Month: October 2022

We’re now 20 days into the second month of Spring. But it sure has been a bumpy ride for ASX shares so far this October. Sure, the S&P/ASX 200 Index (ASX: XJO) is up a pleasing 3.9% so far this month. But we have certainly had a few bumps and bruises along the way (including from today’s session).

So what better time to examine the best ASX exchange-traded funds (ETFs) of the month so far.

The best-performing ASX ETFs of October so far

Global X EURO STOXX 50 ETF (ASX: ESTX)

First up today is an ETF from the newly renamed Global X ETFs (formerly ETF Securities). The Euro STOXX 50 ETF is a fund covering the 50 largest companies on the European markets. It holds companies like LVMH Moet Hennessey, SAP and L’Oreal.

October seems to have been a killer month for European shares, with this ETF up a solid 9% since the start of October. Exchange rate movements have probably helped here too.

BetaSahres Geared Australian Equity Fund (ASX: GEAR)

Another ETF that has been enjoying October is this offering from provider BetaShares. The Geared Australian Fund is an interesting one. As its name suggests, it is a fund that employs a gearing (or borrowed money) strategy to amplify the returns of the ASX 200.

Since the ASX 200 has had a relatively strong month, this ETF has done even better, giving investors a return of 9.74% since the end of September.

But gearing cuts both ways, and we can expect a fund like this to rack up greater losses than the broader market during selling periods.

VanEck Australian Banks ETF (ASX: MVB)

Our third and final ETF is from yet another provider in VanEck. As the name suggests, the VanEck Australian Banks ETF tracks a basket of… well, bank shares. It only holds seven ASX shares in its portfolio.

These include the big four banks, like Commonwealth Bank of Australia (ASX: CBA). But it also includes those outside the big four, such as Macquarie Group Ltd (AX: MQG) and Bendigo and Adelaide Bank Ltd (ASX: BEN).

It’s been a cracker of a month for ASX banks, with this ETF up a very pleasing 11.07% over October so far.

The post These are the 3 best-performing ASX ETFs so far in October appeared first on The Motley Fool Australia.

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More reading

• Why has the Fortescue share price dropped 20% in 6 months?
• 3 ASX All Ordinaries shares smashing multi-year highs today
• If I were forced to sell all of my ASX shares except one, I’d hold onto this ETF
• Own Macquarie shares? Here’s what to expect from the bank’s half-year results
• Guess which ASX lithium share is on ice with a ‘significant resource update’ incoming

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended Bendigo and Adelaide Bank Limited. The Motley Fool Australia has recommended Macquarie Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The past six months have been a frustrating ordeal for the Fortescue Metals Group Limited (ASX: FMG) share price.

In the world of investing, there are few things more deflating than watching the share price of a stock you own drop precipitously. For investors of the iron ore giant, that is exactly what has played out.

Fortescue’s share price has dropped a whopping 22.5% over a six-month timeframe.

So, what’s behind this sharp decline? Let’s take a closer look.

Why the big tumble?

The fall in the Fortescue share price can be attributed to a number of factors. Although, one specific variable could carry the bulk of the blame.

Firstly, demand for iron ore — Fortescue’s primary product — has been softening in recent months due to slowing economic growth in China, which is the biggest buyer of Australian iron ore.

Six months ago, the steelmaking commodity was going for US$154.40 per tonne. Whereas, this figure is tracking close to its 52-week low of US$92 per tonne — now perched at US$94.86. This undoubtedly would put pressure on Fortescue’s margins, which would in turn weigh on the company’s bottom line.

Secondly, Fortescue has up the ante in terms of its decarbonisation commitments in recent months. In September, the company announced its plan to pour US$6.2 billion into eliminating fossil fuel risk by 2030.

While Fortescue’s management believes this could result in operating savings of US$818 million per annum, investors may not be so sure. Furthermore, there are concerns that this investment might mean taking a bite out of its future dividends.

Could the current Fortescue share price be a buy?

While it’s never fun to watch the value of our investments decline, it’s important to remember that share prices are just one metric by which to judge a company. What really matters is where Fortecue’s earnings could be in the future.

Unfortunately, analysts at Goldman Sachs think those future earnings could be impacted in the near term. As a result, the team believes dividends could be squashed to 38 US cents by FY24, with more downside in the ensuing years.

