There are some ASX shares that are seeing rapid growth in revenue but their share prices are declining significantly in May 2021.
Share markets are becoming more volatile on concerns about inflation and interest rates. There are also some company-specific issues that are causing investors to think again:
Redbubble Ltd (ASX: RBL)
Over the last month the Redbubble share price has fallen by almost 40%. The artist-designed e-commerce product business continues to report a high level of sales growth for shareholders.
Redbubble recently revealed its FY21 third quarter update. It showed marketplace revenue growth of 54% to $103.4 million, 55% gross profit growth to $39.8 million, operating expense growth of 3% and earnings before interest and tax (EBIT) growth of 91% to a loss of $0.9 million.
The ASX growth share pointed out that it’s benefiting from and trying to capitalise on a number of trends. There’s the continuing migration of shopping from offline to online. There’s an increasing desire from consumers for unique goods and services that express and celebrate their personal interests and individualism. There’s the growing ‘creator economy’ which is providing new and exciting designs and products that feeds the search for personalisation.
Redbubble sees a “tremendous opportunity” to continue growing and scale the business. So it’s taking decisions that have a focus on building the strongest possible business over the longer-term. That means a high level of investment, experimenting and execution.
Whilst earnings before interest, tax, depreciation and amortisation (EBITDA) should be positive over an annual period, the margin will be low single digits as it invests heavily during this period.
Redbubble is aiming for annual marketplace revenue of $1.25 billion in a few years.
EML Payments Ltd (ASX: EML)
The EML share price fell 46% yesterday after telling investors about a regulatory issue.
EML told that market that its Irish regulated subsidiary, PFS Card Services (Ireland) Limited (PCSIL), has received correspondence from the Central Bank of Ireland (CBI) raising significant regulatory concerns.
The CBI concerns relate to PCSIL’s anti money laundering and counter terrorism financing, risk and control frameworks and governance. The correspondent states that the CBI is minded to issue directions.
The correspondence does not concern the ASX growth share’s Australian or North American operations, or the operations of PFS’ UK subsidiary, or EML’s other Irish regulated subsidiary (EML Money DAC).
The directions, if made, could “materially impact” the European operations of the PFS businesses, including restricting PCSIL’s activities. In the quarter ending 31 March 2021, around 27% of EML’s global revenue was derived from programs operating under PCSIL’s Irish authorisation.
However, the business is still predicting a lot of underlying growth. Given the timing and early stages of discussion with the CBI, EML is not yet able to estimate the potential direct and consequential costs (including but not limited to legal costs) and impacts of the correspondence on the group’s overall FY21 result.
Excluding those costs and impacts, EML said it’s on track to achieve the underlying results previously guided. That includes revenue growth of 48% to 56%, EBITDA growth of between 54% to 66% and underlying net profit (NPATA) growth of between 25% to 40%.