Guidance targets hit
Redbubble (RBL) reported FY17 transaction volumes of A$175m, compared to the guidance range of A$175-A$180m. Revenue came in at A$141m, compared to guidance of A$140-A$148m, and Gross Profit came in at A$50.1m, compared to guidance of A$49m-A$51.8m. The company closed the year with A$27.8m in cash, compared to Morgans' estimate of A$28m. The results were achieved despite unfavourable currency movements (a 7% drag on A$ revenues) and discounting of tee-shirts by Amazon.
Currency still a problem
RBL earns 94% of its revenues in international markets and the strength of the A$ continues to hurt. Changes to our currency forecasts have reduced our projections for average order value, reducing our earnings forecasts and valuation from FY18.
Risks and catalysts
Risks to RBL's earnings and share price in the near-term include:
- failure to grow Gross Transaction Value (GTV) and revenue at the expected rate;
- initiatives to increase patronage and mobile conversion rates produce lower growth than expected;
- deterioration of foreign exchange rates; and
- irrational competitor behaviour.
Potential near-term catalysts include:
- better GTV and gross margin growth rates than we have assumed;
- a strong consumer response to the current growth initiatives, especially mobile user experience; and
- competitors falling behind in terms of product range and user.
Redbubble (RBL) operates a fast-growing marketplace in art inspired consumer goods. In our view the global market potential for its merchandise is highly attractive. The company has yet to reach cash-flow break-even and is thus high risk. However successful implementation of the current strategy could deliver substantial returns commensurate with the risk.
As RBL trades well below our valuation and share price target, we maintain an Add recommendation.
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Disclaimer(s): Analyst owns shares.
The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.