Right now, Goldman has a $13.40 target on the Fortescue share price. This would suggest a further 20% downside to the company’s valuation from here.

Shares in Fortescue are down 3.3% today. Meanwhile, the S&P/ASX 200 Index (ASX: XJO) is wearing a 1.1% markdown.

The post Why has the Fortescue share price dropped 20% in 6 months? appeared first on The Motley Fool Australia.

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More reading

• Why was the Fortescue share price on such a rollercoaster today?
• Sell Fortescue shares before they drop 20% and the dividends collapse: Goldman Sachs
• 3 ASX 200 shares that turned a $5,000 investment into $1 million
• 5 things to watch on the ASX 200 on Monday
• Do you want the good news or the bad news on the iron ore price?

Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The All Ordinaries Index (ASX: XAO) is down in the dumps on Thursday. But not all shares that call the benchmark index home are trading in the red.

These three have defied the sell-off to trade at their highest points in years.

Right now, the ASX All Ordinaries is down 1.28% at 6,909.9 points.

So, what’s driving some of its constituents to long-forgotten highs? Keep reading to find out.

3 ASX All Ordinaries shares hitting multi-year records

The All Ordinaries Index is tumbling lower on Thursday, but its despair isn’t rubbing off on these ASX shares.

The Syrah Resources Ltd (ASX: SYR) share price, for one, is defying the slump. It surged 18% to trade at $2.21 earlier today – its highest point since 2018.

The graphite producer’s stock is gaining on the back of a barrage of announcements.

The company revealed a US$250 million grant, an offtake and collaboration agreement with LG Energy, an update on the restart of the Balama Graphite Operation, and its quarterly activities report.

The Neuren Pharmaceuticals Ltd (ASX: NEU) share price is also gaining today after the All Ordinaries company announced a US$10 million milestone payment. The stock lifted 0.9% this morning to reach $7.59 ­– a 15-year high.

The payment came from the company’s partner Acadia Pharmaceuticals and related to the US Food and Drug Administration’s (FDA’s) decision to accept trofinetide for the treatment of Rett syndrome for review.

Acadia has the exclusive rights to develop and commercialise trofinetide in North America, while Neuren retains rights for all other countries.

The final ASX All Ordinaries share posting a multi-year high on Thursday is mining giant IGO Ltd (ASX: IGO).

The stock peaked at an all-time high of $16.25 this morning, marking a 0.5% gain. It has since slipped into the red to trade 2.9% lower at $15.69.

The post 3 ASX All Ordinaries shares smashing multi-year highs today appeared first on The Motley Fool Australia.

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More reading

• 3 lithium ASX shares to watch after Tesla’s results
• Syrah Resources share price leaps 13% on big news day
• Here are the top 10 ASX 200 shares today
• What’s the outlook for ASX battery metals shares in Q2?
• 3 ASX All Ords shares smashing multi-year highs on Friday

Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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When it comes to ASX shares, I’m guilty of being an accumulator.

This was particularly evident in the earlier stages of my investing journey. 

I’d accumulate a wide range of different shares, often in small parcels, without having much regard for the finer details of portfolio construction.

I’m now at a stage where I recognise that I’d prefer to have fewer, high-conviction ideas in my portfolio rather than spreading my capital thinly over more speculative bets.

But taking this to the extreme, if I had to whittle down my portfolio to just one investment, I’d be sticking with… the Vanguard Diversified High Growth Index ETF (ASX: VDHG).

What’s all the rage with the VDHG ETF?

The VDHG ETF was my first-ever investment as I forayed into the world of ASX investing. 

And if I were to implement a single-investment portfolio, it’s the one I’d be keeping.

If I could have just one investment, diversification would be a high priority for me. As would the investment’s ability to stand the test of time.

So, I’d be going with an exchange-traded fund (ETF).

Instead of my fortunes resting on the success of one specific company, I could gain exposure to the performance of a broad range of leading companies across the globe.

But VDHG isn’t just any ordinary ETF. 

It’s a diversified ETF, comprising many other ETFs. You can think of it as an ‘ETF of ETFs’.

VDHG is the high-growth version of Vanguard’s range of diversified ETFs. Accordingly, it targets a 90% allocation to growth assets, such as shares, and a 10% allocation to income assets, such as bonds.

