KGN, APT, MP1 & NGI

Kogan (KGN) – Record trading days but growth slowing… Afterpay Touch (APT) – No end in sight… Megaport (MP1) – Strong operating momentum… Navigator Global Investments (NGI) – Investment losses, outflows and deferred sales cycle…

Kogan (KGN) – Record trading days but growth slowing

Kogan provided a business update that was heavy on hype but light on detail, announcing that it had generated record trading in the peak Christmas period with the Black Friday and Boxing Day sales respectively producing record days in the history of the business.

Sounds great, except for the fact that total revenue growth was a relatively anemic 9.7% on the back of decelerating half on half growth in active customers (22%, 19%, 11%) and a significant reduction in revenue per customer from $180 to $145 for the half.  

The company also managed to spin 25% and 30% increases in marketing and variable cost expenditure, respectively as positive as they somehow reflected improved efficiency. Isn’t that supposed to work the other way around? In any event revenue growth of ~10% coupled with stable gross margins and an ~25-30% increase in variable costs will result in lower earnings.

With that said, and in sticking with the narrative, the company has continued to launch products into new verticals such as super, credit cards and home loans. It’ll be interesting to see if the brand is able to resonate in these verticals.

Afterpay Touch (APT) – No end in sight

The most interesting and arguably important aspect of this latest update provided by Afterpay was the US trading numbers for the 1H, having just recently launched in the country mid-May 2018. Needless to say, they did not disappoint – over A$260M of underlying sales processed through the US platform and over 650,000 new customers and 1,400 plus retailers. As a comparison, in the first 8 months of operations in Australia, the business generated $560,000 of underlying sales.

On the funding front, Afterpay is progressing with two major US investment banks for a total funding facility size of up to US$300M. It’s anticipated that the facility will be completed in H2 FY19. A US$300M facility is able to fund well in excess of US$4B in annual underlying US sales. This company is not short on ambition.

The Australian business continued its strong growth trajectory with A$2.0B in total underlying sales processed through the platform in 1H FY19, double the prior corresponding period. In-store now represents approximately 16% of total ANZ underlying sales, growing more than four-fold on the prior corresponding period. The company now has 2.5 million customers (!) and over 21,500 retailers (!) using the platform in ANZ.

I’ve said it before, but I’ll say it again, the speed at which this company has been able to achieve widespread consumer acceptance is nothing short of astounding.

Megaport (MP1) – Strong operating momentum

Hard to grasp exactly what it is that these guys do, however the metrics themselves are beginning to paint a compelling picture. Q2 revenue was $8.32M, an increase of 21% from the last quarter. Total monthly recurring revenue for December 2018 was $2.72M, an increase of 14% QoQ, implying a full year revenue run rate of $32.6M. Total Installed Data Centres was 245 at the end of the quarter, an increase of 11 across three regions, or +5% QoQ. Customers increased by 10% QoQ to a total of 1,277.

The stock has been trading in a range since the beginning of 2018 and they’re still a long way from profitability and very expensive by any conventional metric. It’ll be interesting to see whether they can get to cash-flow breakeven before burning through the $38.1M cash currently in the bank, or whether they’ll need to do another capital raising. They’ve already done 3 successively larger raisings in 2016, 2017 and 2018, not to mention the $18M raised in the IPO in 2015. $38M looks to be on the light side given they’re currently burning close to $10M per quarter, so my bet is on another one this year or early next year.

Navigator reported that AUM was down by $US1.4B in the December quarter due to a combination of fund outflows and negative investment performance. This represents a reduction of ~9% from $US16.14B to $14.72B.

The stock had been a strong performer, peaking in August 2018 following the announcement of their full year results. Since then it has come under heavy distribution with volumes up substantially as it has almost halved in value leading into these latest earnings updates.

With fees under downward pressure and widespread disillusionment with the hedge fund industry in general it’s likely that Navigator will be facing some heavy headwinds going forward.