Good morning, and welcome to Kogan.com's FY23 results briefing. I'm Ruslan Kogan, the founder and CEO of Kogan.com, and I'm joined today by David Shafer, Kogan.com's Chief Financial Officer and Chief Operating Officer. David and I are pleased to present the group's financial and operating results for FY23. Since 2006, Kogan.com has sourced the latest and greatest products for millions of customers at the best possible prices. We have created and nurtured thousands of relationships with manufacturers and wholesalers. We have invested to create an expansive logistics network across Australia and New Zealand to shorten delivery times and improve our supply chain. Our customer care team ensures we continue delighting our customers after they've received their products.
As our business grew and developed, we evolved, introducing the first of our current verticals in 2016, which was Kogan Mobile Australia, in partnership with Vodafone. Since then, we have launched many more verticals. We partner with industry leaders to provide everyday essential services, offering incredible value. We use our digital marketing expertise and our platform and community to generate subscription-based revenue with low operating costs. In 2019, we extended our platform to thousands of Marketplace sellers, allowing these Aussie and Kiwi small businesses to reach millions of Kogan customers and grow their businesses rapidly. In turn, the Kogan Marketplace enables Kogan.com to offer millions of products online to our customers with no investment in inventory, sourcing, logistics, and reduced post-delivery activity. Marketplace sellers are also now able to advertise their best products on our platform.
We introduced the Kogan First loyalty program to reward our most loyal customers. All of this has contributed to our transition from a 100% inventory-based and capital-intensive online retail business in 2015, to a more sustainable and high-performing software and platform business with growing margins today. This transition has been years in the making, and for the first time, in FY23, the majority of our gross sales and gross profit was generated from subscription, platform, and software-based sales. These sales deliver a higher quality, recurring, lower risk, and higher margin revenue than our traditional inventory-based product divisions. Along with this inflection point we achieved, FY23 had many other highlights. The group concluded the year with a strong balance sheet, underpinned by AUD 65.4 million of cash.
Our net cash balance grew by AUD 34.2 million during the year, and that was after repaying our bank debt, paying the Mighty Ape Tranche 3 acquisition amount, and also utilizing AUD 10 million to purchase Kogan shares in the buyback that is currently being undertaken. Importantly, we aligned our inventory levels with current business strategy, allowing us to recover from the inventory clearance required in the first half of FY23. The alignment of inventory levels, along with the proportional increase in platform-based sales, drove a strong recovery in Gross Margin in the second half of the year and supported ongoing efficiencies in the operations of the business. With market conditions in FY23 challenging to the top line, we focused on cost optimization initiatives and I'm proud to share that we delivered on that plan. Fortifying the business against market conditions has never been more important.
We've renegotiated many contracts across our operations, with cost reductions now flowing through. I'm pleased that we have made good headway on this initiative in FY23. We continue to progress these initiatives as we commence FY24. Kogan First is a key pillar to the transformation we have made to a majority platform-based sales business. Our subscribers exceeded 401,000 as at the end of FY23. The subscription has traditionally offered exclusive deals, rewards credits, free shipping, and priority customer care. During the year, we widened the range of products eligible for Kogan First discounts, introduced double Qantas points, increased the reward credits earned, and introduced VIP giveaways. Many of these features were introduced towards the end of FY23. We expect these initiatives to underpin strong growth in FY24.
Kogan Verticals returned to growth in FY23, driven by our largest vertical, Kogan Mobile Australia. At present, we have the highest number of Kogan Mobile Australia active customers in its history. We also achieved accelerated growth in Kogan Mobile New Zealand, as an increasing number of Kiwis recognize the fantastic value mobile plans we provide. Kogan Money Credit Cards also continued its year-on-year growth as the low annual fee rewards card continued to gain popularity. Our Mighty Ape business delivered another solid year of performance, despite challenging market conditions in New Zealand. We won multiple awards, with the expansion of Jungle Express continuing to impress and delight our Kiwi customers. Throughout FY23, the Mighty Ape and Kogan.com teams have worked very closely to continue realizing group synergies.