There are three other diversified ETFs in Vanguard’s stable across conservative, balanced, and growth options. The balanced ETF, for example, has an evenly-split allocation across growth and income assets.

When weighing up these different options, it’s important to consider how they align with your investment timeframe and tolerance for risk.

Personally, I’m comfortable stomaching the inevitable periods of volatility that are part and parcel of investing. And with many decades to invest, I decided the high-growth option was best suited for me.

What’s inside the VDHG ETF?

By design, the VDHG ETF mimics a diversified portfolio, investing in a range of Vanguard funds.

VDHG’s largest holdings are the wholesale versions of the Vanguard Australian Shares Index ETF (ASX: VAS) and the Vanguard MSCI Index International Shares ETF (ASX: VGS). Together, this currently makes up nearly 80% of the portfolio.

The rest of the growth exposure comes from small companies and emerging markets, while the remaining ~10% goes towards fixed-interest assets, such as bonds.

So, if I were forced to sell all of my ASX shares except VDHG, I could take comfort in knowing that my capital is being spread across a wide range of established ASX and global shares.

What’s more, Vanguard would take care of the rebalancing for me. And I’d be able to take advantage of VDHG’s distribution reinvestment plan (DRP), which would automatically reinvest my regular distributions into more units.

Overall, I think VDHG is a great ETF for long-term investors looking for a one-stop-shop, hands-off approach. And it just so happens to be the largest position in my portfolio today.

The post If I were forced to sell all of my ASX shares except one, I’d hold onto this ETF appeared first on The Motley Fool Australia.

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More reading

• 5 reasons why I invest in ASX ETFs
• I think these 2 ASX ETFs are buys for growth and diversification in October
• This ASX ETF was my first investment, and I’ll be holding it for the long term

Motley Fool contributor Cathryn Goh has positions in Vanguard Diversified High Growth Index ETF. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Vanguard MSCI Index International Shares ETF. The Motley Fool Australia has recommended Vanguard MSCI Index International Shares ETF. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Macquarie Group Ltd (ASX: MQG) shares are having a tough day on Thursday.

In afternoon trade, the investment bank’s shares are down 3% to $157.25.

This leaves the Macquarie share price trading within sight of a 52-week low.

Will Macquarie’s shares rebound?

Whether or not the Macquarie share price rebounds in the near future may depend a lot on how strong (or weak) the company’s half year results are next week.

Macquarie is scheduled to release its numbers on Friday 28 October and a sizeable sequential decline in profits is being forecast by the market.

Let’s take a look at what the market is expecting.

What is the market expecting?

According to a note out of Goldman Sachs, its analysts are expecting Macquarie to report a cash net profit after tax of $2,183 million. This is a touch higher than the market consensus estimate of $2,157 million.

While Goldman’s cash earnings estimate represents a 7% increase on the prior corresponding period, it will be an 18% decline on the previous half.

Its analysts are expecting this to lead to an interim dividend of $2.55 per share, down 6% on the prior corresponding period. Though, it is worth noting that the market consensus estimate is for a much higher dividend of $2.94 per share.

What did Goldman say?

Goldman has suggested that investors keep a close eye on the Commodities and Global Markets (CGM) business.

That’s because when Macquarie released its first quarter update, it was expecting a soft first half performance from the business due to lower commodities trading income. However, Goldman highlights that trading conditions have improved markedly since then, which could result in a stronger than expected first half performance from the business.

It explained:

At the 1Q23 update, MQG guided for Commodities trading income within CGM to be down following a strong FY22 (vs. previous guidance of significantly down), albeit volatility may create opportunities.

Given that now nearly two-thirds of the division’s revenues are sourced from Commodities trading income, and within this, the majority of revenues have recently been sourced from Risk Management and Inventory Management and Trading, we believe the backdrop of volatile commodity markets should have provided a notable tailwind in 2Q23.

As such we forecast profit contribution from CGM to rise 14% hoh and within this, for Commodities trading income to be up +20%. We will be keen to get an update on whether these volatile markets have indeed translated to profitability and what MQG’s expectations are going forward.

Are Macquarie’s shares good value?

While Goldman is sitting on the fence with its recommendation, it still sees plenty of upside for Macquarie’s shares.

The note reveals that the broker has put a neutral rating and $184.58 price target on its shares. This suggests potential upside of 17% for investors.

