Reasons Behind Kurly's Turnaround into Profitability: An Analysis through Data

1. In December last year, Kurly achieved its first monthly EBITDA profit in nine years since its inception. This news was reported by The Korea Economic Daily, citing the investment banking industry. Subsequent media reports revealed that Kurly shared this news with its employees in an internal town hall meeting.
2. EBITDA (Earnings Before Interest, Tax, Depreciation, and Amortization) refers to operating income before the deduction of interest expenses, corporate taxes, depreciation, and amortization of intangible assets. Interest expenses and corporate taxes have little relevance to actual operating activities, while depreciation and amortization of intangible assets exist only in accounting books. Therefore, a positive EBITDA indicates that Kurly is finally generating cash through its operating activities.
3. Of course, this is a 'monthly' basis performance, and some might downplay the significance of this improvement since it's based on EBITDA, not operating income.
4. However, to achieve the ultimate goal of annual operating profit, it's essential to approach gradually, starting with achieving a positive contribution profit. Kurly has emphasized that it has already achieved a 'contribution profit' over the past few years. Following the contribution profit, the achievement of a positive EBITDA is undoubtedly a good sign for Kurly's future prospects.
5. Now, the focus inevitably shifts to whether this profitability is sustainable rather than a one-time event. A more detailed analysis will be possible after the annual performance, including December, is disclosed. However, based on the currently available data, let's first examine the factors that led to Kurly's profitability and its sustainability.
6. In April last year, I had already analyzed Kurly's roadmap to profitability. At that time, I assessed that for Kurly to transition to EBITDA profitability, it needed 1) an approximate 25% increase in order volume, 2) an expansion in the proportion of Beauty Kurly, which has relatively better profitability, and 3) cost reduction based on the optimization of new logistics center operations.
7. Looking at Kurly's cumulative performance until the third quarter of 2023, it appears that significant efforts were made in cost reduction. The cumulative operating loss until the third quarter was 119.1 billion won, approximately a 44% reduction compared to the same period last year (179.6 billion won). According to MTN's analysis, excluding lease liabilities, the average monthly EBITDA loss until the third quarter was about 11 billion won.
8. However, the most crucial condition, 'transaction volume' growth, appeared to be stagnant. As Kurly sells directly purchased goods, the transaction volume directly translates into sales revenue. According to the disclosure, Kurly's sales from goods reached 99.4% as of the third quarter of 2023. Kurly's cumulative consolidated sales until the third quarter of 2023 were 154.6 billion won, which is only about a 1% increase compared to the same period last year (153 billion won).
9. Fortunately, the growth indicator for transaction volume seems to have rebounded in the fourth quarter. According to data provided by WiseApp, Kurly's payment amount (transaction volume) in the fourth quarter increased by approximately 26% compared to the previous year. This recovery in growth is presumed to have had the most significant impact on the improvement in performance.
10. Additionally, as evident from the cumulative performance disclosed up to the third quarter of 2023, Kurly has been consistently reducing its selling, general, and administrative expenses (SG&A). According to Kurly's cash flow statement, as of the third quarter of 2023, the company achieved cost reductions in transportation and packaging expenses, as well as advertising and promotion expenses, by 24%, 13%, and 24% respectively, compared to the same period of the previous year.
11. This consistent decrease in SG&A expenses indicates a focused strategy on improving efficiency and cost-effectiveness in key operational areas. Such reductions are crucial for a company like Kurly, which is in the process of transitioning to profitability, as they directly contribute to improving the bottom line. The significant cuts in advertising and promotion expenses, in particular, suggest a strategic shift possibly towards more organic growth methods or more efficient marketing spending. This, combined with the growth in transaction volume and the overall reduction in operating losses, paints a positive picture of Kurly's financial health and its path towards sustained profitability.
12. The introduction of new services such as the reward-based mini-game 'My Kurly Farm' and the in-app online community 'Kurly Log' also seem to have contributed to this success. Notably, the stickiness indicator DAU/MAU (Daily Active Users/Monthly Active Users) showed a marked improvement following the introduction of 'My Kurly Farm' in August last year.
13. Although the impact seemed slightly less compared to the original 'Ol Farm' utilized by Always, the fact that these initiatives led to noticeable changes in user engagement metrics was certainly surprising. It appears that Kurly's approach to increasing customer engagement through these gamification and community-building strategies has paid off, contributing to more frequent visits and potentially higher customer loyalty.
14. Lastly, Kurly's gross profit margin has also been gradually improving. This improvement is likely partly due to the increased proportion of Beauty Kurly and the optimization of logistics center operations. Going forward, it's crucial for Kurly to continue driving order volume growth and optimizing the utilization of logistics centers and delivery vehicles to further enhance the gross profit margin. This approach is vital for sustaining profitability and achieving long-term financial stability, especially in the highly competitive e-commerce market.
15. A positive development for Kurly is the consistent growth in the number of purchasing customers throughout last year. This suggests that the expansion into the Yeongnam region and the strengthening of the beauty category have likely been significant drivers of Kurly's ongoing improvement in profitability.
16. We have speculated on the factors behind Kurly's shift to profitability with some evidence. It seems more reasonable to view Kurly's recent EBITDA margin profitability not as a temporary event but as the result of continuous improvement efforts throughout the last year.
17. However, whether this trend will continue into this year remains uncertain. For Kurly to generate stable operating profits, ongoing growth in sales volume is essential. Although Kurly showed a rebound in the fourth quarter of 2023 according to WiseApp's payment amount growth rate indicator, the fact remains that it experienced difficulties, even negative growth compared to the previous year, until the second quarter.
18. One of the most disappointing aspects observed in preparing this content was the lack of significant indicators related to an increase in customer purchase frequency or average spending per customer. This suggests that last year's growth for Kurly was heavily influenced by the influx of new customers. Moving forward, it's crucial for Kurly to rapidly convert these new customers into loyal ones.
19. Here, Kurly Members could play a vital role. If the current performance has been below expectations, pivoting the strategy quickly could be an alternative. Alternatively, Kurly might consider entirely different approaches, similar to its specialized convenience store collaboration with CU. These strategies could help in retaining and converting new customers, contributing to Kurly's long-term growth and sustainability.

Written by KI myohan. He is active as the Editor-in-Chief of 'Trend Lite' and a contributing writer for BEYONDX(CONNECTUS).

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