Redbubble Limited (OTCPK:RDBBF) Q4 2022 Earnings Conference Call August 16, 2022 8:00 PM ET
Company Participants
Peter Kopanidis – Investor Relations
Michael Ilczynski – Chief Executive Officer
Emma Clark – Chief Financial Officer
Conference Call Participants
Owen Humphries – Canaccord
Joseph Michael – Morgan Stanley
Tim Piper – UBS
Wilson Wong – Jarden
Tyler Glauser – Grandeur
Wei-Weng Chen – RBC Capital Markets
Operator
Thank you for standing by and welcome to the Redbubble Limited FY 2022 Results Conference Call. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions]
I would now like to turn the conference over to your speakers. Please, go ahead.
Peter Kopanidis
Good morning, everyone, and welcome here in Australia and good afternoon and evening to our Northern hemisphere investors. My name is Peter Kopanidis, I’m responsible for Investor Relations at Redbubble. Welcome to this investor call following the release of our FY 2022 full year results and reports provided earlier today.
With me today I have the Redbubble CEO, Michael Ilczynski; and CFO, Emma Clark. As well as our full year results and reports, the key information for today’s update is contained in the ASX announcement and the investor presentation also released to the market this morning.
Please note that unless stated otherwise the financial results have now been subject to audit review. Strategic and operational metrics are from internal management reports and have not been subject to audit review. Mike and Emma will speak shortly and we’ll then open up the lines for questions at the conclusion of their presentations. This session is also being recorded.
Before we start, I would like to call your attention to the safe harbor statement regarding forward-looking information in our ASX release. That safe harbor statement also applies to this investor call.
With that, I’ll now pass on to Mike.
Michael Ilczynski
Hello, everyone. Thank you for joining us today, where we will go through the Redbubble Group FY 2022 results. Overall FY 2022 has been a year of challenge and transition for the group. Coming out of quarter four, I feel encouraged and excited about how we are performing and positioned.
The group has undoubtedly faced the challenges of a reduction in the sales of masks, homewares and artwork that have all reduced from their COVID-driven FY 2021 highs. At the same time, increased competition in digital marketing channels and the impact of ATT changes have driven up paid customer acquisition costs. And consumers have had to face record high inflation, and the invasion of Ukraine.
Within this context the group internally has undergone significant transition, with over 140 new team members and five new executives in the past 12 months. We have been clear and committed to our strategy of internal investments to develop the platforms and processes required to improve the artist and customer experience.
This disciplined approach to building internal capacity and capability is required to return the group to growth and achieve our medium-term aspirations. Despite a much more challenging macro and geopolitical environment over the past six months than we or anyone anticipated, we have delivered FY 2022 results in line with the guidance we provided back in early January.
Encouragingly, the group delivered positive growth for the year in our core apparel category, which represents almost 60% of gross transaction value. The growth in apparel was particularly strong in quarter four driven by a strong quarter from the TeePublic business.
We saw the whole group report positive year-on-year growth on a floating currency basis in quarter four, as well as quarter four being up almost 2% on quarter three, compared to last year where quarter four was down almost 10% on Q3.
These outcomes demonstrate the resilience and ongoing appeal of our marketplaces and importantly, the improving operating and financial momentum of the group over the last few months of the year.
The group has invested substantially in our capabilities in order to improve the artisan customer experiences, to drive loyalty and retention and we’re beginning to see the positive impact of this investment.
As such, we will continue with our strategy to deliver further improvements in FY 2023 and excitingly, start investing in our brands to drive additional awareness and sustainably grow our businesses over the medium and long term.
Given our bottom line outcome, we are not at all satisfied with our results for the year, but we are encouraged by the improvement and momentum we are starting to see, the quality and capability of the people we have added to the group through the investments we have made and the genuine uniqueness of the scale and potential of our marketplaces.
I’ll turn now to the summary of our FY 2022 financial results. Our gross transaction value was $630 million and we achieved marketplace revenue of $483 million. Adjusting for the impact of mask sales and delivery date adjustments, our underlying revenue was down 2.6% year-on-year to $472 million. Gross profit of $183 million was down 18% versus FY 2021. And a two-year view which looks through the benefit of mask sales in FY 2021, gross profit was up 36%.
EBITDA was negative $11.2 million. This reflects the significant increase in OpEx during the year, as the business invested in doing internal capacity and capability. Our cash balance of $89 million as of 30 June remains strong and continues to provide us with operational and investment flexibility and Emma will cover our financial results in more detail later in the presentation.
Moving to slide four, we are continuing to execute against our four key strategic themes. There has been no change to our foundational pillars upon which we can build and scale to our next phase of growth. I’ll talk about — I’ll talk through progress against these four themes over the next few slides.
For this year, we’ve also included our two enabler’s, business enablement and risk mitigation. These enablers have been in place since we first shared our four strategic themes. Business enablement is a particular focus on our core technology platforms and processes, modernizing and enhancing them to ensure the scalability and reliability of our platforms and to enable more rapid future progress against our strategic themes. There is a significant proportion of our engineering capacity currently dedicated to this enabler.
Risk mitigation includes areas such as compliance and regulatory testing and products manufactured by the third-party fulfillment network, as well as development of our ESG strategy, which we have set out in some detail in our annual report which we also released today.
So slide five, starting with the artist activation engagement team. This slide is a really important chart for us as a business. The slide on activation engagement reinforces that we continue to see new artists join the platform and make sales and existing artists to sell more works. In FY 2022, 68% of marketplace revenue was generated by artists, who have been on the platform for over a year. This metric has been pretty steady and demonstrates the long-term recurring annuity value that artists and their content earn and bring to the marketplace.