The post Own Macquarie shares? Here’s what to expect from the bank’s half-year results appeared first on The Motley Fool Australia.

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More reading

• Broker says these ASX dividend shares are buys this month
• Down 7% in a month, is the Macquarie share price an ASX 200 bargain buy?
• What’s the outlook for ASX 200 bank shares in Q2?
• A mortgage ‘battleground’ is coming. UBS names ASX 200 bank shares best placed to win
• Morgans names 2 ASX 200 blue chip shares to buy

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Macquarie Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Galan Lithium Ltd (ASX: GLN) share price is frozen after the company requested a trading halt today.

The ASX lithium share is sitting at $1.27 while the explorer prepares a “significant resource update”.

Here’s what we know.

Why is this ASX lithium share in a trading halt?

Galan requested an immediate trading halt pre-open this morning. It asked the ASX to keep it in place until it makes its announcement, or until the commencement of trading next Monday 24 October.

The statement refers to the pending announcement as a “significant resource update”. There are no other details.

What’s been happening with Galan Lithium lately?

Among Galan’s major projects is the 100%-owned Hombre Muerto West Project (HMW) in Argentina.

This is a lithium project. Last month, Galan advised the ASX that it has applied for a permit to build a permanent 200-person operational camp at the site in the Catamarca Province.

It said the facility would “house all required personnel to execute construction activities expected to commence during CY2023 and into targeted commercial production in CY2025”.

The company said it was “a key further step towards accelerating the development of the HMW Project”.

It currently has an exploration camp set up for exploration and piloting activities.

In August, Galan provided an update on its well-pumping tests and exploration programs at HMW.

It said the long-term pumping test at the Pata Pila site within HMW had been successfully completed. The test extracted lithium grades of between 821 mg/L and 927 mg/L.

Galan said in a statement: “These strong outcomes support potential higher production capacity parameters for Definitive Feasibility Study (DFS) inputs.”

It reported first-pump well results at another site within HMW, Rana de Sal, that produced average lithium grades above 945 mg/L.

Price snapshot for this ASX lithium share

The Galan Lithium share price is down 35% in 2022 so far.

However, the shares are up 7.6% over the past 12 months.

Over the past five years, Galan shares have lifted by almost 1,500%. Yep, no kidding.

The post Guess which ASX lithium share is on ice with a ‘significant resource update’ incoming appeared first on The Motley Fool Australia.

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More reading

• Why did the Galan Lithium share price drop 7% on Monday?

Motley Fool contributor Bronwyn Allen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Syrah Resources Ltd (ASX: SYR) share price is having a strong day.

In early afternoon trade, the graphite producer’s shares are up 13% to $2.13.

Why is the Syrah Resources share price racing higher?

There have been a few reasons for the strong gain by the Syrah Resources share price on Thursday.

The first is news that the company has been selected for a US government grant of up to US$220 million (A$350 million).

According to the release, Syrah has been selected by the US Department of Energy (DOE) as a recipient of the Bipartisan Infrastructure Law Battery Materials Processing and Battery Manufacturing grant.

This will support the financing of the potential expansion of the Vidalia active anode material (AAM) facility in Louisiana, USA to a 45ktpa AAM production capacity.

Management notes that if successfully concluded, the DOE grant would fund a significant proportion of the estimated capital costs for Vidalia’s expansion.

Fellow ASX battery materials shares Novonix Ltd (ASX: NVX) and Piedmont Lithium Inc (ASX: PLL) were also selected for funding.

What else?

Also giving the Syrah Resources share price a lift is news that the company has entered into a non-binding memorandum of understanding with LG Energy Solution, a leading global manufacturer of lithium-ion batteries.

Syrah and LG Energy Solution will evaluate natural graphite AAM supply from the Vidalia AAM facility in USA.

In addition, an offtake agreement for 2ktpa AAM from Vidalia will commence from 2025 and increase to at least 10ktpa AAM upon Vidalia’s expansion to a 45ktpa AAM production capacity.

Anything else?

The announcements don’t stop there. Syrah also revealed that its workers and contractors have returned to the Balama Graphite Operation in Mozambique.

However, further illegal industrial action disrupted a full operational restart and limited logistics movements. Industrial action continues to be driven by a small contingent of local employees and contractors.

Syrah is working towards recommencing full Balama operations and production, and logistics movements, as soon as possible.

