Redbubble Ltd

ASX:RBL

Earnings Call Transcript 2019-Q4

[Operator]

Thank you for standing by, and welcome to the Redbubble Limited Fourth Quarter Results and Appendix 4C Conference Call. [Operator Instructions]I would now like to hand the conference over to Mr. Paul Gordon, Company Secretary. Please go ahead.

[Paul Gordon, Regional Counsel & Company Secretary (Australia)]

Good morning, everyone. This is Paul Gordon, Company Secretary for Redbubble. Welcome to this teleconference following the release of our fourth quarter results for financial year 2019. With me, I have Redbubble's CEO, Barry Newstead; and CFO, Emma Clark. Today, we are providing an update to the market for our final quarter of FY '19 and snapshot of the full financial year 30 June 2019.The key information is on the 4C filing, ASX release and supporting presentation titled FY 2019 Full Year Update, which we released to the market earlier this morning along with a refreshed general investor presentation. Please note, the results and figures are from internal management reports and have not been subject to audit.Barry and Emma will now present referring to the supporting presentation viewable via the webcast, then we will open up the floor for questions.Now we're webcasting slides for the first time on one of these calls. You might experience a bit of a delay between the slides flicking over. Bear with us on that.As mentioned, this presentation and Q&A session are being recorded.Now before we start, I would like to call your attention to the safe harbor statements regarding forward-looking information in the ASX release accompanying our results. That safe harbor statement also applies to this call and the Q&A.Now, I will pass to Redbubble's CEO, Barry Newstead.

[Barry Newstead, MD, CEO & Director]

Hi, everyone. I'm proud to share that in FY 2019, the Redbubble Group achieved an important milestone. We delivered our first positive operating EBITDA since IPO in the amount of $3.8 million, and we did so without compromising on strategic investments for the long term. We achieved group revenue growth of 41%, powered by the acquisition of TeePublic and the resilience of Redbubble. Underneath the seemingly slow growth of Redbubble, our real strength is in key areas that will secure future prospects.The business is generating high take rates with strong gross margins and continued low marketing costs. Operating expense growth has slowed as management has increased cost discipline, focused on productivity and growth investing. This is a strong result that demonstrates our execution capabilities and our future potential. Emma will dig into the financials in a moment. The group continues to invest in strategic opportunities, and these are paying off. Let me briefly review the progress.We are investing in the artist experience and in managing the downside risks of user-generated content. While the risk mitigation work has had some temporary impact on revenue growth, it has helped authentic sellers on Redbubble come to the fore. Revenue from this core segment grew a very robust 39% in FY '19. This community is very healthy.Investments in the membership program on Redbubble are delivering real outcomes, reaching 29% of revenue, with 109% year-on-year growth. The Redbubble iOS app continues to thrive, representing 8% of Marketplace revenue in Q4, and our Android app is currently under development.During Q4, the Redbubble brand has hit an inflection point with a surge in brand-based channel growth that has served to lower our marketing costs. The fan art business is starting to emerge. Content partners are onboarding their brand onto both platforms, that is Redbubble and TeePublic. A year ago, we were actively seeking our first major partnership. Now, we have a backlog of deals we are working hard to onboard pre-holidays. We have launched 48 brands and the licensed content library has grown from a negligible amount a year ago to 350,000. These partnerships position Redbubble and TeePublic to extend our advantage as the home for the best and most diverse artistic content and to provide truly innovative fan art experiences for artists, partners and customers alike.New products have been a major driver of prior growth, and as promised, Redbubble had launched 7 products in the past 11 weeks, including 5 during Q4. Both brands have additional product launches planned before the holidays.The performance of TeePublic cannot be understated. This is a great business that has a ton of potential and has a strong team. It is integrated well and there are meaningful benefits being realized. We also saw an acceleration of its already strong growth rate during Q4.Before handing over to Emma, I'd briefly like to mention our leadership changes. As part of my first year as CEO, it was a priority to ensure that we have the leadership in place for the next phase. We have promoted 5 people to the executive team from within and added Emma as our CFO. We have retained key leadership at TeePublic and added key talent there. One of the defining characteristics of businesses that are built to last is that they develop talent from within and always ensure they have the right people on the bus. The team that leads the Redbubble Group has a proven track record and a clear vision for what it is going to take to realize the opportunities ahead of us. This is a business with real momentum and huge potential.I'll now hand it over to Emma before I come back and talk a bit more about the strategic direction. Emma?

[Emma Clark, Chief Financial Officer]

