Redbubble Limited

1QFY20 Witnessed Decent Growth:Redbubble Limited (ASX: RBL) is a small-cap global online marketplace with the market capitalization of ~$500.69 million as on 04 November 2019. Recently, the company reported that one of its Directors, Martin Hosking disposed 6,000,000 shares by Jellicom Pty Ltd (as to 5,000,000 of the Shares) and Three Springs Foundation Pty Ltd (as to 1,000,000 of the Shares) for the total value of $11,580,000 via off-market trade.  With this development, Mr Hosking retains a substantial beneficial holding of 19.6% in the Company.

RBL recently announced that Challenger Limited and its entities have made a change to their substantial holdings in the company, and the current voting power stands at 7.85% as compared to the previous voting power of 6.68% on 29^th October 2019. In another update, the company stated that it has issued 1,100,000 fully paid ordinary shares at the consideration of $2,057,000 to Solium Nominees (Australia) Pty Ltd, as trustee of the Redbubble Limited Employee Share Trust.

Recently, the company has announced its results for Q1 FY20, wherein it mentioned that Group’s top-line (Revenue) continues to be fueled by strong growth rates seen from TeePublic. RBL delivered strong operating leverage with 48% gross profit growth, outpacing the growth of 22% in expenses during the quarter.

The Group is making decent progress in areas of strategic investment that are critical to long-term marketplace growth as well as profitability.It realised an amount of $1.3 million in synergies from the acquisition of TeePublic during the 8 months from deal close to the end of FY19 continues to progress with integration work. The following picture has been extracted from the investor presentation:


Redbubble Marketplace Revenue from Members Per Period (Source: Company Reports)

What to Expect:The Group is focused on executing throughout its four strategic initiatives and delivering on opportunities to propel the flywheel. It added that the business continues to demonstrate the progress on the key drivers of operating leverage.Now, the Group is focused on the upcoming holiday season.

As per the annual report, the business is focused on the strategic work to reach the milestone of $1 billion in sales.The Group is aiming long-term growth in a large addressable market. The business has demonstrated progress throughout numerous strategic initiatives, which are aimed at diversifying the Group’s sources of growth and profitability.

The company’s priority primarily remains to grow the customer base as well as to increase loyalty via personal “creative adventures” and member experiences, to launch and sell products that artists want to design and customers would love. The priorities also include maintaining strong growth and synergy value of TeePublic, leveraging new product, on-boarding content partnerships as well as geographic growth opportunities.

Stock Recommendation:  The company stated that the total global online market for Apparel and Homewares is expected to grow between 10- 14% per annum to 2020. The company witnessed a CAGR growth of 44.15% in total revenue over the period of FY15-FY19 and, thus, it is possessing respectable capabilities to garner revenues. The Group reported a gross margin of 30.8%, reflecting YoY growth of 1.6% in FY 2019. On the stock’s performance front, it produced returns of 29.87% and 46.59% in the time span of one month and three months, respectively. Considering the growth scenario of the business, decent Q1 FY20 results, its capabilities to garner revenues, decent outlook, along with respectable progress with regards to strategic investments, we maintain our “Hold” rating on the stock at the current market price of A$1.910 per share, down 1.292% on 04 November 2019.

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