These have delivered in the form of improving Gross Margin for Mighty Ape and savings across a number of service contracts for the group. The year included the acquisition of Brosa, one of Australia's largest online luxury furniture retailers. Since the addition of Brosa to the Kogan Group, it has been fully integrated and has further improved our buying power and widened our product offering. Here you can see the second half FY23 Kogan Group performance. We have included this slide to illustrate the recovery of profitability and the anticipated acceleration of our profitability moving forward. While top-line trading results continue to reflect our evolving strategy and challenging trading conditions, our Gross Margin improved by 8.9 percentage points in the second half of FY23 year-on-year.
This is driven by two achievements: the realignment of inventory to current levels of demand, which removed the need to clear excess stock, as we did in the first half, and the greater proportion of our platform-based sales revenue, which are at a high Gross Margin, given the non-inventory technology platform-based nature of this business. This culminated in an Adjusted EBITDA result of AUD 11.2 million, an increase of over 600% on the prior corresponding half. Soon, I will be passing you on to David, who will provide you with a comprehensive overview of the full FY23 financial results. The significant transition of Kogan.com to a majority platform-based sales business is the highlight of the FY23 financial year and sets us up well into the future.
To put it all into context, in our first year after listing Kogan.com on the ASX, platform-based sales contributed only 3.6% of gross sales and 9.5% of gross profit. Fast-forward to today, 6 years later, we have grown that to over 57% of gross sales and over 71% of gross profit. We expect this trend to continue. Our new advertising platform and the verticals returning to sustained growth will further accelerate this. This year was an inflection point, it's been years in the making. In FY23, we delighted millions of customers throughout Australia and New Zealand. The quality of our shopping experience is something our entire team prides itself on. It is a testament to, and reason for, the growing proportion of repeat customers we have.
This year, that proportion increased to 72%, well over the 50% we achieved 4 years ago prior to the COVID pandemic. It's this group of loyal and engaged customers who are setting the foundation for our future growth. In FY23, we successfully reduced our marketing spend per group active customer. This was a result of multiple efficiency measures implemented by our marketing team. In addition to this accomplishment, further improvements are expected in FY24. This is because the majority of marketing efforts in the first half of FY23 were directed towards the right sizing of our inventory levels, which impacted our ROI on marketing during that period. Our owned and earned traffic sources have increased to 71% during the year, compared to 65% in FY22.
This makes it clear that our underlying marketing efficiencies are working, compounded by the benefits associated with growing our proportion of repeat customers and Kogan First subscribers. I have often referred to Kogan.com as a technology company masquerading as a retailer. Since day one, we have been at the cutting edge of technology to elevate and enhance our customers' experience and optimize our operations. AI has played and continues to play a big part in this. We already use AI to optimize our marketing, product merchandising, and internal productivity. Our projects today include improved search results for our customers, and we're shortly rolling out immediate customer service resolutions any time of day. We will also be producing summarized product reviews to save our customers time. As the technology improves, we anticipate leveraging Generative AI to dynamically create in-situ product placement images.
This will enable customers to personalize the product images to their environment and provide saving on expensive product staging and photography costs. Finally, it won't be long before our website content is largely generated and curated by AI to give our customers the best shopping experience. The Kogan Marketplace serves as a key driver to grow platform-based sales. It allows us to offer tens of millions of in-demand products to our customers, while progressing to a more capital-light business with fewer operating costs. While gross sales have declined year-on-year, given the challenging market conditions faced by retailers, we are focused on achieving strong long-term growth, underpinned by having quality sellers on our platform and strict customer-centric KPIs. We have thousands of sellers on our marketplace already and are continuing to onboard more every day.
We anticipate growth to return in FY24, driven by closer engagement with sellers and the rapid expansion of the Kogan Marketplace in New Zealand, which launched in early June 2022. Our Exclusive Brands represents the majority of our in-warehouse inventory sales. The first half of this year required us to rightsize our inventory levels in line with our strategy and market conditions. Following the successful rightsizing, Gross Margins have largely recovered in the second half of FY23, up 12.6 percentage points, half-on-half, with further recovery expected in FY24. This division is essential to our business, offering a highly efficient method of delivering unique products from manufacturers to customers. This leads to exceptional value and unique offers that are not available anywhere else in the market, and therefore creates a unique proposition for consumers to choose Kogan.com.