Thank you, Barry. So having joined only a couple of months ago, my initial observation is that it's a great time to have joined. The group's financial fundamentals are strong and there are key growth areas that Barry will outline later, which are great opportunities that will power the business in the future.I'm really pleased that we have achieved our first positive operating EBITDA since IPO. This is an important milestone that we have been very focused on delivering. This result was achieved based on solid fundamentals and is sustainable. As a result of this, our operating EBITDA margin has gone from negative 8% to positive 1.1%. It's important to note that as we only had 8 months of TeePublic in FY '19, we will have a head start in FY '20 as we'll get the full 12 months of their top line and earnings contribution.In addition to healthy Marketplace revenue growth, we also had strength in gross margins, growing at a faster rate even than our Marketplace revenue. This has been driven by leveraging scale and localization benefits in our fulfillment network, plus some shipping and pricing optimization which has increased the group's effective take rate.With the acquisition of TeePublic, we are an increasingly global business and more and more of our revenue is sourced in currencies other than Australian dollars. As such, the P&L results that you see here are affected by fluctuations in foreign exchange. For FY '19, this was a tailwind of approximately 7% on revenue with an offsetting 5% headwind impact in expenses, creating a natural hedge. Pleasingly, we also had a very large free cash flow improvement from negative $7.8 million in the prior period to negative $3.1 million in the current period, with operating cash flow now positive for the group, and this can be seen in the actual 4C filing.Looking at our growth by brand. We actually have both brands continuing to grow. The Redbubble growth is powered by continued growth in customers with more engaged repeat customers, accelerating membership base and improved mobile experience. In the third quarter update, we did note that the fourth quarter of 2018 and the first quarter of 2019 saw Redbubble's organic search accelerating rapidly, so growth rates based on these comparables were tough in quarter 4 and are expected to continue being tough through to the end of September 2019. However, it is important to note that Redbubble has a sustained track record of successful growth even through major shifts in the business over our 12 years of existence, and management is very focused on ensuring the business remains focused on growth initiatives.TeePublic has proven to be an outstanding contributor to the group with growth accelerating even in the short time that we have owned them, and their overall growth profile is meeting our acquisition expectations. We intend on coming back next quarter, which would mark the 1-year anniversary post the acquisition, to discuss the outcomes and synergies delivered in more detail and this will give everybody a really good sense of the TeePublic performance.I did want to briefly mention a couple of other financial items that we are considering at this time. We are reviewing the deferred tax asset balance of $13.9 million, which sits on the group's balance sheet. Redbubble has significant unbooked losses of approximately $30 million, all of which will need to be taken up before those on the balance sheet could be utilized. I am taking a conservative view and expect that we will be writing these off. This will also make our treatment of tax losses over time consistent.As we look ahead to the longer-term potential of the group, we believe that the company is significantly undervalued compared to the likes of Etsy. This has become even more profound with the spate of recent listings in the U.S. such as REVOLVE, Farfetch, The RealReal and Fiverr. These are online marketplaces and e-commerce players which command significant multiples compared to the Redbubble Group. One of the ways we will address this gap is we plan to launch an ADR program, and we will provide details on that in due course.If we go to our economies of scale, FY '19 demonstrated the powerful economies of scales that are emerging. We are generating notable operating leverage even at the current size. We've continued to increase our effective take rates sustainably over the years.For operating expenses, our operating expenses as a percentage of Marketplace revenue are declining as, Barry said earlier, previous management investments in automation pay off and the cost base is optimized. It is important to note that most of our OpEx growth in FY '19 came from the addition of TeePublic. Redbubble's operating expenses only grew by 12% in 2019 and our 48% of gross profit growth is outpacing our growth of 34% in OpEx, including paid acquisition during the year. In the fourth quarter, this was even more pronounced with a 49% growth in gross profit compared with only a 19% growth in our expense base, which shows that management is also continuing to exercise cash discipline.As I mentioned earlier, we have a positive operating cash flow of $5.5 million in FY '19, and both Redbubble and TeePublic are operating cash flow positive for the year. We will continue to grow with a prudent and disciplined mindset.Moving on to the operational metrics for FY '19. The most important thing to state about these sets of data is that all metrics for all 3 sides of the Marketplace remain very, very healthy. We have a growing content library and many more selling artists, which is ensuring more enriching content on the platform and contributing to a substantial competitive moat. We also have our iOS app helping propel mobile growth. This shows no sign of slowing and will be further assisted by the launch of the Android app, which is currently under development.Pleasingly, we had strong growth in repeat sales of 36% in financial year '19, and this is now contributing 40% to the group's revenues. This is a direct result of our strategy around engagement, loyalty and our strengthening brand. Our membership base is growing strongly with 5.7 million active members in FY '19. And in addition to that, the revenue for each active member continues to grow.We have high NPS scores. This show that customers are really loving their experience across both brands. And generally, any NPS score of 50 or above is considered to be excellent. It's important once again to note that this was achieved even as we improved our gross profit margins during the period.Our marketing spend had been utilized efficiently and with 10.5% of our Marketplace revenue. This percentage remains well below many of our peers. I reference this metric because assessing marketing spend as a percentage of Marketplace revenue provides a more holistic view across all of our channels as the network of consumer touch point become increasingly interwoven and intricate.We continue to manage marketing spend prudently while still maximizing growth opportunities. This is demonstrated by the fact that our marketing spend was only 9.7% of our revenue in the fourth quarter. As Barry mentioned at the start of the presentation, Redbubble's brand is starting to become more mainstream and we are shifting a lot of our paid mix towards lower cost brand-associated channels.Our overall efficiency within our paid channels remains stable. TeePublic continued to generate profitable paid search growth with exceptional results in Google Shopping as that channel starts to scale.As I currently see it, we have a clear line of sight to sustained growth on TeePublic and a return to healthy growth rates in Redbubble. Our current economics demonstrate that this growth can be achieved profitably.Due to historical quarterly movements, we are no longer providing specific short-term financial guidance as the group continues to be focused on the multiyear delivery of our broader ambition. Barry will now discuss this in more detail. Thank you.

