Redbubble Ltd

ASX:RBL

Earnings Call Transcript 2018-Q4

[Paul Gordon, Regional Counsel & Company Secretary]

Good morning, all. This is Paul Gordon, Company Secretary for Redbubble. Welcome to this teleconference for our fourth quarter results for financial year 2018.With me, I have Redbubble's CEO, Martin Hosking; CFO, Chris Nunn; and COO and CEO-designate, Barry Newstead. We released our fourth quarter results Appendix 4C to the market in an ASX announcement earlier this morning. Martin, Chris and Barry will present before we open up the floor for questions. This presentation and Q&A session are being recorded.Now 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 Q&A.Over to you, Martin.

[Martin Hosking, Co]

Thank you, Paul. This is my final investor call as Redbubble's CEO. Firstly, I want to thank all Redbubble investors for your support, commitment and understanding of the company. It has genuinely been a pleasure to engage with you over the years.I will leave Chris and Barry to provide detailed commentary, both on the quarter and the year. It is satisfying to deliver in line with our guidance and reaffirm our guidance for the next year. Clearly, the company is in an exceptionally strong position as we move into financial year 2019 with growth rates above 30%, low customer acquisition cost, solid margins, exceptional [indiscernible] performance and healthy marketplace dynamics. Next year will be a watershed year for the company as we look to deliver operating EBITDA profitability based on demonstrated momentum.Before handing over to Chris and Barry, I want to briefly reflect on the last 8 years since I took over as CEO. What I'm most proud of is that over all those years, we have pursued with uncompromising passion the mission of the company, creating the world's largest marketplace independent of others bringing more creativity into the world. We have not compromised on it to achieve financial outcomes and indeed, I would say, it has enabled these outcomes. We have put the horse before the cart.In this context, the company's success over the last 8 years is measured by the increasing total artist earnings from $1.4 million up to 2010 to over $116 million now. Surely, there will be few other companies that have provided as much support to the visual artists and designers.The success is reflected in other numbers. The numbers of selling artists is up to 700,000 from 148,000 in 2010. Gross transaction value last year was $232 million versus $4.2 million in 2010. This year, mobile represented 55% of all business and 39% of revenue, both were negligible in 2010. Delivery day time is now down to 3.2 business days versus 7-plus days, if you were lucky, in 2010. We now have 225 staff with offices in Berlin and San Francisco as well as Melbourne, up from only 12 in 2010. There are 66 products available versus 17 in 2010, and our Net Promoter Score is now best in class. The split share value is up well over 10x.I give these numbers not to celebrate the past because I see it not -- because I see absolutely no reason why the next 8-plus years cannot give -- see similar gains. Redbubble remains at the start of its journey. This follows from simple logic. There's no inherent ceiling on what is possible for Redbubble. The market opportunity is essentially unconstrained, the technology and cultural trends are all in our favor and we are in the box seat to take advantage of it.The only thing that stands in our way is our own capability, execution and ambition and continuing to seize the opportunity. Few other Australian companies have such vast horizons, and this brings me to the fundamental issue of people. When I look at the company, I see an organization with an amazing capacity. At its core, I consider Redbubble a purpose-driven technology company. Technology is at the heart of what we do but it is to serve a purpose. Our investments in innovative tech solutions from machine learning to open platforms are driving enormous gains. Barry will speak more about this, but at the highest level, I do not believe that there are any more innovative companies in our -- of our size in Australia, and indeed, few in the world. The fact that we have so successfully ridden the move to mobile, to geographic and product expansion and to social media over the last 8 years all follow from our commitment to innovation.The net result of these innovations is that Redbubble is an increasingly differentiated and compelling consumer and artist experience in all aspects. Redbubble is becoming a more important destination for more people doing more things, both consumers and artists. The competitive advantage we are opening up with this experience will only get wider as we build more competency across all these dimensions.Looking to the future, it is easy to see Redbubble as a major global brand and regular destination for vast numbers of people, the like of which Australia has not seen before.Finally, I want to comment on the culture of Redbubble. The thing that stands out is that our people are holding us to high standards. They're deeply engaged, they want the company to be authentic and they want to be part of it. If we are seen to compromise on our mission or our values, we will be held to account. For me, this is a profoundly good thing. We have a company that thrives because people wanted to.I'll continue to be involved in Redbubble as a major shareholder and as a nonexecutive director. I want to take this opportunity to thank the board for giving me their support and giving me the honor of serving as CEO. I also want to thank all employees and other stakeholders in Redbubble. It has truly been a privilege to have served you. For all the customers, thank you. I still get a [ plouson ] when I see someone with a product they have acquired from the Redbubble marketplace.And of course, I want to thank the artists. You've engaged and provoked me, you've entertained and disturbed me, you have made me think and you have made me feel. Often, you have made me laugh. Every day has been a joy to see the creativity which you bring into the world, and which you honor all of us at Redbubble by placing in our marketplace.And now I'll turn over to Chris and Barry. The company quite literally could not be in better hands. As I said when we announced Barry's appointment, he's the best person to lead the company and help realize the potential of Redbubble. As you would expect, given how long and effectively we have worked together, then the transition to him as CEO has been well received by all stakeholders and is proceeding exceptionally smoothly.Now over to you, Chris.

