3 reasons why the Kogan.com (ASX:KGN) share price could be an opportunity

There are some interesting reasons why the Kogan.com Ltd (ASX:KGN) share price could be an opportunity for investors today.

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There are some interesting reasons why investors may be interested in the Kogan.com Ltd (ASX: KGN) share price.

What is Kogan.com?

Kogan.com is an e-commerce business that sells a variety of products on its website including TVs, phones, appliances, furniture, garden supplies, cars, energy, mobile plans, insurance and NBN internet.

Kogan.com update

Kogan.com released a trading update for the FY21 first half.

Across the Kogan Group, which includes Kogan.com and Mighty Ape, it said that gross sales went up 96% and gross profit grew 120%.

Adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) grew by more than 175% and EBITDA went up by more than 140%.

The company said it finished with cash of AU$78.9 million with AU$1.4 million of the group’s debt facility drawn within Mighty Ape.

In terms of active customers, Mighty Ape finished the half-year with 719,000 and Kogan.com finished with 3,003,000.

The company said it had its first week of $30 million, $40 million and $50 million of gross sales in the same week. Gross sales were greater than $50 million for the Black Friday week of 23 November to 29 November.

Gross sales on Black Friday, being 27 November 2020, were greater than $15 million for the day, the biggest day in the history of the business. Kogan Marketplace had its first $10 million week of gross sales in Black Friday week. Matt Blatt had it first week of more than $1 million gross sales.

Kogan.com’s founder and CEO Ruslan Kogan said: “We are proud to have delivered another record half while undertaking significant investments into the future of the business. I am so proud of how our team is navigating extreme growth within our core business, and responding to the fast-changing economic, health and supply-chain environment.

“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.”

3 reasons why the Kogan.com share price might be interesting

1: Expanding product lines and margins – Kogan continues to expand its product lines. Each time it adds a new product line it increases the total addressable market. Being able to service more of the customers’ needs makes the relationship more valuable for both the customer and the company.

Its margins have continued to rise over the years. In FY17 the EBITDA margin was 4.3%, it rose to 6.3% in FY18, 6.9% in FY19 and 9.3% in FY20. The EBITDA margin appears to have risen further with EBITDA growing by 140% whilst gross sales went up 96% in this half-year update.

2: New Zealand growth – Kogan recently bought Mighty Ape which is a leader in gaming, toys and other entertainment categories.

In FY20, Mighty Ape is expecting to make $137.7 million of revenue, gross profit of $45.7 million and EBITDA of $14.3 million, representing year on year growth of 43.7%, 58.1% and 254.1% respectively.

This acquisitions open up growth potential for the business in another country. Kogan can expand Mighty Ape’s product lines and help it grow. Mighty Ape can help Kogan in any areas that it has better expertise than the parent business.

3: Growing shareholder returns – Kogan.com has been delivering profit growth and this has resulted in market outperformance over the various time periods.

Over the last year the Kogan.com share price has gone up around 240%. Since the start of 2017, Kogan.com shares have risen by approximately 1,250%.

Not only has the share price been rising, but the dividend has been going up too. In FY20 Kogan.com increased its annual dividend by 46.9% to 21 cents.

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Motley Fool contributor Tristan Harrison 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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