[Barry Newstead, MD, CEO & Director]

Thanks, Emma.Redbubble and TeePublic are still in the early years, and we see a revolution in retail commerce that will open up a large market opportunity. Our vision is to connect authentic artists and content partners with millions of loyal customers, enabling personalized adventures and creativity.This revolution is powered by 3 forces that have been building in retail commerce. First, the gig economy that has brought hundreds of thousands of artists to Redbubble and TeePublic to monetize their artistic content with no financial risk or operational hassle. Second, on-demand technologies that allow us to leverage our huge longtail content library to make and deliver personalized quality, affordable products at the same standard as traditional retail. And finally, global consumers who want more personal retail experience that enables self-expression rather than mass-market sameness. We are a much bigger market play than most people appreciate. The Marketplace model extend into a wide array of consumer product markets. We can access these markets as we scale up, build our brand and consumers realize that they don't need to compromise on personalization, quality, speed and affordability. We deliver a great experience that is differentiated and becoming more so.We are uniquely positioned to win as we are a flywheel business that is hard to replicate. Our strategy aims to solidify this advantage.First, we are the artist and content leader that is a magnet for authentic artists. The 24 million-strong back catalog of art is evergreen, generating long-running value at a tiny cost to maintain. Artists continue to join and upload at really no cost of acquisition. The group is the most attractive place for no hassle monetization.In the near term, the offering for artists will only get more attractive as we roll out new services, including promotional tools, art theft prevention and value-added marketing offers for high-potential artists to better manage their businesses. For content partners, Redbubble and TeePublic present a new way to engage fans and involve the merch business in partnership with artists. We are working with them to create a truly scalable way to manage thousands of brands and ultimately license and market millions of content units on a global level. This will extend our content advantage.Second, we have a diverse product catalog that multiplies the value of an artwork. This is what makes new products so attractive in the Marketplace as we instantly create a massive personalized catalog for each product we launch. We will launch many more products in the coming years on both platforms to build category leadership.Our supply advantage is solidified by the fulfillment and operational capabilities we've built over a decade. Our third-party network can make and deliver any of over 90 products to a North American or European customer in 3 to 5 business days with standard shipping. As Emma shared, our supply economics continue to improve as the business reaches scale. The supply side is our essential moat. We are doing this with exceptional and deep content, and going forward, with the ability to professionally run this content -- to professionally turn this content into hundreds of monetizable products via a global supply chain that delivers a truly great customer experience.This brings us to the customer side of our strategy. For customers, content is king and Redbubble and TeePublic continues to have the best content. The business is deepening relationship with customers to enrich the experience. Customers are flocking to Redbubble's iOS app and are signing up as members at rapid rates. This allows us to provide customers with a more deeply personalized experience with improved recommendations, personalized service, enhanced merchandising, human connection to artists, and of course, an Android app which is coming soon. We will expand TeePublic into new markets and progressively build out the member experiences that are proving so valuable on Redbubble.Fourth and finally, Redbubble and TeePublic continue to generate a lot of inbound organic traffic -- and -- organic and social traffic, which keeps our marketing costs low. The group has well-established paid search capabilities which provide for profitable growth. What is emerging now is a powerful shift towards brand and content-based marketing partnerships that are enabling new sources of growth. We have the potential to take our brands to scale by partnering with people who love our content, our artists, our customers, our partners and influencers. This is starting to happen now. In Q4, theme-based influencer campaigns such as Pride and Asteroid Day featured unique content and helped extend Redbubble's brand to new audiences. Fan art is widening our reach as artists, partners, affiliates and influencers share this amazing licensed content with huge audiences for brands like Rick and Morty, Star Trek and BILLIONS. Our referral programs and brand ambassadorships have loyal customers extend the brands by rewarding word-of-mouth. And finally, we are seeing organic growth of the brands into youth-focused social media, especially Snapchat and TikTok, allowing for new avenues of low-cost acquisition. Out of nowhere, Redbubble-tagged videos on TikTok have been viewed over 4.4 million times as of yesterday.As we look forward, there is an opportunity to reach -- to really scale up the brands and new customer acquisition at low costs. And as customer LTV grows for membership and app penetration, this will create additional marketing avenues.Our business is a flywheel, so our moat gets stronger as each strategic initiative reinforces the system. Competitors face a daunting investment challenge to try and reach a similar scale.Beyond the current growth priorities, we see an opportunity to take on wider retail and wholesale business areas as listed on the Slide #10. Redbubble and TeePublic have a long and profitable growth investment runway ahead of us, and we are building for this opportunity.Let me conclude with a summary on Slide 11, which you may or may not be able to see, given the performance of the webcast. This summarizes the formidable business that we are and the fact that we have this -- we have some of the -- all the advantages that some of the best marketplaces on earth have. We have a team that knows what it takes to win. And now that we've reached the profitability goal, our next milestone is to go to $1 billion in sales. This is very much within our grasp.Thank you. And we'll now open the floor to questions.

[Operator]

[Operator Instructions] Your first question comes from Grace Fulton, Goldman Sachs.

[Grace Fulton, Research Analyst]

I'd just like to cover off on the algorithm impact first. So if possible, could you please let us know what the paid and unpaid Marketplace revenue growth rates were for Redbubble and TeePublic in the fourth quarter? And was organic search negative for either Marketplace in the quarter?

[Barry Newstead, MD, CEO & Director]

Do you want to take that or do you want me to take it? So obviously, we've had conversations previously about the performance of the organic search area, and I think the summary point is that the position is very much stabilized. We haven't really seen much increase in -- to this point year-on-year, noting that the comps from last year remain really -- very tough. So I think that's the sort of first point on that.As it relates to the paid and unpaid splits, we're -- I'm not going to try and hide behind it, but we're -- we've adjusted how we look at this over the last period of time, and that's not because of -- we're going to hide, but actually, as Emma alluded to, this is becoming increasingly interwoven. And as we went through the second half of the year, what we started to see happening was as the brand was getting strong, we saw customers were touching multiple channels as they came through their experiences, first and foremost. And then secondly, we made some adjustments to our attribution model, which make prior -- which are really important to ensure that we are spending our money really effectively. So we do have, what's called, last click paid and unpaid splits, which are -- which, for FY '19, were 68% unpaid and 32% paid, as compared to FY '18, which was 72% versus 28%. But I think that the simplicity of looking at the business just from an organic search growth or a paid search growth, I think it's no longer really all that illuminating because of the strength in other channels, and in particular, in recent times, the strength in the direct channel and the strength in brand-based search, brand and paid search, which have really come on and actually kind of muddied the waters in that sort of traditional view.