[Christopher P. Nunn, Chief Financial Officer]

Thank you, Martin. Today, we have reported fourth quarter and financial year 2018 unaudited results that clearly demonstrate the powerful marketplace dynamics propelling the Redbubble business. Most pleasingly, Redbubble's financial performance for the full year to 30 June delivered results in line with or slightly better than our April guidance across all key levels of the income statement.Redbubble continues to achieve sustained and high levels of top line growth, i.e., GTV and revenue, at rates above 30% on a constant-currency basis. We are seeing improving unit economics, with fourth quarter 2018 gross profit margin of 36.9% and fourth quarter 2018 GPAPA growth of 36.1%. Our improved FY '18 free cash flow outcome versus FY '17 demonstrates the increasing sustainability of the business model.Fourth quarter gross transaction value was $52.6 million, up 36.1% against the prior corresponding period. That is 34.1% on a constant-currency basis. This boosted full year '18 GTV to a total of $231.3 million and a growth rate of 32.2% compared to FY '17 on a constant-currency basis. This is in line with our guidance of delivering GTV growth rates with those achieved previously at above 30%.We maintain our belief that this kind of growth rate, and I mean at the revenue level not just GTV, is sustainable for a long period with no tangible ceiling to our addressable market. Since launching our new language sites in 2016, European markets have been a strong source of contribution to sales. Sustained growth in these regions through the fourth quarter contributed full year 2018 growth rates of 88% in Germany, 93% in Spain and 63% in France before the added beneficial effect of a stronger euro.The mobile iOS app has also continued to demonstrate its growing potential to make increasing contributions to GTV, with a 4.3% contribution for the fourth quarter, up from 3.6% in the third quarter and a 4.5% contribution in June. Monthly active users on the app is now about 240,000.FY '18 revenue was $182 million -- $182.8 million, I should say, up 29.7%, up 34% on a constant-currency basis. Absent a small year-on-year shipping timing difference, it would have been nearer 31% constant currency. Revenue growth over FY '18 continues to trend slightly lower relative to GTV due to increasing sales taxes from Europe's contribution. That is why we will focus on revenue and not GTV growth going forward.I would like to briefly digress here as I work down the income statement. I want to reiterate a change to Redbubble's financial statements that I forewarned in April, which will be brought about by the new AASB 15 accounting standard, which has come into effect from 1 July. It results in changes to how we recognize revenue. The artists' margin, which is set by them, but received by us and passed onto them, will now be included in our revenue. The required restatement of 2018 revenue when compared with 2019 results will take it up by $35.9 million or 19.7% from the $182 million -- $182.8 million to $218.7 million. This change will also increase expenses, specifically cost of sales, by the same amount. I should stress again that there is no impact on the business model, cash flows or growth rates. There's also no impact on gross profit, GPAPA, EBITDA nor ultimately NPAT, although reported gross profit margins will be affected by the grossing up of both the numerator and the denominator in those equations. We'll be updating the market as to the exact presentation of this change in the financial statements released with our Appendix 4E on the 23rd of August.FY '18 delivered gross profit of $63.9 million at a margin of 35%, in line with guidance. As the business grows and scales, we're benefiting from improving unit economics. We achieved a particularly pronounced boost to gross profit with an outstanding growth rate of 36.8% in the fourth quarter. This was driven by a healthy GP margin of 36.9%, reflecting continuing benefits of scale and better terms of trade. As negotiated fulfillment discounts take effect, the strong rebound across 4 quarters -- quarter 4 underpins our strength and confidence in future