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Redbubble Ltd
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Ladies and gentlemen, thank you for standing by, and welcome to the Redbubble Quarterly Investor Call Q3 FY '19. [Operator Instructions] I must advise you that this conference is being recorded today, Tuesday, 30th of April 2019. I would now like to hand the conference over to your speakers today. Thank you. Please go ahead.
Good morning, everyone. This is Paul Gordon, Company Secretary for Redbubble. Welcome to this teleconference following release of our third quarter results for financial year 2019. With me, I have Redbubble CEO Barry Newstead and CFO Chris Nunn. We released our third quarter FY '19 Appendix 4C ASX release and supporting presentation to the market earlier this morning. Barry and Chris will present before we open up the floor to questions. And as mentioned this presentation and Q&A session are being recorded. Before we start, I would like to call your attention to the safe harbor statement regarding forward-looking information in the ASX release accompanying our results. That safe harbor statement also applies to this call and to the Q&A. Over to you, Barry.
Thank you, Paul. Good morning and welcome to Redbubble's investor conference call. Today, we are providing an update to the market for the quarter ending March 2019. The key information is in the -- is in 4C filing ASX release and supporting presentation. Before I provide RB Group's strategic update, I want to make a comment on the financial performance during Q3. Chris will discuss the financials in detail in a few minutes. Q3 has been a challenging quarter as the organic growth -- or the organic search headwinds continue to impact top line growth. The management team has taken a range of actions since October to address the organic search issue and continues to do so. While important operational metrics such as site speed have improved, the flow through to revenue has not yet been seen. The teams continued to work on areas where analysis and advice indicate opportunities for improvement.During this time, the management of both TeePublic and Redbubble have been disciplined down the P&L. There are notable strengths in paid marketing, gross profit margin and OpEx which have softened the impact of the organic search slowdown. These are lasting benefits to the group. Pivoting to strategy. The group is seeing strong results from areas that are -- from areas where there have been sustained strategic investments. I really want to place emphasis on this. All businesses go through challenging times as environments change. What differentiates those that end up succeeding is what goes on below the surface, the metrics of the business that are fundamental to long-term success and the ones that either reflects or not the strategic actions of the company. RB Group's strategic work is tracking well even as the impact has not yet been seen in the overall results. Let's review briefly. The TeePublic acquisition was the biggest strategic move in the company's history. It is proceeding exceptionally well and is accretive. The TeePublic management team has focused on scaling paid marketing and setting up the platform for European market expansion and new product introductions in the coming quarters. The Redbubble Group has achieved meaningful benefits in terms of supply-chain efficiencies already with more to come. On Redbubble, mobile users, member loyalty, authentic artists and fan art partnerships are all trending well and are key to our future growth. Redbubble has continued building the core member experience on mobile web and via Redbubble's iOS app. The iOS app saw year-on-year growth in marketplace revenue of 130% in Q3 and has contributed 6.3% of Redbubble marketplace revenue in Q3 as compared to 4.4% in Q2. Marketplace revenue from members grew by 114% year-on-year in Q3, representing 25% of the total RB Group marketplace revenue. Redbubble now has 2.1 million active members growing 67% year-on-year. These results are a reflection of the focused investments the business has made in these customer-focused areas. On the supply side, authentic artists are those that tend to upload high-quality work -- original works which resonate well with customers. Our data science work during 2019 has helped highlight -- sorry, has helped spotlight this critical segment. Significant development investment has been focused on increasing the productivity of authentic artists. And in the past quarter, Redbubble product revenue from these artists grew by 36%, and they now represent 80% of product revenue. Content partnerships is also on a strong trajectory. We launched 5 new brands on Redbubble in Q3, including a number of properties from ITV and the Cartoon Network-Turner partnership. This business -- the business development pipeline is also strengthening. And critical to the success of these partnerships is the addition of licensed content to the marketplace. The amount of licensed content available grew 106% in Q3 versus Q2. While not directly impacting Q3 results, I am pleased to advise that the major replatforming work on Redbubble is on track for completion in Q4, enabling efficient and faster new product launches. New products are coming in Q4 with a ramp-up in number before the 2019 holiday season. This will improve both the artist experience -- artist and customer experiences and help drive new revenue growth. The group is focused intently on improving growth as FY 2020 approaches. The development of resources continue to shift from the major platform work that consumed a lot of capacity in 2018 and last quarter towards direct growth work. We are focused on ensuring the group comes through this period stronger than ever in terms of the preparedness to realize the full potential of the retail commerce opportunity and the robustness of the financial underpinnings of the group. I would now pass to Chris to speak more about the financial performance of RB Group and our guidance for the group as we wrap up FY 2019 over the next 2 months.