[Emma Clark, Chief Financial Officer]

So Grace, I'm aware that the numbers that Barry just quoted for you will be potentially different than we -- on a different basis than we've talked about in prior calls. So they're on a last click basis, which we do have over a more historical period, and don't take into consideration internal changes in making that attribution model. And you can see from the numbers you quoted there, we've basically got a 4% swing from unpaid to paid, so not incredibly dramatic by any sense.

[Barry Newstead, MD, CEO & Director]

I also think what's important, Emma had talked about this, is that we really -- like a lot of other marketplaces, I think what's most critical is are we able to acquire customers at reasonably low cost? I think, again, as Emma said, we are able to acquire customers at lower cost than a lot of our marketplace peers. And then are we turning them into loyal customers? And I think that's the second point. As you see in the numbers, the performance of members and app users are really critical drivers of that. And again, that also muddied the waters in that old transactional view because a lot of those users are coming back through different channels than we would have seen 12, 18, 24 months ago.

[Emma Clark, Chief Financial Officer]

And this came back to the fact that, I quoted Marketplace -- marketing costs a percent of Marketplace revenue. And I'm going to continue to do that because I think that's actually the appropriate way because customers have multiple touch points to assess our overall level of marketing spend and to make sure that we continue to profitably grow.

[Grace Fulton, Research Analyst]

Okay. Next question. Just the long-term milestone you've quoted of $1 billion in sales, can you just clarify whether that is gross transaction value or Marketplace revenue? And can it be any more sort of narrowed down the time frame that you're looking at that over?

[Barry Newstead, MD, CEO & Director]

No, on the second part of the question. And I think, in general, we're really setting it as an aspirational target. I think we've started -- we can start with -- we're going to get there first on gross transactional value. So that's the first metric that we want to look at. And clearly, we view it as a milestone. We feel like we're going to go long -- we have a long road beyond that as well. But I think we wanted to give it an indication of the continued confidence we have in the potential of this business.

[Emma Clark, Chief Financial Officer]

Yes. And the scale that we think we can achieve.

[Grace Fulton, Research Analyst]

Yes. Okay. Also, in the slides, you referred to a number of potential growth options that included nonorganic acquisitions, retail opportunity, Asia expansion. Could you please just sort of dive a bit more detail on each of them and just like the potential CapEx and OpEx investment that you'll need to achieve them?

[Barry Newstead, MD, CEO & Director]

Yes. So I think the latter part, I think it's premature to kind of talk to, CapEx and OpEx. I think, really, the point here is to say that we have -- we laid out -- we've laid out a strategy on Page 9, which were the 4 things we're focused on within the existing marketplaces. And what we will explore is, and certainly with artist services, it's -- we have -- it's actually 1 million artists on our platforms, and there's real opportunities for us to think about how we provide them with additional services, obviously, to help them sell more in our marketplace, also to make it easier for them to create quality content. So I think that there's opportunities there, some of which will be readily monetizable. Wholesale on-demand is really starting to think about the fact that there actually are people currently using our marketplaces as a wholesale. So they are going on and selling Redbubble and TeePublic content, whether in physical retail or in our other online places. We've started to explore -- actually, more than explore, we started to create for them the ability to do things like bulk order, do test prints and so on and so forth. So we've the opportunity to kind of open up a wholesale business. That -- I think that's an opportunity that's organic. Over time, if we -- as we see that develop, the main thing that we want to think about there is what the fulfillment model is to support wholesale. So I think that's the second one. Asia expansion, I think it's reasonably self-explanatory, and we continue to sort of see that in the 3- to 5-year time horizon. Selective white labeling is, there is some interesting opportunities with certain artists and also with some fan art partners to take our content to environments that may be branded differently, in which we may run e-commerce stores for those parties, leveraging the content, the Redbubble content, as well as the fulfillment capabilities. Retail footprint is reasonably self-explanatory. We are in very early days of thinking about how might the core capabilities, again, this incredible content we have, how might that allow us to actually expand into a wider retail footprint. We get incredible data on what is popular, what is not just popular short term, but actually what has an evergreen lifestyle. And we think that will allow us to conceivably use our model in an off-line retail environment.And just, finally, disciplined inorganic pursuit is really just that. TeePublic is, obviously, a great example of what a high-quality acquisition can do to accelerate a business' growth and the synergy potential that comes from it. So I think, obviously, as we go forward, if there are opportunities of that nature, we will look at them closely.

[Grace Fulton, Research Analyst]

Okay. And just on the gross margin, so the 36.8% for the year is a good solid outcome. Just sort of interested in your thoughts on the sustainability or any further opportunities from here. And also just looking at the fourth quarter, that's often been a seasonally stronger quarter. So the strength this quarter is still seasonal or is there anything to pull forward into FY '20?

[Emma Clark, Chief Financial Officer]

I have pretty strong confidence in the fact that those gross margins will continue to power along. In fact, in FY '19, there were lots of optimization initiatives that were undertaken in the fulfillment part of our business, which only actually were included for a couple of months of FY '19, and we'll get the full benefit of those through FY '20. So I would definitely consider that our margins will continue to remain strong based on our current trajectory.