Fourth and final

A final announcement reveals that the company produced 38kt of natural graphite at an 80% recovery rate during the third quarter of FY 2022.

Syrah also shipped a record 55kt at a weighted average sales price of US$688 per tonne. This was a quarter on quarter increase of 25% and 3.9%, respectively.

As a result, pleasingly, Balama still recorded a net operating profit after C1 and C2 costs over the quarter despite the disruptions mentioned above.

The post Syrah Resources share price leaps 13% on big news day appeared first on The Motley Fool Australia.

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More reading

• Syrah Resources share price sinks 21% amid ‘illegal action’
• Why BHP, Costa, Link, and Syrah shares are dropping
• Why is the Syrah share price halted?

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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As you might have guessed from the headline, next week is an important one for the Coles Group Ltd (ASX: COL) share price. On Wednesday 26 October, the S&P/ASX 200 (ASX: XJO) supermarket giant is scheduled to deliver its quarterly sales results covering the three months to 30 September 2022.

Given sales are one of the most important factors contributing to Coles’ underlying profitability, investors will no doubt be paying close attention. But what of the Coles share price today? Could it be in the value zone ahead of this important update?

Coles shares have had what could be described as a resilient year so far in 2022. The ASX 200 has lost more than 11.2% year to date. But the Coles share price has lost a tamer 7.5%. It’s also faring better than the broader market over the past 12 months.

Saying that, it has still been a bit of a bumpy ride for the company. Since 19 August, Coles has lost a painful 14.5%, sliding from over $19 to the $16.53 we see presently (at the time of writing).

So does this mean Coles is in the buy zone right now?

Is the Coles share price a pre-update buy right now?

Well, one ASX broker thinks so. As my Fool colleague James covered earlier this week, broker Morgans is bullish on Coles shares right now. Morgans currently has an add rating on Coles, with a 12-month share price target of $20. That implies a potential upside of close to 21% from today’s pricing.

Morgans sees Coles continuing to dial up its dividend payments over the next 12 months. It is anticipating 65 cents per share in fully franked dividends for the 2022 financial year, and 66 cents per share for FY2023.

But not all expert opinions are so optimistic. My Fool colleague Bernd recently discussed how Coles shares are tracking compared to the company’s arch-rival Woolworths Group Ltd (ASX: WOW). He noted that another ASX broker in UBS only has a neutral rating on the company right now.

Although UBS reckons Woolworths will be hindered more by volume weakness than Coles for the latest quarter, it still has a share price target of $16.23 on the grocer right now. That’s below the current Coles share price.

So mixed opinions on Coles shares today from some ASX experts.

Let’s see what the company has in store for investors next week.

At the current Coles share price, this ASX 200 supermarket giant has a market capitalisation of $22.14 billion, with a dividend yield of 3.81%.

The post Is the Coles share price a buy ahead of next week’s quarterly results? appeared first on The Motley Fool Australia.

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More reading

• Could buying Woolworths shares help ‘recession-proof’ your ASX portfolio?
• Experts say income investors should buy these ASX dividend shares
• Better buy: Woolworths or Coles shares?
• Which ASX All Ords shares could perform well in a recession?
• Own Coles shares? Here’s what to expect from the supermarket giant’s Q1 update

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended COLESGROUP DEF SET. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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It has been an eventful morning for the Megaport Ltd (ASX: MP1) share price on Thursday after coming out of a trading halt.

Presently, shares in the network-as-a-service provider are dumping 9.38% to $5.99. The disappointing move is, unfortunately, an encore to a sickening 22% slump yesterday amid the company’s first-quarter update.

Let’s take a look at what is causing dismay among shareholders today.

Oopsie doesn’t go unpunished

Before the market opening, Megaport requested that its shares be temporarily paused pending a further announcement.

Given the recency of its first-quarter update — and the cold reception it received — this likely put investors on edge. Fast forward roughly an hour, and the data interconnectivity provider had released the price-sensitive mishap.

According to the release, an error had been made when converting several of the company’s figures to Australian dollars, sending the Megaport share price reeling.

Specifically, the details requiring amendment related to numbers featured on slide 11 of Megaport’s Q1 investor presentation, as shown below.