Thanks, Barry. We have included with our 4C release for the March quarter an income statement for the quarter and year-to-date, down to EBITDA, comparing both with the corresponding period last financial year. TeePublic has been included for the quarter and for 5 months since November in the year-to-date figures. In the supporting pack, we have continued to provide operating metrics that reflect a refreshed view of how Redbubble Group is managed. Each year, our March quarter has some seasonal features which make reporting on it somewhat harder than the other 3 quarters. This year, those seasonal aspects are compounded by the added impact of the ongoing growth headwinds in the organic search channel. On a year-to-date basis, marketplace revenue was $197.1 million, up $39.6 million, 32.5% on a constant currency basis. This includes third quarter marketplace revenue growth of 40.3%, up 32.6% on a constant currency basis. Overall group revenue was supported by the strength and efficiency in paid channels on both platforms. The group's marketplace revenue from paid channels improved 53.9% in the third quarter, 41.5% on Redbubble, 354% on TeePublic from a low base, while retaining strong transactional profitability due to efficient spending on both platforms. As I'll expand on below, the cost of paid revenue continues to be efficient and very profitable. The group's marketplace revenue from unpaid channels grew at only 0.7% in the third quarter. As Barry mentioned, we have taken and will continue to take steps to improve sales growth from organic sales channels. FX continues to be a significant factor, with the U.S. dollar in particular generally in the range of 6% to 10% stronger than the previous year. This assists our top line but has the opposite, not necessarily equal, effect at the cost lines of cost of goods sold, paid marketing and operating expenses. For Redbubble year-to-date, the net impact of FX at operating EBITDA level has been a favorable $570,000. At the first half results call, I said that we had been actively managing those elements which we can control in a way that is mitigated and will continue to mitigate the effect of any ongoing organic search weakness. As Barry said, this continues to be evident as we look down the P&L in the third quarter results. Gross margins continue to strengthen across RB Group as the business demonstrates the strong emergence of scale benefits both independent of and aided by the TeePublic acquisition. Redbubble Group has delivered a year-to-date gross profit of $71.7 million, up 47.7%, 40.2% on a constant currency basis. The year-to-date gross profit margin based on marketplace revenue is 36.4%, up 2 percentage points. In particular, we are pleased that the gross profit margin in third quarter was 36.2%, improving 2.2 percentage points year-on-year. Both periods reflect important contributions from both improved Redbubble margins and TeePublic's higher margins, generally. This is particularly notable in the third quarter because there's historically been something of an overhang from the strong Christmas sales which have tended to constrain margins. Continued strength in gross profit margins provides both platforms the means for the group to balance margin improvement with driving top line growth. As I mentioned earlier, paid channels have been a critical source of top line growth in the third quarter. Management has maintained a disciplined approach to sourcing sales from paid channels. Profitable growth across the paid channels continues to be achieved by balancing paid spend dollars and paid spend efficiency. As a percentage of marketplace revenue, RB Group's paid marketing spend was 10.8% year-to-date, up 2.2 percentage points year-on-year. In third quarter, paid spend was also 10.8% of marketplace revenue. Both measures are particularly commendable given the more subdued unpaid growth. In this context, I just want to clarify a couple of metrics on Slide 4 of the supporting deck. There, we show paid and unpaid channel growth rates. Those rates are RB Group growth rates but they do pick up TeePublic's FY '18 equivalent. So the growth is a true reflection of each channel. The same approach was adopted in the half year results presentation. Redbubble's paid spend efficiency, that is, the relationship between the paid marketing spend and revenue from the paid channels, has declined only marginally year-on-year, i.e., less than 5%. TeePublic has continued to increase its allocation to paid marketing from a low base. Overall, RB Group has maintained its paid spend at a level that is lower than most of its online e-commerce peers. Looking at gross profit after paid acquisition. The group has delivered $50.4 million year-to-date, up 41.3%, up 34.3% on a constant currency basis. GPAPA growth for both third quarter and the year-to-date has maintained pace with revenue growth but most importantly, has outpaced operating expense growth, maintaining the operating leverage improvements. Cash operating expenses for the year-to-date were $47.2 million, up 30.6% with TeePublic's inclusion, up 25% on a constant currency basis. This has been and continues to be an important focus for the business in light of the weaker top line growth. During third quarter, where growth in operating expenses was 25% with TeePublic's inclusion, GPAPA growth was 38.7%. Redbubble's operating expenses grew only 6.8% year-on-year in the third quarter, which was only 0.9% on a constant-currency basis. This has been made possible due to early actions taken to slow operating costs and, thus, demonstrate the group's commitment to improving operating leverage. With the inclusion of TeePublic, the group had delivered year-to-date operating EBITDA of $3.2 million compared to an EBITDA loss in Redbubble last year. The group has reported free cash outflow of $28.7 million for the third quarter, up 37.2% from the $20.9 million previous corresponding period, which was without TeePublic. Redbubble and TeePublic are seasonal businesses, with much of the fulfillment expenses, artist margins, taxes and paid marketing costs associated with holiday season sales not paid out until the March quarter. However, due to the slower top line growth, the cash flows did not benefit as greatly from the business' generally positive net working capital cycle. RB Group's cash balance at 31 March 2019 was $29.1 million. Closing cash balance enhanced by $8.4 million of cash held, representing the deferred component to the TeePublic consideration. The final installment of USD 6 million is due in May 2020. An equivalent amount of our cash balance is currently held in US dollars to counter any FX exposure. Looking through to the end of this quarter, RB Group still expect to generate a positive operating EBITDA for the year. Growth headwinds in the organic search channel persist, but management is utilizing all of the levers that are available to offset the impact to top line growth. GP margins is strong, and the outlook remains good for further improvement. We have stayed disciplined on paid marketing spend and efficiency, and management will continue to prudently manage operating expenses. The slower growth Redbubble has been experiencing not only impacts cash profitability, but if it persists through June as we now forecast it may, the usual benefits of the group's working capital cycle will be significantly diminished, which would result in free cash outflow for the financial year. The exact quantum of this will depend on the relative sales growth rate between June 2018 and June 2019, the periods influencing the working capital advantage over the financial year. So to conclude, the group is working on a number of initiatives aimed at a return to strong growth while diversifying the group's sources of growth and profitability. We will continue to have a disciplined focus on lowering COGS, optimizing paid marketing, managing operating expenses and, thus, prudently managing our cash. Before I hand back to Barry, as this will be my last 4C investor call as retirement beckons, I just want to express my thanks to investors and analysts for their commitment to Redbubble, for the depth of their understanding and for openness and honesty of the feedback provided to the company over the last 3 years. And especially to all my Redbubble colleagues, it has been an absolute pleasure working with such a diverse, talented and youthful group of people. Thank you, too. Whilst I'm disappointed to be departing at a low point in the growth cycle of this great business, I'm extremely confident we're on the right track to regain the initiative sooner rather than later. Thank you.