[Barry Newstead, MD, CEO & Director]

Yes, and just say, going back in time, when we were sitting on 31%, 32% margins, people were saying what's -- this looks like a cap on your margins, and I think that, as we said all along, as this business scales, it has the ability to improve its margins, and so we don't see that stopping. We are not a -- we're have less than 1% of the market that we have available to us. So I think, over time, we'll continue to see that opportunity to grow.

[Operator]

Your next question comes from Owen Humphries, Canaccord Genuity.

[Owen Humphries, Senior Industrials Analyst]

Well done on the results, particularly the positive operating leverage that came through. Just wanted to touch on that first up one, you mentioned early in the call around that authentic artist growth of, call it, 39% in the core Redbubble business. I noticed that, that compares to, call it, 11% growth -- revenue growth for the year. So it looks like the nonauthentic part was a major, major drag on your revenue growth in the past 12 months. Can you maybe just provide a bit more color on how long will that drag last for? Obviously, if that 24% or 25% of that -- of the nonauthentic revenue wasn't there, your business would be powering along. So just maybe talk a bit about how you're looking at that strategy.

[Barry Newstead, MD, CEO & Director]

So I think it's a very important number, as I've said, and it's also important because it's very much part of our strategy in the medium to long term, and as I said, it's also part of what we've been trying to do to mitigate risk on the platform.I think the -- I mean I'm not going to dive -- I think we're probably -- currently, the cycle is a 12-month cycle, so the question is at what point that sort of cycles through. I'm not going to kind of get too micro on it, but I think we're going to find ourselves moving beyond that. We'll find ourselves moving beyond that sort of reducing revenue from that "inauthentic artist". So I think it's a little -- it's a bit more of a hodgepodge of things in that last category, certainly, as we look to 12, 24, 36 months out, if not sooner. It's already -- 75% of what we sell is authentic artists and we've also got the emergence of the licensed part, which still is not a significant amount. But as we get to Christmas and into 2020, will start to be a real contributor.

[Owen Humphries, Senior Industrials Analyst]

And I guess a follow-on from Grace's question. The incremental gross profit margin in that last quarter seemed super strong, like in the 50% odd. Can you maybe -- like where do you expect this to normalize going forward? I know you've kind of touched on it, you expect to power along with 38%. Looks like you guys can power through to kind of mid-40%. Is that something that's achievable midterm?

[Emma Clark, Chief Financial Officer]

Probably wouldn't go quite that high. I think it will continue to power along. And as I said, I think we will get some benefits from the full 12 months of the current initiatives in the pipeline, but mid-40s might be just a tad high, Owen.

[Owen Humphries, Senior Industrials Analyst]

And just on synergies. Obviously, part of the acquisition, there was going to be some synergy benefits. We're clearly seeing that in some of your line items. Is there more to come? Like, is there -- have you done the hard yards in the integration of the acquisition? Or is it -- is there still more to come across all lines of business?

[Barry Newstead, MD, CEO & Director]

I think we'll find that the -- a good monitor -- I mean really -- somewhere what, we're 8 months in -- 9 months in now. I think we've been able to capture quite a lot of fulfillment and also margin benefits. Clearly, the scale of the business, particularly in the U.S., will give us the continued opportunity as we grow, as a bigger base. The next set of opportunities are really going to start to be about how do we cross-pollinate, particularly content. I think that's a real opportunity. We've started to onboard top artists across the platforms so that, that just allows us to broaden the footprint of that really high-quality content. I think that's just beginning. And the other thing that's just beginning is to really leverage the content partnerships across both platforms. So I feel like that -- those are progressively getting harder, but also I don't think they get -- like we're not down to sort of small, mini-mite opportunities. I think there's still some pretty meaty opportunities ahead.

[Emma Clark, Chief Financial Officer]

And part of the reason that we want to come back next quarter and talk about is we are currently going through the exercise to really strip out those synergies, isolating them from just general other factors that have contributed to good growth so that we can come back and actually say definitively this is what we have managed to get out of the acquisition and what we still think we have to come.

[Owen Humphries, Senior Industrials Analyst]

Got you. Okay. And just below the line, that other expenses line seemed to pick up during that period. Can you maybe go in those, those 3 line items in there? You're talking about with currency, with share-based payments and acquisition costs. But it just seemed like it's perked up in that last quarter. Can you maybe just break down what those line -- what those other expenses are?

[Emma Clark, Chief Financial Officer]

Sorry, which line items -- which actual pieces -- paperwork you're looking at, at the moment, Owen? Just the [ R&E ]?

[Owen Humphries, Senior Industrials Analyst]

When you look below the lines, you obviously got...

[Emma Clark, Chief Financial Officer]

The other -- yes.

[Owen Humphries, Senior Industrials Analyst]

And then you go other -- I'm looking at the presentation, you've got the other expense line.

[Emma Clark, Chief Financial Officer]

Yes. So you're basically [ addressing ] the income statement summary, correct?

[Owen Humphries, Senior Industrials Analyst]

Yes, yes...

[Emma Clark, Chief Financial Officer]

And you're looking at the other. Mainly share-based payments is the difference between FY '18 and FY '19. You'll -- we've revamped our equity compensation plans for all of our employees at Redbubble, and so that's the impact of those flowing through.

[Operator]

Your next question comes from Tim Piper, Royal Bank of Canada.