Kogan First subscribers grew to over 401,000 from 372,000 at 30 June, 2022. Kogan First subscribers receive exclusive deals in addition to everyday discounts and free shipping. Subscribers also earn Kogan reward credits and the ability to earn double Qantas points. Our program helps us build a loyal and growing customer base, with an associated benefits in the form of growing proportion of repeat customers. This, in turn, increases our marketing efficiency and ROI. Having just recently introduced a number of new features and expanded the program to New Zealand, we look forward to the accelerated growth of the program in FY24 as more smart shoppers take advantage of our loyalty benefits. I am pleased to report that our largest vertical, Kogan Mobile Australia, has returned to sustained growth over FY23.
Kogan Mobile Australia, along with our other verticals, diversify our business and provide best value essential services to hundreds of thousands of Aussies and Kiwis. That's why it's also very pleasing to see accelerating growth in Kogan Mobile New Zealand, Kogan Money, and Kogan Energy. All our verticals deliver subscription-like platform revenue, while providing customers with incredible deals and savings from what they otherwise would need to pay. As we commence FY24, I'm excited to announce that we will be expanding our vertical offering in New Zealand very shortly. I will now hand over to David, who will provide a more detailed overview of the financial results.
Thanks, Ruslan. This year has been a tale of 2 halves for Kogan.com. We discussed at length in our presentation at the 1st half results, that the business was embarking on a period of consolidation. This required us to achieve a sustainable level of inventory, along with more efficient operating costs, and build a stronger balance sheet. I'm glad to report today that we have already started to see the positive outcomes of our efforts through the 2nd half results. Our Gross Margin has rapidly recovered, with further improvement expected in FY24. Operating costs have reduced, Adjusted EBITDA grew more than 600% year-over-year. Additionally, we have right-sized our inventory levels, grown our cash balance, and cleared all bank debt from the business.
In short, we have successfully rebased the business to become a less risky, more efficient, more nimble, and more focused operation, all while delivering exceptional value to consumers. In rebasing the business, we have delivered on our goal of increasing the quality of our earnings via a shift towards platform-based sales, which Ruslan has covered off earlier in our presentation. This is expected to deliver increasing profitability in the business in future years, as platform-based sales deliver higher recurring revenue, higher margin, and lower inventory risk, all while enabling lower operating costs, too. I will now go over the drivers of our group's financial performance in further detail. The group recorded gross sales for FY23 of AUD 844.8 million, and revenue of AUD 489.5 million.
The decline in both gross sales and revenue reflected a rebasing of inventory levels, as well as the impact from challenging trading conditions caused by increasing cost of living pressures and interest rates. To our shareholders, of course, this is not news, as we have kept them regularly updated about this trend and our strategy. To briefly explain the difference between gross sales and revenue, gross sales reflects the total transactional value of Kogan Retail, Mighty Ape, Kogan Marketplace, Kogan Verticals, and advertising income. Revenue reflects the accounting revenue of Kogan Retail, Mighty Ape, and only the seller-based fees or commissions received, that is, the platform-based revenue from Kogan Marketplace, Kogan Verticals, Kogan First, and advertising income. Despite a top-line reduction across our product divisions and Mighty Ape, we did achieve growth in Kogan First and a number of our verticals.
Kogan First benefited from growth in subscribers, as well as a price revision in February 2023, resulting in a revenue increase of 69.6% year-on-year. Within our verticals, Kogan Mobile Australia returned to sustained growth of 3.1% year-on-year. Kogan Mobile New Zealand continued strong growth of 71.5%, while Kogan Money and Kogan Energy grew by 22% and 46.9%, respectively. Gross profit of AUD 136.6 million declined 26% year-on-year, largely impacted by top-line performance and significantly reduced Gross Margin during the period of inventory right-sizing in the first half of financial year 2023. Despite this, Gross Margin did improve 2.2 percentage points year-on-year.
The increase was a result of the rapid recovery of Gross Margin in the second half and the proportional increase in platform-based sales, which drove a Gross Margin of 34.4%, up 8.9 percentage points year-on-year. Group active customers totaled over 2.9 million as at June 30, 2023, consisting of 2.19 million for Kogan.com and 755,000 for Mighty Ape. We look forward to the opportunity to convert many of these customers to Kogan First and Mighty Ape Primate subscribers in order to further enhance their shopping experience with us and deliver even more value to them. Kogan.com's Exclusive Brands and Third-Party Brands has been the focus of significant rightsizing of inventory. As we have previously mentioned, this was successfully completed at the end of the first half and materially impacted profitability in that half.
