Kogan (ASX:KGN) share price crashes 13% on Q3 update

The Kogan.com Ltd (ASX:KGN) share price is crashing 13% lower on Friday after releasing a disappointing third quarter update today…

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The Kogan.com Ltd (ASX: KGN) share price is well and truly out of form on Friday.

In afternoon trade, the ecommerce company's shares are down 13% to $10.80.

This means the Kogan share price is now down 58% from its 52-week high.

Why is the Kogan share price crashing lower?

Investors have been heading to the exits in their droves today after Kogan became the latest ecommerce company to release a disappointing third quarter update.

This follows similarly poorly received releases by Redbubble Ltd (ASX: RBL) and Temple & Webster Group Ltd (ASX: TPW) earlier this week.

What did Kogan report?

For the third quarter of FY 2021, Kogan reported gross sales growth of ~47% and revenue growth of ~65% across its businesses.

This was driven by a 77% increase in active customers over the prior corresponding period to 3,215,000 for Kogan.com and 742,000 for Mighty Ape.

This compares to active customers of 3,003,000 for Kogan.com and 719,000 for Mighty Ape at the end of December.

Earnings decline

While the above looks very positive, it went downhill quickly from there. Which is why the Kogan share price is crashing lower today.

Although its gross profit rose over 54%, its adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) fell more than 24% compared to the prior corresponding period.

This decline was driven by its core Kogan.com business, which reported a significant increase in operating costs. This led to this side of the business posting an adjusted EBITDA decline of more than 42% for the period.

What's causing this?

Kogan explained that during the quarter customer demand fluctuated below the levels seen in the prior nine months. As a result, the company was required to store larger than expected levels of inventory.

This led to Kogan incurring high storage expenses and demurrage fees.

The company has been progressively working towards optimising the inventory position to reflect current market conditions. However, this is being done by increasing its promotional activity, which could weigh on margins in the near term.

Also weighing on its performance is price inflation. This is being seen for many products currently being planned for reorder in advance of the peak Christmas trading period.

Is the Kogan share price in the buy zone?

Brokers have yet to react to this update, so it is difficult to say whether the Kogan share price is now in the buy zone.

But prior to today, Credit Suisse had an outperform rating and $20.85 price target and UBS had a neutral rating and $15.10 price target.

Both price targets are significantly higher than the current Kogan share price of $10.80.

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Temple & Webster Group Ltd. The Motley Fool Australia owns shares of and has recommended Kogan.com ltd. The Motley Fool Australia has recommended Temple & Webster Group 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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