Redbubble : still cheap

Even after today's rebound, the stock is still not expensive.
The company has now a potential of 36.2 m of adjusted EBITDA on annual basis, calculated based on 2 elements :
- its adjusted EBITDA in April-May of 5.1 m on 2 months (last one indicated by the company),
- in its call (in June), the company indicated that it expects to realise 5.6 m of savings on a full year basis.
Redbubble is now valued with an EV/EBITDA of 23.8 x based on this potential EBITDA.
This is a rather low ratio given the top line growth of the company and the large upside potential for their margin (this EBITDA corresponds to an EBITDA margin of around 6 % while Etsy has just published an EBITDA margin of 35 % for the last quarter).

Today, we learned that there was a significant acceleration of their growth in July with marketplace revenue growth of 137 % yoy vs + 107 % yoy during Q4. The only explanation given by the company : face masks sales have now reached 26 m $ of market place revenue since their launch at the end of April. Redbubble benefit from a strong growth of its market as Etsy has just published a similar sales for last quarter (ending in June) and for July.

At the same time, it is interesting to remember that Redbubble problem during the last few years was not the growth of its sales, but a margin problem. Some elements show that Redbubble is also moving in the right direction for its margin, as it is now cutting its CODB, despite the strong sales growth. Their main problem remains to rely less on new customers (due to the cost of acquiring them,which had a negative impact on their margin) and more on repeat orders from existing customers. To solve this problem, the company wants to expand its product categories. The success of its face masks is a step in the right direction as it already represents around 16 % of its sales (according to my estimates).

Overall, the next publications of the company will give important elements regarding the level of monthly EBITDA in June and July (probably higher than in April/May) and the level of repeat orders.

Also interesting to note that this business model is really interesting as it requires a low level of capital invested (it relies on external designers and manufacturers) and can generate a high level of margin (see Etsy 35 % EBITDA margin). So it can generate a high level of free cash flow : Etsy just generated a ratio of free cash flow / revenue of 51 %.

Redbubble share price is still far from generating the best case scenario as it is now valued with an EV/sales of less than 2 x vs 9.2 x for Etsy.