Kogan KGN is rapidly increasing gross sales and taking market share in Australia’s discretionary e-commerce market. However, this is being driven by ballooning marketing expenses, and so comes at the expense of diminishing near-term profit margins. Further weighing on margins are losses in New Zealand.

Why it matters: Kogan is investing heavily in marketing to reignite top-line growth after two years of declining gross sales. Sales grew by 20% in the four months to April 2025, but the market seems more concerned with the almost 40% drop in group earnings before interest, taxes, depreciation and amortisation (“EBITDA”). Shares fell almost 10% on the update.

  • In Australia, increased marketing costs are certainly attracting website visitors. Active customers of 2.7 million in April 2025 are up almost 40% on last year. However, despite a much larger sales base, EBITDA surprisingly declined by 14% on the same period a year ago.
  • While gross sales growth was stronger than we expected, this is more than offset by the steep 40% increase in marketing costs in the period. We lower our fiscal 2025 EPS estimate by 32% to 15 cents. We also modestly reduce our medium-term EPS estimates on slightly higher marketing costs.

The bottom line: We maintain our $10.70 fair value estimate for no-moat Kogan, with shares screening as materially undervalued. We believe the market assumes higher marketing costs will persist, but without resulting in higher sales growth and accompanying market share gains.

  • We don’t believe Kogan has a competitive advantage over larger international online pure-plays that would allow it to durably increase its market share without elevated marketing expenses crimping its margins.
  • However, we expect competition to moderate as the Australian e-commerce market consolidates and for Kogan to retain its market share while gradually reducing marketing costs. We forecast adjusted EBITDA margins as a percentage of gross sales to expand some 600 basis points to 11% by fiscal 2028.

New Zealand woes likely temporary

Kogan’s business strategy is broadly based on low-price leadership. However, as the competitive outlook intensifies from both Amazon and omnichannel retailers, Kogan is adjusting by launching a new online marketplace and building its product offerings in bulkier goods.

Compared with new entrants and most traditional retailers, while replicable we believe Kogan is far ahead on its supply chain, operational automation, IT, and sourcing capabilities. It outsources delivery and uses third-party logistics providers for warehousing, but has built a proprietary least-cost routing system that automatically calculates the best carrier depending on the article ordered.

Kogan’s strategy for its exclusive brands is largely data-driven, and seeks to identify and fulfil established demand for consumer products or categories at competitive prices. The firm analyzes Google search trends and product sales on competitor websites to identify strong consumer demand, and then manages and invites manufacturers to tender for new product contracts mostly through its Shenzhen sourcing office. Kogan is increasing private label exposure in bulkier goods including white goods, built-in kitchen appliances, and furniture with the bolt-on acquisition of Matt Blatt in fiscal 2020.

The firm also started delivering bulky goods to Brisbane, Perth, and Adelaide after expanding to 13 fulfilment centers in fiscal 2019. Although typically lower margin, we consider building a differentiated product offering around big-ticket items as a sound strategy. As fulfilment of bulky goods can be challenging to automate and usually requires dedicated handling, Kogan is competing less with Amazon’s fulfilment expertise, and in categories with generally less online competition overall.

We see great potential in Kogan’s relational business growth through its Kogan First membership model. Kogan First is a loyalty subscription service that allows users to pay less for products and delivery and gives access to exclusive offers. Kogan First has seen impressively fast user adoption since it launched in 2019. We estimate Kogan First members at around 500,000.

Kogan bulls say

  • Kogan is well placed as a pure-play online retailer due to structural tailwinds from online migration.
  • Kogan First has the potential to double its current subscriber base, growing the recurring income stream it generates and strengthening customer loyalty.
  • Marketplace is expected to significantly improve margins as sellers cross-list on its marketplace for greater exposure.

Kogan bears say

  • Current unprecedented growth is vulnerable to potential higher unemployment and physical retail reopening in the near term, and growing competition from Amazon and omnichannel retailers in the long term.
  • The third-party brands business faces cannibalization from sellers migrating to marketplace, and increased price competition since GST laws were effective from fiscal 2019.
  • Mobile is expected to remain challenged with improving postpaid plans longer-term.

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Terms used in this article

Star Rating: Our one- to five-star ratings are guideposts to a broad audience and individuals must consider their own specific investment goals, risk tolerance, and several other factors. A five-star rating means our analysts think the current market price likely represents an excessively pessimistic outlook and that beyond fair risk-adjusted returns are likely over a long timeframe. A one-star rating means our analysts think the market is pricing in an excessively optimistic outlook, limiting upside potential and leaving the investor exposed to capital loss.

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Moat Rating: An economic moat is a structural feature that allows a firm to sustain excess profits over a long period. Companies with a narrow moat are those we believe are more likely than not to sustain excess returns for at least a decade. For wide-moat companies, we have high confidence that excess returns will persist for 10 years and are likely to persist at least 20 years. To learn about finding different sources of moat, read this article by Mark LaMonica.