The Redbubble Ltd (ASX: RBL) share price is catching the eye on Thursday.
In morning trade, the ASX growth stock is up 30% to 60 cents.
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Why is this ASX growth stock rocketing?
Investors have been buying the e-commerce company's shares today after it released an update on its first-quarter performance.
According to the release, Redbubble returned to positive underlying cash flow during the three months ended 30 September.
For the period, its underlying cash flow came in at $0.7 million, which is up massively from a cash outflow of $17.6 million in the prior corresponding period. It is also up from a cash outflow of $6.2 million during the fourth quarter of FY 2023.
What is driving this turnaround?
Margin improvements have been the driver of this ASX growth stock's turnaround.
Even though marketplace revenue (MPR) was 6% lower than the prior responding period, it was able to achieve positive underlying cash flow thanks to a 490 basis points increase in its gross profit after paid acquisition (GPAPA) margin.
Management advised that this reflects the benefits of a number of recently implemented initiatives. This includes the introduction of artist account tiers on the Redbubble and TeePublic marketplaces and a dynamic order routing system for the Redbubble marketplace in the US, as well as further optimisation of paid marketing spend.
Redbubble's CEO, Martin Hosking, said,
The Group has had a good start to the financial year. Our ongoing focus on a narrow set of priorities continues to drive margin expansion and absolute GPAPA growth. These improvements, combined with our continued focus on cost discipline, has enabled the Group to achieve positive underlying cash flow this quarter, a particularly strong feat as the first quarter is a seasonally-low revenue period.
Outlook
While the company continues to expect trading conditions to remain soft in key markets, particularly the US, it has reaffirmed its guidance for FY 2024.
It expects its FY 2024 GPAPA margin to be between 23% and 26% and its FY 2024 operating expenditure to be between $92 million and $100 million.
And after achieving positive underlying cash flow during the first quarter, management believes the ASX growth stock is on track to deliver positive underlying cash flow for the full year.
