Doug Goodwille from Kayne Anderson speaks to Drew Meredith from The Inside Network on market thinkers.
While a surging gold price is on hold as the world adjusts to a Trump presidency, all the factors that saw its price rise more than 50 per during his first term in office – trade disputes, fiscal deficits and geopolitical tensions – are almost certainly guaranteed the second time around.
RBL, the perfect lockdown website?
Red Bubble (ASX:RBL) – The online retailer released a bumper business update which cause its shares to rise 17.1% on the day. Having ridden the COVID-19 e-commerce wave, demand for its online products was high, so its solid numbers were of no surprise. The company reported a whopping $26 million generated from the sale of face masks from its launch at the end of April, up to 31 July. July revenue alone was up 132% to $49 million on a constant-currency basis. The company noted that the shift to online shopping resulted in annual growth across all core geographies and product categories – all thanks to the sudden increase in shoppers stuck at home under lockdown laws, demanding anything from face masks to stationery. The company is due to release its results on the 21 August. Shares are up 223% from its ‘Corona Crash’ low on March 23.
Who
The company was founded by Martin Hosking, Peter Styles and Paul Vanzella, after raising $2 million in investor capital in 2006. Hosking left his position at Aconex to focus on his job as CEO of Redbubble in 2011. The dream was simple: to give independent artists a meaningful new way to sell their creations. Today, that dream has come true. Redbubble effectively created a market place for artists to market and sell their own creations in a range of different products. Redbubble connects more than 700,000 artists and designers across the planet with millions of passionate fans. It’s a brave new world of self expression.
Theme
Prior to the pandemic, shares were in a gradual decline, falling as low as 40 cents, with no real sales momentum. Then COVID-19 happened. You might call it a stroke of luck, but the company happened to be in the right space at the right time. RBL had a complete online store with a wide network of suppliers and buyers ready to go. The platform was leagues ahead of its online rivals who were also looking to capitalise on the COVID-19 opportunity. The company introduced face masks into its product range in late-April and made a whopping $26 million from mask sales alone being able to incorporate same quirky designs.
Redbubble is the ‘eBay’ of independent artists who want to sell their niche products to the right customers. Products sold can be everything from iPhone cases to t-shirts and everything in between. If you jump onto its website you’ll see a near-endless collection of weird and wonderful designs.
With everyone in lockdown, Redbubble is the perfect website to find things to do such as decorate a bedroom or find a lovely piece of art.
Financials
Redbubble has seen its online e-commerce platform grow quicker than ever before. In fact, ten years of growth was achieved in three months, as COVID-19 accelerated an existing online penetration growth trend. Here are a few numbers from its recent report:
- 4Q20 to 22 June marketplace revenue growth of 107%
- FY20 to 31 May operating EBITDA profit of A$11.9m
- Market place Revenue 28% to $312m.
- Net debt $14m.
Broker Calls
- Cannacord Genuity has a Buy recommendation with a target price of $1.97. RBL provided a trading update highlighting that it was a major beneficiary of the pandemic and the shift to online. 4QTD revenue was up 107% relative to the consensus forecasts of +10%.
- Goldman Sachs has a Neutral recommendation with a target price of $0.75. The broker says the recent business update was largely a positive report.
Outlook
Redbubble has had a remarkable quarter having benefited throughout the COVID-19 pandemic supported by an increase in online activity. This resulted in increased demand, as across product categories and core geographies. Looking forward, the company says it will be focusing on its organisational structure and will reduce staff and operation costs. It will also look to put in place a smaller set of core targets on measures such as artist acquisition, activation and retention and user acquisition. The company expects this to save on operating costs of around $5.6 million.
Despite the recent surge in the share price, Cannacord Genuity says it at a material discount (-75%) to domestic and international peers. There could be further re-rating opportunity as RBL becomes more competitive and expands its user base, catching up with its rivals.
