RBL - Redbubble

[Arski]

After someone mentioning Bonsai partners with a 60% conviction in Redbubble, I became interested.

 

A short overview of the business:

Redbubble is a marketplace for people to upload their designs (on t-shirts, stickers, bags, socks, masks and a whole lot of other things). RBL operates as a  print-on-demand business, which results in low delivery but looks like a lot of people still love it.

I do also like it because of the beautiful designs you get on all sorts of things for a legit price, but haven't ordered something yet.

 

This platform makes it easier for artists to sell their designs and makes it easier for people to get nice, simple but differentiated products.

RBL gets 30% of a sale, a third party manufacturer gets 40% and the artist get 20%. (If I remembered it correct.)

 

That's all I know for now. Maybe someone has a thesis or something he wants to share?

[spartansaver]

He writes about it several times in his letters. I would say that I think he's had more than 10x on it, so I'm not sure I'd say it's his highest conviction (maybe it is), he's just let it run a lot.

[Arski]

I forgot about the financials:

Has been growing 25%-40% in sales over the past years and became profitable in 2020 for the first time.

 

I expect their sales growing into the future at least at 25% per year and widening their from 10.7% in the last half year to 15% in 2021, and 20% in 2022.

 

So, with those expectations they have 77.5 million AUD operating income and thus a forward EV/EBIT of 18.

 

Please correct me if you think I'm wrong.

[Jurgis]

Why doesn't VistaPrint/Cimpress do this and crush the category?

 

A bit rhetorical question... I know old-cos are slow-cos.  ::)

[cameronfen]

IIRC their growth was slowing to around 10-15% and it seemed to me like they acquired teepublic at a decently high multiple which I though was a move to hide their declining growth/generate growth inorganically, which was when I sold (bad decision obviously).  Then COVID happened and growth accelerated again.  This is all based on memory when I last owned it so ymmv. 

[Arski]

IIRC their growth was slowing to around 10-15% and it seemed to me like they acquired teepublic at a decently high multiple which I though was a move to hide their declining growth/generate growth inorganically, which was when I sold (bad decision obviously).  Then COVID happened and growth accelerated again.  This is all based on memory when I last owned it so ymmv.

 

Interesting, but I see that their slowest half year of revenue growth over the past 3 years was 25.1%, H2 2019. So how did you get 10-15%?

[cameronfen]

IIRC their growth was slowing to around 10-15% and it seemed to me like they acquired teepublic at a decently high multiple which I though was a move to hide their declining growth/generate growth inorganically, which was when I sold (bad decision obviously).  Then COVID happened and growth accelerated again.  This is all based on memory when I last owned it so ymmv.

 

Interesting, but I see that their slowest half year of revenue growth over the past 3 years was 25.1%, H2 2019. So how did you get 10-15%?

 

You have to back out teerepublic acquisition is my guess. 

[ratiman]

You missed your chance when LEAF was at pennies.

[Longnose]

He writes about it several times in his letters. I would say that I think he's had more than 10x on it, so I'm not sure I'd say it's his highest conviction (maybe it is), he's just let it run a lot.

 

I would also recommend looking through his letters. He writes about RedBubble several times. He used to have a sizable position in PushPay (PHPYF) as well. I believe he sold it not to long ago after some news about executive turnover and such. I took a small position in PHPYF based on his analysis after the stock fell. I believe he has some really great insights.

 

I looked at Redbubble but I have a really hard time buying businesses that are only going up. I feel I may have missed the run on this one.

[Arski]

He writes about it several times in his letters. I would say that I think he's had more than 10x on it, so I'm not sure I'd say it's his highest conviction (maybe it is), he's just let it run a lot.

 

I would also recommend looking through his letters. He writes about RedBubble several times. He used to have a sizable position in PushPay (PHPYF) as well. I believe he sold it not to long ago after some news about executive turnover and such. I took a small position in PHPYF based on his analysis after the stock fell. I believe he has some really great insights.

 

I looked at Redbubble but I have a really hard time buying businesses that are only going up. I feel I may have missed the run on this one.

 

I understand that Redbubble seems out of sight because of the 5x since the covid downturn but that's a bias. I would also be happier when I picked the stock up in March. We need to forget the run-up and value the company today and I think it is at least a fair price for the company at the moment.