This combination of new artists bringing fresh relevant content to the marketplace and existing artists continuing to make any — to make sales many years after joining, demonstrates the ongoing compounding nature of sales and growth that our platforms can and do generate.
On slide six, Redbubble Group is continuing to unlock opportunities for artists by connecting them with customers on a global scale. Our investments enabled initiatives, aimed at driving artists engagement this year included expanding the physical product range that artists can sell through, sending targeted messages to segmented artists, encouraging them to upload new content to the platform for customers to purchase and through the Redbubble Fan Art partnership legendary entertainment empowered artists around the world to express their unique fan and while reaching a new customer base to sell licensed Fan Art for the critically acclaimed and Oscar winning movie Dune.
On slide seven the Redbubble marketplace continues to attract new content. This slide demonstrates the strong increase we have seen in content uploaded over the past couple of years. Given this ongoing influx of new content, in order to ensure marketplace integrity, a key area of investment for us has been in our content operations and integrity teams. We have scaled the number of people in this area by 11 times in the past few years, enabling a 13 times increase in the number of works reviewed. This investment in content operation clearly comes at a cost. This area represents approximately 8% of our OpEx base for the Redbubble business.
In quarter four, we launched an initial implementation of a new image detection technology. This important investment of both people and technology will enhance our capabilities and enable us to scale in a much more effective and efficient manner as our marketplace continues to grow.
Moving to slide eight that covers user acquisition and transaction optimization. The tens of millions of designs that artists have on our platforms translate into billions of individual product listings for consumers to buy. This extremely long tail of content and product listings provide significant advantages for attracting customers in the digital environment.
On a last-click basis organic and unpaid channels remain the source of the majority of marketplace revenue 60% in FY 2022 in line with the prior year. The marketplaces are aggregators of demand on behalf of artists. In FY 2022 there were 8.3 million unique customers across the group with the unique customer numbers growing at a CAGR of 20% since FY 2018.
Moving to slide nine, developing a culture and process of targeted experimentation across the business continues to be a key aspect of enabling us to achieve our long-term — longer term potential. This remains an ongoing focus area as we continue to make investments and experiment across the customer transaction line.
We’ve included some examples of these experiments on this slide including leveraging our new customer data platform to drive improvements to audience targeting and creative strategy both designed to increase users to Redbubble through social channels and improved promotional experiences in the Redbubble native apps.
Pleasingly our average order value, AOV, was up 9% in the fourth quarter and up 5% versus FY 2021. This was driven by a combination of the May price rise and initiatives, which built order value such as bundling incentives and free shipping tests, which involve a threshold over which shipping is free.
We are encouraged by the traction the teams are starting to get in this area. We still have a lot of work to do and a lot of opportunity right through the transaction funnel and the teams will continue to experiment and improve.
On slide 10, as I mentioned in the opening, consistent with our strategic priorities, during FY 2022, we invested significantly in additional people to boost our internal capabilities.
In the second half, this was particularly within the product and engineering teams in the redbubble.com business. They are focused on improving both our technical foundations and the artists and customer experience. Some examples of how this investment is leading to improvements in the customer experience includes the launch of branded dynamic product ads particularly on social channels where the products presented are dynamically created depending on the customers’ behavior improved promotional experience that has increased promotion take-up and therefore overall sales in our native apps and the launch of buy now pay later option to check out providing additional payment options for consumers that have helped both checkout conversion and AOV.
Moving to slide 11, the mobile customer experience remains crucial with 60% of NPR on the platform now occurring on a mobile device. This is up from 58% in the first half. We have spoken consistently about our apps and they continue to be an important element of our long-term strategy being both the user acquisition and importantly a loyalty plan.
15% of the Redbubble Marketplace’s sales were generated by its iOS and Android apps in FY 2022. The iOS app retains a very high rating of 4.5 stars and we continue to see stronger engagement and retention from customers who use our apps. Increasing the proportion of customers installing and using apps will be an increasing focus over the years ahead.
On slide 12, Redbubble’s membership base is substantial. During FY 2022 there were 14.4 million active members, down 7% on FY 2021 however, up 32% versus FY 2020. Being a member, means that the customer has a Redbubble account and use this to log in, browse and purchase on the Redbubble marketplace.
We define a subsection of these as active members, who are unique members who visited either the web or app platforms while logged in, at least once during the period. Of the 14.4 million active members in FY 2022, 12% went on to make a purchase during the period. Converting more members to active members and then more active members who are on the platform to purchasing customers represents a significant opportunity for the business.
Pleasingly, when a member does purchase they’re much more likely to make subsequent purchases relative to non-members and the increased frequency leads to a higher average annual order value. There is ample opportunity for us to continue to build our membership program overtime which will result in more users becoming active members and more active members purchasing.
Moving to slide 13, purchases by repeat customers made up 46% of marketplace revenue in FY 2022 across the two businesses. This is up from 45% for the half and 42% in FY 2021. As we did at the half year results, we have broken down the repeat purchases into existing and reactivated customers.
Existing customers contributed $160 million to FY 2022 revenue. These are customers who made a previous purchase in the prior 12-month period and this period. Reactivating customers contributed $62 million of revenue and these are customers who made a previous purchase more than 12 months ago, who came back to purchase during the year.
At our first half results, we noted the increased competition in online channels as both online and traditional retailers increased digital spend and ATP [ph] changes impacted the effectiveness of some channels and further pushed up spending on others.
