Why is the Kogan share price crashing 12%?

Kogan.com Ltd (ASX: KGN) shares are on the slide on Tuesday morning.

At the time of writing, the ASX 300 stock is down 12% to $3.99.

Why is the Kogan share price crashing?

Investors have been selling the ecommerce company's shares this morning following the release of a trading update.

According to the release, Kogan has achieved sales growth and profit margins during the four-month period to 30 April.

The core Kogan.com business achieved gross sales growth of over 24% compared to the prior corresponding period. This was driven by a strong performance across its Kogan FIRST, Marketplace, and Verticals divisions.

The company notes that active customers increased to 2.7 million, representing year on year growth of 38%. This performance resulted in Kogan.com's gross profit growing 16%, which is enabling the ongoing strategic reinvestment of incremental profitability into marketing and promotion initiatives.

Management believes that an increase in marketing and promotional investment of 39% year on year (more than gross sales growth) will support the long term growth of its loyalty program and ecosystem.

Things haven't been positive for the struggling Mighty Ape business, which has continued to be impacted by technical challenges. This follows a website platform upgrade that was announced in February, which affected its sales performance and inventory levels. Management believes an improved performance is coming, though. It said:

Early signs of recovery are evident, with Gross Sales showing positive momentum driven by the Mighty Ape Marketplace scaling rapidly since launch. Over the coming months Mighty Ape will continue to right-size inventory levels. The Company expects Mighty Ape to return to profitable trading performance in FY26.

Revenue and profits decline

The sum of the above, is the ASX 300 stock posting a 0.7% decline in revenue, a disappointing 37.5% decline in adjusted EBITDA to $6.8 million, and an even larger 63.7% decline in adjusted EBIT to $2.5 million for the four months.

Nevertheless, management believes that its margins will improve over the remainder of the half. It explained:

The Company is pleased that notwithstanding the significant marketing investment at Kogan.com and the ongoing technical challenges at Mighty Ape, it was able to deliver Group Adjusted EBITDA Margins of 5%, which is expected to increase in the coming months as the marketing investments continues to bear fruit, and the technical challenges are progressively resolved.

Prior to today, the Kogan share price was down 26% year to date.

The post Why is the Kogan share price crashing 12%? appeared first on The Motley Fool Australia.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Kogan.com. The Motley Fool Australia has recommended Kogan.com. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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