Kogan.com Struggles To Appease Matt Blatt Customers
Turbulent macroeconomic developments across the world have created unique circumstances for Kogan.com (ASX: KGN) to prosper over the past couple months, with a recent acquisition of Matt Blatt expanding the range of products available on their website. Ecommerce has seen an exciting increase in traffic as people stay safe at home due to COVID-19. This may have long-lasting beneficial implications for the sector as more people have adopted digital payment platforms and have adapted to a ‘new normal’.
Fifteen Matt Blatt showrooms were closed in late March, yet the smaller brand will be kept alive. This move will help KGN differentiate themselves from Amazon and eBay who opt for global brands. Matt Blatt has historically had AUD47 million in annual sales, of which 20 to 25 per cent was through their online store. With a total of 1.95 million sales with 62,000 new active customers over March and April, the trajectory of KGN during this time looks very positive. A spike in working from home equipment, home gym equipment and cooking compounds this outlook. Since these developments, KGN shares more than doubled, going up from around 4 dollars around the end of March and now nudging the 11 dollar mark.
Matt Blatt made replica furniture of global brands but in recent years tried the same trick with local Australian designers and sparked controversy. More recently, Matt Blatt seems to have blown up relations between KGN and their acquired customers. Hundreds had paid for goods that were never delivered as Matt Blatt went into administration on May 22. Allegedly, the brand had orchestrated to leave debts behind via liquidating their assets a week after the company sold its intellectual property to KGN, as well as the material stock being sold in April and May. Adam and Deborah Drexler, the founders of Matt Blatt, have not commented on the situation. Consumers have become frustrated with KGN, with a sentiment that they should deal with Matt Blatt problems. Depending on how these complaints are handled could see another change in stock price.
Teething issues aside, KGN's financials tell a story of a fundamentally sound, efficient company with enough stamina to sweat unexpected problems. KGN’s cost of doing business (CODB) was just 6 per cent in December, and the AUD4.4 million used to acquire Matt Blatt was funded through cash reserves. There is a trend of increasing earnings per year, increasing equity percentage, as well as a stable number of shares outstanding; providing undiluted value for investors. Revenue, operating margin, net profit, and the average price to earnings, are all trending positively, which makes KGN a promising opportunity.
Diving deeper into the macroeconomic impacts on KGN, a focus on April’s financial results, one of the most volatile months due to COVID-19, will point to how the company has thrived. Gross sales grew by 100 per cent, with gross profit growing by 150 per cent. Additionally, adjusted EBITDA grew by 200 per cent and with customers growing to 1,948,000. Despite recent issues in acquisition, KGN has seen incredible growth with a strong fundamental base.
By Timothy Geldard
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