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The Redbubble Ltd (ASX: RBL) share price is currently down 9% after releasing its FY22 first-quarter update.

Why is the Redbubble share price being crunched?

Investors pay close attention to how much growth a business reports. Sometimes, a quarterly update can have a major impact on investor thoughts. Though, arguably, one quarter shouldn’t necessarily have such a big impact.

Before telling investors about its performance in the first three months of FY22, it said that the quarter was in line with its expectations. It also emphasised that it saw an improving performance from July to September.

The numbers

Redbubble reported that gross transaction value (GTV) was down 21% to $142 million, whilst marketplace revenue fell 28% to $106 million.

Due to the scalable nature of Redbubble, a drop in revenue leads to even faster declines of profit.

Quarterly gross profit fell 34% to $42 million. Redbubble’s EBITDA (EBITDA explained) dropped 85% to $3.9 million.

However, the company continues to have a pretty impressive cash flow setup. Operating cash flow was $11 million, though this was a decrease from $27 million a year ago.

The online retailer finished with a cash balance of $109 million.

Why did revenue fall so hard?

Redbubble explained that on a delivered basis, the first quarter of last year (FY21) included an $8 million positive delivery date adjustment. The FY22 first quarter saw a $2 million negative delivery date adjustment.

Excluding masks and on a paid basis, ‘underlying’ Q1 FY22 marketplace revenue was only down 6% (or 4% on a constant currency basis).

There was also improvement through the quarter. July showed a decline of 11%, whilst September was a decline of just 2%. Looking at it over two years, marketplace revenue was 55% higher than the first quarter of FY20.

Outlook for Redbubble and the share price

Redbubble re-iterated that it expects FY22 marketplace revenue to be slightly above FY21 underlying marketplace revenue (which excludes the $57 million contribution of mask sales to marketplace revenue).

It’s expecting marketplace revenue to fall in the first half, with a return to growth in the second half.

Redbubble continues to invest in growth initiatives, so the EBITDA margin will be low for the next year or two. For example, it has done 13 loyalty experiments, with seven of them showing early positive retention signals. It is also doing a search and recommendation experiment to improve discoverability of new artists and works.

The company has launched 18 new products and line extensions such as ‘dad hats’, baseball caps, desk mats, mouse pads and iPhone 13 cases.

But it’s still excited by the long-term potential.

This lower Redbubble share price could be an opportunity to pick up some shares, if investors have been thinking about it. I think it’s one of the more exciting businesses around, that’s why it’s high on my watchlist.

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