However, we have seen a swift recovery of gross margin in these divisions in the second half, and we expect that to continue into next financial year, being FY24. In line with our product divisions, Kogan Marketplace gross sales declined year-on-year by 28.5%, impacted by challenging top-line trading conditions. However, seller fees reduced by a lesser percentage of 22.2%, following improvements in seller management and experience. Towards the end of the year, our new advertising platform went live. The platform allows marketplace sellers to sponsor their listings to enhance search results and gain further reach within the Kogan.com website. We expect the advertising platform to become material in financial year 2024, as it continues to gain traction in these early stages.
Growing the ranges on the Kogan Marketplace means that customers have more choice than ever, and the business can become leaner without the reliance on ongoing investment in inventory to drive product range growth and sales. The group grew the Kogan First loyalty program to over 401,000 subscribers as at June 30, 2023, with revenue increasing to AUD 26.3 million, an increase of 69.6% year-on-year. The growth in proportion of owned and earned website traffic to 71% confirms the importance of the Kogan First program to the business. As we grow our Kogan First subscribers, there will be a reduction in the need for marketing investment, which frees up capital for alternative investments.
The unit economics of Kogan First involve taking what we otherwise would have spent on paid marketing to attract and retain customers, and share most of that saving with the consumer in the form of better prices and greater loyalty rewards. We have implemented a number of new initiatives towards the end of FY23 that have already demonstrated an acceleration in trials and members. We have high expectations for Kogan First growth in FY24 as a result. This year marked the exit of founder Simon Barton from the Mighty Ape business. Gracie MacKinlay completed her first full financial year as CEO, and she was joined in May of this year by Daniel Balasoglou as the new CFO of Mighty Ape. The transition has gone smoothly, with no interruptions to operations. I will discuss the financials of Mighty Ape in detail later on.
Shifting our focus to variable costs, which consist of warehousing and selling costs, these were reduced by 40.7% year-on-year. While the reduction in selling costs reflects softer trading conditions versus the prior period, the reduction in warehousing costs is due to the significant adjustment made to the inventory level in the business. Importantly, the efficiency of variable costs has improved year-on-year. Variable costs reduced to 8% of gross sales in FY23, from 8.8% in FY22. These efficiencies are expected to improve in FY24 as we roll off more expansive warehousing arrangements to align our warehousing requirements with current inventory levels.
Statutory NPAT was significantly impacted by suppressed margins during the first half of FY23, in order to substantially rightsize inventory, and also included a large non-cash, equity-based compensation accrual driven by the legacy options award, combined with the continued provision for the likely payment of Mighty Ape Transform acquisition payables. These non-cash elements have been discussed at length in prior results releases. Adjusted EBITDA, adjusted EBIT, and adjusted NPAT were all significantly impacted by the correction to inventory levels and challenging trading conditions. We did see strong recovery in the second half of the year.
As we head into FY24, I'd like to highlight that the number and value of non-cash, non-recurring items adjusted out of our EBITDA, EBIT, and NPAT results will significantly reduce following the conclusion of the accruals of the sizable retention options accounting entry and the Mighty Ape acquisition payables as of June 30, 2023. From July 1, 2023, these items have been fully accrued. On this slide, we can see gross profit contribution by each business division. The highlight was the recovery of gross profit and gross margin for the product divisions. On the left, you can see gross profit contribution in the first half of FY23. On the right, you can see gross profit contribution in the second half.
Following the right sizing of inventory within Exclusive Brands and Third-Party Brands, the deep discounting ceased, allowing for Gross Margins and therefore Gross Profit to recover. While significant recovery has occurred in the second half, we expect further improvements to come in FY24. Mighty Ape, Marketplace, Kogan First, and Kogan Mobile have all continued to contribute materially to the Gross Profit of the group. I'm pleased to report that our efforts to increase our operational efficiency are reflected in our results. As we drove down inventory in the business to the desired level, it has allowed cost savings, most notably in warehousing and marketing. This has driven the reduction in variable costs to 8.8% of gross sales in the second half of FY23, from 9.5% of gross sales in the second half of FY22.