margins.Moving to the gross profit after paid acquisition line. Redbubble continues to drive improvements in this metric. We saw an increased proportion of traffic coming from unpaid or free sources, with the previous trend to paid reversing in the second half of the year. For the full year, 56.5% of GTV was sourced from unpaid channels, but for the second half, it was above 59% and for the fourth quarter, above 60%. Barry will speak further on how we're achieving continuous success in driving unpaid free traffic to generate sales results.Our paid GTV is both profitable and additive to the unpaid growth. We measure the efficiency of our paid marketing by reference to its cost as a percentage of the paid GTV it generates. Fourth quarter paid marketing efficiency was approximately 18.5% in FY 2018, slightly better than FY 2017, with an efficiency of 16.7% delivered for the whole of FY '18, which is only slightly higher than the 16.4% in FY '17. For the year, that level of paid spend efficiency represents an immediate gross profit return of 1.65x the investment.For fourth quarter 2018, total paid acquisition costs as a percentage of total revenue was 9.4% versus 9.9% in the fourth quarter of last year, reflecting the improving unpaid contribution I just mentioned. Across the whole of FY '18, which includes the bigger paid contribution in the first half, total paid acquisition costs were 9.2% of revenue, up from 8.7% last year.The business is becoming increasingly sophisticated at balancing pricing and promotions, fulfillment and shipping margins as well as marketing spend to drive increases in GPAPA dollars. We expect the improving gross margins and continued low cost and profitable customer acquisition to result in future GPAPA growth rates aligning more closely with growth in revenue.Looking to operating expenses, FY 2018 grew at 19%, which is in the range of guidance. The run rate implicit in the fourth quarter is inflated by a few factors, which we did not expect to be reflected -- which we do not expect to be reflected in the first quarter of FY '19. We experienced a lower rate of capitalized development cost than the forecast in the fourth quarter. We took up, for the first time, provisions for insurance deductibles in relation to our 2 IP claims cases. And most importantly, we made investment to generate future OpEx savings, specifically in customer service efficiencies. These items totaled around $500,000.Overall, Redbubble demonstrated the commitment to maintaining its FY '18 overall operating expenses in line with guidance, but we remain focused on making meaningful investments for growth while prudently managing to profitability.Fourth quarter 2018 saw higher growth rates in operating expenses, whereas the first quarter of FY '18 was particularly subdued. This means that we expect to report high relative year-on-year OpEx growth in the first quarter. However, that trend will stabilize through the year. Especially the total FY '19 operating expenses are expected to grow at a similar rate to that we're reporting for FY '18.In supporting that, we continue to adopt a disciplined approach to our cash. The closing cash balance at 30 June is $21.3 million. Total cash outflows for FY '18 was $6.6 million, which compares to the $14.2 million outflows for the previous year. Of this, aggregate operating and investing cash flow, commonly known as free cash flow, was an outflow of $6.9 million in FY '18, improving 48% compared to $13.3 million in FY '17, demonstrating the increasing sustainability of the business.Redbubble moves into FY '19 with strong confidence. The significant market opportunity lies ahead and the business expects to sustain robust revenue growth rates at least in line with FY '18 on a constant-currency basis. With improving unit economics, GPAPA growth rates are also expected to align closely with the rate of revenue growth. Ongoing momentum in the business has Redbubble on track to deliver FY '19 operating EBITDA profitability in the range of $2 million to $4 million, and near free -- and cash -- sorry, and cash -- free cash flow outflows not exceeding $2 million. Thank you. I'll now hand over to Barry.