[Timothy Piper, Analyst]

Congrats on the results. Just 2 questions. On the geographic split of sales, just looking at FY '19, it looks like Americas has been particularly strong and that is probably a function of the TeePublic acquisition as well. But just looking at regions like the EU and the U.K., the implied growth rates there, can you just provide a bit more detail around what you've been seeing? Because they were growing very strongly sort of through FY '18.

[Barry Newstead, MD, CEO & Director]

Yes. I think U.K. is a bit of a challenging market since Brexit, probably like everybody else. EU, the challenge in the EU was sort of the slower growth in EU is really related back to the organic search. That was a bigger part of the growth in that area. And so the softness in the organic search sort of slowed the EU down more than, say, some of the other markets.

[Timothy Piper, Analyst]

Okay, sure. And then just secondly on new product launches, you noted there was 5 in, I think, the fourth quarter. Just recalling sort of calendar year '19, I think, excuse me if I'm wrong, but something like 8 to 10 or plus that sort of over calendar year '19. So are we sort of expecting through first half '20 another sort of 5-plus product launches?

[Barry Newstead, MD, CEO & Director]

In that range, yes. We've already put 2 out so -- in this quarter, so yes, in that range.

[Timothy Piper, Analyst]

Okay, great. And then, sorry, just one more, as a follow-up on the gross margin questions. Just looking at the split between the Redbubble platform and TeePublic, just given TeePublic generates higher gross margin, can you sort of provide more detail about what the sort of gross profit margin looks like just for the Redbubble business itself?

[Emma Clark, Chief Financial Officer]

So the Redbubble business still had really strong gross margin growth, it's in the mid-20s, stand-alone. So it does -- I agree with you. TeePublic does generate slightly higher margins, but Redbubble's margins were still growing and at quite a good rate.

[Barry Newstead, MD, CEO & Director]

We wouldn't have been able to deliver the number we had unless Redbubble's performance is pretty darn strong down the P&L and the combination of the 2. So I think that would be our summary comment of the performance of Redbubble.

[Operator]

Your next question comes from Ivor Ries, Morgans Financial.

[Ivor Ries, Senior Analyst]

A few questions, if I may. Just in terms of -- we're looking at that last quarter there, the artist revenue there, the share of total revenue that the artists were taking fell quite noticeably, and I just wondered if there are any particular factors why the artist share fell.

[Barry Newstead, MD, CEO & Director]

I think it's a little bit because TeePublic takes -- has a slightly higher take, so artists on TeePublic make a little bit less than artists on Redbubble do. So I think that's the...

[Emma Clark, Chief Financial Officer]

And the TeePublic growth rate is at 46%, and they're disproportionately contributing a little bit more to that.

[Timothy Piper, Analyst]

Right. Should that -- do you think that's going to continue, that sort of lower artist take rate on TeePublic?

[Barry Newstead, MD, CEO & Director]

Yes, I think given we're not intending to make any short-term changes to the way in which TeePublic pays artists and you would expect that to continue.

[Ivor Ries, Senior Analyst]

Right. Okay. And just looking at just in terms of your paid, obviously you were successful in reducing your average cost of your paid customer in that period. I just wonder if you could give us a little bit of color about how you did that.

[Barry Newstead, MD, CEO & Director]

Yes, happy to. I think as we alluded to in the conversation, particularly in this last quarter, the Redbubble brand has been getting really a lot stronger. And so that's allowed a few things to happen. One is, we're seeing more traffic coming in through lower-cost channels, particularly people clicking on Redbubble-branded ads, which is a -- which we had to pay for, of course, thanks to Google. But that's a lower-cost channel than them going through Google Shopping as a way in. So that's a real source of growth. The other one is once we change that attribution model, which I referred to earlier when Grace asked, we actually found more customers flowing through the direct channel. So what happens sometimes when you do display marketing and paid social marketing is you end up serving an ad to a customer that will come to you anyway. And what we did is we backed off of that by changing the way in which we attribute revenue to those channels, and that actually allowed the direct channel to come through in a really strong way. I think we have -- some of our -- some really, really strong growth in the direct channel. So those 2 channels, in particular, were the core strength.The channel that we backed off the most on was actually Facebook and Instagram-paid social. That was for 2 reasons. One is, we started attributing less revenue to that. So it got less [ served ]. And the other is we're just finding it too expensive in the short term. And so we decided we can make more money by backing off of those channels.On the other hand, we're starting to find things like Snapchat are actually a really good way for us to acquire customers, and it's a heck of a lot cheaper to advertise on Snapchat right now than it is on Instagram. In fact I think in the recent report, the analysts' commentary was that they have a lot of inventory available, not many advertisers. We're quite happy to be on the advertiser side of that equation.And then finally, as I mentioned, out of the blue, this thing called TikTok is really starting to generate a lot more organic traffic, as is our strategies around connecting influencers and leveraging word-of-mouth through our customers. All of those things combined to lower the average price in the last quarter.

[Emma Clark, Chief Financial Officer]

So yes, I think last quarter was what we've considered to be a good optimization of our marketing spend.

[Barry Newstead, MD, CEO & Director]

And look, we're -- this is -- I think I've talked about in the last couple of quarters, we're -- we don't view ourselves as a one-trick pony focused on Google only and we really want to build a diversified business. And I think what we've done in the last 6 months is really optimize these other channels, and in particular, we've got some real value behind the brand, which we think is critical long term.

[Ivor Ries, Senior Analyst]

Yes. And I thought I might just keep going. Your OpEx trajectory for the year ahead, would you expect OpEx to grow not quite as fast as the revenue line?

