Kogan’s (ASX: KGN) first-half fiscal 2026 underlying NPAT declined 1% to $12 million. The smaller New Zealand business dragged heavily on group profits. The Australian Kogan.com platform increased EBITDA by 18% on 17% higher revenue. The interim dividend is up 14% to $0.08. Shares were up 6%.

Why it matters: We expected New Zealand to struggle in the first half. Management had flagged its decision to take a hit on the segment’s gross margins and discount surplus inventory. A similar decision was made in Australia in fiscal 2024, after which sales and gross profits recovered.

  • We expect New Zealand to break even in the second half, strengthening group margins. In the Australian segment, EBITDA margins expanded slightly, despite significantly higher marketing spending to drive 21% gross sales growth and gain market share after the exit of both Catch and MyDeal.
  • We expect immaterial working capital will be spent to refresh its New Zealand inventory. In the longer term, we anticipate its sales mix will skew toward its marketplace, for which third parties carry the inventory and associated risk. Excess capital is returned with dividends and share buybacks.

The bottom line: We maintain our fair value estimate at $9 for no-moat Kogan. Shares are significantly undervalued. At our upgraded fiscal 2026 dividend per share estimate of $0.16, it offers a fully franked yield of 6% at current prices. It offers a 10-year CAGR in earnings per share of 21% at our midcycle estimate.

Between the lines: After ramping up marketing to capitalize on the exits of online competitors, we anticipate a balanced approach to marketing spend and market share gains.

  • We assume marketing as a percentage of sales falls to 13%, down from 16% in the half, with the aim to hold its 2% share of Australian e-commerce.

Kogan distributing excess capital via dividends and buybacks

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 businesses like Kogan Mobile and Kogan Energy. 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 and third-party brand products sales is to drive growth in its platform-based sales. While product segment sales are slightly loss-making on the EBITDA line, platform-based sales are very high-margin. Platform-sales margins have gross margins of virtually 100% and EBITDA margins of around 50%. The platform business is scalable, and, if successfully growing, can support material group operating margins expansion over time.

Platform sales include Kogan’s marketplaces in Australia and New Zealand, as well as its Kogan First and Primate loyalty programs.

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. The majority of subscribers are on annual plans, and Kogan First members contributed about 50% of product gross sales in fiscal 2025.

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.

Bears say

  • Consumer discretionary spending and sales growth is vulnerable to the economic cycle. In the longer term, growing competition from Amazon and omnichannel retailers could erode Kogan’s market share.
  • The smaller New Zealand Mighty Ape business is challenged with a cyclically weak consumer and grappling with the fallout of technical difficulties. There is risk the business never recovers to its former performance.
  • The exit of online pure plays like Catch Group and Mydeal are near-term tailwinds, but this source of traffic growth to Kogan’s site could wane in the longer term.

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.

Fair Value: Morningstar’s Fair Value estimate results from a detailed projection of a company’s future cash flows, resulting from our analysts’ independent primary research. Price To Fair Value measures the current market price against estimated Fair Value. If a company’s stock trades at $100 and our analysts believe it is worth $200, the price to fair value ratio would be 0.5. A Price to Fair Value over 1 suggests the share is overvalued.

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.