There are a number of reasons why investors may want to be interested in the Redbubble Ltd (ASX: RBL) share price.
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What's Redbubble?
In Redbubble's own words, its community of 'passionate creatives' sell uncommon designs on high-quality, everyday products such as apparel, stationery, housewares, bags, wall art and other categories.
It operates two websites, one is Redbubble.com and the other is TeePublic.com. Through these two e-commerce platforms, artists are able to profit from their creativity.
Who thinks the Redbubble share price is a buy?
One broker that thinks Redbubble shares are a buy is Morgans, which has a share price target of $6.64.
Fund manager Joseph Kim from Montgomery Investment Management is also a fan of the business. Mr Kim said:
The opportunity set for Redbubble is compelling. The business already has a global presence with its main markets being North America and Europe. Should the company build a recognisable brand, the potential to be a global e-commerce marketplace for aspiring artists presents significant upside. Recent interest in both social and mainstream media point to growing brand awareness, which helps perpetuate the flywheel effects.
It's important to note Redbubble's recent success has required continuous investment – not just in the website itself, but also the supply chain infrastructure with fulfillers and shippers – including product quality control. This has helped the business meet the surge in demand, while benefiting financially from the operating leverage that comes with higher sales.
Rising profit margins
Redbubble has seen its operating leverage increasing, as Mr Kim alluded to.
In the first half of FY21, its marketplace revenue jumped 96% to $352.8 million, whilst earnings before interest, tax, depreciation and amortisation (EBITDA) grew 1,028% to $48.8 million and earnings before interest and tax (EBIT) grew 2,270% to $41.8 million.
Aside from the EBITDA and EBIT margins – which just went positive – the other margins also improved materially.
The gross profit margin (on marketplace revenue) grew 4.1 percentage points to 40.8%. The gross profit after paid acquisition/marketing (GPAPA) improved 2.6 percentage points to 28.3%.
As Redbubble's profit margins increased, the bottom line can improve much faster than just the revenue growth. This could help the Redbubble share price.
Focused management and a focused business
The Redbubble management have spoken about the focus of the business to maintain and improve its market position and strengths.
Michael Ilczynski, the CEO of Redbubble, said:
The strategic priority for the group now is to ensure we extend the market leadership we have established. We intend to invest in both the artist and customer experiences, to improve loyalty and retention and to ensure long-term growth.
Redbubble has four areas that it's focused on.
It's focused on artist acquisition, activation and retention. Another key initiative is user acquisition and transaction optimisation. The next focus is customer understanding, loyalty and brand building. The final focus is further physical product and fulfilment network expansion.
E-commerce and growing product offering
Redbubble says that it's an emerging winner in a rapidly shifting landscape, with the company pointing out that on-demand technology and user-generated content has enabled rapid scaling. Broker Morgans believes Redbubble will be a long-term beneficiary of the e-commerce shift.
The ASX share also says that it's benefiting from the virtuous cycle of a growing community of artists which is fuelling strong demand for unique content.
As the company adds another category of products to its offering, it opens up a larger total addressable market. The addition of masks last year unlocked millions of dollars of revenue.
Is there much upside for the Redbubble share price?
To reach Morgans' price target of $6.64, that represents a potential increase of 11% over the next 12 months.