Thank you, Chris. As he just said, this is his final investor call. Emma Clark, Redbubble Group's new CFO, who will start in June, will be in the chair for the full year results. I'd like to thank Chris not only for his commitment to Redbubble but also to you, Redbubble's investor community. Chris has been a tremendous partner to Martin and myself, the Board and the management team. We will miss him and wish him well in retirement.In closing, we are in a challenging period of growth right now, but there are strong fundamentals within the marketplaces that will underpin future growth and support the strategic direction of the RB Group. Across the group, various teams remain focused on the following priorities: sustaining the strong growth and synergy value of TeePublic, leveraging new products, geographic and fan art growth opportunities as well as supply efficiencies; second, sustainably launching and selling products that artists want to design for and customers will love; third, growing the base of customer members through deeply personal and creative adventures inspired experiences; fourth, building deeper relationships with authentic artists by increasing their commercial success and launching partnerships with world-leading fan art brands; and finally, maintaining a disciplined focus on acquiring new users, lowering COGS, optimizing paid marketing and prudently managing operating expenses and cash. The RB Group is working to deliver -- working together to deliver a positive operating EBITDA result in 2019 and to position the group to compete effectively for the large retail commerce opportunity ahead. Our whole team remains deeply passionate about the potential of RB Group and are committed to creating a business of large and enduring value for shareholders, artists, partners and employees. We will now open it up for your questions.
[Operator Instructions] Your first question comes from the line of Ash Chandra of Goldman Sachs.
I'm just wondering if you can give a little bit more detail around the underlying growth of the Redbubble platform in the unpaid space. Because I guess this quarter includes the contribution of TeePublic, and you -- obviously, you've launched the app and e-mail focus. Yes, so could you talk a little bit about that underlying Redbubble marketplace organic growth rate? And apologies if I missed it in your introductions.
No, we haven't -- we generally don't provide paid and unpaid splits this early, soon after the month, it's now pretty much close -- close to a month from the end of the period so we haven't got much excuse. In the unpaid space, Redbubble's growth was slightly negative, a small negative, single figures, and TeePublic growth rate was mid-teens, positive.
Okay. And with respect to the sort of paid acquisition growth rates, the cost per dollar of revenue that you're generating via paid, I mean that cost is rising reasonably rapidly. I know you indicated that it's still lower than what you think your peers are paying, but it does appear to be rising rapidly. Can you give any sort of context as to how you expect that to continue to trend going forward, if this is something you need to rely on to a greater extent over the next 3 or 6 months until your organic trajectory gets back on track?
So just a couple of factual things, Ash. I don't think our cost of paid -- generating paid revenue is increasing significantly. So that's probably -- I think I made that clear, it's basically a 5% increase compared to the previous period...
But is that not -- on your Slide 4 -- maybe I'm misreading it, but the paid cost divided by your dollars from marketplace revenue...
That's total marketplace revenue, not paid marketplace revenue. So the paid channel itself is not much less efficient, a small percentage. But obviously, with the unpaid channel being weaker, the overall cost of paid as a percent of total revenue has increased a bit. And that's true.
Okay. But the unit cost per dollar, you're saying, is stable?
The unit cost per dollar of total revenue, the unit paid spend per dollar of total revenue is pretty stable but obviously has gone up a fair bit because of the lower unpaid rate of contribution to that.
