Mobile App Expansion And Loyalty Program Enhancements Expected To Strengthen Customer Engagement

Key Takeaways

• Expanding Kogan Marketplace and Mighty Ape initiatives drives customer engagement and scalability, supporting future revenue and earnings growth.
  
• Strategic marketing and loyalty program enhancements boost customer acquisition, expected to improve net margins and sustain revenue growth.
  
• Strategic challenges and increased costs could pressure Kogan.com's profitability and margins, especially if marketing efforts and high-value product reliance don't yield expected returns.

Catalysts

Operates as an online retailer in Australia.

• The Kogan Marketplace returned to growth with double-digit increases in gross sales, expected to drive strong performance in the second half of the year, impacting revenue growth positively.
  
• Expansion of the Mighty Ape Marketplace and the introduction of the Mighty Ape Mobile App are anticipated to enhance customer engagement and scalability, supporting future revenue and earnings growth.
  
• Strategic marketing investment has led to increased customer acquisition and engagement, which is expected to boost revenue and drive operating leverage, improving net margins over time.
  
• Enhancements to the Kogan First Loyalty Program and an expected expansion of its offering are projected to maintain strong revenue growth and strengthen long-term customer loyalty, uplifting overall earnings.
  
• The significant improvement in the Kogan Mobile network has broadened its service reliability and value proposition, expected to contribute positively to revenue growth and earnings sustainability.

Kogan.com Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Kogan.com's revenue will grow by 8.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 0.4% today to 7.3% in 3 years time.
• Analysts expect earnings to reach A$44.9 million (and earnings per share of A$0.44) by about April 2028, up from A$1.7 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting A$60.1 million in earnings, and the most bearish expecting A$25.6 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 16.8x on those 2028 earnings, down from 246.4x today. This future PE is lower than the current PE for the AU Multiline Retail industry at 39.9x.
• Analysts expect the number of shares outstanding to decline by 0.87% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.58%, as per the Simply Wall St company report.

Kogan.com Future Earnings Per Share Growth

Risks

• Mighty Ape faced significant short-term challenges due to a platform upgrade, resulting in technical issues that impacted financial performance, potentially affecting revenue and net margins.
  
• There were increases in finance costs due to debt usage during the period despite ending with no debt, which may affect net earnings and signal cash flow management issues.
  
• The strategic increase in marketing investment, particularly in search engine advertising, to drive top-line growth may not yield the expected returns, impacting profitability through increased marketing expenses.
  
• The aggressive approach to customer acquisition and marketing spend could strain current operating margins if customer lifetime value does not offset the higher initial acquisition costs.
  
• The company's reliance on refining high-value, large-ticket product offerings could expose it to cyclical downturns, impacting both gross sales and revenue if economic conditions deteriorate.

Valuation

• The analysts have a consensus price target of A$6.379 for Kogan.com based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$10.7, and the most bearish reporting a price target of just A$4.05.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be A$617.2 million, earnings will come to A$44.9 million, and it would be trading on a PE ratio of 16.8x, assuming you use a discount rate of 7.6%.
• Given the current share price of A$4.35, the analyst price target of A$6.38 is 31.8% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.