Kogan Set To Be Bulldozed Down By Amazon Say Analysts
Kogan.com Ltd is set to be one of the first retailers to be bulldozed down by Amazon when they arrive according to share specialists Motley Fool.
Kogan founder and CEO, Ruslan Kogan, has dismissed the threat of Amazon coming to Australia and harming his business however the analysts are saying that he “might be wrong”.
In an email to investors the global analysts claim that “Investing in Kogan.com appears to be a high-risk strategy, given the high growth expectations already built into the share price and the huge threat in the form of Amazon arriving next year”.
Speaking to AAP, Mr Kogan said, “Amazon will hurt some retailers no doubt but the ones they’ll hurt are the ones that are selling the same thing as everybody else at fat margins.”
US online retail giant Amazon has reportedly said that it will destroy Australian retailers, which includes supermarket retailers like Woolworths Limited and Coles – owned by Wesfarmers Ltd to consumer electronics specialists Harvey Norman as well as many others.
Kogan.com mostly sells consumer electronics, with the retailer’s push into groceries failing dismally.
Kogan Pantry contains 85% fewer products today than it did at launch with just 89 products available according to news.com.au.
And 45 of those are SodaStream products, including flavours and accessories, with another 37 Lavazza branded coffee machines and pods. That leaves just seven grocery products – none of them food items.
Kogan.com says that if Amazon launches, it will sell items through the Amazon platform like it does through eBay. Given Amazon’s pricing power, it certainly won’t be on the most favourable terms for Kogan though, and the retailer’s margins are likely to shrink.
Unlike JB Hi-Fi, Kogan doesn’t have the bricks-and-mortar stores where foot traffic can generate a huge portion of sales. Kogan is already behind eBay and Amazon as Australia’s most visited shopping websites – and that’s before Amazon’s official arrival in Australia.
At the current share price of $1.47, Kogan has a market cap of around $137 million. After generating a pro forma net profit of $800,000 in the FY2016 year, the share price doesn’t look cheap at all. Offsetting that is the fact that the company expects to generate between $8 and $9 million in earnings before interest, tax, depreciation and amortisation (EBITDA) in the 2017 financial year (FY17). That’s more than double the $4 million in EBITDA produced in FY16.