Redbubble shares halve after poor trading update
Atlassian’s Mike Cannon-Brookes has had $6.6 million wiped off his investment in online art and design marketplace Redbubble after the company posted a weak trading update warning revenue growth has slowed.
In a statement to the market on Thursday morning, Redbubble revealed its second-quarter trading had not met expectations, with its branded marketplace’s revenue growth coming in at just 2 per cent compared with the October quarter last year.
The company’s overall marketplace revenue was up 20 per cent and revenue at its recently acquired Teepublic business reported revenue growth of 59 per cent for the quarter.
Redbubble primarily sells products such as water bottles, t-shirts and mugs, designed by independent artists who get a cut of the proceeds when the item sells.
Founded in 2006, the company is considered a successful startup, completing a $40 million listing on the ASX in 2016, with shares rising nearly 50 per cent since then to a high of $1.97. Prior to Thursday’s update, shares were trading at $1.81.
Major shareholders include Atlassian co-founder Mike Cannon-Brookes’ Grok Ventures, which holds about 8.4 million shares, and major venture capital firm Blackbird with 11.3 million shares.
After the trading update, the company’s shares were smashed – down 43 per cent to $1.03.
This wiped around $6.6 million in value off Mr Cannon-Brookes’ investment, taking the value of his stake down to around $8.56 million.
The online retailer blamed the slowdown on heightened price competition in the company’s stickers division, and the business’ failure to match the growth it saw before October 2018.
In the 2018 financial year, Redbubble recorded 31 per cent growth in total revenue. However, following this result, the company flagged it was seeing “softness” in its organic search traffic and revenue due to a change in Google algorithm.
It remains a case of ‘two steps forwards, one step back’ for the business.RBC Capital Markets analyst Tim Piper
These issues have persisted, according to RBC Capital Markets analysts Tim Piper, who said the company’s performance was below forecasts though noted he was still confident in its long-term growth prospects.
“We were expecting a better Redbubble revenue growth result in the second quarter as the business is now cycling weaker comparable sales than past quarters; however, it remains a case of ‘two steps forward, one step back’ for the business,” he said.
“We are positive on a medium-term basis.”
Redbubble still expects to grow operating EBITDA in the 2020 financial year along with increased sales growth, the company said and is hoping for a strong Christmas period to bolster its top line.
“While growth is slower than anticipated, the holiday trading season is still in progress and the core elements of the strategy are working,” chief executive Barry Newstead said.
“At the group level, we will pull all levers to drive growth and deliver the best possible 2020 result, setting up the Redbubble Group for long-term success.”
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