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Kogan Share price: What’s the outlook following the Q3?

We examine the highlights from Kogan’s third quarter update, its recent share price performance and how RBC analysts responded.

Kogan’s Q3 Trading Update

The market responded bearishly when Kogan (ticker: KGN) released its third quarter trading update last Friday, April 23.

The stock was already trending lower in the lead up to these results, and came under even heavier selling pressure when the results were released, with KGN falling over 10% in response.

But was the Q3 really that bad?

RBC analysts estimate that operational expenditure (OPEX) has approximately doubled year-on-year. This, said RBC, was driven by ‘not only investment in headcount and marketing, but the variable costs associated with the record levels of inventory held and a decline in turn.’

With higher OPEX and elevated inventory levels, Kogan saw its earnings (EBITDA) drop sharply in the period, falling 24% in Q3.

According to RBC, the consequence of this is that ‘material downgrades will likely flow through consensus, though arguably the market has already priced in some of this, the question being by how much?’

RBC has an Outperform rating and $20.50 price target on Kogan, while the average analyst rating on the stock remains Overweight, according to the Wall Street Journal.

Besides weaker earnings, on a group level (which includes both Kogan and Mighty Ape), the company reported strong top-line growth in the third quarter. Gross sales were up more than 47%, revenue was up more than 65% and gross profits increased 54%.

Customers also continue to flock to the company, with group-wide active customers increasing 77%: 3.215 million for Kogan and 742 thousand for Mighty Ape.

On a more granular level, reported less impressive results. Gross sales were up 32%, revenue was up 41%, while adjusted EBITDA fell by 42%. Evidently, growth cuts both ways.

Speaking of these results, Founder and CEO Ruslan Kogan, said:

'We have maintained a strategy throughout the pandemic to be there for our customers during a period they need us most. We have continued to invest in some of the most important consumers goods – delivering essential items quickly to homes around Australia and New Zealand.’

And this is how the company described its outlook:

'The Board looks to the future with confidence as the business has grown its Active Customers base, invested in key strategic initiatives and has a strong level of in-demand inventory heading into the EOFY and Christmas trading periods while observing price inflation through global supply chains.'

Kogan Share Price ↓

Regardless of all that, Kogan saw its share price fall again on Monday, with the stock now down over 20% in the last five sessions. Kogan now trades well off the 52-week high it achieved in October 2020, down close to 60% from those levels.

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