While the market is reacting negatively to the news, the revisions were mostly positive. For reference, the adjustments were:

• Capital expenditure (including IP change) reduced from A$16 million outflow to A$14.4 million
• Cash flow used in investing activity reduced from A$15.8 million outflow to A$14.2 million
• Net cash flow changes reduced from A$13.9 million to A$12.3 million
• Effect of foreign exchange movement changed from a A$0.8 million gain to a A$0.8 million loss

The last line item appears to be the only negatively impacting adjustment of the bunch.

In addition, the company noted there were no changes to its previously reported cash balance, USD cash flow, or Appendix 4C.

Is there a positive to the Megaport share price?

For shareholders, today’s pain only adds to what has been a painful year for Megaport shares. In 2022, the company’s value has deteriorated to the tune of 69%. However, there is still a positive to be considered, according to analysts at Jefferies.

Following Megaport’s Q1 figures, Jefferies revealed it expects the company to be free cash flow positive by the second half of FY25. Although, the team still reduced its Megaport share price target from $9.60 to $7.54 in light of the slower growth.

The post Why is the Megaport share price receiving a 9% spanking today? appeared first on The Motley Fool Australia.

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More reading

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Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended MEGAPORT FPO. The Motley Fool Australia has recommended MEGAPORT FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Redbubble Ltd (ASX: RBL) share price is having another day to forget.

In morning trade, the ecommerce company’s shares are down 26% to a two-year low of 53 cents.

This makes it the worst performer on the All Ordinaries Index (ASX: XAO) today.

It also means the Redbubble share price is now down 84% since the start of the year.

Why is the Redbubble share price crashing?

Investors have been heading to the exits in their droves this morning following the release of the company’s first quarter update.

For the three months ended 30 September, Redbubble reported a 5% decline in gross transaction value (GTV) to $134.9 million and a 5% reduction in underlying marketplace revenue (MPR) to $102 million. Both metrics were down 8% in constant currency despite the Australian dollar’s significant weakness this year.

While that wasn’t great, things got worse the further down the income statement you travelled.

For example, Redbubble’s gross profit fell 7% to $39.4 million or 10% in constant currency terms.

Finally, the company’s earnings before interest and tax (EBIT) turned negative during the quarter and went from a profit of $0.9 million to a whopping $17 million loss. That’s despite its gross profit only falling $3 million year on year.

Bizarrely, at a time when most companies are cutting costs, Redbubble has increased its costs materially. It made a $3.8 million brand investment, which didn’t even deliver sales growth, recorded a $4 million increase in other expenses, and increased its salaries and wages by $4.7 million.

The latter means that its salaries and wages totalled $19.3 million for the first quarter. Annualised, this equates to $77.2 million, which is the equivalent of half the company’s market capitalisation!

But it won’t stop there, it intends to increase its salaries and wages by $14 million to $18 million in FY 2023. This means at least another $9.3 million increase over the remainder of the year.

Management commentary

Redbubble’s CEO, Michael Ilczynski, commented:

The MPR this quarter was down $5.1 million versus the pcp. This largely reflects the impact of cycling $4 million of mask sales within the Accessories category, and the encouraging and continued growth in the T-Shirts category of 12% or $7 million. The growth in T-Shirts was not sufficient to offset the decline in the Artwork and Homeware categories. The MPR result was impacted by slightly lower sales in Australia, Europe and the UK than expected, particularly in September. Importantly, the Group’s largest market, North America, remained resilient in the first quarter of FY23.

Salaries and wages totaled $19.3 million for the first quarter. The increase in salaries and wages reflects our strategy to invest to drive revenue and margin growth, with 76% of new FTEs since July 2021 added to our growth focused areas of Product & Technology, Marketing, Commercial and Supply Chain & Logistics.

FY 2023 guidance

Redbubble’s guidance for FY 2023 remains unchanged.

It continues to expect revenue growth and “compelling” unit economics, as represented by the GPAPA margin, supported by the ~6% average base price rise from early May 2022.

The post Why did this ASX All Ordinaries share just crash 26%? appeared first on The Motley Fool Australia.

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More reading

• 3 ASX tech shares that have managed to turn a $1,000 investment into $50,000
• Winner and Sinner: Woodside stock looks dirt cheap, whilst Megaport shares could have even further to fall
• Novonix share price rockets 26% on $240m US Government grant news
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended REDBUBBLE FPO. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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