RBL - Redbubble at 0.24x sales???

[aperitif]

From VIC

”The Year of Efficiency Comes to Redbubble Combined with:
Exceedingly Cheap; 0.15x EV/Sales with 35-40% of market cap in net cash. Peers are valued at .8-3x + sales.

Guiding to steady state profits in 2H23

Hidden Asset: Subsidiary Teepubblic +39% CAGR revenue growth rate since 2018-> grew from $35 to $135 million going from 12% to 30% of total revenue. Was profitable at acquisition, grew last year as well, and smoked the parent company in success. Teepublic is NYC based and is likely worth 1.5x sales + cash = +100% just for Teepublic alone

Return of Owner-Operator as CEO: Martin Hosking (owns $16 million worth of stock or 15% of the company) returns as full-time CEO March 2023: As CEO Martin has grown revenue at +39% top-line growth compounded annual revenue growth, +40% compound annual gross profit growth, and generated the current EV in cash flow. As CEO Martin’s track record of success RBL has traded at roughly 2x sales as a public company vs. the current 0.15x. I have known Martin for 5 years, and he is massively uncomfortable not making money as he track record has shown over the last decade.

Monetization Improvements with AI roll out to the content library on search, and Artist Tiers which will add to profits started May 1st

Further Cost Cuts:

Potential M&A: Zazzle, Etsy, eBay, Amazon, or another large digital marketplace RBL at 1-2x+ sales = 5-10x the current valuation.

Strong talent base from other large and successful digital marketplaces: Uber, Etsy, AMZN, Target, REA, and Wayfair

#1 global digital marketplace for independent artists-> Strong incentive structure w 800,000 global artists earning $90 million a year in Redbubble royalties + $85 million in direct marketing or reach of $175 million a year. We think as this continues to grow to north of $200 million the ratio of buyers/artists will increase from 10 to 1 to something more like ETSY at 20 to 1. More brand awareness, given effective reach.

Winner take most industry structure, like every other large scale digital marketplace they are very hard to build but at scale the moats are deep and businesses become significantly more valuable-> Etsy, DASH, SHOP, Ebay, etc

We think there is a reasonable chance that RBL achieves both revenue growth and targeted margins to $600 million in 24 months with 13% EBITDA margins which would equate to $78 million or the current enterprise value. If this occurs the stock would likely be closer to 15-20x from the current price assuming a 15x EBITDA multiple”

[Snow Leopard]

As a little relaxing exercise before sleep I gave RBL a quick lookover.

I never give any credence to speculative pieces.

It is an impressive decline from $6 down to the $0.4x range of today and the recent rise could be off the back of seller exhaustion, but it ain't broke the downtrend yet.

This year will report a loss but with the sweeping cost cutting, changes to 'artists' income/fees etc balanced against the more difficult market conditions and it is never as easy as predicted, I would not be confident as to when they start to be profitable again.

I would not currently buy it as an investment or even as a trade.

Watch and wait if you want, beware the pump & dump, but buy a Snow Leopard themed t-shirt.

[aperitif]

As a little relaxing exercise before sleep I gave RBL a quick lookover.

I never give any credence to speculative pieces.

It is an impressive decline from $6 down to the $0.4x range of today and the recent rise could be off the back of seller exhaustion, but it ain't broke the downtrend yet.

This year will report a loss but with the sweeping cost cutting, changes to 'artists' income/fees etc balanced against the more difficult market conditions and it is never as easy as predicted, I would not be confident as to when they start to be profitable again.

I would not currently buy it as an investment or even as a trade.

Watch and wait if you want, beware the pump & dump, but buy a Snow Leopard themed t-shirt.

Yeah, who knows???

I’ll put in the too hard basket, no doubt it will fly once the market gets a sniff of cost cuts and profitability realised and i will miss it.

1x sales would be a 4 bagger from here, not unachievable. These two sided networks are hard to displace so a PE firm will be paying close attention to their FY result and outlook

[Azz]

This is one of the worst stocks of all time. Don't touch it with the proverbial. Short it down to nothing if you can.

[aperitif]

“This is one of the worst stocks of all time” - statements like this get me interested….

