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Why the Redbubble share price is surging this morning

The Redbubble Ltd (ASX: RBL) share price is surging this morning on what is (so far) a down day on the broader ASX. This comes after the online marketplace owner released its 1H20 results showing improved revenue and earnings growth.

At the time of writing, Redbubble shares are trading 5% higher at $1.155 while the S&P/ASX 200 Index (INDEXASX: XJO) is down by 1.7%.

Redbubble owns and operates Redbubble and TeePublic, the leading global marketplaces for independent artists.

Strong revenue and earnings growth

Redbubble recorded total revenue of $213 million, up by a healthy 25% on the prior corresponding period (pcp) of 1H19 or 20% on a constant currency basis.

Marketplace Revenue for the company amounted to $180 million, which represented a 26% increase. Meanwhile, gross profit came in at $66 million, up 27% on the pcp, and gross profit margin increased by 0.3 percentage points to 36.7%.

The high Marketplace Revenue growth was the result of strong trading continuing at TeePublic during the period. This was despite the growth headwinds at the Redbubble branded marketplace that were disclosed last December persisted through to period end. However, since then, in the current third quarter so far to date, the Redbubble branded marketplace has reportedly witnessed encouraging topline growth above first-half trends.

Product Revenue from authentic sellers was reported to have grown by 15% in 1H20 and now represent 66% of total Product Revenue.

Meanwhile, Marketplace Revenue from members grew by 64% during the half and now accounts for 42% of Redbubble Marketplace Revenue. There was reported to be 5.2 million active members on Redbubble during the first half of FY20.

Redbubble’s operating earnings before interest, tax, depreciation and amortisation (EBITDA) came in at $10.1 million, up from $6.9 million in 1H19. This turned into a $4.3 million EBITDA profit, an improvement of $1.1 million, while free cash flow was 42% higher at $36.6 million,

Recent strategic review outcomes

Management of Redbubble recently completed a comprehensive review of the company strategy. The key outcomes of this review will see Redbubble continue to focus on a strategy to grow its customer base and enhance the user experience, with search engine optimisation (SEO) and performance marketing remaining central growth drivers for the company.

Redbubble reported that progress is being made in areas of strategic focus that are critical to driving long term marketplace growth. The company will continue to invest in its current growth initiatives and seek to establish strong positions in key content and product categories.

Looking forward

Redbubble commented that it will continue to balance both short term execution consistency and delivering on long term growth investments.

Key priorities for the remainder of FY20 include an increasing focus on SEO and performance marketing, as well as accelerating the launch of new products. In addition, the company will focus on increasing its level of investment in Content Partnerships and the licensed fan art segment where it sees very significant market potential.

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Motley Fool contributor Phil Harpur has no position in any of the stocks mentioned. The Motley Fool Australia has recommended 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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