Redbubble and TV2U to list on the ASX, undeterred by tech bubble fears

Yolanda Redrup

Reporter, Financial Review


 

If anyone should know about a red-hot tech bubble, it’s a tech company called RedBubble. But fears that the bubble might be bursting haven’t been enough to deter RedBubble from joining internet television wholesaler TV2U on the growing number of Australian tech companies racing to list on the ASX.

RedBubble, which provides an online marketplace where artists and designers can sell their wares, says it is getting itself “prepared” for a sharemarket listing at a yet-to-be-determined date.

Meanwhile, the start-up TV2U, which provides internet service providers with an internet entertainment service and real-time analytics, is expected to announce to the ASX on Tuesday plans to backdoor list through Galicia Energy Corporation.

At the same time, Australian tech industry darling Atlassian is preparing for a $3 billion IPO, which is expected to take place by the end of the year.

RedBubble chief executive Martin Hosking says the business will be bigger than Etsy.
RedBubble chief executive Martin Hosking says the business will be bigger than Etsy. Pat Scala

The Melbourne-based RedBubble is on track to turn over $135 million this financial year and says it plans to be bigger than US rival Etsy, which last Wednesday disappointed analysts by reporting revenues of $US65.7 million for its third quarter. Shares in Etsy have fallen by two-thirds since it listed on NASDAQ in April.

While there’s little doubt it’s cool to be in tech, this has some people worried. Venture capital heavyweight Mike Moritz from Sequoia Capital has sounded the alarm, writing in the Financial Times that some $1 billion tech companies were actually “subprime unicorns” that won’t survive.

TECHNOLOGY UNPROVEN

Within Australia, there are also some backdoor-listed tech companies which are trading on the ASX before their technology has been proven, one of the features of the dotcom bubble of the 1990s.

But RedBubble chief executive Martin Hosking, the former chairman of listed tech company Aconex, dismissed concerns of a bubble.

“In the listed environment generally [both in Australia and the US] we are not seeing a tech bubble. The markets are being pretty discerning in valuing companies based on underlying profitability and growth,” he said.

“Some companies are getting strong valuations but in general these are underpinned by a solid assessment of their profitability.”

RedBubble was backed in its early days by private investors including former Realestate.com.au chief executive Simon Baker, CHAMP Ventures chief executive Su-Ming Wong and Bebo founder Michael Birch. In May it raised $15.5 million to accelerate its European expansion. Melbourne-based Acorn Capital and London’s Piton Capital were the lead investors.

Mr Hosking said there was a tendency for Australian businesses to not fulfil their potential.

“Businesses stop too early and don’t seize the opportunity before them,” he said.

“Why does Australia not have any global consumer internet brands? One of the reasons is they haven’t made the necessary investments at the time. That’s something in the back of my mind.”

LISTING’S TIMING UNDECIDED

Consumers are able to buy the designs of independent artists through RedBubble as wall art, phone cases, clothing, home decor or stationery.

About 60 per cent of RedBubble’s sales are from the United States, 30 per cent are from Europe and 10 per cent from Australia.

Mr Hosking said there had been a bubble in unlisted companies backed by private equity in the US.

“This bubble is bursting now. RedBubble has not been part of this group of companies and is only getting some incidental fallout from it [such as high rents in San Francisco],” he said.

“In terms of timing for listing we haven’t settled on that, but we’re getting prepared… We already have a really good independent board.”

In the next five years the manufacturing capabilities of RedBubble will be enhanced by the broader commercialisation of 3D printing, which is predicted to become a $US16.2 billion industry globally in the next three years

“Currently, it’s still hard to do, but there are some wonderful new technologies … which will open up jewellery, toys and small furniture items,” he said.

“An enormous amount will become possible over time.”

Like Mr Hosking, TV2U founder Nick Fitzgerald is not deterred by the suggestion of a tech bubble.

He believes that TV2U will be insulated against any negative effects of a bubble because its business is built around consumer and business behaviour.

“We believe that unless there is an entertainment medium that supersedes Hollywood movies, live TV, karaoke and online gambling (TV2U’s offering)… or the internet is no longer used as a delivery method for content, TV2U should not be greatly affected if there is a market correction or bubble,” he said.

Mr Fitzgerald said its ability to quickly scale through partnerships with ISPs and its complete entertainment offering and white label product would make it attractive to investors.

TV2U is going to raise up to $10 million as part of the backdoor listing. It will initially target emerging markets in south-east Asia and eastern Europe which haven’t been able to access premium entertainment content.

“Our target markets are underserviced by our competitors due to barriers to entry and piracy,” he said.


Original Post published by Financial Review

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