Articore sees lower marketplace revenue, negative cash flow owing to seasonality

Last year, online marketplace Articore (ASX: ATG) undertook a business restructure, changing its name from Redbubble. However, the new name has yet to drive a change of fate. In the third quarter of FY24, the Company reported a higher profit margin but struggled with losses and cash flow. 

Group CEO and Managing Director of Articore, Martin Hosking, said, “Over the last 12 months, we have delivered a number of initiatives across both our marketplaces, Redbubble and TeePublic, to drive profitability. We are pleased to see the sustained improvement in unit economics this quarter, with the Group’s gross profit up 4% on the pcp and its gross profit margin increasing 660 basis points to 44.6%.”

Articore is an online marketplace connecting artists with customers for apparel, stationery and more. In Q3 FY24, the Company delivered a gross profit of $34.8 million. Initiatives over the last year included the introduction of artist account tiers on both marketplaces (and associated account fees), supply chain efficiencies and base price increases.

Overall, MPR (marketplace revenue) was down 12% in Q3 FY24 on the PCP. The third quarter is seasonally the lowest contributor to MPR, and the YTD decline of 10% was in line with the H1 FY24 decline. The decline reflected the Group’s continued focus on profitability rather than volume, and an expected short-term disruption to Redbubble’s MPR, as the marketplace adjusted its paid marketing strategy. 

Due to seasonally lower MPR in the third quarter, operating EBITDA and underlying cash flow were both negative. Articore recorded an operating EBITDA loss of $2.2 million. Still, YTD EBITDA is positive at $11.3 million. 

The Group continued to maintain its cost discipline. Operating expenditure of $23.5 million was 25% lower than the PCP and 14% lower than Q2 FY24. 

Hosking added, “The Group has implemented a marked turnaround this financial year but there is more work to be done. The first step is returning to positive underlying cash flow, which the Group remains focused on achieving for FY24. Reinstating profitable revenue growth is the next step that will assist the Group to be underlying cash flow positive on a quarterly basis going forward.”

Articore reaffirmed its FY24 GPAPA (gross profit after paid acquisition) margin range between 24% and 26%. It expects the decline in Group MPR to be more moderate in the second half of the financial year than in the first half. It has begun to see the early benefits of recently implemented changes to the Redbubble marketplace’s paid marketing strategy. The Company has realised the full benefit of cost-saving measures implemented in FY23 in its YTD performance and has maintained its ongoing focus on strong cost discipline. 

It forecasts its FY24 operating expenditures to be between $97 million and $100 million. The Group continues to focus on its aim to deliver positive underlying cash flow for FY24.

The closing cash balance as of March 31, 2024 was $37.1 million, $50 million below the closing cash balance as of December 31 2023, consistent with the seasonality underscoring its financials throughout Q3.