But the cost -- the efficiency -- sorry, just to -- the efficiency of the actual -- so the dollars we're bringing from a paid -- the paid dollars, the cost of getting the paid dollars has not changed in a significant manner. And I would say that any adjustments are probably, in general, we continue to see them being reasonably consistent over now a reasonably significant period of time. So I don't think they are -- our cost of acquiring a paid transaction is not changing significantly despite the growth, Ash, to take your question. And indeed in the short term, we are -- in the short term, in the recent past, we're obviously more reliant on that source of profitable revenue. And in the short term, until the organic search issue starts to abate, that will continue to be the case. But we still believe, if not more than believe, we're still confident that we are acquiring those -- that revenue at a consistent cost.
Okay. And can I just ask one more question before I jump back in the queue? With respect to your cost control, which was definitely a strong element of this quarter's result, how sustainable is this in the sense that, ultimately, you are still a growth story and need to invest for that growth? How should we be thinking about the sustainability of what in this quarter has been a good outcome but -- trying to work out whether that's something we can capitalize given...
Yes. I think there's certainly -- first of all the savings we have put in place, I mean we're going to be moving from a different trajectory, a different starting point in terms of where we're at today versus where we were at 6 months ago. Clearly, there are costs that will -- particularly growth-related costs that we've aimed very strongly to protect. So we do still feel like the existing cost base is allowing us to invest in the most high-priority growth initiatives within the business. Clearly, as we get through to this time next year, there will be some costs, some inflation to cost. But we still view it as being at a position of significant operating leverage or minimally -- at least a minimum amount of operating leverage.
I would add also that over the last 18 months, if not longer, we spent a lot of time doing work that actually hasn't yet delivered revenue. For example, the base foundational work to allow us to new -- launch new products at a greater cadence really hasn't come into effect. Barry confirmed it's going to happen in the next quarter, but it's -- it hasn't come into effect yet. So those resources will be redeployed.
Actually, they are being redeployed. I think they're now being redeployed, yes.
Your next question comes from the line of Tony Hansen of EGP Capital.
I just wanted to ask. I think I asked this at the last quarterly call that you're -- you've indicated that TeePublic has generated unpaid search growth sort of I think you said 15% and Redbubble's down single digits. Is there no way you can leverage? I appreciate that TeePublic's a smaller business, but is there no way you can leverage whatever they're doing that's allowing them to grow organically the free search into Redbubble's operations?
Yes. I mean we are leveraging any and all insights that are available to us across the group. So we're very closely coordinated in looking at what's happening with TeePublic as well as Redbubble and what are the insights that we can generate across. And we've looked very deeply at this area as has the TeePublic leadership and we've tried to establish places where we have differences and determine whether those differences would make a difference -- are worth eliminating, yes, and tackling. So I think there's quite a bit of cross-pollination there. I think, more broadly, we've taken good advice from these. We've really been pursuing the highest-priority areas of change to address the organic search issue. And I would say that those are -- we still expect that those will accrue benefits, and we expect that there is additional work that we have ongoing that will accrue benefits. So it remains our top priority, and as you asked, TeePublic's insights are of value.
Okay. So you -- but you do think that you'll be able to solve the problem that's causing the negative growth in organic search?
Yes, we will. I think, first of all, it's worth noting that this time last year we were on a pretty significant upsurge so we may well -- so while month on month, we may be -- we may not be going backwards. Year-on-year, there's -- the year-on-year numbers have become a little bit more challenging as well. And we're stating that because through the fourth quarter of last year and the first quarter -- the first quarter last year, there was quite a lot of growth. So we got these tough comps. But we -- again, all the advice that we get and all the work that we have since, we believe we're working on the right things. And we have yet to find anything that would fundamentally alter our outlook that the content that Redbubble hosts, the products that Redbubble hosts are -- that's very valuable content and should, as it has in the past, be ranked well and generate significant organic search traffic and revenue.
Your next question comes from the line of Tim Piper of Royal Bank of Canada.
Just first of all, around your sort of guidance for the free cash flow for the year, just looking you're still guiding to positive operating EBITDA, you've got the negative working capital cycle, but you're saying free cash flow is going to be negative, is CapEx -- CapEx looks to be running slightly higher through this quarter. Is that a factor there as well? I kind of would've thought free cash flow should still be positive.
No. Perhaps I need to explain that a bit. The cash flow in any particular period has 3 components. I'm going to go back to basics, Tim, not that you don't get it, but I'm just going to start there so I can work into the detail. The 3 elements are the cash operating EBITDA in any particular period; the change in the working capital on the balance sheet between the beginning -- between the end of the period we're measuring and the end of the previous period we're measuring, whether it be a month, a quarter or a year; and the capitalized development, the spend we make which we don't actually hit the P&L, it goes to the balance sheet. So you've highlighted capitalized development. EBITDA is going to be a little bit weaker due to the nature of the top line, but we still maintain that's going to be positive across the year. Cash flow is affected by that, obviously, but also it's affected by the extent to which the growth rate in the last few weeks of a period, and if it's a month, obviously, it's the whole month period, but if it's a quarter or if it's a year, it's really generally the last -- the sales in the last month because those sales in the last month create the liability -- the current liability on the balance sheet, which is a negative working capital, if you like, which is larger at the end of a particular period. If that sales in that June month, for example, the end of June '19, are significantly different to what occurred in June '18, the working capital advantage will be significantly different. If it's stronger, as it typically has been over the journey of Redbubble, it's a working capital advantage. If it's a similar level of growth, then there will be no working capital advantage. So even today, I don't know exactly what that working capital advantage will be because I don't know how June is going to pan out. So we're sort of forecasting a fairly flat period up until the end of the year. Hence, I'm not sure there's going to be massive working capital advantage. On the capitalized development side of things, no, there was a bit of an uptick in the third quarter. That's not unusual because the second quarter, obviously, we don't do a whole lot because it's a busy period for the site. But generally, the capitalized is pretty much in line with budget so I don't see much variation there.