[Emma Clark, Chief Financial Officer]

Absolutely.

[Ivor Ries, Senior Analyst]

Yes, okay. Moving on, cash burn, obviously you've had positive cash this year. To achieve your $1 billion revenue goal, do you need to burn cash? Or do you think the business will be self-sustaining from a cash flow point of view from now on?

[Emma Clark, Chief Financial Officer]

Yes.

[Barry Newstead, MD, CEO & Director]

I mean our goal is to -- our goal continues to be to get ourselves to a self-sustaining position. I think, clearly, some of the investment opportunities we've talked about earlier could conceivably warrant capital, but I think that the core business, the goal of the core business is to really -- is to cross over into that cash flow positive position and have resources available to fund our growth. But I think we shouldn't sort of play the next 5 years out in this call.

[Ivor Ries, Senior Analyst]

Yes. And look, my math might be a little wonky here, but in terms of just trying to work out what your sort of underlying growth rate was if I just do some backward maths on a full year of both businesses, as if you owned both Redbubble and TeePublic for a full 12 months, it looks like your -- the group's underlying organic -- sorry, underlying total growth rate -- revenue growth rate was about 18% or 19%. And yet, of course, your last quarter was probably a bit stronger than that. I'm just wondering whether you think that sort of 18%, 19% marked a low point in terms of your revenue trajectory and whether you think you might be able to do better than that in -- on a like-for-like basis in the current year?

[Emma Clark, Chief Financial Officer]

I feel like, as I said when I was speaking in the presentation, the comparables for the next 3 months are challenging. I feel like after that, so from about October onwards, we'll start to return to more healthy growth rates.

[Operator]

Your next question comes from John Lewis, Osmium Partners.

[John Hartnett Lewis]

Welcome aboard, Emma.

[Emma Clark, Chief Financial Officer]

Thank you.

[John Hartnett Lewis]

Well, Barry, it's been 1 year. I think you've been vindicated on the attractive acquisition on TeePublic and building out a very strong team, so a tip of the hat on that front.I guess I'm just running around. What was your direct marketing spend for 2019 fiscal year?

[Barry Newstead, MD, CEO & Director]

Just a second. We'll grab the numbers.

[John Hartnett Lewis]

Was it like low 20s millions?

[Barry Newstead, MD, CEO & Director]

It was -- go ahead.

[Emma Clark, Chief Financial Officer]

$27.1 million.

[John Hartnett Lewis]

You guys are almost generating 12 to 13x your direct marketing spend to revenue, and I think it's really important that you guys unpack how few businesses get that kind of multiplier, and I think in our conversations, it's helpful to unpack that Redbubble, by my estimation, pays artists and fulfillment partners almost $70 million a year in operating income. And I think there's a tremendous amount of value when you add the royalties, and what fulfillment partners make on the platform, it's truly astounding. And so I think that Redbubble has an exceptionally high moat, which really requires adding back royalties to that direct marketing spend because artists actually promote their work, which drives traffic to the site. And I think you guys have done a wonderful job building an extremely valuable business that hasn't been monetized. So I guess a couple of questions would be, first, Barry, I guess could you elaborate anything more on the partnership front, and then on the second part of that question, what you think you could be able to do with the 7 new products you've launched in the last 90 days or so? Because as you've said, you have 24 million designs and when you release them on to the platform, new products can get [indiscernible]

[Barry Newstead, MD, CEO & Director]

Yes, so I think the partnership works really -- I mean I feel like we're the first -- in the first quarter, for that matter. I feel like, as I said in the -- earlier, a year ago, we were still trying to get our first meaningful -- well, first major deal -- I shouldn't say that, we had a couple of deals before, so I shouldn't make any comment about those prior deals. And we really had no licensed content relative to sale -- for sale. So the trajectory is incredibly strong there. And as I said, I think it's incredibly strong, one, because we started to really generate more deals, and there are hundreds, actually probably thousands of brands now even in the existing deals that we have available to us that we're going to be able to launch around that, that's going to convert into a huge amount of licensed content. So -- and of course, we're a content business, so that's going to be great content. If you go and look at some of the content around these things, it is truly fantastic content. The other advantage of that is it allows us to kind of hitch our wagon to some pretty massive brands, which have incredible reach, and an incredible reach in the exact consumer markets that we're after. So I think that it's kind of a double benefit there, one, the core content itself, which is highly saleable, and our early statistics on the saleability of that content are incredibly reaffirming. That content sells at a higher rate than other content on -- other quality content on the site. And then the other is that we can start to do -- we can start to leverage that in marketing and really build true partnerships. That's why we call it partnership with these brands because we think we can help them build their -- build the relationships with their fans, and also think about their merch businesses in this new world. So I think it's a really big opportunity. I think products, similarly, we -- as I've talked about it before, we did a lot of work to get our platform in good shape. We'll put a lot of products out in the coming years. We've never sold a product -- we never launched a product that was not profitable. And so they just -- they accumulate value in annuity fashion. They also draw more artists to the content so they have a flywheel benefit in it, when you launch more products, new artists determine that now Redbubble is worth being on because we sell the kind of products that the artists want to create for.

[John Hartnett Lewis]

Okay. I appreciate that. I guess just really quickly before I move on to the next question. Is it fair to add the artist royalties in that, if you're paying artists 15%, 20% of gross sales, or around $60 million a year, is it fair to add that to direct marketing to say, look, all these artists link back on Twitter, Facebook, whatever else they're on, to drive traffic because they're getting 20% of sales. So you really, through adjusted reach for a new entrant, would require $70 million to reach the audience you're reaching. I mean because it seems like...

