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HY21: Why the Kogan.com (ASX:KGN) share price is on watch

The Kogan.com Ltd (ASX: KGN) share price is on watch after announcing strong growth in the first half of FY21.

Kogan.com’s FY21 half-year update

Kogan.com revealed that for the six months to 31 December 2020, gross sales went up by 96%. Gross profit went up 120%, adjusted EBITDA (EBITDA explained) rose more than 175% whilst EBITDA went up 140%. All of these numbers include the acquired Mighty Ape. Mighty Ape had 719,000 Mighty Ape customers at the end of the period.

Excluding Mighty Ape, Kogan.com finished the period with 3 million customers, 90% gross sales growth, 115% gross profit growth, 165% adjusted EBITDA growth and 130% growth of EBITDA.

The business finished with cash of $78.9 million and $1.4 million of the group’s debt facility drawn within Mighty Ape.

Sales stats

Kogan.com said that Black Friday sales were record breaking and a sign of shifting Christmas purchasing behaviour and growth in e-commerce penetration.

The Black Friday week from 23 November 2020 to 29 November 2020 was the first week of gross sales amounting to over $50 million, this was also the first week above $30 million and $40 million of gross sales. Through that week, it sold 470,000 items to 253,000 unique customers.

Black Friday gross sales on 27 November 2020 were greater than $15 million. This represented 124,000 items sold to 63,000 unique customers.

Kogan Marketplace also had its first week of more than $10 million sales in the Black Friday week. Matt Blatt, the furniture retailer, also had its first week of more than $1 million of gross sales during the week.

Management comments

Kogan.com CEO and founder Ruslan Kogan said: “We are proud to have delivered another record half while undertaking significant investments into the future of the business…We are investing into building strong customer relationships by expanding our logistics capability, our marketing reach and our systems and infrastructure – giving us the foundation to continue delighting customers as the business further scales.”

Summary thoughts

Kogan.com has mixed reviews from investors. Some investors love the e-commerce theme, the network effects of a sales platform, the growing margins and growing dividend. However, there are also criticisms of insider share sales and high levels of share incentives paid to leadership.

Ultimately, if Kogan can keep growing its customer base, sales, operating profit and earnings per share (EPS) then it’s definitely worth considering.

I think Kogan.com could be worth a long term buy at this price if it can keep growing over time. However, there are other ASX growth shares in the e-commerce space I like more such as Redbubble Ltd (ASX: RBL).

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At the time of publishing, the author of this article does not have a financial or commercial interest in any of the companies mentioned.

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