Company Overview: Redbubble Ltd is an Australia-based company, which operates an independent designers' marketplace. For men, the Company offers T-Shirts, Classic T-Shirts, Tri-blend T-Shirts, Graphic T-Shirts, V-Neck, Long Sleeves, Tank Tops, Hoodies, Lightweight Hoodies, Sweatshirts and Lightweight Sweatshirts. For women, it offers T-Shirts, Chiffon Tops, Contrast Tanks, A-Line Dresses, Graphic T-Shirt Dresses, Fitted Scoops, Fitted V-Necks, Relaxed Fit, Tank Tops, Hoodies, Leggings, Scarves and Mini Skirts. For kids, the Company offers Kids T-Shirts, Baby T-Shirts and Baby One-Pieces. The Company also offers cases and skins, such as iPhone Cases, iPhone Wallets, Laptop Skins and Laptop Sleeves; stickers; wall art, such as Posters, Canvas Prints, Photographic Prints, Art Boards and Art Prints; home decor, such as Throw Pillows, Duvet Covers, Mugs and Clocks; stationery, such as Greeting Cards, Postcards and Calendars, and bags, such as tote bags, drawstring bags and studio pouches.


RBL Details

Favorable Mobile Visits Aided Redbubble Performance: Redbubble Limited (ASX: RBL) is the world’s largest online marketplace for independent artists, bringing more creativity into the world. It operates an independent designers' marketplace that facilitates the sale and purchase of art and designs on a range of products between independent creatives and consumers in Australia, the United States, the United Kingdom, and internationally. Redbubble has lately posted gross transaction value or GTV amounting to $231.3 million in FY 2018 implying the YoY growth of 31.9% on the back of the rise in the major metrics. The company saw a surge in the visits and that too from the mobile visits as they had outpaced the visits made via desktop. The company’s conversion rate stood at 1.96% in FY18. Additionally, the company also witnessed a rise of repeat and unique customers on its mobile platforms, signifying volume growth during the year. The growth in the unique customers was aided by the increase in the broader marketplace, and the repeat customers growth was supported by efforts done in the customer loyalty space. In our view, the group has brighter outlook as the group focuses on to improve its customer via organic and inorganic channels.


 
Growth in unique customers and momentum in revenues (Source: Company Reports)

Further, the geographical contribution towards the company’s GTV was more or less same in FY 2018 as was in FY 2017. However, the contribution from Europe increased in FY 2018 on the YoY basis which was underpinned by the favourable currency movements. In FY 2018, North America contributed 61.3% while United Kingdom (UK), Europe, AU and NZ as well as Rest of the world have made a contribution of 13.4%, 16.8%, 7.2% and 1.3%, respectively towards the GTV.  As of now, the company focuses on its future growth drivers and, as a result, it had incurred 45% of the total expenses in FY 2018 towards the growth initiatives.


~45% of total expenses spent on driving growth initiatives (Source: Company Reports)
 
Crucial marketplace metrics supported RBL’s 1Q FY2019: The factors such as the number of customers, selling artists as well as repeat customers are the primary reasons responsible for the growth momentum of Redbubble in 1Q FY 2019. During the same period, the mobile GTV amounted to $26.7 million which implies the YoY growth of 60.7%. A marginal improvement was also seen in the conversion rates thanks to mobile conversions.


Key Metrics of 1Q FY 2019 (Source: Company Reports)

Global Factors Well-Supported Redbubble’s Performance in FY 2018: There are mainly three global factors which have been supporting the marketplace. The first factor which has been the contributor is an increase in the sharing economy which allows and provides the artists an opportunity to share the creative work with customer base globally and that too at a low level of risk.

Secondly, a rise in the consumer demand for the personalization as well as self-expression has also been driving the global marketplace. The fresh, as well as new products and artworks, lead to the generation of the new content which the customers are developing via Redbubble’s exploration as well as personalized search capabilities. Finally, the improvement in the capability to the manufacturing-on-demand as well as print-on-demand technology has also been the primary driver of the retail commerce. The company’s growth is well-supported by the shift with the retail space towards broader, individualized choice with the decoration as well as in product design. Redbubble has also been witnessing robust momentum with the selling artists, artworks as well as in the global fulfiller facilities.