[Barry Newstead, MD, CEO & Director]

So that's one way to do it. I think another way to think about it, which is that's, in effect, the cost of acquiring the content. Now of course, we don't pay them for that content until it sells. So it's quite nice. So unlike Netflix who's dropping hundreds of millions of dollars before they've ever -- I think we're only paying for the content once it's sold. But I think it's more like that. And I think if you're a new entrant, I would think about the cumulative expense, if you will, to acquire 24 million units of content, and in a sense, that is our expense. Obviously, we don't, as I said, we don't pay for that in advance, but that -- I guess a good way to put a value on the content library is to say what are the content creators actually taking out of the content library. I think that's worth saying.Having said that, what you said is absolutely true that artists have a built-in incentive to market their own work, and by extension, market the Redbubble and TeePublic marketplaces.

[John Hartnett Lewis]

Okay. Last comment and then a question. Since May, $100 billion worth of 2-sided marketplaces have gone public, mainly driven by Uber, Lyft, but more recently, Fiverr, FVRR, as you mentioned, The RealReal, R-E-A-L, and even Kornit, K-R-N-T, the hardware manufacturer, print-on-demand, had exceeded 7x sales. Etsy is at 10.5x sales. The RealReal was a $2 billion market cap, is at 7x sales with minus 30% EBITDA margin; and Fiverr is at 7x sales with 20% margins. Etsy is a massive -- or Redbubble is a massive outlier at 70% of sales and 2.5x gross profit. So I'm very happy to hear that you're getting a U.S. ADR. Can you give us more color on where you're going on that front?

[Barry Newstead, MD, CEO & Director]

I'm not sure we can give you much more color other than we've -- obviously, a statement that we're going to make is we are going to make it happen, and our team is going to get the paperwork sort of set up and get into position. I think it also says that, first of all, we -- as Emma commented earlier, I think we do see that the markets are valuing very similar businesses at very different -- very similar businesses to us and some which are better or worse, I don't know, some of which are highly -- burning a lot of cash, for example, maybe with higher growth rates, but burning a lot of cash with it. So I think we see ourselves pretty comparable to those. We're still probably a little bit smaller, but it's comparable. And part of the ADR and also part of our investor outreach is to tell that story and as quickly as possible narrow that valuation gap. And we're...

[John Hartnett Lewis]

I'll leave it at that. You're actually bigger than The RealReal. The RealReal, R-E-A-L, did $215 million in net revenue and they have a $2.2 billion valuation, they just came public. So look, it's crazy and I hope you guys get a U.S. ADR, and thank you. Thanks. That's all I have.

[Barry Newstead, MD, CEO & Director]

Thanks, John.

[Emma Clark, Chief Financial Officer]

Perfect, John.

[Operator]

[Operator Instructions] Your next question comes from Weimin Xie, MX Capital.

[Unknown]

A very good result. Two questions. First one, what portion of your Redbubble GTV or revenue in the fourth quarter will be from the partnership program you had? And the second question is, historically, you gave us some sense about kind of operating expenses growth versus the revenue growth. Just going forward, I hear you are talking about margin expansion. So I'll just get that. What kind of OpEx growth rate maybe relative to revenue growth rate should we think about going forward?

[Barry Newstead, MD, CEO & Director]

Yes. So I think we've kind of answered the second question. I think the way we answered that when Owen asked was we do expect that we will -- revenue and gross profit will grow faster than OpEx. But I think that's probably the extent to which we'll specify on that.As it relates to the partnerships, it's still a negligible part of our revenue, but I think that, that's really coming on -- it will come on quickly. How quickly is probably to be determined. I think we should just be watching it every 6 to 12 months. But given we had virtually no licensed content a year ago and we have 350,000 content units already, I think we're off to a good start. And there are, as I said earlier, there are a number of brands, more than a number, dozens and dozens of brands that we aim to launch. And for example, Star Trek just went live on TeePublic just before the end of the quarter. So Star Trek on its own is a huge brand. We have many others that are of similar weight.

[Emma Clark, Chief Financial Officer]

It's negligible, but it's a hockey stick if you look at it on a graph, so we expect that to continue.

[Unknown]

This is a follow-up question. The number of selling artists for the fourth quarter, is it 359,000 (sic) [ 369,000 ]? Because I look at the third quarter, it's only 226,000. So this is a big jump or did I get the number wrong?

[Barry Newstead, MD, CEO & Director]

Compared to the first quarter last year?

[Unknown]

No, compared to the third quarter. Because historically, there's different variations, but the fourth quarter, I believe, in general, is not that big. But this time, it's very big. I'm trying to work out why.

[Barry Newstead, MD, CEO & Director]

That's the full year.

[Unknown]

So...

[Barry Newstead, MD, CEO & Director]

The 369,000 selling artists in the full year.

[Unknown]

Oh, for the full year. How about the number for fourth quarter, do you know? Roughly.

[Emma Clark, Chief Financial Officer]

I do have it. Hang on. I'm just getting it for you. So selling artists grew 34% in the fourth quarter, so very similar in the first...

[Unknown]

From a year ago?

[Emma Clark, Chief Financial Officer]

Yes.

[Operator]

There are no further questions at this time. I'll now hand back to Mr. Newstead for closing remarks.

[Barry Newstead, MD, CEO & Director]

Yes. So first of all, thanks for taking the time to join the call. As I said, important milestone we achieved this past financial year and onward to $1 billion. So we look forward to catching up with all of you, again, in October.

[Emma Clark, Chief Financial Officer]

Thank you.