From hero to zero: Redbubble deflates back to 2016 IPO prices

The fallout of fast growing but loss-making tech companies has led Redbubble (ASX: RBL) to the immense destruction of shareholder value, down more than -80% from January 2021.

Perhaps what's more disturbing is that Redbubble is now trading below its 2016 IPO offer price of $1.33 per share. Though, the company maintains a slightly higher market cap due to the issuance of new shares and capital raisings. 

Growth amounted to nothing

Redbubble has grown massively over the years amid a broad acceleration of eCommerce adoption and desire for more ‘personalised’ products. 

FY16 key metrics

• Revenue of $114.6m

• Earnings loss of -$8.7m

• Net loss of -$17.8m

• 2.20m customers

• 154,300 selling artists

FY21 key metrics

• Revenue of $533m

• Earnings of $53m

• Net profit of $31m

• 9.5m customers

• 728,000 selling artists

Even with the scale Redbubble has built over the years, the business is struggling to prove to investors that it can grow in a sustainable and profitable way, now that covid tailwinds are disappearing and competition is rising.

Three catalysts

Three-earnings related announcements drove a massive downward re-rate for Redbubble's valuation and share price momentum.

1. Half-year FY21 (16 Feb)

   • Shares fell -18% on the day

   • Result reads well at face-value

   • Likely to have missed broker expectations

   • In-line with tech-stocks broadly topping out in February 2021 due to interest rate concerns and rotation into cyclicals

2. Third quarter FY22 trading update (22 April)

   • Shares fell -23% on the day

   • Update reads well at face-value (85% revenue growth, earnings were positive, $54m cash inflows)

   • Flagged an increase in overall marketing spend

   • Short-term earnings margin expected to fall to the mid single digit range from low double digits

3. Half-year FY22 business update (18 Jan)

   • Shares fell -22.4% on the day

   • FY22 revenues to be slightly below FY21

   • Margins now expected to be negative, low single digits 

   • Increasing promotional activities and paid acquisition spend, increasing revenues but lowering margins

Source: TradingView, Annotations by Market Index

Earnings momentum is vital for growth stocks and to keep investors addicted to the company's growth trajectory.

Redbubble has delivered the complete opposite, first missing expectations, then weaker-than-expected margins and now, no growth and even weaker margins.

Where to from here?

Redbubble is stuck between a rock and a hard place as eCommerce competition continues to ramp up and covid-related tailwinds fade.

Morgans said in February that it expects hardship to continue as the business ramps up marketing efforts and customer-retention strategies, further eroding margins.

Redbubble reported a cash position of $142.7m as at 31 December, which is quite large relative to the company's current market cap of $370m.

That said, Redbubble's half-year FY22 results said the "business will be continuing near term investments utilising existing cash reserves to enable future growth."

Redbubble will release a third quarter FY22 trading update on Thursday, 21 April.

Will the business manage to stabilise and keep growth intact without comprising its cash position? Or is it burning through cash to stay relevant? Investors will know soon enough.