Yes. Sure. I understand. I guess what I was trying to get at is, just given you had previously been guiding positive free cash flow, so I was thinking about the recent trends in revenue growth sort of over the past month or so.
Yes, well, that -- so previous guidance was 3 months back and even today, as I said, we don't know what June's going to look like. In the end, it's what June looks that dictates what the working capital advantage is for the year. It's literally what June looks like. And at the end of December, it's what December looked like, that's why the December working capital number is so high because we have all the sales in December and therefore all the current liabilities.
Okay, sure. And just following on for another question on unpaid channel. I think, previously, the organic search as sort of a proportion of that total unpaid channel was sort of around 70%. Just given the strong growth numbers you're calling out in things like repeat revenue growth, mobile revenue, member revenue, would that 70% have declined as a proportion of the total unpaid channel?
You mean organic search as a percentage of unpaid?
Yes.
I don't know if we have that number. But one would expect it to be a little bit lower, yes.
Yes. Okay. Sure. And then just finally on that authentic seller's number that you called out being 80% of sales. I think -- I assume that must be about 12% of sellers, is it because the top 12% generate 80% of sales? Is that about right?
That will be -- the 12%, now the -- yes, I don't -- we don't have the percentage of this group available. We can provide that post.
There's a bit of a logic difference. Simple mechanical calculation of the top 12% of sellers giving us 80% of revenue, that is just a simple mechanic, doesn't necessarily say those 12% are all authentic sellers. Although, you would expect them to be a significant contributor there, just to be clear.
Your next question comes from the line of John Lewis of Osmium Partners.
Yes,I guess, I really kind of fit Redbubble in 2 kind of boxes which is, one, I think you guys have a really, really nice business in terms of creating high barriers to entry and scale, but you don't have your -- clearly, your best foot forward in terms of where you are in the business cycle relative to Redbubble. And I think in the second bucket, which compounds the factor, is that really it's a very difficult market to get any traction in. And when I look at Etsy, it trades almost $100 million a day in dollar volume. And I look at Wayfair, it's several hundred million dollars in dollar volume. I look at Kornit, a hardware manufacturer, it's trading at 7x revenue and trades millions of dollars a day in dollar volume. And I look at Redbubble, and it struggles to trade $100,000 to $200,000 to $300,000 in dollar volume a day, and you guys are the industry leader, and since your IPO, you've almost -- in 3 years, you guys will have nearly doubled revenue, and the share price has plummeted 40%. And so when I look at private market values and I look at public market values, Redbubble is an extreme outlier. And again, I -- you guys are going through some challenges. It's not -- but in many ways, Redbubble looks like a distressed staffing company and in no way, shape and form does it look like a high-growth platform that can really create a lot of shareholder value. So I guess the question is, is with that backdrop, after 3 years of struggling mightily as a public company, I would really love to hear something that isn't talked about is why are we playing for scale, why does scale matter, why aren't we going after fulfillment business where there's a lot of margin, and you know investing is the old adage of laying out money today for more in the future. So I guess the question is, is why are we making intelligent investments that will drive shareholder value? -- Or why aren't we -- why don't we get an ADR or try to get into more market share?
