The Kogan.com Ltd
(ASX: KGN) share price has fallen again today in reaction to last week’s disappointing FY21 third quarter update.
What happened to the Kogan share price?
Last week, the e-commerce business released the numbers for how it did for the three months to 31 March 2021, compared to the prior corresponding period.
Gross sales grew 47%, revenue went up 65%, gross profit rose 54% and adjusted EBITDA (EBITDA explained) fell 24%. Active customers grew 77% to 3.2 million for Kogan, and Mighty Ape customers finished at 742,000.
There were a few key reasons for the EBITDA decline.
Kogan continued its long term strategy of investing in technology, brand awareness, logistics capability, platform improvements and Kogan First membership benefits to lay the foundation for future growth and provide ongoing improvements in customer experience. In other words, it continued to invest for growth.
However, inventory was also a problem for profit. The company ordered a large amounts of products in response to the high levels of demand throughout the first half of FY21. Customer demand fell below what was seen in the nine months to December 2020. Kogan was required to store larger than expected levels of inventory, incurring high storage expenses and demurrage fees (which is expected to be finally resolved in May 2021).
It’s working to reduce its inventory position to reflect current market conditions by increasing its promotional activity.
There’s also the potential problem of inflation of items that Kogan might be ordering for the upcoming Christmas period. The company will hopefully be able to pass on those higher costs to customers.
Is the Kogan share price an opportunity?
Kogan wasn’t going to be able to keep growing at that 2020 pace forever. It was already a pretty large business. It still reported a solid double digit increase of revenue.
I have to take management at their word that the inventory problems will be solved over the next month. Kogan still has all of the positive network effects and potential leverage going for it.
The Kogan share price is the lowest it has been for almost a year. That has lowered the forward valuation and improved the potential dividend yield.
Summary thoughts
I’d be willing to buy some Kogan shares for my portfolio for the long term today, though the share price could drift lower if the inventory problems aren’t solved quite quickly.
There are some other ASX growth shares I also think that look like opportunities.
