Why the Redbubble Ltd (ASX:RBL) share price crashed 25% lower today

One of the worst performers on the Australian share market today has been the Redbubble Ltd (ASX: RBL) share price.

In morning trade the e-commerce company’s shares are down a whopping 21% to 86.5 cents. At one stage they were as low as 25.5% at 82 cents.

This follows a 12% decline on Tuesday on the back of no news.

Why are Redbubble’s shares crashing lower?

This morning Redbubble released its Thanksgiving sales results and the numbers were well below expectations.

Product and Shipping revenue for the Redbubble marketplace over the five-day Thanksgiving weekend is estimated to be A$9.4 million, representing 14.3% year on year growth on a constant currency basis.

The company’s revenue was hit by changes to the Google search algorithm that has impacted the Redbubble marketplace’s organic search sales by negative 3% year on year since early October.

Although things appeared to improve in the latter stages of the Thanksgiving sales period, management warned that further time is required to conclude that measures implemented will see a return to previously expected growth rates.

In light of this, management advised that the uncertainty means there is some downside risk to its previous revenue growth and operating EBITDA guidance for FY 2019.

Management will update the market at the time of its next quarterly release in January 2019.

Should you buy the dip?

While Redbubble’s shares look reasonable value now after this sharp pull back, I’d suggest investors wait for its update in January before considering an investment. Because if the company fails to return to its previous organic search levels, it could have a significant impact on its customer acquisition costs and margins.

In addition to this, the sudden selloff of its shares on Tuesday afternoon before anything was announced is a touch worrying.

So, for now, I would suggest investors look at tech shares such as Appen Ltd (ASX: APX) and Citadel Group Ltd (ASX: CGL) instead.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Appen Ltd, Citadel Group Ltd, and REDBUBBLE FPO. 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.

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