Further, IT cost reduction initiatives and restructuring of our offshore customer care teams has provided further ongoing savings through our fixed costs. We have retendered or renegotiated most major contracts, from insurance to lease agreements to major software services, and savings will continue to escalate through FY24 as a result. As we continue to realize operational efficiencies, we look forward to returning the business to the previously strong operating leverage we achieved from the IPO through to the post-COVID period, where we began unwinding inventory following the reduction in online demand. Mighty Ape gross sales and revenue both declined year-on-year by 5.9% and 5.3%, respectively. The decline can be attributed to continuing cost of living pressures and high interest rates in New Zealand, which led to a reduction in the e-commerce market in that country.
Despite this, Mighty Ape achieved relatively consistent and resilient Gross Margin year-on-year. This was driven by an increase in Gross Margin, achieved through increased sales of Kogan.com Exclusive Brands, products, and better delivery economics from the growing Jungle Express delivery service. Adjusted EBITDA reduced by 26.7% year-on-year, as we continue to invest in setting up the business for future growth. This includes investment in IT infrastructure, logistics networks, and the Mighty Ape team itself. These investments are expected to produce long-term benefits for our customers and the group. The correction to inventory levels was a significant achievement for the group and, as anticipated, returned the business to Adjusted EBITDA profitability in the second half of FY23. Inventories in warehouse reduced to AUD 60.6 million, with total inventories reducing to AUD 68.2 million.
This represents a reduction of over 57% since last year. Our inventory levels now align to the current trading conditions. The right sizing of inventory delivered strong cash flows as we grew our cash balance to AUD 65.4 million, completely repaid all bank debt, and reduced our trade and other payables by over AUD 20 million. During the year, we also completed the Tranche 3 payment for the Mighty Ape acquisition of AUD 14.2 million. As at 30 June 2023, we have provisioned for the final acquisition payment, Tranche 4, within the acquisition payable. The balance as at 30 June 2022, represented a combination of both Tranches 3 and 4. We also commenced our share buyback in May 2023 of this year, with purchases to 30 June 2023, totaling in excess of AUD 10 million.
The on-market buyback is due to complete by May 2024. We achieved strong operating cash flows in FY23, driven by the right-sizing of inventory levels, we increased platform-based sales, further driving cash flows. Having completed the year debt-free, we expect our balance sheet to further strengthen with continued healthy operating cash flows. The board will continue to assess appropriate capital management practices this financial year, having regard to the ongoing share buyback, trading performance of the company, and its capital requirements. I'll now hand back to Ruslan to discuss our outlook and some further detail on the exciting things to come in financial year 2024. Thank you.
Thanks, David. Having steadied the business and ended the year with a strong capital position, our team is excited to have hit the ground running in FY24. Consistent with prior years, we will not be providing earnings guidance. However, we will provide regular business updates throughout the year. The business is filled with confidence as we enter FY24. We expect the number of Kogan First subscribers to accelerate, following newly introduced features and benefits to the program. We anticipate continued growth in our verticals and will be launching a new vertical in New Zealand this month. We expect a return to growth in Kogan Marketplace, and we are excited about the potential of our recently introduced advertising platform. Finally, we expect continued improvement in our product division's profitability. July 2023, unaudited management accounts showed a group-Adjusted EBITDA of AUD 3.5 million.
Together with David and our board, I am looking forward to delivering a strong result in FY 2024. This concludes our presentation. We look forward to meeting with many of our shareholders over the coming days. For those of you who have questions or are interested in hearing more, please stay with us for the Q&A. Thank you for your interest in Kogan.com.
Thanks for that, Ruslan and David, for that presentation. We'll now move to the Q&A section. As I said at the start, please type your questions in the Q&A, and we'll try to cover them all within the time we have available. I might start with some questions, David, from Taylor Guyot at Barrenjoey. Is the aim to get to pre-COVID EBITDA margins, or is it structurally higher or lower?
We actually expect adjusted EBITDA margins to continue growing, driven by the mix shift in the business towards platform-based sales. All the platform-based sales enter our accounts at 100% gross profit margin, because they are commission or seller fee-based sales or advertising income. There's very little operating costs or, or far reduced operating costs under that gross profit compared with the product divisions. Means that as we see a mix shift in our business from traditional 1P retail towards the software-like revenue, you do see an increase in EBITDA margins. Is what we experienced right up until midway through COVID, when we started unwinding inventory. We would expect that from here, EBITDA margins continue to climb and will eventually surpass the height of EBITDA margins we achieved, before the middle of COVID.
