The e-commerce business delivered its 3rd quarter trading update last week, which sent shares tumbling, falling more than 40% from recent highs just 7 weeks ago. Kogan.com has been making significant steps over the last ~24 months to improve the business, running inventory levels down and driving improved margins through various measures. Even until the HY update in Feb, including the January trading update, these measures had been effective, however, there seems to have been a significant shift for the rest of the quarter that caused a notable slowdown in underlying performance.
- Kogan said unaudited EBITDA for January was $4.9m, but only $9m for 3Q, a significant slowdown for Feb & March
The company’s membership, Kogan FIRST, has been a key reason for the shift, both on the way up and now seemingly on the way down. Subscriber growth of just 1% in the quarter was well below expectations, and now there are fears the latest price hike will price many customers out, given the benefits stack up for very few customers at the new $129/yr cost. Notably, total active customers fell by 3% in the quarter which is likely a leading indicator for further weakness in sales.
Revenue in 3Q fell 2.4% on 3Q23, though gross profit was up 14% thanks to improving margins. While this is positive, it appears to be less sustainable, the drawdown of inventory was doing a lot of the heavy lifting here. The company’s cash balance at $34.1m was down considerably from $83.3m at the end of the first half. Even when taking into account the $10.9m final tranche for their acquisition of Mighty Ape & the $33.8m spent on buying back shares, the cash balance still fell ~$4m in the quarter.
- KGN’s 3Q update signals that the easy fruit has been picked, and growth looks significantly more difficult from here on out.
MM remains neutral KGN despite the pullback
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