The Redbubble Ltd (ASX: RBL) share price could still be a really good opportunity, despite rising 24% over the past month.
Why the Redbubble share price could be a good idea
Redbubble is a leading e-commerce business. It sources ‘blank’ products like clothes, bags, phone cases and so on. The company then allows/invites artists to submit designs to be printed (by third party fulfillers) onto those products. Artists are paid a percentage of the revenue generated when products are sold to an online shopper.
It operates both Redbubble.com and TeePublic.com.
There are a number of reasons why the Redbubble share price could be an opportunity.
Tailwinds for demand
Redbubble is operating in a very attractive space. Over the past decade (and before that) there has been a steady shift with more shoppers buying things online.
Everything that has happened with COVID-19 has accelerated that digital adoption by consumers in most industries. Just look at Adore Beauty Group Ltd (ASX: ABY) and Temple & Webster Group Ltd (ASX: TPW).
I think, over the long-term, more people will spend more online. This will be a steady tailwind for Redbubble for years as its total online addressable market increases. It can be helped even further as Redbubble adds more categories of products.
Management also point to growing demand for unique products by consumers. The company can fulfil this demand.
Operating leverage
Redbubble is the type of business that can seriously benefit from economies of scale. The digital infrastructure has already been developed. More volume should lead to higher profit margins as Redbubble’s fixed costs become smaller as a percentage of revenue.
The company is planning to invest heavily to capture this huge opportunity, so it’s going to be re-investing those scale benefits for the next couple of years. The operating leverage is one of the main reasons I’m attracted to the Redbubble share price.
The FY21 result showed how much the profit margins can improve if the business wasn’t going to invest so much for growth.
Marketplace revenue rose by 58% to $553 million and gross profit increased by 66% to $223 million. Redbubble’s EBITDA (EBITDA explained) jumped 930% to $53 million. It generated EBIT of $39 million and net profit after tax of $31 million (up from a loss of $9 million for both statistics in FY20).
Strong cashflow
Profit is one thing, but cashflow may be the most important measure for the business. It’s what the business needs to spend, invest or employ capital strategies (like shareholder returns or acquisitions).
Operating cash inflow was $55 million in FY21, up 17% from FY20. The company ended FY21 with a cash balance of $99 million.
Based on the current Redbubble share price, it’s valued at 21 times the FY21’s operating cashflow.
Redbubble is expecting good marketplace revenue growth again in the second half of FY22, so I think it’s definitely one to consider.
