There are a number of reasons why growth investors might like Kogan.com Ltd (ASX: KGN) shares.
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What does Kogan.com do?
As the name might suggest, Kogan.com is an internet-based business. Specifically, it's an e-commerce company that sells a wide variety of products and services through its platform.
In terms of retail, it sells things from categories like TVs, computers, phones, cameras, heating and cooling, appliances, home and garden, furniture, office supplies, toys, video games, clothes and shoes, health and beauty, sports, tools, cars, alcohol, groceries and more.
In terms of services, it offers things like car insurance, home insurance, credit cards, home loans, internet, mobile and energy.
Here are some positives about the e-commerce ASX share:
Kogan First
Kogan First is a membership program that gives members free delivery on 1,000s of products. Members can also be upgraded to express shipping at no extra cost. It offers priority customer service and exclusive member-only deals and discounts.
The ASX share says that this membership program creates a large and growing community of loyal customers who access free shipping and a range of exclusive benefits.
According to data from the company, Kogan First members purchase on average much more often than the non-members, demonstrating loyalty to the platform, and also demonstrating the significant savings available through the loyalty program.
Kogan.com is also hoping that these members will be more likely to sign up to the extra services that the company offers, which would make those members even more valuable to the business.
Rising margins
A business that can increase profit margins is likely to be able to increase its bottom line profit, which may be able to help the Kogan.com share price.
Kogan.com's gross margin was 17.9% in FY17, 19.5% in FY18, 20.7% in FY19 and 25.4% in FY20. That is steady progression for the business over consecutive years.
The earnings before interest, tax, depreciation and amortisation (EBITDA) margin has also been increasing with the company's improving operating leverage. The EBITDA margin was 4.3% in FY17, 6.3% in FY18, 6.9% in FY19 and 9.3% in FY20.
One of Kogan.com's preferred profit measures is adjusted EBITDA, which excludes unrealised foreign currency gains or losses, equity-based compensation and one-off non-recurring items. The adjusted EBITDA margin has also been improving – it was 5.2% in FY17, 6.3% in FY18, 7.2% in FY19 and 10% in FY20.
Diversifying earnings
Kogan.com is constantly working to add to its earnings. It's adding more products on its main site. But it has also been making acquisitions to grow the business as well.
It wasn't too long ago that Kogan.com acquired quality furniture business Matt Blatt and continue it as an online-only offering.
Kogan recently announced that it was expanding into New Zealand by buying the online retailer Mighty Ape for AU$122.4 million. It specialises on gaming, toys and other entertainment categories.
Before the impact of synergies, Mighty Ape has FY21 forecast revenue of AU$137.7 million, forecast gross profit of AU$45.7 million and forecast EBITDA of AU$14.3 million. This would represent year on year growth in revenue, gross profit and EBITDA of 43.7%, 58.1% and 254.1% respectively for Mighty Ape.
Kogan.com is expecting to generate significant revenue and cost synergies across plenty areas of the business after the acquisition.
How expensive is the Kogan.com share price right now?
Using Commsec earnings projections, it's valued at 25x FY23's estimated earnings.
In the AGM trading update it said that in the first four months of FY21 to October 2020 it had seen gross sales grow by 99.8%, gross profit went up 131.7% and adjusted EBITDA jumped 268.8%. Management said that 'product divisions' and the Kogan marketplace is generating a strong performance as customers continue to shop online.