[Barry Newstead, Chief Operating Officer]

Thanks, Chris. Hello, everyone. I'm excited about the immense opportunity that lies ahead for Redbubble and look forward to leading the business as we continue to our endeavor to create the world's largest marketplace for independent artists, bringing more creativity into the world.Over the past few weeks, we have been progressing smoothly with the CEO transition. I have visited our offices in San Francisco and Berlin, communicated with artists and fulfillers and engaged in conversations with Redbubble shareholders.The key messages I've heard are: there's a lot of enthusiasm for the revolutionary potential of Redbubble; there's a strong belief in the strength of our marketplace flywheel and the competitive advantage and opportunities for growth it provides; and finally, as Martin alluded to, there is a continuing commitment of our people and partners to realizing our mission, executing with discipline and building a large-scale business.Redbubble's business model is only just starting to have a disruptive impact in global retail commerce. We feel we are just starting to realize the potential of our marketplace at scale. We see our market potential expanding as we innovate to provide customers and artists with a superior value proposition that incorporates unique content and enjoyable discovery experience, quality products, timely delivery and affordable prices. As both Chris and Martin alluded to, we see no ceiling in our addressable market at any time in the near future. The transition notwithstanding, we and I remain focused on executing our strategic plan and preparing for Back to School and then the holidays later this year.Our strategic investments have accelerated the marketplace flywheel to continue to propel Redbubble. As we grow in scale, we are able to deliver differentiated user experiences for artists and customers and achieve enhanced unit economics. The major theme of our strategy is and will be building relationships. We are a powerful transactional business and this will remain the strength of the Redbubble marketplace. And over the past year, we have been beginning to build platforms that will deepen our relationships with artists and customers. We see relationships as fuel for the flywheel, and these provide opportunities for growth in coming months and years.On the customer side, we have launched the first version of personalized discovery in our newly created member homepage. This has increased homepage engagement by 4x, and has garnered very positive feedback from our members. In addition, as Chris shared, the iOS app continues to scale up representing 4.5% of sales in June. We have seen that an average app user spends more than the average web user, and the app user's first-month retention is also stronger than the web user. We have deployed improvements in e-mail marketing that have been valuable in both driving sales and building our brand story with loyal customers. All this work is validation for the potential for our customer relationship work. We are full throttle on both the experience and on encouraging users to become members to open up new value-creation opportunities.On the artist side, we have a very healthy community of artists, but we are not complacent, but because their fresh content is what powers our marketplace. We have deployed a beta version of a dashboard that helps artists with insights that will improve their results on Redbubble. The dashboard helps keep artists engaged, and is the first step in our work to deepen our relationship with the RB artist community of 700,000 people. We are currently conducting a research into the needs of the more commercially minded segment of the artist community, with a view towards enhancing our services for them in 2019. Deeper artist relationships will increase quality content on Redbubble, which will drive additional sustainable growth.Our relationships with third-party fulfillers has not been neglected. In fact, we are making good progress on building a more scalable platform to support a much larger array of products and fulfillment partners. In the last quarter, we successfully onboarded the first fulfiller onto our new fulfillment API, and we have made progress on the back-end systems that support products, including new ones, on the Redbubble platform. We have more work to do, but we are on track, and this new platform will provide returns for growth and scalability starting in 2019.It is worth noting that our supply chain and customer support teams are making really good progress in preparing for the 2018 holiday season. The commercial work to optimize pricing, promotions, volume and fulfillment and shipping margins has been and remains a key lever for GPAPA growth. As Chris mentioned, our fulfillment cost reductions negotiated earlier in the year took full effect in the fourth quarter as you can see in our margins. As we scale, we expect to generate continued improvements and we have additional savings coming into effect this quarter.Finally, you'll see that the business has had strong unpaid growth, complemented by continued efficient paid marketing. This is a product of the work that we do to make it easier for customers to discover content on Redbubble, particularly on mobile devices. It is worth noting again how strong performance in mobile has been. We achieved a 61.9% mobile GTV growth in the fourth quarter. Mobile conversion grew 18.5% year-on-year in FY '18. This is a result of our strategic focus on being mobile first for over 3 years now.We have improved discovery by investing in our data science team who generate the insights to power search results, personalized recommendations and paid marketing feeds. Our work on platform speeds and improvements in navigation have also contributed to the performance. All of this work is what helps drive the strong unpaid growth that we are experiencing.As you have heard, we delivered a robust -- we've delivered robust growth across all aspects of the marketplace in FY 2018. I am thrilled by the fact that we have delivered these results while reserving a lot of our growth investments for longer-term projects, including investments in our core platform. What you see in our results today is the fruits of earlier investing of this sort. Looking back 3 to 4 years, we committed then to growing via new products and new markets. We shifted the business towards mobile, and we invested in search, paid marketing and data science's core capability areas. These are driving the value today.We are aiming to sustain this level of performance for many years to come by focusing over multiple years on major areas for growth in the marketplace flywheel. New products, new markets, search, data science, paid marketing, platform speed and mobile are core areas we continue to leverage. Our newer themes of deeper customer relationships, deeper artist relationships, content partnerships and scalable platforms build on this prior work.We have a lot of great work happening all focused on accelerating the Redbubble marketplace flywheel. I'm confident in our strategic direction that invests in sustainable growth and are more confident than ever in our ability to execute effectively on the range of opportunities we have at hand.I want to reiterate once again our FY '19 guidance for sustained revenue growth at or above 30%; operating EBITDA profitability in the range of $2 million to $4 million, consuming less than $2 million in cash.Before finishing, I just want to take this opportunity to again thank Martin for his contribution to Redbubble as a founder and as our CEO. As his remarks show, Redbubble is a revolutionary company. We are creating a world of opportunity for artists and the entrepreneurial fulfillers, and we are adding a depth of personal meaning and humanity to global commerce. We are leading the emergence of an era of personal commerce powered by consumer demand for the personally relevant print-on-demand technologies and the sharing economy. Martin has been instrumental in our success, and I look forward to working with him for many years to come in our new capacities.I'm immensely honored and excited to serve our shareholders, artists, partners and our tremendous team to realize Redbubble's mission to bring more creativity into the world. I'm deeply committed to realizing the full potential of our mission and our business.With that, I will open it up for questions.

[Operator]

[Operator Instructions] Our first question on the line comes from Owen Humphries from Canaccord.

