The Kogan.com Ltd (ASX: KGN) share price may have tumbled notably lower today, but that certainly hasn’t been the case for fellow e-commerce company Redbubble Ltd (ASX: RBL). At lunch the global online arts and crafts marketplace provider’s share price is up almost 6.5% to $1.53. Why are Redbubble’s shares surging higher? This morning the company released its fourth quarter update and guidance for FY 2019. In respect to the former, Redbubble had a strong finish to the year leading to full-year gross transaction volume rising 31.9% to $231.3 million. This was in line with management’s guidance. Revenue came…
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At lunch the global online arts and crafts marketplace provider’s share price is up almost 6.5% to $1.53.
Why are Redbubble’s shares surging higher?
This morning the company released its fourth quarter update and guidance for FY 2019.
In respect to the former, Redbubble had a strong finish to the year leading to full-year gross transaction volume rising 31.9% to $231.3 million. This was in line with management’s guidance.
Revenue came in 29.7% higher year-on-year at $182.8 million and gross profit rose 27.5% to $63.9 million. A 38.1% year-on-year increase in customers to 3.97 million and a 28.2% lift in selling artists to 298,700 helped drive the strong growth.
As a result, the company is edging closer to breakeven. It finished the year with an operating EBITDA loss of $3.7 million, which was an improvement of 23.2% on the prior corresponding period.
This ultimately meant that its total cash outflow for FY 2018 was $6.6 million compared to $14.2 million for FY 2017, leaving Redbubble with a closing cash balance of $21.3 million.
FY 2019 looks set to be another successful year for Redbubble. According to management, Redbubble’s marketplace remains healthy and vibrant and it has seen an increased proportion of traffic coming from unpaid sources.
In light of this, it expects the company to deliver revenue growth above 30% in FY 2019 on a constant currency basis. And with improving unit economics it expects a gross profit after paid (customer) acquisition (GPAPA) growth rate of a similar level.
Overall, this is expected to put Redbubble in a position to deliver an operating EBITDA profit in the range of $2 million to $4 million.
Should you invest?
Based on today’s guidance, I estimate that Redbubble’s shares are changing hands at a little under 1.7x sales. I don’t think that is particularly expensive for a company growing its top line at such a strong rate.
Though, given it is still a loss-making company, albeit with a hefty cash balance, it does make it a reasonably high-risk investment. This may make it unsuitable for those with a low tolerance for risk.
But for investors that have a high tolerance for risk and like small cap growth shares, it could be worth a look along with the likes of Kogan and Citadel Group Ltd (ASX: CGL).
Alternatively, these hot mid cap growth stocks could be even better options.
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Citadel Group Ltd and REDBUBBLE FPO. The Motley Fool Australia has recommended Kogan.com ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.