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.
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.
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.
Trade stocks like Kogan long and short with IG today
Create an IG account or log in to your existing account to get started now
IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.
The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.
Please see important Research Disclaimer.
Live prices on most popular markets
Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.