[Owen Humphries, Senior Industrials Analyst]

Congratulations on a very impressive result, particularly around that unpaid organic growth that are running quite nicely. Just a quick question around your new interface with your fulfillers. Obviously, there's a lot of replatforming been going on in the business. Can you just kind of chat around what this could mean to margins and geographic expansion? And when can we expect most of your 30-odd fulfillers to come onto this new platform? And maybe just outline what the medium-term strategy or the benefits of this replatforming exercise is?

[Barry Newstead, Chief Operating Officer]

Yes, sure. No worries, Owen. Hope you're well. So the -- briefly, this is a -- I mean this is a project we started the beginning of the year, and the basic -- the strategic rationale for doing the platform, which I think is what will answer your question, is we see significant -- I mean really significant opportunity for us to add more products to the Redbubble marketplace. In addition, we have seen and continue to see the potential of adding additional fulfillers into the marketplace as well. The new products drive top line growth. The additional fulfillers allow us to serve -- to obviously deliver those products and serve customers in a really time-efficient way. In addition to that, these new fulfillers also allow us to create appropriate competitiveness within the marketplace to help us retain strong fulfillment -- strong margins on our end or control fulfillment cost. So that's sort of the strategic basis on which we make the investments. Where we are right now is we're working through -- we've worked through a significant first piece of work, which is to create a new fulfillment API, which allows new fulfillers and our existing fulfillers to kind of operate on a more standardized and more scalable platform going forward. As I said, we moved 1 fulfiller onto that platform. I think that's a new fulfiller. And through the rest of this year and into next year, we will be doing the migration of the existing fulfillers with a view towards enabling new product launches next year as part of that activity as well as enabling us to continue to bring additional fulfillers onto the platform. So that will be happening over the next year to 18 months. And then beyond that, it will -- our expectation is we will be on a fully new platform, which will allow us to more readily both launch new products and add fulfillers. And I think your question had geographic expansion in there, this clearly enables -- would enable geographic expansion as well, because one of the real questions for us as we move -- if -- as we move beyond our current markets, will be the establishment of fulfillment relationships and supply chain in those additional markets.

[Owen Humphries, Senior Industrials Analyst]

Good one. And I guess a question on investors' minds, I guess, as you pass through EBITDA -- operating EBITDA and cash flow breakeven, you have this ability, given [indiscernible] are so strong and you're generating IRR greater than 70% for your paid channels, how will you -- what's the expectations around accelerating your paid marketing schedule strong growth in unpaid? Do you -- or will you -- are you guiding towards kind of operating leverage over the next couple of years? Or do you think you'll push on the paid channel given the accretive nature of that spend?

[Barry Newstead, Chief Operating Officer]

I think Chris had a comment in his remarks, which I'll just reiterate, is that I think we see we have significant opportunities to -- Martin said this as well and we all said it, and I think we have real opportunities to invest in growth in this company and I think that that's our -- that's an important priority for us is to take advantage of a high IRR, high ROI opportunities ahead of us. So I don't want to get ahead -- any further ahead than we've gone to in our guidance, but I think there's a range of places in which we think there's opportunities to invest in the business to drive future growth.

[Operator]

Our next question comes from the line of Grace Fulton from Goldman Sachs.

[Grace Fulton, Research Analyst]

I'm just wondering if you could give an update on the Content Partnerships opportunity, what sort of investment you're expecting in FY '19 and when you might be announcing a partner for it?

[Barry Newstead, Chief Operating Officer]

Yes. So I think the partnership announcements, I think, will be -- are -- first of all, this continues to be an area where we think there's real opportunity for us to build an innovative business going forward. I think as Chris alluded to in his remarks, I think we really see the significant strong revenue contribution still being a couple of years out, 2 to 3 years out. And I think I said in the last couple of calls, the real challenge in entering the space is the long sales cycles. And I think we're advancing those sales conversations, but probably a little more slowly than we would ideally like but not outside of what is reasonable for the kind of organizations that we're talking to, which are very large corporate organizations and a little bit lumbering in their decision-making process. So I just -- I can just say what we've said before is I think as soon as we have partnerships that we think are worthy of announcing to the market, we will do so.

[Grace Fulton, Research Analyst]

All right. And just one question on paid marketing efficiency. Just sort of like how your mix between Google and social media is evolving? And how you expect that paid spend to paid GTV to evolve going forward?

[Christopher P. Nunn, Chief Financial Officer]

Yes. It's evolving in a number of ways. I haven't actually got specifics in my head as to the mix between Google and social media, but there's no doubt that we're looking increasingly on social media with things which aren't so direct like using influencers to boost our sales activities. It is -- it's a very strong area of focus and as Barry said, it's one of a number of areas of focus of growth. So it's -- I don't think the mix is particularly changing. Google Shopping is still a very significant part of our activity in that space. But social media and Tweeting and experimenting with different channels is also an ongoing process that the marketing team is adopting.

