Redbubble sticks to investing in growth but the market disagrees as shares plummet -30%
Has Redbubble lost its cherry? Plans to invest in growth despite declining operating metrics in FY22
Source: Unsplash
Mentioned
KEY POINTS
- Redbubble posted mid-to-high teen declines for revenue, customers and gross profits
- Management said they will continue to invest in the brand to grow revenue and improve scale
- Redbubble shares plummet on missed earnings and the strategic direction of spending money to make money
Redbubble (ASX: RBL) shares took a -30% nosedive in early trade as the moderating eCommerce narrative continues to gather pace.
Redbubble shares were trading deceptively strong in the lead up to its full-year results, up around 93% from late June lows.
The company posted an FY22 net loss of -$24.6m compared to a $31.2m profit a year ago. The loss came in slightly ahead of Morgans expectations of -$22.2m.
Results at a glance:
Full year | 2022 | 2021 | Change % |
|---|---|---|---|
Marketplace revenue ($m) | 482.6 | 553.3 | -13 |
New and existing customers (m) | 483 | 553 | -12.7 |
Gross profit ($m) | 183.1 | 222.7 | -18 |
Gross profit margin (%) | 37.9 | 40.3 | -230 bps |
Operating expenses ($m) | 109.3 | 88.7 | 23 |
EBITDA ($m) | -11.2 | 52.7 | N/A |
Net loss ($m) | -24.6 | 31.2 | N/A |
Source: Redbubble | Table: Market Index
It's like Temple & Webster but worse
Redbubble reported a broad-based deterioration across most key financial metrics.
The only glimmer of hope the result offered was:
68% of marketplace revenue is recurring from existing artists, up from 60% in FY21
Days to ship fell -28% in the second-half of FY22
Average value of an order up 5% compared to FY21
But then again, these are all non-core pieces of information. Both the top and bottom line continued to struggle and the business is expected to continue to ramp up investments to grow revenue.
“In FY23, our investments will include the first phase of brand investment in the Redbubble business, and initiatives to grow revenue, improve scale and drive momentum across marketplaces. In turn, this will help to strengthen our competitive position and increase margins," said CEO Michael Ilczynski.
The result seems like the complete opposite of Temple & Webster (ASX: TPW), which reported its FY22 results on Tuesday.
Temple & Webster managed to keep things intact, with FY22 revenue up 30.6% and active customers up 21%. Still, profits declined -14.2% but EBITDA margins were at the top end of the company's 2-4% guidance.
Unlike Redbubble, Temple & Webster was taking active steps to expand margins and control costs, which resulted in an EBITDA margin % guidance upgrade to 3-5%.
A new era
Perhaps a 'spend money to make money' strategy might've inspired shareholders in 2020-21 when interest rates were near zero and central banks couldn't stop printing.
Now, with interest rates beginning to normalise, investors expect capital spend to at least yield some form of return - not just improve the top line.
Interestingly, Redbubble said it will see a slowing of new roles in FY23, down to 4% from 30% growth in FY22, contrary to all the layoffs that have taken place across tech and growth-heavy companies.
The company also forecasts brand investment of $8-12m and a higher year-on-year run rate for salaries and wages.
The -30% rerate shows what the market wanted, and Redbubble clearly heading in the opposite direction.
Redbubble share price chart