The result was an increase in tax, customer acquisition costs. And given our focus on profitable acquisition it impacted the volume of new customers we applied. This can be seen in the contraction of new customers with revenue contribution from this group of $260 million for the year down from the $321 million in FY 2021. We know that FY 2021 also included a large volume of customer demand in masks.
Tax still remains elevated. However, they have stabilized. Our response has been twofold. First, we continue to focus on diversifying both our paid and unpaid customer acquisition channels. And secondly, our focus on retaining new customers through dedicated retention activities and a variety of loyalty experiments.
The chart demonstrates that we are making progress in both businesses in growing revenue from repeat customers. And believe there is still significant upside for us in increasing royalty over the short and medium-term. It’s a validation that our focus on better customer understanding and loyalty is of high potential, while we also, continue to work to develop new diversified customer acquisition channels.
Moving to slide 14, thus far, we have been able to remain relatively insulated against the well-publicized global supply chain pressures that continue during FY 2022. This is in large part a specific feature of our business model. The make on-demand model, coupled with the diversified third-party network of fulfillers means that Redbubble does not hold inventory.
Goods are only manufactured when a customer order is placed and product inputs help involved in advance of demand by the fulfillers. Investments into our supply chain logistics and operations teams during the financial year have enabled us to achieve improvements in the delivery experience and product quality for artists and customers.
Some examples of these positive progress are that average days to ship decreased by 28% in the second half compared to the first half, the on-site delivery time estimates were reduced from 91 products by between one to five days, and we reduced the defect rate or stickers by 26% in the first half compared — in the second half compared to the first half.
The group also continued to focus on localizing products at existing facilities during the year, particularly in the TeePublic marketplace, where 18 products were localized into existing third-party Australian and Canadian fulfiller sites. Increased localization has multiple benefits including reduced shipping costs to customers, lower transit times and improved sustainability, as well as strengthening the resilience of the entire network by adding optionality and redundancy.
On slide 15 our teams have continued to deliver new product launches, line extensions and visual merchandising improvements in FY 2022. These drove tangible commercial outcomes including incremental sales and conversion gains. We achieved $5.3 million of sales in FY 2023 — in FY 2022 from product launches including mascots and cats, and $6.1 million from line extensions across apparel, stationery and device cases. During the second half, we also added line extensions to a range of T-shirts, phone cases and mouse pads.
On slide 16 as I flagged that we would during our first half results, we launched a new pet’s category in June. This will help the group gain access to new addressable markets by expanding the existing product portfolio into new areas of rising demand amongst our core audience. The new products include Pet Blankets, Pet Mats shaped for cats and dogs and bandanas, with further extensions to this category to come over time.
In the next section, I’ll recap on the group’s unit economics and outline the exciting brand investment program we have planned for FY 2023. So moving to slide 18. Redbubble Group unit economics remain compelling and we took some proactive actions in the second half to further solidify them. Pricing actions were implemented in early May via an average 6% increase to base prices and this is in recognition of expected higher cost of doing business and to enable a continued focus on lowering shipping margins.
Our experience post the price rise has been encouraging with negligible impact on conversion and higher ROV. For the fourth quarter, we achieved a gross profit margin of 39.7%, which was down 50 basis points versus PCP, but up 220 basis points versus the third quarter. Our fourth quarter GPAPA or contribution margin was 23% and this was up 160 basis points versus the third quarter.
Our logistics and supply chain teams were able to successfully renegotiate improved shipping agreements in the US, Canada and the UK, and we will continue to see the financial benefits from these improved agreements in FY 2023.
Moving to slide 19. Slide 19 reiterates the ongoing positive unit economics for the group. This is a critical point. It is why we have invested in our teams and why we will now begin investing in our brands to drive growth at the top line. Every dollar of revenue has a positive contribution margin and that is why our focus now is all about driving efficient scale.
In addition to the 6% average base price rise in early May, the Redbubble business implemented a free shipping trial in the UK to purchases over £50. Our experience from this trial has resulted in a larger shopping basket with increased marketplace revenue offsetting the shipping cost and growth in gross profit dollars versus the preceding month.
In July, we also launched a free shipping trial in the US, for purchases greater than the US$65 on redbubble.com. Both of these free shipping trials remain in place today and are aligned with our strategy, of reducing shipping costs to customers and replacing shipping margin dollars with product margin dollars.
So moving to Slide 20. As per our strategic themes, we have previously flagged the need to build our brands. This is a core strategic priority to build a deeper understanding with customers of our proposition to increase the effectiveness of both paid and unpaid acquisition channels, and to improve customer loyalty and repeat purchases. We believe that the time is now right to begin investing in the Redbubble brand.
As I’ve mentioned, we have invested in our internal capacity and capability and we are now improving the artist and customer experiences, to drive loyalty and retention and to ensure sustainable growth. Building awareness of our brand, is one of the untapped long-term growth opportunities for both businesses.
With these investments, we are aiming to grow awareness in our unique value proposition and core platform offering, with messaging we have developed through learnings over the last financial year. Redbubble is creatively inspired commerce. Redbubble enables self-expression for customers through a breadth and depth of content powered by the largest independent artist marketplace.
Redbubble enables economic empowerment for artists, enabling artists to turn their passion into profits. And Redbubble is confident commerce, through building a trusted experience for all marketplace participants.