It doesn't have a debt problem, it’s simply getting their cost base in line with their revenue.

They are reporting in a month, any hint of a turnaround in profitability in 24’ and this will double/triple. I don’t own but following closely

[Azz]

“This is one of the worst stocks of all time” - statements like this get me interested….

It doesn't have a debt problem, it’s simply getting their cost base in line with their revenue.

They are reporting in a month, any hint of a turnaround in profitability in 24’ and this will double/triple. I don’t own but following closely

It's the entire concept of the business that gets me. It strikes me as being non-useful, easily competed against, and pie in the sky - all at the same time. The whole thing could just collapse overnight, one day.

[aperitif]

This has been a rocket the last two days. Looks as if someone knows something heading into FY result.

With MH back in the helm and heavily incentivized this could be worth a look on a 24 month timeframe

[Azz]

This has been a rocket the last two days.

Be a good "selling into it" rocket. :-)

[Azz]

could be worth a look on a 24 month timeframe

On the other hand, could be. But not for me. :-)

[aperitif]

Teepublic has shot the lights out....growing organically from $40 million to $177 million since 2018 (36% CAGR top line grower) and now is 38% of RBL....Teepublic has 100% of its team in NYC and 93% of its revenue in the US. We believe if this were theoretically spun off at 2x sales Teepublic would be worth alone +100% more than the current share price alone (it wont be spun off...but just as a perspective). We could argue there is a good co/bad co...and that bad co....should begin to look more like good co going forward.
We are getting what we expected...a return of an owner-operator...who is underpromising and delivering...there should be north of a $50 million swing to the bottom line for the year ended in June 2024 and this is on a $120 million current EV.
Redbubble massive cost-cutting....has led to a trough cash balance of $36 million or about 25% of the market cap.
from yesterday's earnings calll...RBL one of the worst month seasonally is July...last July burned $5 million this July cash flow neutral....
Gross profit after paid acquisition 23-26% margins with OPEX of $92-100 million....which means with flattish revenue +$20 million EBIT...this is a massive improvement over last year of -$38 million.
We still believe owning the world's largest marketplace for independent artists for print on demand is worth a lot more than 0.3x sales with 25% of the market cap in net cash, 13-18% targeted adjusted EBITDA margins, and a return to steady state + cash flow, led by CEO/CFO with a strong track record.
Redbubble and Teepublic are reshaping artists with tiering and other carrots/sticks to improve quality and conversion....
Redbubble/Teepublic...built a bidding platform for their fulfillment network...to optimize for delivery speed, quality, and profitability...

[aperitif]

Redbubble Group returns to positive underlying cash flow

https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02724146-3A628130?access_token=83ff96335c2d45a094df02a206a3 9ff4 (https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02724146-3A628130?access_token=83ff96335c2d45a094df02a206a3 9ff4)

[aperitif]

Director buying 200,000 shares on market at 60.5c.

https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02728462-3A628895?access_token=83ff96335c2d45a094df02a206a3 9ff4

[aperitif]

Now ARTICORE Group (ATG.asx) . Redbubble is similar to a digital utility-like business (picture: gas station, cell phone, electricity). It should simply work as a platform that ties together artists' content that is parked/uploaded to the RBL content library, Redbubble outsources 100% of the production, Redbubble as the platform owner simply manages the platform (acquires traffic, pays royalties out, pays outsourced printers, etc). Consequently, this is NOT a Noah's Ark business model that requires two of everything. This is a take-rate model that could be run with fewer people and push $3+ million in revenue per head. However, the board let the business model run amok, during/post COVID. First, revenue per head went to $1 million +/-. Second, all the junk content flooding onto Redbubble caused RBL revenue per artist to fall to went to 25% of subsidiary Teepublic or $450 to $1600. This was a MAJOR problem, as it effectively undermines direct marketing with a lower ability to convert and attract new artists. @ $450 and 20% royalty, this is $90 bucks a year. This is average and there is a massive skew to this number....top 15% of artists make 85% of royalties which are $90 million per year. Anyways, RBL had under their roof Teepublic (Good Co: focused, high bar for new content) and RBL....Teepublic has +35% CAGR revenue growth since 2018...and now $180 million in revenue alone or close to 40% of total revenue.

