The Redbubble Ltd
(ASX: RBL) share price could be a really good opportunity for long-term focused investors.
What is Redbubble?
It’s a business that operates as a global online marketplace business with two websites – Redbubble.com and TeePublic.com.
Redbubble is powered by independent artists. It sells uncommon designs on high-quality, everyday products such as apparel, stationery, housewares, bags, wall art and so on. The business allows artists to profit from their designs.
There are a few really good reasons why investors should think about Redbubble:
Strong e-commerce growth
Redbubble believes that the structural shifts in 2020 to e-commerce are expected to endure for the long-term.
The e-commerce company also believes that there’s increasing consumer demand for unique and meaningful products, which Redbubble can provide through its websites.
The growing ‘creator economy’ enables scalable growth for artists and provides a good source of unique designs for customers.
This is translating into a lot of growth for Redbubble. In the first nine months of FY21, marketplace revenue grew by 85% to $456 million. In constant currency terms, marketplace revenue was up 97%.
Scalable business model
One of the most attractive things about an e-commerce company is that it’s scalable. Once the e-commerce infrastructure has been created, the cost of processing additional volume is pretty small, so that new activity comes at a high margin.
That model can see profit grow much faster than marketplace revenue. That was evident in the nine months to 31 March 2021. Whilst marketplace revenue grew 85%, gross profit jumped 100%, EBITDA (EBITDA explained) grew $53 million to $51 million and EBIT rose $53 million to $41 million.
Over the longer-term, Redbubble expects to realise scale efficiencies in core systems and processes. It will also be able to utilise leverage with its assets.
Great cashflow
It’s not just revenue and profit that are growing at a fast pace. The business is seeing a high level of cashflow. All of that growth is turning into real cash for shareholders.
In the nine months to 31 March 2021, Redbubble generated operating cashflow of $54 million, compared to $6 million in the same period in FY20. That represented growth of 800%.
Remember, that $54 million of operating cashflow can be compared to the EBITDA and EBIT of $51 million and $41 million respectively.
Arguably, cashflow is the most important metric. And Redbubble has demonstrated it can make loads of it.
Investing for growth
But all of that profit and cashflow is going to have to wait.
Redbubble thinks there’s an enormous addressable consumers market. E-commerce spending for the current range of products sold on Redbubble Group marketplaces was estimated at over $300 million in its core geographies. More than a third of customers are looking for a product that is unique and meaningful.
Redbubble sits in a large and growing market.
It’s going to invest heavily to try to capture this opportunity. It wants to reach $1.25 billion of marketplace revenue per year.
Redbubble is going to try to enhance the customer experience with a better buying experience online as well as very good physical product quality. It also wants to grow loyalty and repeat purchasing.
The ASX share is also going to keep adding new products, whilst improving its third party fulfilment and logistics network.
Redbubble also plans to expand into new geographic markets.
After that, after 2024, it plans to achieve higher profit margins.
Summary thoughts on Redbubble and the share price
I think Redbubble is a really good opportunity for the long-term, particularly as it has fallen around 50% over the last four months.
It’s one of the most interesting ASX growth shares around, in my opinion.
