The Redbubble Ltd (ASX: RBL) share price will be on watch today after presenting its third-quarter update to the market.
Currently, the Redbubble share price is up 1.59% to $1.28. But what most shareholders want to know is will the share price rebound properly? Or is further pain ahead?
Here’s the bull case for the Redbubble (ASX: RBL) share price
Third-quarter update
Key results from the third quarter of FY22 include:
- Marketplace revenue of $96 million, down 7% year-on-year (YoY)
- EBITDA loss of $10 million, down from a profit of $3 million YoY
- Cash on hand of $94 million
The same tailwinds of at-home shopping and government stimulus have become headwinds for Redubble as it battles a more cost-conscious consumer and shoppers returning back to stores.
Despite the negative growth, Redbubble achieved increased customer loyalty with 47% of revenue from repeat purchases.
Of the customers who first made a purchase during COVID-19, 20.3% returned to the platform within 12 months. This is comparable with the pre-COVID repeat purchase rate of 21.7%.
Positively, the business reaffirmed its full-year guidance. Marketplace revenue is expected to marginally fall while its EBITDA margin is expected to be negative low-single digits.
What’s next for the Redbubble share price?
Management flagged potential ‘value enhancing’ initiatives to address the flailing share price. The Redbubble share price has fallen 61% since January and plunged 77% in the past year.
“…the Board does not believe that the current share price reflects the fundamentals and prospects of the business”.
The business has $94 million of cash on hand. Given it has no franking credits, the most likely outcome is a buyback instead of a dividend.
With a market capitalisation of about $350 million, Redbubble could repurchase 10% of its shares comfortably.
Management also flagged potential inorganic opportunities. But with an enterprise value of $260 million, it’s more likely Redbubble itself is a possible takeover target.
Redbubble has historically struggled to convey its platform message to public markets despite achieving revenue growth of 28% per annum over the past five years.
Under the umbrella of a larger entity or private ownership may better suit the company to achieve its medium-term ambitions of $1.25 billion in marketplace revenue.
Barring a takeover offer, it’s unlikely the Redbubble share price will rebound soon.
Fortunately, a lot of the pain looks already priced in. For the share price to rerate, management needs to keep growing marketplace adoption and prove to the market it can be meaningfully profitable.
