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Down 36% in 2022, should investors jump on the Kogan (ASX:KGN) share price?

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The Kogan.com Ltd (ASX: KGN) share price has fallen by 36% since the start of 2022.

It has fallen even further looking at longer periods of time. In the last six months the Kogan share price has fallen by 49%.

In 2020 the business was one of the economic winners of 2020 with a huge boom of e-commerce sales.

But since then, it has been a story of much lower profitability for the company as excess inventory led to higher warehousing costs, more product discounting and more spending on marketing.

The e-commerce business released its FY22 half-year result in February, with the company outlining various parts of its performance.

Here are some of the highlights if readers didn’t see it:

Kogan’s HY22 result

Gross sales increased 9.4% to $698 million, but the gross profit fell by 8.1% to $108.1 million. It made an earnings before interest, tax, depreciation and amortisation (EBITDA) loss of $2 million (down from a $38.8 million EBITDA profit in HY21). Adjusted EBITDA plunged 66.4%, whilst adjusted net profit after (NPAT) sank 85.6% to $4.8 million.

It reported a statutory net loss of $11.9 million, down from a profit of $23.6 million.

The company blamed impacts from supply chain interruptions as a result of the COVID-19 situation and changes in customer demand. Investors may have punished the Kogan share price because of these impacts.

Kogan.com’s active customers grew 10.4% year on year to 3.31 million at 31 December 2021. Mighty Ape had 757,000 active customers on 31 December 2021.

A key part of the company’s long-term plans is to grow its membership program, as Kogan First members demonstrate stronger loyalty and repeat purchase behaviour compared to non-subscribers. Kogan First members grew 176.4% year on year to over 274,000 subscribers at 31 December 2021. It had reached 310,000 Kogan First subscribers in February 2022.

Long-term growth plans

The Kogan share price has been very volatile in the last two years.

However, the company says that online retail is in its infancy in Australia. Kogan’s market share is growing in the e-commerce market that continues to rapidly increase in size. Kogan’s market share was 2.4% in FY20 and 2.7% in FY21.

Over the next five years, the company is aiming to achieve 1,000,000 Kogan First members and grow gross sales at a compound annual growth rate of at least 20% to reach $3 billion of gross sales in FY26.

Looking at the shorter term, in the second half of FY22 Kogan is expecting more growth of Kogan First subscriptions, continued growth of Kogan Marketplace (which is where third parties sell products on Kogan.com), growth of Mighty Ape and improved operating leverage.

Is the Kogan share price an opportunity?

Kogan shares have been falling in recent months.

Investors have turned sour on the business. For example, Credit Suisse recently decreased its rating on the business from a buy/outperform to ‘neutral’ because the half-year result wasn’t as good as the broker was expecting, with expectations of higher advertising, lower sales and weaker-than-expected margins.

UBS also rates the business as ‘neutral’. It’s expecting that investors will need to be patient for a recovery in profitability as Kogan continues to invest in growing the business.

On UBS’ numbers, the Kogan share price is valued at 39x FY23’s estimated earnings.

Source: Read More

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