RBL’s selling artists and product/fulfilment capability (Source: Company Reports)

TeePublic Acquisition to Support RBL’s Growth Prospects, Market Leadership: The management of Redbubble Limited is optimistic about the acquisition of TeePublic and believes that it could help the company in further improving the marketplace leadership as it works with the more independent artists. The company had announced that it would be acquiring TeePublic for cash consideration of US$41.0 million. With the completion of this acquisition, the company is expected to experience numerous synergies in the long term. Moreover, the attractive financial profile of TeePublic adds further flavour to the already beneficial transaction. Its FY 2018 revenues (Pro-forma) stood at US$25.5 million implying the YoY increase of 33%. Moreover, TeePublic’s business model involves lesser capital expenditure which is consistent with that of Redbubble’s and would help in garnering strong FCF or Free Cash Flow.


TeePublic’s Pro-Forma Revenue and Pro-Forma Operating EBITDA (Source: Company Reports)

How Redbubble and TeePublic Deal Would Aid Moving Forward: On November 6, 2018, Redbubble Limited issued a press release and stated that it had completed the acquisition of TeePublic. The aforesaid deal seems to be a good opportunity for Redbubble wherein the company will get benefit to achieve its long-term business growth objective in years to come. Moving forward, this acquisition would help in improving the digital platform for the customers as well as independent artists and it would also accelerate the Redbubble flywheel. It plans to expand the reach so that it becomes the preferred option of the independent artists.

Moreover, the combination would lead to wider market coverage and would also help in improving the competitive positioning. As the time passes by, they plan to build differentiated brand positions as well as customer segments. This acquisition would also help Redbubble in strengthening the third-party fulfilment network, in increasing the fulfilment efficiency as well as in reducing the costs. The acquisition would also be helpful for improving the digital capabilities of both the companies.

Faster Revenue Growth for Redbubble Thanks to Acquisition: As a result of the acquisition of TeePublic, in FY 2019, the management of Redbubble believes that it could achieve revenue growth at a faster pace and it could also experience increased gross margins as well as operating EBITDA/gross profit margins because of the strong and robust financial profile of TeePublic. The strategy of TeePublic is well-aligned with the mission of Redbubble which revolves around the creation of the world’s largest marketplace. TeePublic would also be benefiting from the acquisition. Redbubble would be advancing helping hands to TeePublic which would help the latter in expanding into fresh and new markets as well as products. TeePublic would also be able to scale its business with the help of utilizing the technology expertise of Redbubble and also by using content partnerships as well as operational scale.

In the long term, because of the acquisition, they are expected to witness increased customer service as well as support and improved digital platforms & data science capabilities. Moreover, a rise in the onboarding of the artists as well as portfolio management would also help the companies in witnessing the growth momentum. Additionally, the acquisition would also improvise the marketing channels and campaigns and SEO. Moreover, it could aid in launching fresh products into existing and new markets.


Operational Highlights – TeePublic and Redbubble (Source: Company Reports)

Redbubble’s Strategic Priorities: Redbubble Limited has four strategic priorities which might support the company in witnessing long-term growth prospects. First, the company plans to improve its engagement levels with the customers with the help of a personalized member experience. This could help the company in terms of customer loyalty as well as customer lifetime value. Secondly, the company plans to improve the relationships with the artists and to create content partnerships which could help in increasing the sales potential in regard to the commercially-oriented segments.

Third, Redbubble has been making deployments towards the platform which might help the company in witnessing robust growth. It has been making investments in the fields of data science, marketing, and operations, mobile as well as in the avenues which could help it in achieving flexible and scalable development. Finally, the company is working towards fulfillment so that it can bring on new fulfillers as well as products at a rapid pace and easily. This might help the company in encountering geographical growth as well as in the improvement of customer value proposition.

Stock Performance: The company has generated YTD return of 2.76% and one year returns have been 74% and the stock has traded close to the average of 52 week high and low prices. In the meantime, a technical indicator named Moving Average Convergence Divergence or MACD has been applied on the daily chart of Redbubble Limited and default values have been taken into consideration. After observing the movements, it was seen that the MACD line has crossed the signal line and is moving downwards. However, the company’s fundamentals remain robust which could attract the interest of the market participants. The supportive marketplace metrics, high contribution from the mobile visits, the acquisition of TeePublic and increasing footprint into the new regions are the primary drivers of the company which ensure the robust growth in the upcoming period. In next 2 years, the acquisition can yield better results over RBL’s FY19 revenue guidance growth rate that has been indicated to be 30% in constant currency. Coming to fruition, the compelling strategic moves can deliver high single digit to double digit stock price upside (%) in medium term. We, therefore, recommend a “Speculative Buy” rating on the stock at the current market price of $1.530.
 

RBL Daily Chart (Source: Thomson Reuters)

 
 
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