On Slide 21, our awareness efforts will focus on attracting and retaining the Gen Z audience, that is people aged 10 to 25 today. For the Redbubble brand, we know and have reaffirmed that Gen Z is the core growth audience, who already engaged the most with the brand. We also know that there is ample opportunity for growth with this audience.
For FY 2023, we will evolve our on- and off-platform experience that better meet the expectations of Gen Z, which you can start to see through the merchandising experience of this year’s product launches on Redbubble, bucket has been a clear example and on-site improvements such as offering buy now pay later options, of which Gen Z is the largest generation to use.
On Slide 22. So for FY 2022, we did a large amount of work to understand who the customers are and our starting point. We know that it takes time to build a brand. And in FY 2023, we will commence our investment in building awareness of Redbubble. Our execution plan for the year is grounded in learning, what creative the media mix approach grows awareness in key US cities with Gen Z.?
Successful learning will be scaled into new types of media and additional US cities. We’ve selected a strong agency partner to work with us on this and Emma, will outline the quantum of investment we intend to make.
And so moving to Slide 23. Before I hand over to Emma, to run through the financials, I just want to take a moment to offer our support to the people of Ukraine, and to thank the Redbubble and the public community for the way they have so greatly and significantly demonstrated their support also.
This response really highlights the power of our platform, to enable a meaningful response to invest that impact our communities and the work. It shows how Redbubble moves at the speed of culture. That is artists to respond immediately, when cultural moments happen uploading content onto the platform, enabling customers to purchase their products and express themselves, expressed their feelings and expressed their support.
As a company, we enacted our global event policy, which means we will not take profits from these works and instead seek to donate them. We selected two charities to donate to develop landing pages to promote the works by Ukrainian, artists and works in support of Ukraine. And we promoted those on sites through e-mail and off-site through both paid and owned channels.
To date, we have had over $1 million in gross sales. We have donated $170,000 to charities and artists have generated $150,000 in earnings. I’m incredibly proud of the Redbubble community, and the Redbubble and TeePublic teams for the way that they have rallied to support the people of Ukraine.
I’ll now hand over to Emma to run through the financial performance to FY ’22.
Emma Clark
Thanks Mike and hello to everyone. I will now walk you through the income statement on Slide 25. We I won’t go through every line item, but I did want to take the opportunity to call out both the improved fourth quarter operating performance as well as the full year results.
In the fourth quarter versus the prior comparative period, marketplace revenue was up 1% to $98.2 million and gross profit of $39 million was flat. Mask sales were down $2.5 million to $500,000. Gross profit margin was down 50 basis points to 39.7%. Paid acquisition costs were up $3.5 million and operating expenses excluding the $1.1 million of brand spend were up $6.5 million or 28% reflecting the investment in internal capacity across the business that Mike has already talked to.
Versus the third quarter operating performance improved in the fourth quarter. Marketplace revenue and gross profit were up 1.9% and 7.9% respectively. Gross profit margin was up 220 basis points to 39.7% and GPAPA margin was up 160 basis points to 23%.
For the full year, reported marketplace revenue was down 13% or $70.7 million versus the prior year. I will step through the bridge to underlying marketplace revenue on the next slide. Gross profit was $183.1 million down 18%, TeePublic was $106.7 million down 30%. Operating expenses once again excluding the $1.1 million of brand spend were up 23% to $109.3 million. I will cover this step up in more detail shortly. And finally, the EBITDA outcome for the year was a loss of $11.2 million.
Moving on to Slide 26. Given the quantum of mask contributions and delivery date adjustments recorded in the prior year, we have been transparently bridging the reported figures to the underlying numbers. The delivery date adjustment added $13 million in the prior year and masks also contributed $55 million of marketplace revenue in FY 2021.
In the current year, the delivery date adjustment was only $260,000 and masks contributed $10 million. Adjusting for these two factors FY ’22 underlying marketplace revenue growth was down 2.6% or $13 million year-on-year 4.3% on a constant currency basis. Looking over the longer term FY ’22 marketplace revenue was 38% higher than FY ’20.
On to Slide 27. Consistent with our previous commentary this is a business that needs to be assessed over the longer term. As whilst there has been volatility quarter-to-quarter the longer-term growth rate since the business commenced in 2007 have been consistently high. Marketplace revenue has grown at a compound annual growth rate of 27% since FY 2018 with a corresponding CAGR of 30% at the gross profit line and a CAGR of 23% for gross profit after paid acquisition.
I’d like to focus specifically in on the GPAPA result. Back in April, at our third quarter results we detailed how one of the factors impacting the results was increased competition that had a flow-on effect to organic which is largely unpaid demand. We responded to these changes in the landscape by increasing total paid acquisition spend and have continued spending at this level.
These actions across both marketplaces have positively impacted our revenue results but at a lower contribution margin with the fourth quarter GPAPA margin down 390 basis points to 23% versus the prior year.
However, as I referenced earlier, the fourth quarter GPAPA margin was up 160 basis points versus the third quarter, which was driven by a 220-basis-point increase in gross margin, which is largely the impact of the May price rise that Mike spoke to earlier. I would also like to reiterate that we maintained our first transaction profitability hurdle. So whilst paid acquisition remains elevated it also remains profitable.
Increasing scale will help to drive further gross profit and GPAPA improvements. During COVID, we have already shown the ability to deliver strong returns when the business step changes at scale and we are not in an investment phase.
Moving to Slide 28. Redbubble is a truly global business and our multiregional footprint is a key strength. North America continues to be our largest region at 69% of total platform sales and on a two-year basis, which has grown 3%. Australia and New Zealand provided a source of positive year-on-year growth up 4% as lockdowns continue to occur intermittently during FY 2022. Since FY 2020, Australia and New Zealand are up 63%.