 

By the way, I read the letter where Bonsai Partners did a longer write-up about RBL but did get much valuable insights from it, as I remember.

[Jurgis]

At 70M AUD FCF, let's say 15% growth, and 1.3B AUD market cap, this looks pretty cheap.

 

Questions/issues I have:

1. Is the business gonna fall after Covid? Was this a mask business bump?

2. Does it have eyeballs/traction? E.g. as a customer why this and not Etsy?

3. I took a look at https://www.teepublic.com/t-shirts - first, there's nothing very attractive. Second, there's at least 2 copyright violations (Garfield and Kermit) - possibly more - on the first page. I guess lawyers don't care? Yet?

4. https://www.redbubble.com looks better than teepublic.com Why not merge platforms and use the better one? Didn't they have 2 years to do it?

5. https://www.redbubble.com still invites the question: how this is going to compete with Etsy? Yeah, I know Redbubble does the item manufacturing, while Etsy does not. Pros/cons.

 

It's interesting at the current price. But as anything retail it's very hard for me to evaluate direction and growth. I really don't see a sustainable advantage. I can see Etsy offering similar terms and crushing them. Or VistaPrint. Or almost any other e-commerce brand. Yeah, they have creators. But if the other brand has other products and brand name/presence, they can start by subsidizing and luring creators with bigger market/name. Maybe Redbubble is big in Australia, IDK, but it's not a brand in US/Europe AFAIK.

 

I'm feeling a bit like evaluating VistaPrint years ago when people were predicting rosy future and then close to zero growth and returns happened.  ::)

[Longnose]

Andrew Rosenblum of Bonsai Partners

 

 

Redbubble Thesis starts at 58:15

 

 

5. https://www.redbubble.com still invites the question: how this is going to compete with Etsy? Yeah, I know Redbubble does the item manufacturing, while Etsy does not. Pros/cons.

 

It's interesting at the current price. But as anything retail it's very hard for me to evaluate direction and growth. I really don't see a sustainable advantage. I can see Etsy offering similar terms and crushing them. Or VistaPrint. Or almost any other e-commerce brand. Yeah, they have creators. But if the other brand has other products and brand name/presence, they can start by subsidizing and luring creators with bigger market/name. Maybe Redbubble is big in Australia, IDK, but it's not a brand in US/Europe AFAIK.

 

 

01:13:36​ - Etsy vs Redbubble

[Arski]

At 70M AUD FCF, let's say 15% growth, and 1.3B AUD market cap, this looks pretty cheap.

 

Questions/issues I have:

1. Is the business gonna fall after Covid? Was this a mask business bump?

2. Does it have eyeballs/traction? E.g. as a customer why this and not Etsy?

3. I took a look at https://www.teepublic.com/t-shirts - first, there's nothing very attractive. Second, there's at least 2 copyright violations (Garfield and Kermit) - possibly more - on the first page. I guess lawyers don't care? Yet?

4. https://www.redbubble.com looks better than teepublic.com Why not merge platforms and use the better one? Didn't they have 2 years to do it?

5. https://www.redbubble.com still invites the question: how this is going to compete with Etsy? Yeah, I know Redbubble does the item manufacturing, while Etsy does not. Pros/cons.

 

It's interesting at the current price. But as anything retail it's very hard for me to evaluate direction and growth. I really don't see a sustainable advantage. I can see Etsy offering similar terms and crushing them. Or VistaPrint. Or almost any other e-commerce brand. Yeah, they have creators. But if the other brand has other products and brand name/presence, they can start by subsidizing and luring creators with bigger market/name. Maybe Redbubble is big in Australia, IDK, but it's not a brand in US/Europe AFAIK.

 

I'm feeling a bit like evaluating VistaPrint years ago when people were predicting rosy future and then close to zero growth and returns happened.  ::)

 

1. It certainly isn't going to fail after covid because T-shirts make up 33% of revenue, Accessoires 19% and Other Apparel 14%. (I don't know where masks are included.) Of course, when lockdowns are ending more people are going to buy more offline but don't see it as a big threat.

 

2. That's good question. For what I can find now 40% of revenue is from customers who bought before and the rest from new ones.