Thanks, John. I'll try to cover a couple of areas. I think I'm going to leave that capital markets one more as a suggestion and comment, and as the Board looks at those decisions, we'll kind of provide updates where appropriate. I think your questions as it relates to strategy and the investments that are being made in the business, I think I'll take a brief crack at that. I think we fundamentally believe that the -- well, more than fundamentally believe, actually, let's start with. We have, as you said, we have built over more than 12 years now a marketplace business that has 3 key dimensions, and those 3 dimensions have all reached at least their first level of scale, which is a really important achievement, not that we're resting in any way -- I'm not saying resting on our laurels. But what we have functioning is a fulfillment capability, which is the -- in comparison to pretty much anybody who we get compared to, is a unique fulfillment capability we are able to, through our partnerships with third-party companies, fulfill on very tight timelines over 65 products in 3 continents. And that capability, one, has the potential to continue to grow in terms of the number of products; and continue to grow in terms of the geographic scope; and three, really importantly, has continued to show the -- continued to demonstrate that we can not only set that up, but we can actually extract value with the Redbubble Group from that fulfillment network in terms of our -- our increasing margin in that regard. We've also put 0 in the history of TeePublic and Redbubble. We've put 0 capital into machines, right? So that's the first thing. The second thing is an artist community that is highly generative and, to go back to the data from the authentic artists, continues to be highly engaged and productive. Now that's also a critical asset and actually an asset that's getting stronger through this quarter despite the overall position because what's happening is the top-quality artists, the most authentic artists, the ones that are using the platform for what it's intended are thriving. And actually, the people that aren't thriving are the ones that use the platform for copycat activities and, luckily, significantly reducing the level of piracy, which is an unfortunate reality of a user-generated content platform. So that's the second critical element that is there. It has its own momentum. We've been -- we have the opportunity to generate additional value for those partners through the addition of additional products -- addition of new products and through the addition of fan art content partnerships to the supply side of the market. And then finally, we've actually acquired customers to that whole platform. We've for most of our history as we've talked about before done that through a strategy focused on Google SEO. We then augmented that with Google Pay, and we are headed -- the investments we're making are headed towards an environment where we aren't completely reliant on a third-party platform for our customer acquisition, but we acquire our own. And those are the investments that we are making in the business and we're putting in place to scale. What does that get us as we go forward? Well, what we expect that gets us is, one, a fulfillment capability that can supply competitively but can also do so in a manner that allows us to extract good margins for the Redbubble Group; secondly, art which allows us to continue to meet the needs of a wider and wider group of customers. Remember that we -- yes, we have 2.1 million members, but we are competing in markets that have 1 billion people, and we have to -- we have the opportunity to grow there to broaden that; and thirdly, we move our customer acquisition from less of a game of relying on, what we talked about earlier, which is the ebbs and flows of Google organic search or the transactional acquisitions via paid marketing, and we'll move towards a place where people are coming to Redbubble for what they see as the value. And that's what we're investing against. And that's what the core strategic work focuses on. While in the short term, we make sure that the business stays disciplined on the things that we needed to do to deliver. So that's the core. Yes, we can look at diversification into fulfillment. We can obviously look at other possible diversifications into other kinds of artist communities and whatnot but we really remain focused on the fact we've got a marketplace that, at the fundamental level, is performing and is in transition. And I think we're wary, I'm wary of diversification and going on other ventures and the costs -- the opportunity cost of that -- that results in. And I think, we've talked about this before, I think great businesses can see their way through this. The great businesses stay focused through good times and bad. And I think the real thing that we're trying to actively avoid is to go off and start finding some sort of silver bullet in a challenging time but remaining open and focused on what the data is telling us and what we need to do differently.
Barry, I guess my only pushback is, look, I think very highly of you, I think very highly of the Redbubble team. You guys have extraordinarily confident people and I'm deeply appreciative of that. I guess my biggest issue is that you guys will have come close to doubling revenue since the IPO. Stock price is in 40%. I don't feel like there's been a good case for scale. Well, you guys have proven scale, and there's problems. There's some -- I hear you loud and clear, but I guess, at the end of the day, like I -- you know this adage in investing is, "Investing is laying out money today for more in the future." And I think every investor is saying, why will this strategy lay out a lot more money and profits and growth in the future? And that's the open-ended question, and we've been at it for 3.5 years, and the market ascribes a very, very extraordinarily low valuation to your company. And so that's it. That's the case open and shut.
I think -- and we -- I mean there's no -- you don't debate the facts on that one, for sure. But you don't, I mean. And it appears to me your references are valid, they're valid peers.
Your next question comes from the line of Ivor Ries of Morgans Financial.
Just wondering if you can share with us what your average order values were and conversion rates were during that period.
Yes. I was ready for your questions, Ivor, this time. Thank you. I'll do that across both groups. So for the third quarter -- I don't know if I can get to the right number. The third quarter -- hang on, bear with me a second. So Redbubble, conversion rate between 1.72%, so the same as it was in FY '18, so no change of conversion rate with Redbubble business; and for TeePublic 1.79%, pretty much the same, 1.76%, 1.79%, so pretty much the same between the 2 periods. We have got TeePublic's information back then so we know how their conversion rate was. And the average order value for the third quarter for Redbubble, it's up $3 from $43 to -- $43.50 to $46.70; and for TeePublic, up $7 from $50.90 to $58.
Right. And just I know I can probably work it out backwards with a calculator from your disclosures there somewhere, but just the -- just at the group level, the -- not splitting those, the 2 sides out, yes, your absolute split between paid and unpaid traffic?
Which? Well, traffic or revenue?
Traffic.
Well, we don't provide that information.
Yes, well, revenue, I think you've given that on Slide 4, haven't you, some 46% is paid?
Yes.
Yes.
Yes. And how much? I'm afraid I don't have that in front of me, but how would that compare to same time last year?
I don't have that. You caught me on that one. I don't have that number in front of me, but it's in our reports, Ivor, so nothing will have changed about the historical numbers.
Right. Right. Okay. And was there any meaningful shift in the mix between mobile and desktop in that period?
Mobile is up to... mobile...
Yes, mobile is up to 46% of revenue.
Of revenue now in terms of business?
Yes.
So we may not -- we don't have the visits number, Ivor. It would have improved -- increased a bit. I don't have the numbers off the top of my head.
