On Tuesday the Redbubble Ltd (ASX: RBL) share price was among the worst performers on the Australian share market.
The ecommerce company's shares crashed 18% lower to $5.67.
Why did the Redbubble share price crash lower?
Investors were selling Redbubble shares following the release of its half year results.
For the six months ended 31 December, Redbubble reported a 96% increase in marketplace revenue to $352.8 million and a 118% lift in gross profit to $144 million.
This ultimately led to the company posting earnings before interest and tax (EBIT) of $41.8 million, which was up from a loss of $1.9 million in the prior corresponding period.
While this is of course meteoric growth, it fell short of the market's expectations due to weaker than expected gross margins and higher customer acquisition costs.
Goldman Sachs commented: "RBL has released its 1H21 result which beat our forecasts on revenues but missed on costs (lower Gross Margin and higher paid acquisition)."
The broker notes that gross margins fell from 43.7% in the first quarter to 38.7% in the second. Whereas customer acquisition costs as a percentage of revenue rose from 10.2% in the first quarter to 14.2% in the second quarter.
Is this a buying opportunity?
Although Goldman was disappointed with many aspects of its result, it sees the weakness in the Redbubble share price as a buying opportunity. Especially given how its investment thesis remains unchanged.
It explained: "While this was disappointing, our investment thesis remains unchanged: large global addressable market, e-Commerce trends that should be broadly supportive of online demand remaining robust, a strong balance sheet (net cash > A$120m by end of FY21E) and a new CEO who we believe could focus the business more sharply on driving new customer growth, improving repeat transactions, accelerating product roll-outs and investment in data analytics, in line with the company's stated focus areas."
In addition, the broker believes the Redbubble share price is attractive relative to its peer group.
As a result, Goldman Sachs has put a buy rating and $7.15 price target on its shares.
Based on the latest Redbubble share price, this price target implies potential upside of almost 26% over the next 12 months.