On Slide 29, you can see that there are a diverse range of physical products available on the marketplaces and this broad mix of lifestyle categories has enabled artists to maximize their selling opportunities as consumer needs and preferences have continuously shifted over the past two years.
During the peak of the pandemic, categories such as accessories which includes face masks as well as homewares and more app performed exceptionally well. However, they have all faced a stronger year-on-year decline as they cycle both cover comparatives.
During FY 2022, we were pleased to see other apparel and T-shirts, which is the group’s largest product category, contribute positive year-on-year growth. Importantly T-shirts and other apparel were also up in the fourth quarter versus prior year up 20% and 5% respectively. Stationery and Stickers were also up by 2% in the fourth quarter.
These results highlight the importance of continuing to have a diversified physical product offering on the marketplaces. And as Mike talked through earlier, we continue to invest in both expanding the products available as well as improving the life cycle appeal of existing products.
On to Slide 30. Our cash position remains strong. As at the 30th of June we had $89 million cash at bank. This continues to provide us the flexibility to invest into our future business growth and for the prudent management of our working capital needs.
There are also a couple of other balance sheet-related items that are worth mentioning. As some of you would be aware, we had $48 million of off balance sheet tax losses. These losses are available to offset future taxes payable.
And as we have previously discussed, Redbubble is required to recognize revenue upon delivery of goods rather than when the customer has paid for the order. This results in revenue being deferred to the balance sheet. As at year-end this was $13 million.
Moving to Slide 31. Given the internal investments we have made, we thought it was important to set out the step-up in our OpEx spend in FY 20’22 and also provide a delta forecast range for FY 2023. Our total OpEx increased by $22 million in FY 2022 to $110 million. This includes $1.1 million of brand spend that we incurred in the fourth quarter.
The largest driver of the OpEx increase was salary and wages, up $12 million, increasing from $58 million in FY 2021 to $70 million in FY 2022. In FY 2022, we had an increase of 99 approved FTEs to 429. This is a 30% increase versus FY 2021.
For FY 2023, we expect our FTE growth to slow substantially from the 30% increase in FY 2022 to approximately 4%. We expect our monthly salary and wages expense to increase to a range of $7 million to $7.4 million per month for FY 2023, noting that the actual number will depend on the timing and start date of the new roles.
This final step up in salary and wages equates to a range of $14 million to $18 million for FY 2023 as the full year run rate of the FY 2022 hiring is embedded and the remaining 46 vacancies are filled. Our FY 2023 Redbubble brand investment is a 12-month program with a range of spend in the order of $8 million to $12 million for the year.
Thank you and I will now hand back over to Mike.
Michael Ilczynski
Thanks, Emma. Moving to Slide 33. I’ve presented this slide previously but I wanted to take an opportunity to revisit the unique aspects of the Redbubble business model and specifically how we create value. Redbubble and TeePublic are large-scale difficult-to-replicate three-sided marketplaces. They offer a simple no upfront cost selling model for artists, which is uniquely positioned in the way we serve the creator economy, helping artists to monetize their creativity and sell to millions of their customers globally at very little risk to them.
The marketplaces connect artists and creators to a third-party on-demand fulfillment network that enables neither the artists or the marketplaces to need to carry inventory or warehousing cost and risks as well as being highly scalable and capital light for the group.
These millions of artists provide a large-scale, highly dynamic and deep source of content and they create a massive constantly evolving catalog of content and product listings. Redbubble Group’s core role is to aggregate and enable consumer demand for artists by utilizing these enormous product content library across organic and paid channels.
When the artists sell an item to a customer it is fulfilled and shipped on demand directly from the third-party network. Our business model therefore enables effectively infinite product listings each of which if and when purchased has a positive contribution margin for the marketplaces.
Importantly, we’ve made solid progress to improve the underlying operational performance of the group and solidify these strong unit economics. The artists and their content, their customers and the third-party fulfillment network form genuinely unique 3-sided marketplaces and we are focused on driving the flywheel effects to build scale, efficiency and good profitability.
On Slide 34, we have previously shared our medium-term strategic plan based upon our high potential growth levers. These initiatives will be phased over the next four to five years and has been ordered to give us the best chance of maximizing our returns on investment.
This slide sets out our current and medium-term growth levers for the period of financial year 2023 to 2025 and then beyond financial year 2025. While we continue to work on improving our foundation in some areas, in other areas we are now moving into the second phase of earning growth through disciplined investment. In FY 2023 this includes commencing investment in the Redbubble brand as I described earlier and a continued focus on gaining efficiencies across the fulfillment network as we scale.
So Slide 35, we shared our medium-term aspirations to reach $1.5 billion in gross transaction value and $250 million in annual artist earnings in April last year. We remain committed to these aspirations and we continue to believe that the margin profile presented with these aspirations is achievable at that level of scale.
In recognition of our current position, the progress we are making against our strategic priorities and the challenges faced by the group to replace the $55 million of mask sales in FY 2021, we have updated and clarified our time frame for these aspirations to the two-year period from FY 2026 to FY 2027…
So moving to Slide 36. To reiterate when we achieve this level of scale, which includes growing marketplace revenue in line with our historic CAGR of between 20% and 30%, we remain confident that this level of profitability is achievable. Our aspirations are for the group to be 2.5 times larger from a GTV and marketplace revenue perspective than it is today. And at that scale, we are confident in the operating leverage achievable and that that will enable us to produce EBITDA margins in the medium-term of 13% to 18%.
