Can online retailer Kogan relive its COVID glory days?

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How are you: Today, Kogan’s market capitalization is $323 million and its shares are trading at around $3, a massive decline in value since late 2020, when COVID-fueled online spending helped its revenue and earnings to decline. skyrocket and investors hoped the pandemic could entrench online shopping habits.

Several missteps and worse-than-expected trading performance hammered Kogan’s stock. At the start of 2021, the company hinted at growing pains, which came to light in May when the company said it would cut its profit forecast after buying too much inventory.

Kogan’s profit for the 2021-22 fiscal year fell 86% and the company cut its dividend payout.

The company also drew the ire of shareholders at its annual meeting for poor performance and perceived mismanagement, with investors also protesting a generous share allotment to Ruslan Kogan and David Shafer the previous year.

Industry: Online retail.

Main products: Electronics, household items.

Key figures: Managing Director Ruslan Kogan, Chief Financial Officer David Shafer.

The bull case: With Kogan’s stock price just a few dollars above its initial public offering price in 2016, much of the bullish case stems from hopes that it can once again achieve the performance levels it once did. he was reporting during the pandemic.

Barrenjoey analyst Tom Kierath told clients in a June research note that Kogan may be able to turn a corner if consumer conditions improve at a better-than-expected rate and overall penetration online in the market exceeded forecasts.

It’s possible that Kogan may also be able to improve its position through “strategically compelling” acquisitions, Kierath says. The company has been quite active in the area of ​​mergers and acquisitions, most recently acquiring New Zealand retailer Mighty Ape.

The company’s recently launched marketplace – where third-party sellers can offer their products on Kogan’s website – could also generate higher sales and profits, with UBS analysts giving the company a price target of 12-month stock of $6 in this scenario.

A pessimistic economy could also see more shoppers opting for cheaper products, which Kogan sells through its private label line, which accounts for around half of its profits.

The bear case: Many analysts remain pessimistic about the company after its half-year results in February.

Foremost among their concerns are the company’s persistently high inventory levels, an issue it has faced since May last year.

UBS analyst Tim Piper told clients last month that the company still had “significant levels” of excess inventory.

“We expect Kogan’s gross margins to remain somewhat compressed in the near term while this is being addressed, while this additional inventory should also result in high warehousing expenses,” Piper said. Kierath notes that Kogan’s inventory levels are still about $30 million higher than they should be.

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Investors are also worried about weak consumption as inflation continues to rise. Data released this week by major banks CBA and NAB shows that spending on discretionary items, including Kogan’s key lines such as household products and electronics, has started to decline.

Finally, the rise in online spending during the pandemic has been both a blessing and a curse for Kogan, as other retailers are now pouring more resources into the channel, further increasing competition.

A clear example is Woolworths’ recent $250 million acquisition of MyDeal, a close competitor to Kogan. This, alongside Wesfarmers’ Catch, means there are now many well-funded competitors in the market.

“This, coupled with increased investment by omnichannel peers and continued investment from Amazon, will result in a permanent dramatic shift in customer acquisition costs and competitive intensity, reducing Kogan’s long-term earning power. “, said Kierath.

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