Second question is, if the average Kogan shopper frequency is 1.6 times per annum, can you tell us what the average Kogan First shopper frequency is?
I can't give more information that's already in the presentation, but what I can say is what we've repeated numerous times, and that is that Kogan First customers are more loyal, shop more regularly, and are higher value consumers to Kogan than non-members. They are increasingly, increasingly representing a greater and greater proportion of our overall sales and profitability, and Kogan First growth remains a key part of the strategy of the business. Our ambition is to grow the number of Kogan First members significantly over this financial year, and we think that that is gonna be a significant driver of overall revenue and overall profitability, given that those customers are our best customers. They commit to us, they commit to us by paying a membership fee, and in turn, they get a huge amount of value.
The underlying idea behind Kogan First, is that because we don't need to continue paying marketing expenditure to attract and retain those customers, we can take what otherwise would have been spent on marketing, and we can reinvest most of that into the consumer experience, making a better deal for consumers and making them more loyal. That is a key driver of the strategy of the business, and we fully expect to deliver on significant Kogan First growth over the remainder of FY24.
Last question from Taylor, a quick one: sorry, in the second half of 23, marketing to gross sales was around 6%. Does it stay there permanently?
Look, we have experimented in the second half of 2023 with some offline marketing. Some of you guys might have seen our billboards, our TV ads. We have experimented in non-traditional forms of marketing for the Kogan business, which is traditionally focused on digital marketing. We do expect some efficiencies over FY24, but I can't give guidance as to the % of gross sales that we're expecting, other than to say it, it might get a bit more efficient than it was in the second half.
A question from Owen Humphries at Canaccord: Do you expect inventory to increase in FY24?
We don't expect inventory as at the end of FY24 to be higher than at the end of FY23. During the course of FY24, inventory will surpass that number and then retreat after peak sales period. Through the year, ends of the inventory balance will go above that amount, but we expect it will end the year at around the same amount or a little bit lower.
A couple of questions from Johannes Faul at Morningstar: Is the shift to greater platform sales a conscious business decision or driven by customer demand? If it is conscious, what does it mean for 1P sales going forward and for Mighty Ape?
It was definitely a conscious decision. It's a combination of both the overall strategic transition of the business over the last five or six years. We started introducing verticals in 2016. They became a bigger part of our business. We then introduced the marketplace, we then introduced Kogan First, and now the advertising platform. All of those additions to our business make us more resilient as a business, with more cash flow coming into the business, more different types of revenue coming into the business. The difference in the last six to 12 months, is that that is combined with an active decision to reduce our inventory level, following the massive buildup in inventory during COVID.
In the last period, you've had a double contribution, both from the growth of platform-based sales in general and the addition of a new stream from advertising income, combined with an active decision to reduce our inventory level, and therefore to reduce the part of the business that's driving the product divisions. Having said that, we do believe the product divisions are essential to the business, and we do intend to grow them over the long term. The product divisions give us a unique selling proposition. They give us something special, and unique, and different in the market that makes our platform different from any other platform, and gives consumers a reason to come to Kogan to buy product that's unavailable anywhere else. That's our original content. That's something that will drive new acquisition, and that's something that we'll continue to invest in.
We'll just do it in a more focused way, given that we now have tens of millions of items available on the platform through the marketplace. We don't need to cover the range in our own inventory, we can focus on the highest moving items and really pick the winners, and allow marketplace sellers to cover the full range of items for our customers. That's the strategy, to continue to grow the product divisions or to return to growth in the product divisions, but driven by a more focused selection rather than attempting to cover the range.
Last question from Johan. Maybe something you can't quite answer specifically, but provide a bit of color. What's the retention rate Kogan First subscribers, and how does it compare to FY22?
Again, I can't give more information that's already in the presentation. Having said that, we have grown Kogan First subscribers year-over-year, and the growth of Kogan First subscribers has accelerated towards the end of the period. As we've mentioned, we expect Kogan First to continue that acceleration into FY24. Obviously, the number of Kogan First subscribers that we provide is a net number, net of all churn. If the overall number's growing in the context of a top line decline in sales and revenue, that would imply strong retention metrics. It's not hard to see why there's strong retention, given the value that we provide to Kogan First members. Just to reiterate, Kogan First members actually get a price discount on most inventory-based products.