So moving now to our FY 2023 outlook on Slide 37. Revenue growth is expected in FY 2023 with the benefit of one-off mask sales in FY 2021 of approximately $55 million now largely fully cycled. Redbubble unit economics to remain compelling supported by the 6% average base price rise from early May 2022 with a 60% of marketplace revenue from unpaid sources on a last click attribution basis.
Our forecast FY 2023 OpEx reflects the following: a slowing of new roles in FY 2023 down to 4% from 30% growth in FY 2022. FY 2023 forecast FTE salaries and wages average run rate is between $7 million to $7.4 million per month, an increase of between approximately $14 million to $18 million for the year and FY 2023 forecast Redbubble brand investment of approximately $8 million to $12 million at constant currency to build awareness that reinforces the path to our medium-term aspirations.
That concludes our presentation. Thank you very much for listening and we will now open up the line for questions.
Question-and-Answer Session
Operator
Thank you very much, sir. [Operator Instructions] We have a first question from the line of Owen Humphries with Canaccord. Please go ahead.
Owen Humphries
Good day guys. Could you hear me?
Emma Clark
Yes.
Owen Humphries
I guess, yes. Could you just maybe describe what the constant current, I guess, can you just highlight what the constant currency growth was for the fourth quarter from a revenue perspective we just couldn’t see it?
Michael Ilczynski
Yes. Thanks, Owen. It should be on the first page of the release the constant currency marketplace revenue was down 4% quarter four versus quarter four of last year. Was that the question you’re asking?
Owen Humphries
Yes that’s right. Good one. So that — and just talking through the price rises of 6% in May how much of that will fall through to gross profit margins of call FY 2023? Are we expecting a 6% uplift in margins I am guessing not but just how much of that fall through of that 6%?
Emma Clark
So thanks Owen great question. So as we called out in our speaking notes just previously, the fourth quarter results had a 220 basis point increase in gross profit margin. That was largely the impact of those 6% price increases falling through so you can effectively factor that in. Obviously, as Mike said, there will be increased cost of doing business coming through in the future. We don’t know to what order of magnitude those will come through, but we will continue to monitor pricing and take action to keep our unit economics astute level pretty consistent.
Owen Humphries
Good one. Okay. And just noted last quarter, you guys talked about strategic corporate initiatives to extract value to shareholders. I noticed, it wasn’t reiterated in this release. Can you maybe talk through what was taken and is that now updated?
Michael Ilczynski
Look, thanks Owen. There’s no change in our focus. Obviously, it’s a core responsibility of management, and the Board to continue to look at all opportunities to enhance value for shareholders. We have been doing that and we can see – and we will continue to do that moving forward. Our core focus though is on an internal is on our internal growth path. We’ve obviously made significant investments into our people. We’re now backing that with investments into the Redbubble brand. That is our core focus. But at the same time obviously we’ll continue to look at all opportunities shareholder value.
Owen Humphries
One last quick one for me. I know I’ve got a limited to. But just basically, the GPAPA margin of 23% of that fourth quarter, obviously a bit of power went to other price rises potentially into FY 2023. Given the OpEx base, I know, there’s been ambiguous around the revenue growth guidance, but what’s the revenue growth that’s expected to drive an improvement in EBITDA in FY 2023?
Emma Clark
Yeah. So Owen, we’re not giving specific revenue guidance for FY 2023, because of the uncertainties in the overall environment. We’re obviously flagging that we expect to return to growth. That growth will not be linear across the four quarters of the year. So we’ll move around a little bit, but we’re not actually giving any revenue guidance this time now.
Owen Humphries
Okay. So I can ask another way what was – is the GPAPA margin of 23% in the fourth quarter are you guys thinking that you can get back to the long-term trend between 25% and 27% in FY 2023?
Emma Clark
Yeah. So once again, if you look at the outlook statement on the last page of the presentation, you will see that we explicitly state that we expect our unit economics to remain compelling, which has been supported by that price rise. And as Mike said earlier, we’re looking forward now into going to that next phase, where we’re looking to get further efficiencies out of our fulfillment network. Obviously, these are all supported to that GPAPA margin percentage.
Owen Humphries
Good one. I’ll sit back in the queue. Thanks, guys.
Operator
Thank you. We have next question from the line of Joseph Michael with Morgan Stanley. Please go ahead.
Joseph Michael
Good morning, Michael. Good morning, Emma. Thanks for your time. Just couple of questions. So obviously, the revenue growth trajectory improved through FY 2022. So just can see what you’re seeing in the first quarter of 2023. Has that improving trajectory continued?
Emma Clark
Yeah, great question, Joe. So we’re not giving any specific commentary about the current period performance, because we are going to be out again in October talking about that, which is going to be very soon. What I will say is July was in line with our expectations. So I would note and it comes back to the previous comment that I had for one of Owen’s questions we are cycling a strong first quarter 2022, because if you think back to that July to September period last year, we have our back-to-school seasonal uplift and that period last year that was the first year after two years of lockdowns that North Americans were actually able to go back anywhere.
So we had the reopening trade. We’ve factored that into all of our projections. And obviously what we’re looking for is really where we’re going to land over the first half. And specifically quarter-to-quarter I do think those comps will move around a little bit. What I will say is July is in line with expectations. And encouragingly, we have seen the uptick that would reflect that normal back-to-school seasonal pattern at the end of July.