Right. Right.
Mobile traffic is increasing, unerringly increasing.
Yes. Yes. And...
Actually, it is in the release. It's at the top of the third page.
Right. Sorry about that. That's okay. And just in terms of the cost to acquire the customer, I mean in terms of the next -- well, until you work out the -- how to get the, the unpaid or the organic traffic back to its former level, can you keep growing the top line of the business with this level of paid costs and still extract some form of EBITDA margin expansion?
I think the answer is yes. Yes, the answer is yes, we can. We still -- we are -- when you look at our gross profit margin, our paid cost per revenue and our gross profit margin, 36%, our paid cost is $0.10 to $0.11, just under $0.11. So there's scope there. There's plenty of scope there.
Yes. But in the near term at least, the paid proportion of your mix will increase. So that eats into your total GPAPA margin. So you think that you can...
Yes, the key question is whether it's accretive to GPAPA, gross profit after paid acquisition, in absolute terms. So that's what we're -- we've been aiming to continue to improve our gross profit after paid acquisition by continuing to grow the paid channels as in a disciplined manner and as profitably as possible. So that is a lever that we still have available to us. And actually, when we look at where particularly -- we obviously continue to do work on that part within Redbubble. And when we look at TeePublic, TeePublic's really in an earlier stage in its development in paid search, over -- as we go into Europe and as actually they localize currencies into Canada and Australia, where they'll access those paid channels in those countries which they do not currently access at all. So we have scope in the paid side on a transactional basis, and we're also doing significant internal work to understand the extent to which non-search channels can be scaled off as well on a customer lifetime basis in a very conservative manner. So we do have growth potential through the paid channels.
Do you have growth potential at the same time able to increase the EBITDA margin?
Increase the EBITDA. Margin, well, the margin -- the EBITDA makes your -- margin would move in that regard so long as we continue to move that rate at a faster in OpEx, so yes.
Yes, yes. In the sense that you've been able to scale back OpEx, are you -- I mean are you having to chop off any kind of serious growth investment to do that?
We've -- most of what we've done is not added to the cost base. So -- and as Chris alluded to first, within our growth investing area, by finishing a good amount of the platform work or almost finishing, we've got a bit small amount left to do this quarter. We've been releasing engineering -- engineers from that platform work to more direct growth work. So the net effect of the last quarter, for example, is probably an increase in the amount of people available to be working directly on growth. I think the areas of cost savings have been really in every area that we -- that does not have direct growth relationships where we're just not adding people. And we are also we're taking a pretty -- we're taking a sharp pencil to all non-people costs in the business.
Right. And just your competitive environment. If we look at the competitive environment, obviously, initially, everyone was belted by the change in the Google algorithm. That was sort of evident. Has anyone recovered faster than you in terms of organic traffic volumes? Or are you all still in the same boat?
I mean the data we have says, really, there's been no -- it's not clear that there are any winners out of last October, we don't have data that says so and so and so and so are doing extremely well. Not many people have talked very much -- very publicly about it, but I will note that 2 companies have talked about slowdowns in organic -- in SEO at the end of 2019, not direct competitors but notable companies. ASOS has referenced that in their recent releases, and Pinterest referenced it in their -- I think... So I think that -- I don't think Redbubble is in this situation on our own by any stretch of the imagination. I just think either a lot of the companies are private and, therefore, don't have to talk about that to the market or they may be a little bit less reliant on it day in and day out. But I think it's certainly not -- it certainly continues to be a more broad-based phenomenon, and we don't think that we're losing -- we don't think we're actively seeing a strong change in our relative competitive position.
Right. And if I might ask one more question before I get off the line. Obviously, TeePublic grew their business. I think Chris referenced mid-teens positive in that period. I think, when you bought the business, your expectation was sort of circa 40% growth so, obviously, TeePublic has slowed quite dramatically...
No, that's not right. My mid-teens reference, which wasn't 15%, but I think Tony interpreted it to be 15%, but let's say this is 15%. That was the unpaid channel, not the total TeePublic growth. Total TeePublic growth is on Slide 3 of the deck, around about 40%, just under 40%.
So it's in line with your expectation at time of acquisition.
Absolutely.
Chris, thank you for all your help over the last few years. And all the best.
Thank you. Thank you, Ivor.
Your next question comes from the line of Owen Humphries from Canaccord.
I'm back of the queue here so I'm guessing most of my questions have been answered. But echoing John's thoughts for this, no doubt versus Etsy at 20-plus times EBITDA gross profit after market and you guys are under 3, and you're undervalued. But I guess we're all looking for a reversal of that organic growth or organic search growth and so we can all sit back and say, this is not a structural issue, this is a cyclical issue. When you look at the PCP in the third quarter last year, it was up 33% in organic growth, and fourth quarter last year was up 43%. So it doesn't seem from those numbers that you are going to be cycling a tougher period in the next quarter, so you're not going to get that perceived reversal in the coming couple of months. But given the quantum of work you have done in the last kind of 8 -- or 7 or 8 months, I know we've talked about the initiatives you've been rolling out and we some touched on site speed, back links. But can you just -- maybe because one of the things I struggle to explain to investors, and I'm sure other analysts are the same, exactly what has changed apart from, obviously, suffering a strong PCP which hurts this period's growth? What exactly has changed? I got a couple of questions as well on the product launches because that has added GTV growth in the past, but maybe start with the first one.