[Barry Newstead, Chief Operating Officer]

Yes. And 2 things actually I'll just -- since you asked the question, 2 things that are interesting. They're both -- you mentioned the social influencer. That's an area of innovation that we're starting to scale up -- I wouldn't say scale up, actually, we're doing a little -- we're doing more work on this U.S. Back to School and we're excited to see how that progresses. It's not a huge investment overall but it's an area that we've seen some very promising early results. The other is, this is really hot off the presses, but in the last few weeks, we've started to -- Facebook's s enabled us to do some of our Facebook advertising through Facebook Messenger. And again, very small scale, but really, really good first results in there and at an efficiency we haven't really seen in social previously. So a couple areas of interesting innovation in the social space, which I think will help us continue to augment that area, and hopefully also keep the efficiency at levels that allow us to continue to be -- to have strong efficiency overall in the paid marketing arena.

[Operator]

[Operator Instructions] Our next question comes from the line of Ivor Ries from Morgans Financial.

[Ivor Ries, Senior Analyst]

Just a couple of questions, if I can ask. First is on the CapEx spend. Just triangulating between your forecast EBITDA of sort of circa $3 million and only the $2 million cash loss. I'm reading that as a big cut in your CapEx or is there something else moving in that -- in the cash flow space that explains that gap there? And also in terms of download speeds, can you just give us a bit of progress on where you are, how complete you are through the download speed improvement process?

[Christopher P. Nunn, Chief Financial Officer]

Yes. Ivor, the missing link to your logic is the working capital cycle at Redbubble, which is still very positive and you saw that reflected in the difference between EBITDA and operating cash flow in our latest 4C. I think that's what you've got to look at. I'm happy to have another conversation with you off-line in more detail, if necessary, but that's the missing link.

[Ivor Ries, Senior Analyst]

Yes. So CapEx as a percentage of revenue will remain roughly the same?

[Christopher P. Nunn, Chief Financial Officer]

Well, no. Probably not in terms of revenue because really, CapEx is a reflection of our overall operating expenses, right? So it's a reflection, I wouldn't say it's completely, but as we're talking about growing operating expenses in the same kind of level as we did this year, and we're talking about growing revenue close -- not far short of being double that, you would say no, it wouldn't be growing in the same rate.

[Ivor Ries, Senior Analyst]

Yes. Okay. And just on the download speeds, I know that that's still a work in progress, how much further have you got to go on that?

[Barry Newstead, Chief Operating Officer]

Yes. Well, I usually would have it as I answered and you tell me what the speed you got on your downloads are, but we -- I think the main thing that we've extended towards is the search result pages have now -- the work on the search result pages have now been extended to the other 3 languages, so that's probably the main progress there in the last quarter. I think the -- we're going to be working through the next phase, which is what we call the product pages. In general, we're -- I think we're -- as I think I alluded to, we're definitely feeling that the speed of the site is helping us -- helping the unpaid, helping our -- and definitely helping the mobile. But I think we still have some additional distance to travel on that, that zone. And actually, there's a whole bunch of other things which we do sort of quietly in the background, which are improvements that are just ongoing just to fine-tune our platform and on things like serving images and so on and so forth. So a bit of a roundabout answer.

[Ivor Ries, Senior Analyst]

That's fantastic. And if I may be so rude as to but in with one final question on the IP claims. You've mentioned there you've taken up a provision. I'm not exactly sure what you mean by that, whether that's -- you've raised the provision against P&L that has reduced your profit for insurance deductible for potential IP claims, or whether you've drawn down a provision and boosted profit. What -- how should we read that?

[Christopher P. Nunn, Chief Financial Officer]

Yes. So first of all, not potential IP claims. These are the ones that have been public since the prospectus was issued, Ivor, so for 2 claims, Pokémon and Hells Angels. We have always said that the consequence of our -- on our financial will be relatively immaterial, and they are. It's just that we -- relevant to growth rates on a quarter-by-quarter basis, they're sort of relevant but they're not really material. We had a policy in place in relation to the business when the claims were first made that potentially covered even the cost of the deductible, and we thought that was the case. It turns out that there's some doubt about whether, in fact, the overall policy does cover the deductible cost. So we're looking further into that but we've taken the provision on the likely chance that we'll have to wear that -- those deductible costs going in the future.

[Barry Newstead, Chief Operating Officer]

It's worth noting that I don't think this -- this doesn't reflect at all our view of the potential outcomes of the case. This is a purely accounting...