 

3. They still see a lot of growth in new customers and sales.

 

5. I'm not from the US but I think Redbubble is building a brand now. Maybe Etsy (and Amazon) didn't thought this niche was not attractive but seeing Redbubble creating reasonable margins and high growth, they could also enter the market. I don't know exactly what the barriers from entrance are but they need a lot of new and other designers to compete with Redbubble. Whereas I see that a lot of designers are on other look-a-like marketplaces it shouldn't be too hard for Etsy.

 

Redbubble gets 69% of revenues from US, 14% EU, 11% UK and just 6% from Australia/New Zealand. All growing at +/- samen rates.

 

I got most information from the Investor Presentation and from the VIC write-up which is very interesting.

[Jurgis]

Andrew Rosenblum of Bonsai Partners

 

 

Redbubble Thesis starts at 58:15

 

 

5. https://www.redbubble.com still invites the question: how this is going to compete with Etsy? Yeah, I know Redbubble does the item manufacturing, while Etsy does not. Pros/cons.

 

It's interesting at the current price. But as anything retail it's very hard for me to evaluate direction and growth. I really don't see a sustainable advantage. I can see Etsy offering similar terms and crushing them. Or VistaPrint. Or almost any other e-commerce brand. Yeah, they have creators. But if the other brand has other products and brand name/presence, they can start by subsidizing and luring creators with bigger market/name. Maybe Redbubble is big in Australia, IDK, but it's not a brand in US/Europe AFAIK.

 

 

01:13:36​ - Etsy vs Redbubble

 

Thanks for the link.

 

Regarding Etsy vs Redbubble, he does not really talk about the dangers of Etsy or others dominating the category. He pretty much says that Redbubble valuation was way lower. He was buying at 200M AUD (or so) while now Redbubble is trading at 1.3B AUD. So not as cheap as before - though still possibly OKish.

 

I have mixed opinions about whether the inventory of independent artists is ultimately a good thing or not. Andrew is selling the vision that "independent artists create quirky designs that express who you are and so this is huge runway". My counter would be that 90+% of independent artist creations are crap. And if I want to express who I am from the corporate side, I'd buy Star Wars merch (which is BTW being sold without license on teepublic.com - where are Disney lawyers?). If I wanted to be quirky or funny, I'd buy from https://www.lightinthebox.com/c/men-s-tees-tank-tops_35211?prm=1.1.51.0 or https://www.computergear.com/funny-tshirts.html

I don't want to get into a big discussion on this, but I think that this sales vision is not as great as it is being sold. Though TBH I have the same issue with ETSY. We bought couple masks from ETSY, but it's unlikely we are going back (ever?).

 

Edit: I browsed a bit more teepublic and redbubble. I still think that redbubble looks way better than teepublic. I think I understand why they haven't merged the sites. It is probably not that trivial to port everything to redbubble including users/social networking features, etc. But still it hurts both sites IMO by splitting the designer and customer base. redbubble site looks professional, nice social networking features. teepublic looks pretty worn down. I wonder if they are just going to let it die. No easy decisions IMO.

 

Disclosure: I have a small position in ETSY. I may or may not buy or hold position in RBL.

Disclaimer: RBL may go multibagger despite my thoughts. Don't blame me for not buying it.  8)

[Arski]

Regarding their last earning release and CEO letter: I think it's good that they are going to invest more into the business and try to be a more dominant marketplace. But I become very sceptic when I see the CEO only talking about growth, growth and growth. I am likely to remain shareholder but can't decide yet if I'm willing to add. I have conviction that Redbubble will do well in the future, but maybe the price is still not that compelling.

Thoughts?

Edited April 22, 2021 by Arski

[Arski]

I have written some things down about RBL and I came to the conclusion that the story hasn't changed for them. They will give up profitability to get more revenue growth. Eventually this will result in more growth in EBIT as well. 

I also forgot that growth and scalability is of real importance to a marketplace and therefore it is very important for Redbubble to be the dominant print-on-demand marketplace.

My estimation of the value of Redbubble has come down with a 10% decline, because of the margin contraction, and not as much as the market thinks (23% decline). There's also more certainty that RBL will growth in the future and become a dominant marketplace in the future because of the increased investments.

