Why I’m cautious on Ltd (ASX:KGN)

Online retailer Ltd (ASX: KGN) has been pinned as a growth share worth knowing about, particularly in the emerging web-based shopping sphere.

But is the decision of two directors who recently sold some of their own holdings – including CEO Ruslan Kogan – reason enough to be cautious of this company’s outlook?

FY18 Results

Kogan reported strong revenue and earnings growth for FY18 with EBITDA up 108% on FY17 at $26 million and revenue up 42.4% to $412.3 million.

Kogan’s surge in revenue was driven by growth across all product divisions, active customers and new verticals.

In FY18 Kogan launched several new verticals including insurance, health, life, and pet, with Kogan mobile New Zealand expected to launch in FY19.

Australian Kogan mobile continued to achieve strong results in FY18, with year-on-year growth in gross profit of 233.3% and its commission-based model ensuring low operating costs.

Kogan now has 1% of the total number of mobile users in Australia within two years of launching, with its total market share now representing 2% of Australia’s online retail – and growing.

Priding itself as an “agile and bold” innovator there is no doubt the company is showing strong growth, but the ecommerce market is not only a competitive one, but a dynamic one – is Kogan’s strategy flexible enough to adapt to sweeping changes industry regulators could bring about?

Brokers are interested, but watchful

UBS placed a buy rating on Kogan last month with a price target of $8.65, with Kogan sitting up 0.6% to $6.16 at the time of writing.

Kogan’s results were ahead of UBS’ estimates, but there was no trading update forthcoming from Kogan which the broker, and some investors, took as an indication that FY19 would not be so kind.

UBS expects Kogan to deliver EPS of 25c for FY19, so it will be interesting to watch how close the company can come to these targets.


Even though Kogan cuts out the middle man to ship directly from manufacturer to customer, there are some consumers who may never come around to businesses that are strictly online.

Bricks-and-mortar retailers such as JB Hi-Fi Limited (ASX: JBH) are in direct competition with Kogan, and, in the most part, are still travelling quite well.

Despite the usual overheads associated with maintaining their bricks and mortar presence that Kogan will never have to contend with.

Online retail gorilla Amazon is a definite consideration here, and has the benefit of being much more “household name” than Kogan at this point, with players like Harvey Norman Limited (ASX: HVN) upping their expansion plans offshore to drive organic growth as online retailers like Amazon and Kogan threaten its market share.

Foolish takeaway

Kogan is unlikely to lose momentum anytime soon, but it’s far from a blue-chip share, despite the attention it sometimes receives from segments of the market excited by its potential. Any companies reliant on the consumer discretionary spending space face serious risks if the overall economy begins to shake, so while I do think Kogan will likely maintain its growth, I’m cautious of its future.

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Motley Fool contributor Carin Pickworth has no position in any of the stocks mentioned. The Motley Fool Australia has recommended ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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