[aperitif]

We believe several catalysts will take hold to see considerable multiple expansion on what is about 10% of private market value at 2.5x sales vs. 0.25x now.... below is why... POSH sold for 2.2x sales last January... ATG Stock-based comp is only 1.5% of sales or $6 million a year... DOOR is at 12% and 3.5x sales.

In 1Q24, Canaccord will take ATG on a road show with the new team to Asia and the US. We view this as similar to an IPO roadshow with a new team of high achievers, a nuclear winter valuation, and a much-improved rev/profitability trajectory.

ATG.AX which is Redbubble/Teepublic...still has a dominant market share for POD....with roughly $500 million in GTV

ATG has seen a -92% pullback from 3x sales to 0.25x....not warranted and should reverse as liquidity returns to the market given: 1) MGT team 2) Balance Sheet 3) Return to Profitability 4) likely turning to growth story in 2024 5) dominant market position.

Redbubble/Teepublic are digital marketplaces (similar to Doordash, Uber, Etsy, etc)....the platform matches Artists and fulfillment, with a Consumer demand of about 8.5 million orders per year. The business requires virtually zero capital in inventory, A/R.

800,000 Artists earn $90 million a year from Redbubble on a $120 million EV (top 15% earn 85% of royalties)

Marketing Reach is $170 million per year or $90 million in royalties and $80 million in direct marketing.

We think normalized earnings power could revisit what was achieved during COVID..or guidance for at-scale targeted margins 13-18% EBITDA margins which on current revenue implies $50+ million or 2.5x.

No miss? given Australia's "continuous listing standard" requirement....ATG quarter was baked really about 2-3 weeks ago...and no update to guidance is good news

"Under the continuous disclosure requirements of the Corporations Act and ASX listing rules, once a company is or becomes aware of any information concerning it that a reasonable person would expect to have a material effect on the price or value of the company's shares, the company must immediately inform the ASX of that information. The requirement to immediately disclose material information should be satisfied if such information is provided to the ASX promptly and without delay. A reasonable person would be taken to expect information to have a material effect on the price or value of shares if the information would (or would be likely to) influence persons who commonly invest in shares in deciding whether or not to subscribe for, or buy or sell, the first mentioned shares."

https://resourcehub.bakermckenzie.com/en/resources/cross-border-listings-handbook/asia-pacific/australian-securities-exchange/topics/continuing-obligationsperiodic-reporting#:~:text=Under%20the%20continuous%20discl osure%20requirements,immediately%20inform%20the%20 ASX%20of



Why is this team different?

Martin as CEO has rarely burned cash after 13 years at the helm and during COVID was CEO when RBL generated $100 million in cash flow.

Had dinner with the new CFO, he is impressive see below.

Vivek CEO of Teepublic has quietly shot the lights out....since he got to TP 5 years ago the company has organically grown from $45 million to $180 million in revenue.

ATG-> Business valuation is roughly 0.25x EV/Sales or $120 million on $445 million in revenue (GTV is roughly $90 million higher add back royalties)

Redbubble is roughly 7x EV/Cash Flow (assumes $15 million in cash flow +/- or just 33% of targeted and $50 million in net cash* by June 2024 YE)

We think Redbubble is worth +200% or at least $1.60 per share and possibly a lot more at 1x sales + cash

Cash flow should improve by $50 million yr/yr or better on $150 million market cap

Key Team Members...that are impressive



CEO of NYC Based Teepublic with 35% CAGR top line since 2018 ($180+ million in revenue) https://www.linkedin.com/in/vivekunc/

CEO of Redbubble since September 2023 ($250 million in revenue) https://www.linkedin.com/in/adamcrouch/

CFO of Redbubble Group since March 2023 (CFO of $2 bn Domain Holdings, also experience Fairfax Media and Vodafone) https://www.linkedin.com/in/rob-doyle-057b9b15/

Group CEO and 15% shareholder since 2023 https://www.linkedin.com/in/martin-hosking-115667/

Former CMO of Wayfair Since December 2023 https://www.linkedin.com/in/bob-sherwin/