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Kogan share price crashes 12% as expectations meet reality

We examine how the market responded to Kogan’s May business update.

Kogan share price crashes

E-commerce retailer Kogan (ticker: KGN) recently came under fire from the ASX for not providing the actual operational figures in its April business update, merely the percentage increases.

The company swiftly rectified the issue when queried. Some of the key clarifications included the company saying it booked total Q3 gross sales of $271.5 million, total Q3 revenues of $189.3 million and Q3 adjusted earnings (EBITDA) of $7.2 million.

Percentages, actuals, and other issues aside, the Kogan share price has been in a steep downtrend over the last six months, falling close to 50% in that period.

Business Update

The release of Kogan’s May business update did little to sate investors, with the stock falling ~12% within the first hour of trade, and last trading at $8.83 per share. At its 52-week high, the company’s stock traded at $25.57 per share.

Why the sell-off?

The key point of issue from this May release was likely the company’s full-year FY21 earnings (EBITDA) guidance.

Here management noted that they expected full-year EBITDA to come in at between $58 million to $63 million, a range, which the company said 'is likely to differ from the current range of analyst forecasts.'

Kogan also said it was noticing price inflation across a number of its core products and that work was being done to optimise its current inventory position.

‘Kogan.com is expected to return to normal inventory levels [...] and marketing spend as the current inventory is progressively reduced over the coming few months,’ the company said.

Beyond those points, management stressed that the long-term outlook for the company was an optimistic one, adding that 'The initiatives that the Company has put in place to address the rapid scaling of a large eCommerce company are expected to drive continuous customer experience improvements in FY22.'

For reference, in 2020 Kogan reported EBITDA of $46.5 million. At those levels, you’d be looking at an implied year-on-year growth rate of between 24.7% and 35.4%, against the low and high end of the new guidance range.

It’s not that such a growth rate in and of itself is unimpressive, but that it represents a miss on expectations.

Analyst Thoughts

Analysts from RBC said this new guidance represents a ‘material miss on consensus’ and is below their own $70 million EBITDA forecast.

Looking further out, RBC analysts added that fiscal 2022 estimates are likely too optimistic, with the firm's analysts saying ‘we see downside risk to our forecasts.’

‘Some of the issues impacting margins and costs are transitory and will be resolved, however, we remain of the view FY22 earnings expectations are too high and expect material consensus downgrades (we are at the bottom of consensus for FY22).’

RBC has a sector perform rating and $11.50 price target on Kogan.

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