The Redbubble Ltd (ASX: RBL) share price has crashed 43% today after the company gave an update about its second quarter for 1 October 2019 to 9 December 2019 (QTD).
A share price drop of almost half is an extreme reaction, so you'd think the update was terrible.
Redbubble said that "group marketplace revenue growth for the second quarter to date is 20% year on year on a floating basis (FY19 figures only include TeePublic contributions to Redbubble from 1 November 2018)."
The TeePublic branded marketplace has performed "strongly" with QTD marketplace revenue growth of 59% year on year, but the Redbubble branded marketplace's QTD growth is 2% year on year.
Redbubble said this was below expectations and was driven by increased price competition in Redbubble's market leading sticker position and Redbubble's apparel sales have not recovered to historical growth levels seen prior to October 2018.
The company stated that it is still expecting to grow operating earnings before interest, tax, depreciation and amortisation (EBITDA) year on year and achieve positive free cash flows.
It's quite amazing that the first quarter sent the share price up to almost $2 and this quarter, which hasn't even finished, has sent the share price down to almost $1.
The share market is notoriously volatile and judgemental. Sometimes it treats a temporary situation as though the business is permanently impaired. Redbubble could easily see a resurgent performance in third quarter, or even a strong performance in the rest of December.
An online artist goods marketplace is not going to produce consistent growth quarter on quarter like a SaaS software business or a toll road business.
Foolish takeaway
Perhaps Redbubble's prospects have been permanently reduced, but I think it's far too early to make that call. It's still reporting growth! I'd be willing to make a small investment bet that today's plunge has been a large overreaction – maybe we'll see a recovery by reporting season in August 2020.