 

Please tell me if you think I'm wrong

[Jurgis]

Color me skeptic. Pursuit of growth sounds like CMPR. And look where it ended. And IMO CMPR had (and possibly still has) a better business and business model than RBL.

It's gonna be hugely execution play. If they have AAA+ execution, this will do well. If they don't, I don't think there's any margin of safety, since the co doesn't really have anything without execution.

[thunder_son]

On 4/22/2021 at 9:38 PM, Arski said:

I have written some things down about RBL and I came to the conclusion that the story hasn't changed for them. They will give up profitability to get more revenue growth. Eventually this will result in more growth in EBIT as well. 

I also forgot that growth and scalability is of real importance to a marketplace and therefore it is very important for Redbubble to be the dominant print-on-demand marketplace.

My estimation of the value of Redbubble has come down with a 10% decline, because of the margin contraction, and not as much as the market thinks (23% decline). There's also more certainty that RBL will growth in the future and become a dominant marketplace in the future because of the increased investments.

 

Please tell me if you think I'm wrong

I think the problem is that they are up against giants. Amazon, Etsy, Mydeal, Wish, even Alibaba. 

 

What should stop Amazon and Etsy for printing T-shirts and artists from shopping around sites (?!)

I can't see a safe moat

 

[Arski]

10 hours ago, thunder_son said:

I think the problem is that they are up against giants. Amazon, Etsy, Mydeal, Wish, even Alibaba. 

 

What should stop Amazon and Etsy for printing T-shirts and artists from shopping around sites (?!)

I can't see a safe moat

 

 

I think this picture says a lot, but not everything. The moat Redbubble has for their print-on-demand marketplace is this flywheel effect (as Etsy and Amazon have with their marketplaces). RBL's moat is not that big yet, but this is getting stronger over time as more customers, artists and fulfilment locations join the platform. Besides that, Redbubble is strengthen its brand, it already has more followers on Pinterest than Etsy has, for example.

I think Amazon and Etsy could interrupt RBL at this moment, but I don't think that's going to be the case. For Amazon (and Alibaba), this market is just way to small for now. And when the market becomes big enough for Amazon, RBL would already have such a big platform and, therefore, a big moat (because of the flywheel effect) that Amazon is very likely to lose this battle. The same has happened when Amazon tried to interrupt Etsy's platform and that just didn't work.

Etsy could be a bigger problem. I'm not very sure about what I'm going to say now, but as a shareholder of Etsy I believe they are focussing on their platform and building a big brand around it. Starting print-on-demand could interfere with their core marketplace. 

[MattR]

12 hours ago, thunder_son said:

I think the problem is that they are up against giants. Amazon, Etsy, Mydeal, Wish, even Alibaba. 

 

What should stop Amazon and Etsy for printing T-shirts and artists from shopping around sites (?!)

I can't see a safe moat

 

Depends. Amazon is such a big companies, they won't focus on building with such a small TAM. Etsy is more to give makers a way to sell their stuff. Etsy never once said that they have plans to use production -  that would probably kill a lot of their sellers.  Wish is cheap crap. Alibaba already competes with redbubble in the sense that you can write to the factories and request custom made items, however that isn't as easy -  as just uploading and clicking two buttons.

 

[Spekulatius]

18 hours ago, thunder_son said:

I think the problem is that they are up against giants. Amazon, Etsy, Mydeal, Wish, even Alibaba. 

 

What should stop Amazon and Etsy for printing T-shirts and artists from shopping around sites (?!)

I can't see a safe moat

 

The same can be said about any small company. Almost any small company competes against larger companies. The reason the smaller companies can win is more focus and sometimes better but almost always more adaptable management. In reality a lot of smaller companies compete very effectively against larger companies, if they have a focus and strong management.

[thunder_son]

19 hours ago, Spekulatius said:

The same can be said about any small company. Almost any small company competes against larger companies. The reason the smaller companies can win is more focus and sometimes better but almost always more adaptable management. In reality a lot of smaller companies compete very effectively against larger companies, if they have a focus and strong management.

Thanks for your view on it. I see your point and it makes sense. However, I guess under certain circumstances as a small company inventing something with a patent it clearly has a moat. 

