https://switzer.com.au/the-experts/sophia-katsinas/why-are-investors-crazy-about-kogan/

Why are investors ‘Crazy about Kogan’?

Kogan.com’s (KGN) share price is dancing around its all time highs. It has been one of the most talked about stocks on the ASX in 2020, skyrocketing after the March stock market crash. Yesterday, KGN closed at $19.82 per share.

There is no doubt the COVID-19 pandemic (and home lockdowns) ignited a natural rush to online retailers, with Kogan.com boasting impressive FY20 results, a strong balance sheet and a steady increase in customers.

On 9 April 2020, Tony Featherstone, a regular contributor to The Switzer Report and experienced finance journalist, tipped KGN as one of his “9 stocks worth a serious look”.

“Migration from bricks-and-mortar retailing to digital channels was well entrenched, but COVID-19 will surely speed up that trend,” said Tony.

“Kogan.com (KGN) looks like a stock for the times…Kogan.com shares can be volatile and the stock suits experienced investors comfortable with small-cap companies.”

The story of Kogan.com

Kogan.com is Australia’s largest online retailer and specialises in home tech appliances, while also stocking a greater range of products including fashion and clothing, food and drinks, furniture, books and more. It was founded by Ruslan Kogan in 2006, who decided to start selling television sets online from his parents’ basement for cheaper prices by cutting “bricks-and-mortar” associated costs.

In 2011, Kogan began stocking products from Apple, Motorola, Canon, Nikon and other global brands, promising to “take another massive chunk of Harvey Norman’s and JB Hi-Fi’s market share by offering the World’s best prices”, it said in a statement in the Kogan.com blog.

Since then, Kogan has expanded at rapid speeds, taking over Dick Smith’s online store in 2016; introducing Kogan Mobile (mobile phone plans) in 2013 with Telstra and again in 2015 with Vodafone; launching Kogan Travel in 2015; partnering with companies like Holland Insurance Company and Greenstone Financial Services to create Kogan Insurance (car, pet, home, life, health, travel and more); introducing Kogan Internet through Vodafone’s nbn in 2018 and launching a home loan branch called Kogan Money in 2018, through Adelaide Bank and Pepper Group.

Why has Kogan done so well?

It wasn’t entirely smooth sailing for Kogan.com. When it listed on the ASX on 30 June 2016, its shares were at $1.80. A week later, the share price slumped 12%. In an ABC interview in 2016, Kogan’s share market debut was described as “disappointing” by senior equities analyst at Forager Funds, Daniel Mueller. It took 1 year and 4 days for the company to reach its initial public offering (IPO) price.

It wasn’t until late 2017 that Kogan saw significant returns, with the company reporting a net profit of $7.2 million in 2017, an 800% increase from 2016. Its FY20 results recorded gross sales of $768.9 million, which were up 39.3% from 2019.

JB Hi Fi and Harvey Norman, which Kogan lists as its competitors, also reported profits for the uncertain 2020 financial year. In its earnings report, JB Hi Fi accounted for this as “customers spent more time working, learning and seeking entertainment at home”. Harvey Norman had similar comments in its FY20 report.

With JB Hi Fi reporting that online sales grew by 48.8% over FY20, it is clear COVID-19 has propelled the shift to online retailing. However, Gerry Harvey and CEO of Harvey Norman, Katie Page, remain advocates for the importance of a “store footprint” and not devoting an entire business model to the online space.

When it comes to competitors in the online space, Ruslan Kogan told news.com.au in 2018 that he welcomed the launch of Amazon Australia, as “anything that can be done in Australia to bring more significance to our online retail industry to make more people aware of it, the better.”

Kogan has been careful to avoid taking on giants like Amazon as competitors, deciding to work with them instead, partnering with eBay for 13 years and listing 16 Kogan.com exclusive private label brands on Amazon.

But when it comes to local retailers, Ruslan Kogan has no problem publicising the “online vs instore” debate, having challenged Gerry Harvey for years. Through carefully articulated public commentary and brand competition, Kogan.com has been able to label itself as one of the leading advocates for online retailing in Australia.

The performance of Kogan.com this year is one of the clearest examples of why people are “going crazy” for Kogan and how COVID-19 may be nudging consumers closer to the online-only retailing space.