Kogan.com Down By 32 Percent After Releasing Its Business Update

On 29 October 2018, Kogan.com Limited (ASX:KGN) released its business update of September quarter, following which the share price of the company witnessed a dip of 32.11 percent. Company reported that it has achieved 41.6 percent year-on-year Active Customer growth as at September 2018. The Company had Active Customers of 1,450,000 as at 30 September 2018.

As per the business update of the company, the July 2018 Revenue of Kogan.com increased by 33 percent on July 2017 Revenue. In the first quarter of FY 2019, the exclusive brands revenue increased by 15.7 percent in 1Q FY 2019 as compared to the first quarter of FY2018. However, the Global Brands revenue decreased 27.4 percent in 1Q FY 2019 as compared to 1Q of FY 2018, which was mainly due to the changes in the GST law effective from 1 July 2018 and, in particular, the now apparent avoidance of GST by a number of foreign websites selling into Australia. The company also reported that the Partner Brands revenue substantially increased by 73.0 percent in Q1 FY 2019 as compared to the corresponding quarter of last year, due to on-boarding of new brands and some brands transitioning from Global Brands to Partner Brands.Â

Due to the competition from foreign websites selling into Australia without GST, a general decline in the strength of the Australian dollar, and other factors, the Gross Margin of the company decreased. The Kogan Mobile Active Customers base has increased by 102.9 percent on year-on-year basis, as at 30 September 2018. At the same time, company’s marketing expenditure also increased by more than 30 percent year-on-year in 1Q FY 2019, on the back of both addressing the decline in sales of Global Brands, and bolstering growth in other Product Divisions. The Company is planning to continue to invest in the long-term strategy to build its brand, scale and customer base. The Company strategically expanded its warehousing footprint into additional distribution centres around Australia and grew inventory levels in the lead up to the peak Christmas quarter, due to which the Company’s expenditure on variable costs increased by more than 40 percent on year-on year basis.

In the month of October 2018, the company received a notice from the Australian Competition and Consumer Commission (ACCC) requiring the Company to provide certain information relating to the marketing and pricing of a promotion that was run in June 2018. The company has strict processes and procedures in place to ensure compliance with the Australian Consumer Law and takes its obligations under law very seriously. The Company is compiling all information that ACCC has requested and it is planning to fully cooperate with the ACCC in its enquiry. According to the CEO Mr. Ruslan Kogan, the company will continue to execute its long-term strategy to grow its eCommerce footprint and make the most in-demand products and services more affordable for all Australians.

KGN’s shares traded at $3.15 with a market capitalization of circa $434.81 million as on 29 October 2018 (AEST 1:15 PM).

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