But generally maybe the moat for a small company can actually then been seen as the focus/niche

[thunder_son]

On 5/18/2021 at 10:40 AM, MattR said:

Depends. Amazon is such a big companies, they won't focus on building with such a small TAM. Etsy is more to give makers a way to sell their stuff. Etsy never once said that they have plans to use production -  that would probably kill a lot of their sellers.  Wish is cheap crap. Alibaba already competes with redbubble in the sense that you can write to the factories and request custom made items, however that isn't as easy -  as just uploading and clicking two buttons.

 

As I understand Etsy is just a marketplace as Alibaba. Where Redbubble actually provides printing/production facilities for the artists, taking away their burden and making it easier for the artist to sell their work. If I was an artist I would definately prefer Redbubble because I could concentrate on art and not spend time on logistics and production.

You are right that Alibaba provides the same as Redbubble, I didn't consider that scenario. However it provides more uncertainties compared to Redbubble. Writing to some Chinese local store to print on a T-shirt, you won't be 100% sure what you will get in terms of quality, color, size etc.

I tried ordering 3-4 things from Redbubble and it was quite a good experience

In the words of Lilu: What did I miss? What are others seeing that I don't see? To me the stock price is quite attractive at the moment

[thunder_son]

On 5/18/2021 at 9:23 AM, Arski said:

 

I think this picture says a lot, but not everything. The moat Redbubble has for their print-on-demand marketplace is this flywheel effect (as Etsy and Amazon have with their marketplaces). RBL's moat is not that big yet, but this is getting stronger over time as more customers, artists and fulfilment locations join the platform. Besides that, Redbubble is strengthen its brand, it already has more followers on Pinterest than Etsy has, for example.

I think Amazon and Etsy could interrupt RBL at this moment, but I don't think that's going to be the case. For Amazon (and Alibaba), this market is just way to small for now. And when the market becomes big enough for Amazon, RBL would already have such a big platform and, therefore, a big moat (because of the flywheel effect) that Amazon is very likely to lose this battle. The same has happened when Amazon tried to interrupt Etsy's platform and that just didn't work.

Etsy could be a bigger problem. I'm not very sure about what I'm going to say now, but as a shareholder of Etsy I believe they are focussing on their platform and building a big brand around it. Starting print-on-demand could interfere with their core marketplace. 

I've seen the wheel before and I guess the moat is the convenience for the artists not having to focus on production. If I were an artist I would appreciate that. Let's say Redbubble gets peace to grow and in 3 years Etsy buys a T-shirt printing machine. Would artists now switch to Etsy? Probably if the margins were much better.

Will Redbubble still own the copyrights on current artists upload on the website? That should be investigated in the annual report as it will let me keep their products for now

Will consumers build loyalty to a specfic artist only expecting to find them on Redbubble? I guess this is less likely

Assume 3% growth for Redbubble. Current FCFE (equity) is 85-8-1 = operating CF - stock compensation - capex = 76

We get with 10% discount rate: 76/(0,1-0,03)= A$1 bill. Currnet market cap is A$933

- I assumed conservative 3% which is extremely low

- I am located in Denmark far away from Aussie, and Redbubble pops up on many google searches so they are focused on marketing

- I even excluded a +$31 mio. in change in working capital

- CEO bought A$500,000 worth of Redbubble stocks at a market price of approx $5 (+A$1,500,000 of options)

https://app.tikr.com/stock/financials?cid=6631173&tid=34554198&ref=fucj6j

What did I miss? Seems like an extreme bargain

[MattR]

1 hour ago, thunder_son said:

In 3 years Etsy buys a T-shirt printing machine. Would artists now switch to Etsy?

They wouldn't mainly because Etsy would anger a lot of the people who do T-Shirt printing on their website. It would alienate half their customers as they can't be sure if Etsy will start to compete in their niche.

 

1 hour ago, thunder_son said:

 

Will Redbubble still own the copyrights on current artists upload on the website? That should be investigated in the annual report as it will let me keep their products for now

No they don't, shouldn't matter what the report said. In a lot of countries they would be terribly sued.

 

I am not sure if it is a bargain, but after the latest price retraction it is at least not expensive anymore.

Edited May 19, 2021 by MattR