Not quite sure I understand the question. You mean what has changed aside from the Google algorithm change? What...
Your initiatives around -- you obviously speed up you -- you sped up your websites. You've changed the way that your website links to Google around -- just the 3 or 4 key initiatives you've changed within your business that will defeat -- will reverse this back from rather than -- more of a cyclical issue rather than a perceived structural issue.
Yes. So the -- yes, there is a number of -- so before Christmas last year, it was -- I talked about the prior things -- we did a lot of work on the technical aspects of search engine optimization. And we had guidance from technical SEO specialists and our internal team and we deployed a range of technical changes. So that was the first thing that we did. The second thing, which I referred to earlier, is we've done major work on the speed of the -- of Redbubble. So in particular, the search result pages, which are the most -- the pages that are most important in terms of landing on the site. We've also replatformed the homepage so that's a lot faster, and we've been replatforming all the product pages. So 80% to 90% of what the customer sees when they land on Redbubble is a step-change faster, maybe more than that, from September -- really from December, actually. So that's the second major issue. The third area, which we talked about earlier is consolidating the Redbubble content. And that is on 2 dimensions. One is simplifying the products. So rather than allowing Google to index, say, a baseball T-shirt and a premium T-shift, we're just allowing Google to index the T-shirt, which is a piece of work that we did to sort of simplify that and then, along the lines, also to remove content that really gets no active traffic or sales so that we could simplify and shrink the content that Google has available to it. That allows Google to engage and call our site much more quickly and also to separate good quality from bad, which is in effect what we're doing now, that increases the average. The other thing we've -- those are the major 3 areas where we've frankly -- finished the work that we aim to do. And then the ongoing work is in the fourth area is really in the buying experience or what we call contextualization work where we provide better buying experience. So this is obviously something we've worked on over a significant period of time but are intensifying in -- at the moment to ensure the customers land effectively and engage more deeply in the site. And that's obviously an important metric for Google organic search. Those are the major areas that we've focused on and most of them have been, as I said, have been deployed over the last 6 months.
Great. Okay. And just lastly on I remember back to the IPO the incremental GTV benefits as you roll out new products to your customer base was always very accretive to, back then, GTV. Last year, there was obviously anemic growth in products. Can you maybe just touch on the quantum that you expect to launch over the next -- as you complete the replatforming just over the next 6 months?
Yes. I mean I think we -- kind of what we said last time, we just didn't put a number on it. But I think it -- the goal up to Christmas is probably in the 5 to 10 products range, ideally, on the top end of that range and potentially above that. I think it's worth noting that we've -- the platform work that was in the way is now almost completely out of the way. So our ability to launch products on a much more regular and accelerating basis is -- the coast is clear. And I think I referenced that. I do think it's a -- not think, we know, as you mentioned, new products are gross profit contributors from pretty much day 1, and within 3 to 4 months, they're really significantly adding value to the marketplace. So we are -- that is one of the major priorities right now and as we go through into Q1.
Good one. Okay. And echoing Ivor's comments before, congratulations, Chris, on the successful career at Redbubble and all the help since the IPO. Good luck.
Thank you very much. Appreciate it. Catch up for a beer soon.
Your last question comes from the line of Weimin Xie of MX Capital.
Just some housekeeping questions. You used to report these customer and repeat customer metrics. What was the number for the last quarter?
One more time because you're a bit -- you're a bit unclear, a bit muffled.
Sorry. Can you hear me?
Yes, better now.
You used to report these customer and repeat customer metrics. What was the number for the last quarter?
Customer and repeat -- yes, we can give you that, I think. For the group for the last quarter, the repeat customers were 487,000. That's up 25% -- 26% for the last -- from the year before. What was the other question you wanted to know about?
Just -- and the total customers.
Total customers -- total unique customers, 1.3 million.
1.3 and last question is, I look at the number of selling artists, you reported, the decline from the second quarter to third quarter seems to be quite dramatic compared to the total trend...
That's just simply -- Weimin, that's just simply seasonal. If you compare it year-on-year, it's 41% up, and that's on the -- in the release, third page -- top of third page of the release.
And that's including acquisition of the TeeRepublic (sic) [ TeePublic ], right? So was there a consolidation of the different artists or -- I'm trying to work out whether there's declines in the number of selling artists.
No, no. No decline. Year-on-year comparison is not including TeePublic. We pick up both sides of the equation, denominator and numerator.
And so the total sales is just for the Redbubble, is it?
Yes -- no, no, not just the Redbubble. This is RB Group. Slide 4 of the deck, and it's also referenced on slide -- on Page 3 of the release.Thank you. I think we're out of time, a little bit over. Thanks everybody for attending and for your questions, and we will update you again at the full year call in July. Thank you.
Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.