Online marketplace operator Redbubble (ASX:RBL), which facilitates the sale and printing of independent artist designs for things like t-shirts and stickers, has revealed a significant slow down in revenues for the current quarter.
For the period between October 1st and December 9 2019, group revenues have grown by 20% compared to the previous corresponding period. While that’s nothing to sneeze at, the result was driven almost entirely by the TeeRepublic brand which saw a 59% increase (although it provided one month’s less contribution in the second quarter of last financial year). The core Redbubble branded marketplace saw only a 2% lift in revenues — a significant drop from the 43% growth it recorded in the first quarter.
The company blamed increased price competition and poor apparel sales, and said it would accelerate its efforts in marketing, merchandising and product line extensions in an effort to deliver the best possible full year result. Redbubble continues to expect growth in EBITDA for the 2020 financial year, and to post positive free cash flow.
Although the business was still loss making in FY19, the first quarter of the current year saw a marked improvement across most metrics and delivered $7.8 million in free cash flow — a result that subsequently saw a more than 30% gain in the share price.
Today’s update has, however, caused investors to re-think the growth potential and erase most of the gains from the past five months. At the time of writing, shares were down by close to 40%.
Shares in Redbubble are now trading on a price to sales ratio of 1.1 times. That’s not especially high (especially compared to many other ‘growth’ stocks), but given a sizeable fixed cost base and low margins, the multiple on operating profits (EBITDA) is a far more meaty 65.
Unless the business can return to historical growth levels in its core business, shares will likely struggle to justify this multiple.
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