The Kogan.com Ltd (ASX: KGN) share price hit a 52-week low today, falling by 5.7% to around $8.
This adds to the shorter-term falls and the long-term decline. In the last month alone it has dropped 20.5%. Since the start of the year Kogan shares have dropped by a massive 59%.
What’s going on with the Kogan share price?
The business has been suffering from lower demand than both management and shareholders were expecting.
At the start of the year, the company had ordered too much stock. This caused several knock-on effects.
There was the elevated warehousing costs. Kogan had to pay demurrage costs as well for a few months. To lower its inventory levels, it had to spend more on advertising and discount those products.
It really messed up the FY21 profit.
Aren’t things turning around?
Not too long ago the e-commerce business revealed how it performed in the first three months of FY22. Compared to the last three months of FY21, gross sales grew by 23.2% to $330.5 million, gross profit increased 31.6% to $52.5 million and Kogan First members rose by 64.4% to 197,000.
Year on year, active customers increased by 30.7% to 3.351 million, whilst Mighty Ape ended with 748,000 active customers. These types of growth numbers could be helpful for the Kogan share price.
Whilst it only made $10.8 million of adjusted EBITDA (EBITDA explained), Kogan said it had resolved its previous inventory pressures and closed a number of inefficient overflow warehouses.
Kogan said that the reduction in inventory levels has helped the company significantly reduce its warehousing costs, delivering an average variable cost saving of around $0.8 million per month in the first quarter of FY22 compared to the last quarter of FY21.
The company told investors about some of its goals at its AGM, including 1,000,000 Kogan First members.
It’s planning the launch of Mighty Ape – its New Zealand business – Jungle Express, which will be a last-mile delivery service owned and operated by Mighty Ape.
The company also gave a trading update to October 2021. Gross sales were up 19.2% to $432.7 million, gross profit was down 1.2% to $70 million and adjusted EBITDA (EBITDA explained) was down 61.25% to $12.4 million.
Over the next five years it’s aiming for $3 billion of gross sales, so it’s targeting a compound annual growth rate of more than 20% to FY26.
Summary thoughts on the Kogan share price
It has suffered a lot this year. Profitability has reduced more than expected. But the good sign is that its gross sales and customers continue to grow.
I think the impacts of COVID-19 will fade and this could lead to rising profit margins for the business again.
Online marketplaces can create a lot of value for customers and the shareholders with the network effects and scale benefits – just look at how FY19 and FY20 performed. However, it certainly seems there’s going to be more volatility and difficulties in FY21.
But I believe that more retail is going to head online, and the Kogan share price could be a beneficiary of that when conditions normalise. Customers are always attracted to lower prices, with Kogan being one of the most prevalent in the country.