The Kogan.com Ltd (ASX: KGN) share price has risen rapidly over the past month. At yesterday's close, Kogan shares were up a whopping 40%.
Shares in the online retailer are dragging 3% today, and of course, they're still down around 55% in 2022, but the recent rally of Kogan shares has helped it regain quite a bit of the lost ground.
In fact, since mid-July, the Kogan share price has risen by around 45%.
What's happened?
On 28 July 2022, Kogan announced a business update that appears to have excited investors.
One of the first things the company told the market was that it had returned to positive quarterly adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) after a "successful ongoing recalibration of operating costs".
This is likely a big deal for investors because a profit-making company is obviously more attractive than a loss-making business seemingly going backwards.
As a reminder, in the FY22 third quarter, Kogan said that its gross sales fell 3.8% (year over year) to $262.1 million. Adjusted EBITDA sank 110.5% to a loss of $0.8 million.
Kogan turns things around
While the FY22 fourth quarter was not exactly Kogan getting back to the best of the e-commerce boom during the COVID pandemic stage, a bounce back to underlying profit at the adjusted EBITDA level could be a good first step.
Kogan managed to grow its FY22 gross sales by 0.1% to $1.18 billion. Adjusted EBITDA profit did fall by 69% over the year, but Kogan management thinks there could be a boost for the business in the current environment.
CEO and founder Ruslan Kogan 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 serves an important need.
Our business was built for this. Efficiency and speed has been at the core of how the Kogan.com team operates for 16 years now.
We're not resting on our laurels though. 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.
My take on the Kogan share price
For Kogan shareholders – I'm not a shareholder – it has been encouraging to see the business regain some sentiment and regain a bit of profitability.
It's hard to say what happens next in the short term. The economy 'reopening' after COVID-19 lockdowns and the current economic climate (of rising interest rates and inflation) have made things tricky.
The situation of having too much inventory was also a negative, though Kogan seems to have largely worked through that now. It's also taking legal action against one of its logistics operators.
I think Kogan has the building blocks for being able to achieve good results in the future – a wide array of products, a strong customer base (Kogan First members grew 210% in FY22 to 372,000), the ability to generate operating leverage (as seen in previous financial years) and a desire to grow into new areas that could help growth, such as telecommunications, insurance and New Zealand.
If Kogan can improve its profit margins, then investor sentiment could grow even further.
