Image source: Getty Images
The Kogan.com Ltd (ASX: KGN) share price has been out of the gates on Thursday morning.
In early trade, shares of the struggling e-commerce company jumped 32% to $4.12.
Why is Kogan’s share price rising?
In addition to getting a boost from a booming tech sector, the release of a business update appears to have excited investors and sent short sellers into a panic.
For the 12 months ended June 30, Kogan expected to report total gross sales of $1.18 billion and gross profit of $184.6 million, according to the statement. This represents an increase of 0.1% and a decrease of 9.4% year-on-year, respectively.
Additionally, the company revealed that it expects to report adjusted EBITDA of $19.1 million for fiscal 2022. Given the struggles it’s had with margins this year, this seems like a big surprise for the market Especially considering how it posted a negative adjusted EBITDA in the third quarter.
Another positive is a decent reduction in the company’s inventories. They have been reduced from $193.9 million at the end of March to $161.1 million at the end of fiscal year 2022.
However, one slight negative that investors seem willing to overlook is that Kogan’s number of active customers appears to have peaked, at least for now. After reporting 4,099,000 active customers at the end of March, Kogan ended the period with 3,972,000 active customers.
Why such a big gain for its shares?
The market has been very pessimistic about Kogan’s performance for some time. Especially given management’s disastrous inventory management and growing competition from Amazon.
This has made the company a favorite among short sellers. So much so that, at last count, 8.2% of Kogan’s shares were short.
And while today’s result hasn’t been great on paper, it hasn’t been as bad as the market expected. It could also be a sign that the company is finally turning a corner.
In light of this, these short sellers may be in a rush to close positions today, increasing buying pressure and creating short pressure.
Management comment
Kogan founder and CEO Ruslan Kogan believes the company is well positioned in today’s environment thanks to its value proposition. He said:
Times are changing. In times of uncertainty, people don’t want to alter their lifestyles, but are happy to change the way they shop. We know that in an environment where great value is even more important, Kogan.com fills an important need.
We are making the business leaner to enable us to pass on cost efficiencies to customers in the form of lower prices. A leaner company means we stop continuing parts of the business that don’t deliver value to customers or shareholders, and it also gives us the flexibility to respond to ongoing significant changes in the macro environment.