Here’s why the Kogan (ASX:KGN) share price is sinking 5% lower

The Kogan.com Ltd (ASX:KGN) share price is out of form and sinking lower following the release of its half year update…

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The Kogan.com Ltd (ASX: KGN) share price is out of form on Friday and dropping lower again.

In morning trade, the ecommerce company’s shares are down 5% to $18.70.

Why is the Kogan share price dropping lower?

Investors have been selling Kogan’s shares following the release of an update on its performance during the first half of FY 2021.

According to the release, for the six months ended 31 December, Kogan’s gross sales (including the Mighty Ape acquisition) increased 96% over the prior corresponding period.

Thanks to margin expansion, the company’s gross profit and earnings before interest, tax, depreciation and amortisation (EBITDA) grew at an even quicker rate.

Gross profit was up more than 120% on the prior corresponding period and EBITDA rose over 140%.

Key drivers of this growth were a record-breaking performance during Black Friday, the acquisition of Mighty Ape, and a significant increase in customer numbers. At the end of the period, Kogan.com had 3,003,000 customers and Mighty Ape had 719,000 customers.

Taking a little bit of the shine off the strong result were some additional charges totalling $3.4 million.

These comprise logistics demurrage charges of $1.9 million driven by one-off warehousing and supply chain interruptions and a $1.5 million write-down of personal protective equipment (PPE) inventory held by Kogan.com following a reduction in COVID-19 cases in Australia.

Management also advised that it recorded an unspecified but significant unrealised foreign exchange loss due to the rise in the Australian dollar.

Nevertheless, at the end of the half, Kogan had a very strong balance sheet with a cash balance of $78.9 million.

Management commentary

Kogan.com Founder & CEO, Ruslan Kogan, commented: “We are proud to have delivered another record half while undertaking significant investments into the future of the business.”

“We delivered our largest acquisition to date, in Mighty Ape and expanded the Kogan.com community of members to more than 3 million active customers. 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.”

Commenting on the Black Friday sales period, Mr Kogan revealed that the company experienced incredible demand from consumers.

He explained: “The Black Friday week saw some of the most extraordinary trading we have ever seen – with 7 out of our top 10 days ever occurring during the Black Friday period.”

“Customers have come to rely on Kogan.com to deliver their Christmas shopping needs, and we are proud to have satisfied well over a million happy shoppers this Christmas period. Keeping up with the extreme demand is an engineering, supply chain, and logistical challenge that our team loves working on and solving,” he concluded.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Kogan.com ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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