The Redbubble Ltd (ASX: RBL) share price has fallen 44% over the last six months. Is it too cheap to ignore?
Redbubble is a leading e-commerce business. It has a website where shoppers can buy quality products with designs on them that are created by artists (who get paid for their designs). Some of the product categories include wall art, clothes, phone cases, pillows, aprons, bags and so on.
Why has the Redbubble share price fallen?
It has been a rough few months for Redbubble. Since 25 January 2021, Redbubble shares have actually declined by around 51%.
There may have been a few different reasons for the decline. But you’d have to ask why each seller why they sold, or ask why each buyer is paying less now.
Back in January there was a lot more commentary about rising inflation and the potential of increasing interest rates. That seemed to knock out some of the steam of high-flying e-commerce shares such as Redbubble and Kogan.com Ltd (ASX: KGN).
There was also the concern that COVID-19 vaccine success could mean less demand for online shopping and a return of consumers to bricks and mortar stores.
The Redbubble growth rate was starting to slow as it started cycling against the strong sales during the COVID-19 lockdowns. FY20 Q4 marketplace revenue growth was 73%, HY21 marketplace revenue growth was 96%, January 2021 marketplace revenue growth was 66% and FY21 Q3 marketplace revenue growth was 54%.
Growth investing and the opportunity
The latest (final?) big decline in the Redbubble share price was after the company committed to investing heavily for growth to try to capture as much market share growth as possible. The e-commerce market is expected to keep growing for years to come. Redbubble could become a much bigger player if it executes well. More and more shopping is likely to be done online over time.
But it’s going to have to put a lot of money into it to make it work. That will mean a low EBITDA margin (EBITDA explained) for the time being. Investors will have to wait a while before they see growing profit. again
Redbubble is not exactly cheap. It still has a market capitalisation of close to $1 billion.
But it’s growing market share very quickly and I believe that it can make a lot more profit in the future after year 2-3 year heavy investment phase. The e-commerce model can generate good margins, if the profit is allowed to flow.
Redbubble has already proven that it can generate really good operating cashflow. It made $54 million operating cashflow in the first nine months of FY21, compared to $51 million of EBITDA.
At this Redbubble share price of around $3.50, I’d be happy to buy some shares for the long-term. But there could be more volatility to come.