They get free shipping on tens of thousands of items. They get credit back on their entire spend on the platform. They get extra Qantas points and a whole host of other benefits, including giveaways. The value is there to Kogan First members, and we expect that to continue growing from here.
Good segue into Wei-Weng Chen's questions. Wei-Weng from RBC Capital Markets. The first one, again, you may not be able to fully answer, but on Kogan First membership, you disclosed at your fourth quarter trading update. At the time of the release, you had 408,000 subscribers. Where are you at at the moment in August?
Again, I can't give more information that's already in the release, but what I can say is that Kogan First growth has accelerated. We've mentioned that, and that has continued, and, given that we haven't adjusted that wording, and that we do expect strong growth in Kogan First over FY24, as we've outlined in our outlook for FY24. Kogan First is a, is a key driver of the business. We've seen a lot of the additions to the program that we introduced towards the end of last financial year, start to have an impact, causing an acceleration in growth.
Second question from Wei-Weng Chen. It seems like from the 1st half to the 2nd half of FY23, there's been an uplift in paid traffic. Can you please speak to what's happened there? Prior to today's result, it seemed like that metric was trending lower.
As I mentioned earlier in the Q&A, you know, we have invested in some more experimental marketing initiatives in the second half. That's been a driver of overall marketing expenditure in the period. It's something we're continually looking at and was something we're continually trying to make more efficient and, and to assess what's working and what's not working. We do expect marketing to become more efficient in FY24. As you can see, we have been a very, very efficient marketer over many, many years. We do experiment with things from time to time and continue the things that do work and kill off the things that don't work, and you can expect that to continue into the future.
Last question from Wei Wing, you did note in the presentation, David, that Kogan.com doesn't provide forward guidance. Wei Wing's question is: How should we think about your AUD 3.5 million of EBITDA in July when we look at the first half 2024? Is there any reason why you couldn't continue to build on that number monthly from here?
To answer that directly, we don't believe there's any reason why we could not deliver on an improvement in that number monthly from here. We've mentioned in the presentation there are cost efficiencies that we believe are still to flow through in FY24, that Kogan First is accelerating, that the Verticals are returning to growth, and that the product divisions will improve in profitability over FY24. All of that ought to translate in improving underlying earnings. We do believe that overall Adjusted EBITDA will continue to climb, as I mentioned earlier. All of that translates into improved underlying earnings position, notwithstanding the fact that the top line is, you know, continues to be challenging. We're transitioning the business. We're becoming more nimble, more agile, and focusing more on higher margin recurring revenue streams to deliver for the underlying profitability of the business.
Quick segue into these questions we've got from Tim Piper at UBS. Staying on the AUD 3.5 million EBITDA generated in July. Is that profit figure generated off a fully rebased inventory position, i.e., generating a fully recovered gross in e-commerce sales and lower warehousing 3PL expenses?
Yes, it is. We have mentioned that our inventory position has been fully resolved, and that the current inventory position reflects the moving forward desired level for the business. In terms of the operating expenses being the warehousing expense, which is driving a lot of our, our cost base in July and pre-previously, there are still some efficiencies to flow through in FY24, incremental to what was delivered in the July result. Having said that. We believe that the underlying drivers of improved profitability growth are likely to come from improvement in Kogan First, improvement in Kogan Verticals, improvement in the advertising platform, and ongoing efficiency delivery over the remainder of the year.
The gross margin achieved on the product divisions in July does reflect an ongoing sustainable level, and the overall improvement in profitability is likely to come primarily from those other areas.
Second question from Tim Piper, similar to another question, a follow-up question from Taylor Guio. Is it possible to provide some commentary on the top-line performance in July?
We haven't included the top-line number for July, because the overall strategy of the business is to rebase the business towards lower risk non-inventory based sales. Obviously, we have just come off a significant reduction in inventory levels. Prior year comps, in terms of the top-line, do get progressively easier over the remainder of the financial year. We do expect that, at least in the second half, the business will return to top-line growth. However, - the year-on-year performance does remain challenging right now, and our focus is on underlying profitability rather than pursuing revenue growth for the sake of revenue growth.
The last question from Tim: Is it possible to provide a CAC, customer acquisition cost, figure the way you use disclose, i.e., marketing spend per new customer?