[Christopher P. Nunn, Chief Financial Officer]

No, nothing to do with the outcomes of the case. It's purely to do with the amount which is the deductible on the main insurance policy. We have another policy that covered even that deductible. It turns out that there's some debate in the wording. And it's about -- it's all about the law and the wording of the contract, which says maybe we haven't, so we've taken the prudent but probably advisable decision to provide for it.

[Ivor Ries, Senior Analyst]

Right. So we're talking about a couple of hundred grand or something like that?

[Christopher P. Nunn, Chief Financial Officer]

In U.S. dollars, exactly that.

[Operator]

Our next question comes from the line of Stella Wang.

[Stella Wang, Analyst]

I have 2 follow-up questions. One is to the IP claims. So where are we at with the 2 cases in terms of the final result?

[Paul Gordon, Regional Counsel & Company Secretary]

Paul Gordon here, Company Secretary, Stella. At the moment, we are waiting for the judgment in the Hells Angels proceeding. That -- the hearing was late September last year, and we're still waiting for their judgment. We have appealed, and has publicly appealed the filing on the Pokémon claim. That appeal hearing will be after the Hells Angel's judgment.

[Stella Wang, Analyst]

Okay. A second follow-up is to Owen's first question in terms of with the new platform in place, how would that help launching of new products in the next financial year and future financial year? And how should we expect the margin of those new products compared to your current existing products? Do you have a number of how many new products launching you are thinking of for this coming financial year?

[Paul Gordon, Regional Counsel & Company Secretary]

I think the first part of the question, Stella, was addressed to an earlier question from one of the analysts. So I'm suggesting Barry will just -- he can talk to you offline, Stella, to do that but otherwise, Barry can address the second part of the question.

[Barry Newstead, Chief Operating Officer]

Yes. So I think we'll have at least 2 products launched between now and Christmas is the current plan. And then I'm going to hold off on answering what we'll do in the second half. I want us to -- the priority right now is to advance the platform work. The current goal is for the platform work to release to enable us to do -- to start launching additional products in the second half of FY '19. But I don't want to get too specific on that because I want to -- I'll commit to a number on that when we feel like the platform work is done or sufficiently progressed that we are starting to launch those products. I do expect in FY 2020 that we will -- that'll be a much more central conversation a year from now, certainly. In terms of margin, again, it's probably a bit speculative. We -- historically, the margins of our products are -- have historically been in similar ranges to each other. We typically -- it's typically part of the criteria set for selecting products.

[Stella Wang, Analyst]

So should I interpret that as a bit early to say but obviously, aim at to seeing the higher-margin products launched?

[Barry Newstead, Chief Operating Officer]

We -- I think it's reasonable to say that if you're trying to assess the value of future products, I think a reasonable starting point is the existing aggregate margin. I think some products may be higher margin -- slightly higher margin, some products might be slightly lower margin. But in general, we think that we're aiming towards the ability to sustain or over time, improve margins. An important criteria, by the way, is the flywheel potential of products. So it's also us thinking about what's the potential of that to get to significant volume so that over time, we could get both the ability to localize into more geographies for that product but also then over time, our ability to extract additional margin from those products. So there's also a question of not just at the beginning, but actually over time, what that potential is.

[Stella Wang, Analyst]

Okay. Next question is we talked about capitalized development cost. That kind of reflects the trend of OpEx. Should I expect the increase in that line about -- grow about the same speed as the OpEx -- the OpEx, excluding paid marketing?

[Christopher P. Nunn, Chief Financial Officer]

Sorry, I think I'd have to ask that question. I didn't actually hear the first part of the question. Could you repeat [indiscernible?

[Stella Wang, Analyst]

I'm sorry. I'll repeat that. Should we expect the growth of the capitalized development cost in line with the growth of the OpEx, excluding paid marketing?

[Christopher P. Nunn, Chief Financial Officer]

Yes, I would say that's a good proxy.

[Stella Wang, Analyst]

Okay. Fair enough. Last question, sorry for being a bit cheeky. Last question, so looking at your projection for financial year '19, should I expect the GPAPA about the same margin as this half year, that's about 26.5%?

[Christopher P. Nunn, Chief Financial Officer]

Well, as I said, the expectation is for the margin at the GPAPA level to be similar to the margin at the revenue -- sorry, not the margin, the growth rate in the GPAPA to be similar to the growth rate in revenues. So at this point, that would need to see a bit of an uptick in that from the current number. So I think the current quarter was 27.6% margin GPAPA. We'd expect that to lifting slightly.

[Operator]

Our next question comes from the line of Robert Bruce from Acorn.

