Redbubble (ASX:RBL) share price sinks again after brokers respond to update

Redbubble’s shares are under pressure again on Wednesday…

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The Redbubble Ltd (ASX: RBL) share price is under pressure again on Wednesday.

In afternoon trade, the ecommerce company’s shares are down almost 9% to a 52-week low of $2.12.

This means the Redbubble share price is now down 30% in the space of two days.

Why is the Redbubble share price sinking?

The weakness in the Redbubble share price this week has been driven by the release of a very disappointing first half trading update on Tuesday.

The heavily shorted company revealed that its first half gross transaction value (GTV) was down 14% over the prior corresponding period to $381 million. Things were even worse for its earnings, with its EBITDA crashing 84% to just $8 million.

Management advised that this was driven by strong competition in the second quarter which impacted organic demand and led to increasing paid acquisition costs.

Unfortunately, a quick fix is not expected, which led to Redbubble downgrading its full year guidance. It now expects its marketplace revenue to be lower year on year and for its EBITDA to marketplace revenue margin to be negative.

Broker response

This update didn’t go down well with brokers and has led to significant downgrades to estimates.

One broker that was particularly disappointed was Morgan Stanley. This morning the broker downgraded Redbubble’s shares to an equal-weight rating and took an axe to its price target. The latter has been cut by a whopping 59% from $6.50 to just $2.65.

Another broker that is more positive is Morgans. Its analysts have retained their add rating but cut their price target by 26% to $3.59. While this still implies decent upside, it hasn’t been enough to convince investors to buy shares today.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. 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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