The overall number of active customers did decline year-on-year in line with the top-line result. In terms of new active customers, you know, there, there was a decline in overall active customers, which makes the calculation of that metric, different year-on-year.
A couple of questions from Barney. Can you provide more color around specific market efficiency improvement initiatives you implemented?
Yes. In, in terms of digital marketing, which is the lion's share of our marketing spend, we're in control of the exact ROI we're pursuing on each click. We decide whether we want to invest more than the gross profit we might make on the first transaction and have a payback period associated with our advertising spend, but potentially accrue more revenue. We can decide to prioritize profitability and pursue gross profit on the first transaction. We adjust that regularly in the business, depending on, you know, what the strategy of the business is. We pursued that over the course of the period to try and align the business to a more profitable base.
That was the driver, effectively making our digital marketing more efficient and focusing on ROI upfront, rather than pursuing a payback period associated with spending ahead of, our, our initial investment.
Just quickly, the second last and last question, Ivana: Have you seen any cross-sell opportunities or momentum between Mighty Ape and the Kogan platform, and what's the outlook for Mighty Ape?
Absolutely. Mighty Ape, one of the main strategic initiatives and synergies that we've been pursuing in respect of Mighty Ape, is to introduce more Exclusive Brands products onto the Mighty Ape platform. When we bought Mighty Ape, private label product was a very small component of their business. If you look at the website today, there's a heap of private label product that's been driven by, not so much cross-sell from Kogan to Mighty Ape, but facilitating an alignment of our purchasing teams and our supply chains, and enabling Mighty Ape to access Kogan.com Exclusive Brands inventory. That's been a driver of improvement in gross margin in Mighty Ape over the last few years, and product selection expansion, and making it, you know, a more exciting destination for consumers.
In addition to that, in addition to Kogan.com making our Exclusive Brands available to Mighty Ape consumers, you can also see Mighty Ape products available on the Kogan.com Marketplace.
Both in Australia and New Zealand. There is leveraging of the Mighty Ape product selection on Kogan, and there's also the expansion of Exclusive Brands into Mighty Ape in New Zealand. Yes, there's that cross-sale, as you're referring to, and that is one of the primary drivers of synergies in the business. The other one being the expansion of verticals, which we've announced, and other initiatives like the expansion of the warehousing platform in New Zealand, and Jungle Express, which is the last mile delivery platform.
I'm conscious we've gone over time, and maybe one last question. This one, a follow-up from Tim Piper: Can 1P eCommerce become profitable again going forward, or is it now a loss leader for the services division?
Yes, it, it can become profitable again. We are focusing on efficiencies and leanness. We're focusing on targeting the highest moving products that are the winners in each category. We believe it will return to strong profitability, but it'll be focused on higher inventory turn, focusing on the winners, higher margin products, rather than covering the field in terms of broad ranges of product that we might have used to pursue. Given that we now have tens of millions of items on the marketplace available to consumers, we can focus on really the standout winners, which is gonna be a driver of making that business division more efficient and more profitable.
David, thanks, and thanks for your time this morning to everybody that joined. Maybe just before we jump off, final word from you, final wrap in terms of the FY23 result and how Kogan.com is positioned for growth in FY24.
This result reflects the culmination of a difficult period for Kogan, where we rightsized our inventory level, we got our balance sheet under control, and we transitioned the business from higher risk revenue to lower risk revenue. We feel like we are a more nimble, more agile business today than we were a year ago or 2 years ago. Our inventory is cleaner than ever before. Our balance sheet is cleaner than ever before. We now have multiple revenue streams, all of which are producing very strong cash flows into the business. All while delivering the consumer our promise, which has remained resolute for 17 years, which is the best deals in market. Our mission is to make the latest and greatest goods and services available to Aussies and Kiwis at the best possible prices, and we are delivering on that day in, day out.
Our customers are happier than ever, as demonstrated by their repeat traffic, We have a very, very loyal base of consumers in Kogan First, that are growing now faster than ever before. We look forward to FY24 with very strong confidence that we can return this business to improved operating performance and improved underlying profitability. Most importantly, we can continue delighting customers across Australia and New Zealand into FY24 and beyond. Thank you very much, everyone, for your attention and your questions today, and for your interest in Kogan.com. We look forward to staying in touch over the remainder of the financial year.
Thanks, David, and that ends today's webinar. Have a good day, everybody. Bye.
Bye-bye.