Key points
- Redbubble shares are being hammered after underperforming during the first half
- Increased competition weighed heavily on its margins during the second quarter
- Management has downgraded its revenue and earnings guidance for FY 2022
The Redbubble Ltd (ASX: RBL) share price is under significant pressure on Tuesday morning
At the time of writing, the ecommerce company's shares are down 20% to 52-week low of $2.39.
Why is the Redbubble share price crashing again?
Investors have been selling down the Redbubble share price following the release of another disappointing trading update.
According to the release, the heavily shorted ecommerce company's gross transaction value (GTV) came in at $381 million for the six months ended 31 December. This represents a 14% decline over the prior corresponding period.
It was a similar story for its marketplace revenue, which fell 18% to $288 million. Management advised that this was due to cycling strong sales growth in the prior corresponding period, driven particularly by mask sales. Excluding mask sales, revenue would have been down 5% year on year.
Unfortunately, things got worse the further down the income statement you travelled. Gross profit dropped 25% to $108 million, gross profit after paid acquisition (GPAPA) tumbled 36% to $63 million, and EBITDA crashed 84% to just $8 million.
Management advised that its margins were crunched by strong competition in the second quarter which impacted organic demand and led to increasing paid acquisition costs. This may not go down well with the market, which has had concerns over Redbubble's lack of customer loyalty for some time.
One positive, though, was that the company ended the period with a very strong cash balance of $143 million.
Outlook
Also likely to be weighing on the Redbubble share price this morning was management's outlook for the remainder of FY 2022.
In October, the company guided to full year marketplace revenue slightly above FY 2021's levels. However, this has now been downgraded to "slightly below" what was achieved last year.
It has also downgraded its EBITDA expectations. Instead of an EBITDA to marketplace revenue margin in the mid single digits, it now expects it to be "negative low single digits."
And while the company's CEO, Michael Ilczynski, remains positive on the future, it hasn't been enough to stop investors selling down the Redbubble share price today.
He commented: "I am confident of the tremendous potential for the Redbubble Group. To capture this, we will continue to invest in our technology platforms, artist and customer experiences, and our brands. We have multiple growth levers at our disposal, and given our strong cash balance, we will continue to invest in order to realise the potential upside that can be unlocked by aggressively pursuing this opportunity."
"We remain committed to our medium term aspirations to grow GTV to more than $1.5 billion, to grow Artist Revenue to $250 million, and to produce Marketplace Revenue of $1.25 billion per annum. EBITDA margin is also expected to expand over the medium-term with top-line growth," he added.
