interest$14,175 $16,744 
Non-cash investing and financing activities:
(Decrease) increase in property and equipment-related accounts payable and accrued expenses$(5,516)$16,661 
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, content streaming, and everyday consumables, which are offered through a fully integrated technology, 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 operations and support services performed in China, Singapore, Japan, Taiwan, 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 (the “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, during the second quarter of 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. During the second quarter of 2021, the Company also incurred or 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 nine months ended September 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
9

annual or interim period. Certain information and note disclosures normally included in the annual consolidated financial 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
10

expected term of the options for each option group. The assumptions used to determine the fair value of the option awards 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 67% were held at three financial institutions as of September 30, 2021. The Company’s gross accounts receivable include amounts concentrated with four payment processing companies representing 50% of gross accounts receivable at September 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. We expect to elect the optional expedients for eligible contract modifications, if any, as they occur through December 31, 2022. The application of these expedients is not expected to have a material impact on our condensed consolidated financial statements.
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 and comprehensive loss:
Three Months Ended September 30, 2020Nine Months Ended September 30, 2020
(in thousands, except for per share amounts)
As ReportedAs AdjustedAs ReportedAs Adjusted
Total net revenues$3,136,507 $3,136,507 $8,163,846 $8,163,846 
Cost of sales2,669,479 2,669,552 6,826,847 6,826,861 
Operating, general and administrative684,893 683,192 1,728,585 1,722,077 
Total operating cost and expenses3,354,372 3,352,744 8,555,432 8,548,938 
Operating loss(217,865)(216,237)(391,586)(385,092)
Loss before income taxes(174,606)(172,978)(386,668)(380,174)
Income tax expense21 21 228 228 
Net loss(174,627)(172,999)(386,896)(380,402)
Net loss attributable to Class A and Class B common stockholders$(174,627)$(172,999)$(479,630)$(473,136)
Net loss attributable to Class A and Class B common stockholders per share, basic and diluted(1)
$(5.96)$(5.91)$(17.71)$(17.47)
Weighted-average number of Class A and Class B common shares outstanding used in computing per share amounts, basic and diluted(1)
29,28429,28427,08527,085
Comprehensive loss$(177,547)$(175,919)$(391,428)$(384,934)
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(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 $45,122 
Additional paid-in capital25,036 25,036 
Accumulated other comprehensive income (loss)(31,093)(31,093)
Accumulated deficit(4,117,755)(4,107,927)
Total stockholders'/members’ equity (deficit)$(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 nine months ended September 30, 2020, net loss and equity-based compensation expense in cash flows from operating activities each decreased $6 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 September 30,Nine Months Ended September 30,
(in thousands)2021202020212020
Net retail sales$4,137,136 $2,897,682 $11,938,685 $7,555,592 
Third-party merchant services450,634 202,356 1,231,799 516,367 
Other revenue56,935 36,469 159,195 91,887 
Total net revenues$4,644,705 $3,136,507 $13,329,679 $8,163,846 

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 and restaurants 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 nine months ended September 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 nine months ended September 30, 2021 and 2020, respectively.

4.    Property and Equipment, net
The following summarizes the Company’s property and equipment, net:
(in thousands)
September 30, 2021December 31, 2020
Land$140,857 $142,403 
Buildings117,675 181,529 
Equipment and furniture506,119 473,775 
Leasehold improvements277,331 172,864 
Vehicles159,245 165,073 
Software33,362 48,136 
Construction in progress309,320 169,789 
Property and equipment, gross1,543,909 1,353,569 
Less: Accumulated depreciation and amortization(376,446)(335,622)
Property and equipment, net$1,167,463 $1,017,947 

For the three months ended September 30, 2021 and 2020, depreciation and amortization expense on property and equipment was $51 million and $32 million, respectively. For the nine months ended September 30, 2021 and 2020, depreciation and amortization expense on property and equipment was $145 million and $85 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 September 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.