Joseph Michael
Okay. Got it. And then just a second question just around that sort of OpEx increase. So slide 31, we’ve sort of highlighted called as, sort of, a $30 million OpEx increase. How is that being funded? Is that being funded from the price increase, or should we kind of view that cost increases is incremental?
Emma Clark
Well, effectively the net outcome at the EBITDA line level is being funded out of our cash balance. So obviously we’re internally investing into that.
Joseph Michael
Okay. Got it. Thank you.
Operator
Thank you. We have next question from the line of Tim Piper with UBS. Please go ahead.
Tim Piper
Hi. Good morning. Sorry just on muting myself. Just a follow-on for the last question maybe asking it a different way. That you put through the price increase so is it fair to say like on your run rate of where do you think it’s going to be in 2023 the top-line. GPAPA through could be an incremental like $20 million to hence you’re investing that back into OpEx?
I mean you’re clearly taking a different path to some of the other companies we’ve heard come out and you’re kind of talking about uncertainty that sort of certain enough to throw a lot of additional OpEx here? I’m just trying to understand your thought process around balancing what’s incremental versus what additional?
Michael Ilczynski
Yes. Thanks, Tim. I might start and then Emma feel free to jump in if you need to. I think there’s a couple of things to think about Tim. Number one there is absolutely uncertainty moving forward. That said as we spoke we do feel that the time is right to start investing in our brand. The cost increases that you’re seeing the majority of the cost increases you’re seeing on the salary and wages line is really full year effect of the people that we’ve brought in over particularly the past three, four, five months and seeing that full year reflect effect flow in plus filling the vacancies that we had year end.
As we talked about we are significantly slowing down our new FY 2023 rolls down to just a 4% increase majority of them into our into the TeePublic business. So we are obviously not just at the external environment at the same time we’re starting to see the benefits of this increase in people and capacity and we’re starting to see that flowing in.
We’re feeling confident about the trajectory of our business. And given our positive unit economics it is all about scale for us. It’s all about driving scale at that top-line. That obviously doesn’t happen overnight. We’ve got levers that we can pull in the short-term through product improvements or paid marketing. But we do believe that growing our brand awareness is fundamentally important to growing that longer term — our growth over the longer term. We know that stronger brand means better both unpaid and paid acquisition. We know that it leads to stronger retention in low. And we think now the time is right.
Obviously — obviously we do have a degree of discretion amongst our OpEx base if the world turns more negatively against us than we would hope. And clearly we’ll be assessing on a weekly to monthly basis on how we’re tracking versus our plans because we do have discretion amongst some of those elements of spend.
But we actually — we really have some confidence in how the business is starting to move. And we believe that the time is right to continue obviously assessing to make sure the world is moving how we expect it to move.
Tim Piper
Okay. And just a second one on the employee costs. Obviously you called out 4% FTE growth in 2023. Can you just break down maybe sort of the midpoint of that incremental employee cost side? How much of that is annualization from the prior period? So — and then how much annualization do we expect in FY 2024 in employee costs? And do we take that plus 4% in FTE as signaling sort of the end of this hiring cycle which has been going on for some time like — where are you at in the employee base once you fill those roles?
Emma Clark
Yes. Yes. Thanks for the question Tim. Answering the last part of your question first, yes is the answer. We are — we were quite clear that we want step up the capacity to a certain level and then we’re going to run with that level of capacity for a year or two. So this last quarter hire in FY 2023 is that final step up and then we won’t have a further large step-up in FTA in FY 2024 and beyond.
What I would say in terms of the dollar increase across FY 2023, a very large proportion of it is for the roles that we hired in FY 2022 because most of them came on in the second half and in the last sort of four months in a lot of instances in the year. So, it’s a full year run rate of that.
We go into the year as of the 30th of June with 46 vacancies and then the new roles that we’ve approved for FY 2023 are only 18 roles. So that’s the hiring still to come. One those two had run through and we’re doing that right now. We actually closed quite a bit of vacancies in July. So, we will see most of that effect in the year of FY 2023 so that we won’t be sitting here at the end of next year saying actually there’s a huge run rate impact of those hires into FY 2024 because most of those hires will happen in the first half of FY 2023.
Tim Piper
Okay, got it. I know I am limited to two, but just looking just one point on the Slide 31 where you’ve got that OpEx chart. Just optically looking at that I mean going from 110, you’ve got then three buckets split out there with the ranges I mean they are the only three buckets right? And then you’ve got the gray bar for OpEx in 2023, but then you’ve got this green section and blue section on top of the gray bar there — is that wrong? Like it looks like–
Emma Clark
Yes. So, there’s just a range of Tim. So, this is where it gets difficult to pictorially depict, right? What we’re simply saying is when you got up the ranges in each of those increases in the FY 2023 year you go to the bottom, you’ll get a number that’s 135. If you are at the top of each one of those sub ranges, you’ll get to 145. And so all we’re doing with the green and the blue is illustrating the range.
Tim Piper
Okay. I’ll jump back in the question. Thanks.
Operator
Thank you. We have next question from the line of Wilson Wong with Jarden. Please go ahead.
Wilson Wong
Hi guys. Can you just talk to the customer acquisition cost trends you’re seeing and how you expect this to change over the next year?
Michael Ilczynski
Yes. Thanks. Look obviously it’s an important issue for us as we talked about 40% of our marketplace revenue on a last click basis is generated through paid channels. It’s a bit more than that when we use our attribution model as we’ve talked about.
