The Redbubble Ltd (ASX: RBL) share price has plunged 37% after the company released its FY22 result.
Redbubble is an e-commerce business that sells products with designs on them designed by artists.
Redbubble FY22 result
Here are some of the highlights from the result:
- Marketplace revenue fell 13% to $482.6 million
- Underlying marketplace, which excludes mask sales, dropped 3% to $472.2 million
- Gross profit declined 18% to $183.1 million
- EBITDA (EBITDA explained) went from $52.7 million to a loss of $11.2 million
- Net profit after tax (NPAT) sank to a loss of $24.6 million, down from a profit of $31.2 million
- Operating cash flow sank 95% to $2.8 million
The number of selling artists increased by 19% to 809,000. However, the number of active Redbubble members decreased by 7% year on year, but it was up 32% compared to FY20.
Redbubble pointed out that 68% of marketplace revenue came from existing artists, up from 60%. Management said that this reinforces the “annuity value of artist content”. It also said that 60% of marketplace revenue came from organic, unpaid channels – similar to FY21.
The business noted ongoing positive momentum in repeat purchases to 46% of marketplace revenue, up from 42% in FY21.
Redbubble said that the average base price rise was 6%, implemented in May 2022.
What went wrong?
Management said that it continues to focus on investing in technology platforms, experiences for artists and their customers, and more recently its brand. It’s trying to “drive sustainable growth for the medium and long-term”.
It noted that COVID impacts have resulted in talent pools being “constrained” in its four operating regions, with competition for individuals being “high”. There has been a slower build of capacity than initially forecast.
Redbubble said it had been hurt by a higher cost of doing business (CODB), however the price rise could help with this. The average order value has increased and there has been “negligible impact on conversion from this change”.
It has also implemented a free shipping trial in the UK, which achieved higher marketplace revenue, offsetting the shipping cost, resulting in a higher gross profit compared to the last month. A US free shipping trial commenced in July 2022.
Redbubble said it is continuing to invest in internal capacity and capability. This investment is reflected in the $21 million increase in operating expenditure, with salary and wages being the main driver. It’s expecting the growth of full time equivalent people to rise by 4% in FY23, after a 30% increase in FY22.
It spent $1.1 million on growing its brand in FY22. This is expected to rise between $8 million to $12 million in FY23.
Outlook for Redbubble and thoughts
The company still wants to reach $1.25 billion of marketplace revenue, but it’s now expecting to reach these numbers between FY26 to FY27. This means it will take longer than expected.
It’s expecting revenue growth in FY23, now that it’s no longer cycling against strong mask sales.
The plunge to a loss is troublesome for Redbubble. It will be interesting to see if its margins can recover quickly, whether the investing will translate into growth and how long it will take to return to profit.
I think that the Redbubble share price does have a promising future over the long-term, particularly from this level, but the combination of inflation and lower e-commerce spending is biting. But, I do think both of those factors will improve in the 2023 calendar year.