Why some of your favourite ASX growth shares are free-falling this week

Classic ASX growth shares such as Redbubble Ltd (ASX: RBL) and Lynas Rare Earths Ltd (ASX: LYC) have taken a tumble this week. Here’s why.

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A businessman in a suit and wearing boxing gloves, slump in the corner of a ring, indicating a corporate fight between ASX companies

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Many ASX shares have reported quarterly updates this week. Broadly speaking, an initial read of these results might tick all the boxes with solid growth across key performance metrics.

However, the market response has appeared very critical of slight headwinds contained in the updates. As a result, some of these beloved ASX growth shares have experienced sharp selloffs this week. 

Let’s take a look at 3 of them.

ASX shares sent into free-fall this week

Redbubble Ltd (ASX: RBL) 

The Redbubble share price took a 23% tumble to $4.24 on Thursday after a seemingly positive third-quarter update

The update represents a classic case of a richly valued growth story delivering a reasonable result with a slight tweak of plans. The company said that its earnings before interest, tax, depreciation, and amortisation (EBITDA) margins were going to take a small hit from 9.5% to mid-single digits. It was also going to ramp up marketing and headcount to drive customer acquisition and awareness. 

The increase in costs and lower margins will likely mean a reduction in earnings forecasts, and we all know what happens to growth stories when earnings recede. 

In an attempt to restore near-term confidence, the update highlighted an aspiration goal to more than double revenues and improve EBITDA margins to 10-15% by CY24. Despite a strong aspiration goal, the market was near-sighted and concerned with the potential damage short term earnings might take. 

Lynas Rare Earths Ltd (ASX: LYC) 

The Lynas share price has taken a similar downturn, diving 16% in the past three trading sessions. Again, the company delivered a seemingly positive March quarter update with stronger operational and financial metrics across the board. 

However, the update also observed that Chinese rare earth producers were planning to increase production in response to robust demand. And among them was Northern Rare Earth, a mining giant that accounts for some 60% of China’s total rare earth production and plans to double production within the next three years. 

China accounts for more than half the world’s rare earth output, so for a company of that size to double production within three years, it could have a significant negative impact on rare earth prices. 

From what looked like blue skies ahead, the market now has to digest a potential influx of Chinese material in the near term. 

Splitit Ltd (ASX: SPT) 

The Splitit share price has dropped 10% this week, down to a 16-month low of 79.5 cents. The company delivered a positive first-quarter update that revealed classic triple-digit buy now pay, later growth (on the prior corresponding period) across key metrics such as revenue and merchant sales volume. However, from a quarter-on-quarter perspective, growth was actually slowing down. 

While seasonality could be a contributing factor, BNPL majors Afterpay Ltd (ASX: APT) and Zip Co Ltd (ASX: Z1P) both reported continued momentum across key metrics. 

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Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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