In fact, this short term correction was probably a good thing, after such a strong increase since the beginning of the calendar year (at some point, the increase was more than 30 %).
It forced us to revisit the case and better understand the risks and the opportunities.
The opportunity still looks significant, looking at the number of categories, where they can expand. There is also a real potential to expand in other geographic areas (still very focused on North America). And of course, they are in an e-commerce sector, which is expected to continue to grow.
When a company has such a potential and a valuation quite surprising for a growth stock, you always wonder if you did not miss something or underestimated the risks.
First, as previously mentioned, the main risk may not be on earnings, but on interest rates. If there is a correction for all the growth stocks because of the increase of long term rates, it will probably have an impact on RBL. Not necessarily a correction, but at least limiting the upside.
It is also interesting to remember one of the challenges for companies like Redbubble. It is to get more loyal customers, as it enables them to limit their ad spendings to get new customers. We know that, this has been a work in progress for Redbubble.
Last element is about pricing. This is probably one of the key element of their success. They have been able to charge quite high prices, compared to mass produced items. It can be explained by several elements : the consumers value the uniqueness of their product, the fact that they are often quite low price products and the lack of major competition. If tomorrow, there are more companies with the same business model, the consumer will have more reference points, which may limit RBL pricing power.
Overall, my view on Redbubble has not changed.
Still think that there is a real potential with this company, which is quite cheap given its profile.
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. Great day for the good guys today.
(20min delay)