The Kogan.com Ltd (ASX: KGN) share price has burst out of the gates on Thursday morning.
In early trade, the struggling ecommerce company's shares are up a massive 32% to $4.12.
Why is the Kogan share price rocketing higher?
As well as getting a boost from a booming tech sector, the release of a business update appears to have got investors excited and short sellers panicking.
According to the release, for the 12 months ended 30 June, Kogan expected to report total gross sales of $1,180 million and gross profit of $184.6 million. This represents a 0.1% increase and a 9.4% decline year on year, respectively.
In addition, the company revealed that it expects to report an adjusted EBITDA of $19.1 million for FY 2022. Given the struggles it has had with margins this year, this appears to have come as a big surprise to the market. Particularly given how it reported negative adjusted EBITDA for the third quarter.
Another positive is a decent reduction in the company's inventories. They have reduced from $193.9 million at the end of March to $161.1 million at the end of FY 2022.
Though, one slight negative that investors appear willing to overlook is that Kogan's active customer numbers appear to have peaked, at least for the time being. After reporting 4,099,000 active customers at the end of March, Kogan finished the period with 3,972,000 active customers.
Why such a big gain for its shares?
The market has been very pessimistic on Kogan's performance for some time. Particularly given management's disastrous inventory mis-management and rising competition from Amazon.
This has led to the company becoming a firm favourite with short sellers. So much so, at the last count, 8.2% of Kogan's shares were held short.
And while today's result was not great on paper, it wasn't as a bad as the market was expecting. It could also be a sign that the company is finally turning a corner.
In light of this, those short sellers may be in a hurry to close positions today, adding to the buying pressure and creating a short squeeze.
Management commentary
Kogan's founder and CEO, Ruslan Kogan, believes that the company is well-placed in the current environment thanks to its value offering. He said:
Times are changing. In uncertain times, people don't want to alter their lifestyle but they are happy to shift the way they shop. We know that in an environment where great value becomes even more important, Kogan.com serves an important need.
We are making the Business leaner to enable us to pass on cost efficiencies to customers in the form of lower prices. A leaner company means we discontinue parts of the Business that are not delivering value to customers or shareholders, and also gives us the flexibility to respond to significant ongoing changes in the macro environment.
