The Redbubble Ltd (ASX: RBL) share price soared 30% after the e-commerce ASX share gave a very positive trading update.
Redbubble operates the Redbubble and TeePublic marketplaces which enable artists to make money on their designs which are on “high-quality, everyday products such as apparel, stationery, housewares, bags, wall art and so on.”
Redbubble Ltd (ASX: RBL) share price
Redbubble share price rockets higher
The company reported that in the first quarter of FY24, it generated positive underlying cash flow, a $16.9 million turnaround on the prior corresponding period and an improvement of $5.5 million on the fourth quarter of FY23.
It ended with a cash balance of $39.9 million at 30 September 2023, up $4.2 million from 30 June 2023.
In that first quarter, Redbubble’s gross profit after paid acquisition (GPAPA) (gross profit after marketing spending) was $26.5 million, up 14% year on year. It delivered a GPAPA margin of 28%, which was an improvement of 490 basis points (4.90%) than last year. That’s great news for the Redbubble share price.
Redbubble said it’s benefiting from a number of recently-implemented initiatives, including the introduction of artist account tiers on the Redbubble and TeePublic marketplaces, and a “dynamic order routing system”.
However, the one negative was that marketplace revenue (MPR) was 6% lower year on year, reflecting the group’s focus on maximising GPAPA and softer trading conditions in the US.
Operating EBITDA (EBITDA explained) jumped 130% to $3.2 million (from a loss of $10.8 million in the prior corresponding period) and operating expenses were down 32% to $23.3 million.
Management commentary
The Redbubble CEO and Managing Director Martin Hosking said:
The group has had a good start to the financial year. Our ongoing focus on a narrow set of priorities continues to drive margin expansion and absolute GPAPA growth. These improvements, combined with our continued focus on cost discipline, has enabled the group to achieve positive underlying cash flow quarter, a particularly strong feat as the first quarter is a seasonally-low revenue period.
…I am now shifting my focus to reinstating profitable revenue growth and am confident that we have the right team and resources in place to achieve this goal.
Final thoughts on the Redbubble share price
The business is down a long way from the 2021 level. It’s actually down over 60% from where it was five years ago.
Redbubble is expecting its FY24 GPAPA margin to be between 23% to 26%, with operating expenditure to be between $92 million to $100 million.
It’s expecting to achieve underlying cash flow in FY24.
With a return to profitability, I think the business is looking much more attractive. If it can keep increasing its cash flow then its economics could significantly improve because of the low capital nature of the business model.
It’s a bit too volatile for my portfolio, but I think the market may still be undervaluing it, particularly with a cash balance of around $40 million.
