The Redbubble Ltd (ASX: RBL) share price may be worth considering after the e-commerce company released its FY21 result.
That's what the analysts at broker Morgans think anyway. Redbubble is back as a buy rated business with a price target of $4.83.
What was in Redbubble's result?
Redbubble reported that it grew marketplace revenue by 58% to $553 million. Gross profit increased by 66% to $223 million. Earnings before interest, tax, depreciation and amortisation (EBITDA) increased 930% to $53 million. Net profit after tax (NPAT) was $31 million, up from a loss of $9 million.
The e-commerce business generated $55 million of operating cashflow, an increase from $47 million in FY20.
Why might the Redbubble share price be a buy?
There are a few different factors to consider with Redbubble.
Scalable business model
Morgans says that it is a believer in Redbubble's potential earnings and growth with its platform.
Redbubble operates an e-commerce model where artists are paid for their designs that are printed on various products like clothing, stationery, bags, phone cases and so on. Customers can buy products at Redbubble.com or TeePublic.com with these cool or interesting designs on them.
E-commerce business models can have a lot of operating leverage. Once the digital (and physical) infrastructure has been built, it can lead to rising margins as the business processes more volume and gets bigger.
This scalable model hasn't helped things as Redbubble goes through a slowdown of demand. But if it grows revenue then Redbubble benefits. However, Morgans thinks it will be difficult for Redbubble to beat the prior corresponding months of sales in FY21 over the next few months. The broker thinks there could still be short-term potential weakness for the Redbubble share price.
Large addressable market
Redbubble believes that it's uniquely positioned to be a significant winner in a market that's worth around US$300 billion in core geographies. That's expected to rise to $400 billion by 2024.
The ASX share points to several trends where it can benefit.
Structural shifts to e-commerce are expected to endure, according to the company.
There is increasing consumer demand for unique and meaningful products.
Redbubble also points to a growing creator economy which enables a scalable and dynamic source of unique designs.
The company believes it can reach marketplace revenue of $1.25 billion in the 2024 calendar year. That compares to $553 million of marketplace revenue in FY21.
Investing to capture the opportunity
Redbubble plans to invest in various parts of the business to try to capture more market share of that large opportunity.
It wants to invest in artist activation and engagement, meaning recruitment and account management. Redbubble also wants to improve the artist experience to optimise content.
Redbubble will also invest in user acquisition and transaction optimisation with improved digital experiences, marketing and geographic expansion.
Another target area will be customer understanding, loyalty and brand building.
Finally, Redbubble wants to invest in its product range and third party fulfilment network. This will help it realise fulfilment scale efficiencies.
Current Redbubble share price valuation
Redbubble shares may rise around 20% over the next 12 months, if Morgans is right.
Despite Redbubble's expectation of heavy investing, the e-commerce business is predicted by the broker to generate $0.19 of earnings per share (EPS) in FY23. That translates to Redbubble shares currently being at 21x FY23's estimated earnings.