[Robert Bruce]

Just firstly like to thank Martin for your vision and success in building such a great business. And I think you leave it in very capable hands with Barry, Chris and the rest of the crew. So thanks, Martin. I just had a broad question on that success in unpaid growth. Is there much of that coming from the fact that the iOS app has launched, and most of that traffic is coming in as unpaid because there's a lot of repeat business of frequent users on the -- repeat business users on the app? And secondly, where -- obviously, unpaid customers grew quite strongly. Where do you think that could get to as a percentage of the total going forward if you take your plans going forward for the next year or 2 or 3?

[Martin Hosking, Co]

I think -- first of all, I do think on the first part of the question, that that is a real benefit of the iOS app, right. This is just a -- it largely is a -- is -- obviously, we have maintained and developed it but in terms of the -- we're largely drawing people from unpaid channels and then they become our repeating customers. And I didn't mention it in my notes, but clearly, one of the things that we've turned on in the last half was push notifications and we've seen really good response rates, so the push notifications, which is a kind of extension of e-mail into the app world. So I think that is a contributor and we expect that to be a continued contributor and obviously, a growing contributor. So it -- I think that's probably August. To the second part of your question, I think I probably won't give an answer because I think that there's a -- right now, I don't think -- right now, we're comfortable with the place of our app. But it's really about the complementarity of 2 sources of sales, right: the unpaid, the free sources; and the paid. And I wouldn't forecast which ones are going to be -- what the percentage rates are those going to be because I think the dynamics can change in both ways, all of which could be positive, right? I mean, it could be positive that we find new ways to market the business and acquiring new customers through the -- through pay channels and turn them into loyal customers, and that might show certain outcome for a certain period of time. So what I will say is I think that the continued focus of Redbubble is that portfolio, and what I said in my notes is the real future potential of deeper relationships with customers, which I guess comes back to the comment about the app. The real [ spree ] opportunity, if you will, is to actually have more and more customers more deeply engaged with Redbubble and coming back to Redbubble on a more regular basis and buying on a more regular basis. I think that's probably the opportunity that would shift the relationship most significantly.

[Barry Newstead, Chief Operating Officer]

Yes, and I'd add if I could to that, I don't really see them being separate channels, in a sense. I mean, we get -- I'm sure the marketing team would tell me that -- I mean look what they do on the paid marketing is actually helping the unpaid stuff as well, and there's no doubt that's absolutely true. It's the -- and there's the brand element that -- which does not charge to paid marketing, that's having impact as well, to the bunch of things that go on to help the unpaid, and that will continue.

[Robert Bruce]

Great, okay. Just a couple of quick questions for Chris onto some of the financials. Just your forecast 30% constant-currency growth for FY '19, what is the -- sort of the main FX rates average for FY '18 you're using? And just give us an idea of where we're sitting versus current rates?

[Christopher P. Nunn, Chief Financial Officer]

Well, that's deliberately why I stated constant-currency number, Rob, because I can't be held accountable, nor can the business really, if the currency go the wrong way for us. At the moment, we're getting a massive tailwind. Currently, as we speak, I think each of the 3 major currencies we sell in are about 7% stronger than they were this time last year. We don't look at it that way. That's having probably a nice benefit but it also affects the cost side. So we always quote a constant-currency number, to answer your question.

[Robert Bruce]

Okay, yes. No, that's fine. No, I do too; it's out of your control, just nice to know occasionally. Secondly, I think, Chris, you've always sort of flagged that the GP margin would revert back down to lower levels, I think, 35% or thereabouts, maybe even slightly more conservative. With that very strong performance in the fourth quarter, would you now look to revise that to a slightly higher sustainable number?

[Christopher P. Nunn, Chief Financial Officer]

Well, yes. And just to clarify, the 35% was really because we had a -- we were affected over the Christmas period by some backlog in shipping and also weather events, which caused a short-term effect on that quarter's GP margin. Therefore, the fourth quarter only took our full year number to 35%. I think our fourth quarter is more representative of our ongoing ability to deliver a margin than the full year results of FY '18. I think that answers your question.

[Operator]

[Operator Instructions] All right. There are no further questions on the line at this time.

[Paul Gordon, Regional Counsel & Company Secretary]

Great. Well, thank you, everybody, and thank you, Martin, once again. And we will -- our next release will be on August 23, 4E.

[Christopher P. Nunn, Chief Financial Officer]

Well, there'll be no -- there shouldn't -- hopefully, there'll be more new financial information…

[Paul Gordon, Regional Counsel & Company Secretary]

At that stage, yes.

[Barry Newstead, Chief Operating Officer]

And thank you, everyone.

[Paul Gordon, Regional Counsel & Company Secretary]

Thank you. Have a good rest of the day.

[Operator]

Ladies and gentlemen, that does conclude our conference for today. Thank you for your attendance. You may all disconnect.