The Redbubble Ltd (ASX: RBL) share price is still down more than 43% after issuing a trading update to the market last week. The sell-off in Redbubble's share price could make the company a bargain buy.
Why has the Redbubble share price been smashed?
Redbubble provided a trading update to the market last week regarding its second quarter for 1 October to 9 December 2019 (QTD). In the update, the company forecasts that Group Marketplace Revenue for the second quarter to date would be below expectations. The company expects group revenue growth for the second quarter to be 20% year on year on a floating basis.
Historically, the Redbubble share price has been correlated with an accelerating/decelerating growth profile. Naturally, when the company reported that revenues where being impacted, shares in the e-commerce company were smashed by investors.
Redbubble cited that the lower expectation was driven by increased price competition in the company's market-leading sticker market. In addition, the company reported that apparel sales have not recovered to historic growth levels experienced prior to October 2018.
What is the outlook for Redbubble?
Despite the downgrade in expectations, Redbubble reported that the TeePublic branded marketplace had performed strongly, with QTD revenue growth up 59% year on year. Redbubble also expects growing EBITDA which should see the company achieve positive free-cash flows in FY20.
The trading update also explained that the company continues to drive top-line growth by accelerating marketing optimisation, merchandising and growing member revenue. Despite growth being slower than expected, Redbubble management believe that the company is well poised to take advantage of the Christmas holiday trading season.
Broker note
Recently equity analysts from Morgan Stanley retained an add rating for Redbubble, however, lowered their price target for the company to $2.10. Analysts believe that the sell-off has been an overreaction and could be a buying opportunity for investors.
Analysts cited that the new competitor impacting Redbubble's sales in the sticker market is unsustainable. According to Morgans, the competitor which sells goods using the Amazon platform is selling its goods at a loss. Although this broker note is not indicative of Redbubble's long-term valuation, it does indicate where institutional sentiment lies in the short-term.
Foolish Takeaway
The Redbubble share price is down nearly 50% from its 2019 high of $2.08. In my opinion, Redbubble's current trading price could be a bargain for long-term investors. As mentioned previously, the company's share price is heavily correlated with its cyclical growth profile. I think that the company is still realising the synergies from the TeePublic acquisition and new products could also drive revenue growth in the long term.
