At a valuation of circa 0.9x FY22 gross profit, the market seems to be voting (rightly or wrongly) that either a) RedBubble does not have a sustainable business model or b) the management team is not fit to execute.
I'm undecided myself on where RedBubble will get to 3-5 years from now and whether they can obtain positive and sustainable unit economics at scale, but I'm very cautious on it.
My hypothesis is that we should assume zero intangible value for any business that a) has heavy competition and b) relies on search... Google (/advertisers) always ends up with all of the value...
More broadly, it appears that unloved tech companies have been oversold on the ASX specifically and we have seen that play out with takeover bids for a variety of ASX tech plays (e.g. Tyro), so it is tempting from that perspective, but there are some worrying signs for Redbubble.
11x increase in headcount into content operations since FY18, but only a 6x increase in new content uploads. Not a good sign. Also, "For every moment of self-expression, we've been there." is one of the most out-of-touch mottos I remember reading.
I would potentially hold the company as a small (sub-2%) portion of a 'deep value' robotic strategy, but the bet would be on the broader market being too pessimistic rather than RBL being a good company or business to own.
We have a few ex RBL staff working at Canva (including a former CEO of Redbubble). It appears that in engineering, 17 out of 19 EMs and above have left the company in the 18 months following the first round of lay-offs in March 2020.
All the key contributors left as well. The company was paralysed and had to rely on contractors (hence the high $$ for the headcount presented in the last FY results). This was at a time when online businesses were booming.
Now they have rebuilt the teams, but they have lost all the context, and they're re-inventing many wheels and moving slowly. Redbubble has already too much content. Hundred of millions of images and billions of SKU (the largest google shopping brand in the world), but it's hard to know which design should be surfaced. Content freshness matters, but content curation is the #1 play. The recurring lawsuits with all the IPs and infringing content is a risk that is hard to mitigate.
Also, with Canva maturing in the print space, it does not look good for future RBL's prospects as Canva's marketplace is going to live closer to the artist's tools and serve more markets where Redbubble does not ship (LATAM, Asia).
The market has often punished the business with a low valuation (except during the post-covid boom). I wouldn't bet on them long-term but I could see how it makes sense in the next 3-18months. They'll soon be trading for less than the value of their assets. They will certainly be vulnerable to a hostile takeover bid.
Lastly, my view on the management team - I'm not impressed. The departure of the CFO, Emma, is a significant red flag for me because I have a lot of respect for her as a shrewd operator. She's getting out, which is concerning.
