Ann: Trading Update, page-10

Right- new poster but everyone here is missing a couple of key points around RedBubble:

Yes sales are down (though underlying once you strip out masks is pretty close to breakeven). But this isn't a stock specific thing. Everyone in this sector is having a rough time due to a combination of a couple of things):

1. Really tough comparables. RBL had a real covid boom, which gave 12-18 months of really great growth. So they're up against some really tough YoY numbers (hence quoting the 2 year numbers which show decent growth still).
2. Apple's privacy changes- have had a sizeable effect on ability to cost effectively advertise, especially to high spending demographics with iPhones. Lots of businesses in the sector affected by this too
3. General economic weakness- again lots of pressure on discretionary spend, and t-shirts and stickers are the first thing to get squeezed here.

But- you need to take a view on to what extent these changes are transitory, and whether RedBubble is in a good position to weather them. My thoughts are:

1. RBL very well diversified internationally
2. Use of multiple fulfillers to make the end product gives them ability to squeeze/minimize increase in input costs
3. Huge number of artists/artwork on the marketplace is very hard to compete against
4. I also note that today they've announced an impending 10% accross the board price increase which should help them maintain margins

Then to get to valuation.

1. $90m of cash on the balance sheet at what is around the seasonal low
2. Market cap of $313m, or $223m if you strip out cash. So trading at perhaps 0.5x revenue. A ridiculous number compared to Etsy, Wayfair etc
3. I expect profitability to bounce back as we come up to Christmas this year (remember this is a very seasonal business, so a lot of profit generated over calendar quarter 4)

The stock is currently priced as if it will never grow again. I expect it to rerate when either:
1.) Year on year growth returns
2.) Acquisition talks start, or company explores listing on a US exchange. The loyalty to the ASX while commendable is really holding back the valuation of this business.

My target price here is $4.