And so customer acquisition costs if we think back to last year really stepped up around October-November last year and multitude of factors both the increase we saw both the online and the traditional retailers come back into the digital advertising environment and pretty much at the same time the first round of ACT changes rolled out that impacted the effectiveness really is the social channels pushed a lot of spend on to the intent-driven channels particularly Google drove up CACs quite strongly particularly in search.
What we’ve seen over the last sort of seven, eight months since then is that CACs bounced around but they mostly remain elevated. So they’ve remained elevated without going up further. So they really stepped up October-November December. They’ve bounced around since then but on average of stay at about that elevated level.
Now, therefore, our assumption moving forward is that they will remain at that elevated level, but not substantially go up or down. That’s obviously both a risk and an opportunity for us, depending on who you speak to someone say that they’re going to go up further, some will say they’re going to go and come down further.
So our assumption is that they remain elevated without substantially increasing further. And that’s the assumption that we’re putting into our planning moving forward. Really for us, it does emphasize the importance of continuing to diversify our acquisition channels. The intent channels are — which is more to search ones, they’re the ones that really gone up, as the visibility into the social channels has been impacted. So we’re continuing to experiment across a range of channels and we’ll continue on that focus on diversifying both our paid, but also continuing our significant investment into our SEOs that we’re continuing to drive those unpaid and organic channels as well.
Wilson Wong
Okay. Thanks for that. Can you just provide some detail around what the brand investment will be comprised of? And do you sort of expect this level of investment to grow in the medium term?
Michael Ilczynski
Yeah. Thanks. As we tried to say relative to our OpEx, it’s a significant investment. Relative to the US market and we’re talking about Zen in the US, it’s a relatively small investment. So this year for us is very much about learning and testing. So we’re not blanketing all of our markets. It’s very focused on the US. It’s focused on key US cities and therefore the investment is what you would expect. It’s a combination of production and mostly media spend with obviously agency underneath that that’s generally what it comprises of. Our media as we talked about will be focused on digital channels. With the 1.1 that you saw in FY 2022 within the final quarter of this year mostly and was really focused on us starting to test, test and channels, test and messages just in a couple of cities. We’re taking those learnings refine and we go out to our next lot of test cities in test markets in the coming weeks and months. So the spend is mostly media and production.
Operator
Thank you. We have next question from the line of Tyler Glauser with Grandeur. Please go ahead.
Tyler Glauser
Hi, guys. Thanks for taking my questions. You touched on this a bit earlier, but can you provide a bit more detail on if there’s anything you’re seeing in the business over the last few months that’s giving you confidence in setting up the cost base further. Maybe with regards to marketing costs coming down or revenue momentum?
Michael Ilczynski
Yeah, sure. As we talked about, I think the things that are getting confidence are twofold. One, we’re seeing some of our internal key metrics areas like visit particularly our organic visits, things like our average order value has been increasing over the past few months. They are key transaction and funnel metrics for us. And when we put those together, as we talked about particularly in quarter four, we had really, really solid year-on-year growth in apparel. Apparel is core Redbubble and public. Apparel makes up more than 40% of our total gross sales. So to see year-on-year growth over the quarter in apparel, particularly driven throughout the TeePublic business, which is very North American very apparel-focused that’s given us confidence that the business is moving in the right direction where we see those core areas.
We also saw stickers which again that figures is core Redbubble to start to get some year-on-year growth back in the stickers category in Q4 also a really positive area of encouragement for us. So we’ve still got a lot of work to do. As Emma mentioned before, the Q1 for us now is actually a pretty tough, a pretty tough comp because of the reopening trade that we saw and the back-to-school trade we saw last year. But when we look through, when we look through the quarter and focus more in the half and a year, the momentum that we’ve seen over the past few months, both in some key categories for us and against some of our key operating metrics is what’s giving us the confidence that we can — that — and just to be clear, our OpEx now is stabilizing even if we see the additional OpEx come through the numbers. Just to reemphasize that is about — that’s the full year effect of the roles that we’ve already brought on or the vacancies that we’ve got existing. So, we are — we do think that we’re having — we’ve got a degree of conservatism in not having another wave of increasing headcount across the business. That’s why we emphasized the 4% growth versus the 30%. So, we have a lot of work to do. There’s clearly some uncertainty in the year ahead. But obviously, we feel confident about what we’re seeing on a metrics and financial position to give us the confidence to continue on the path we’re going and to start investing in our brands.
Tyler Glauser
Okay. Great. Thank you. And then also following on from Owen’s question earlier, on your previous commentary on enhancing shareholder value. Can you just provide a bit more information on the measures you’ve considered for that please?
Michael Ilczynski
Look, we talked about that previously in terms of making sure that we’re looking at a variety of measures, whether that’s M&A opportunities, whether that’s capital management opportunities. There’re things that remain right at the forefront of what we’re thinking about, particularly on the M&A front. Given where the industry is given where we are as a business is obviously a pretty by bar on those sort of activities at the moment, but it doesn’t mean that we stop looking. It’s important in this environment that there is opportunities that we’re ready that.
Emma Clark
I would just add to that and just to reiterate a point that we made earlier. So that’s just good management and good board management to keep looking at those opportunities. I think what we want to make sure is clearly understood is, we’re highly aligned with achieving our midterm aspirations and we’re investing to achieve those near-term aspirations. That is actually the best ROI of the pallets that we’re looking at the moment and that’s why we’re looking what we’re doing.
Tyler Glauser
Okay. Great. Thank you.
Operator
Thank you. We have next question from the line of Wei-Weng Chen with RBC Capital Markets. Please go ahead.
Wei-Weng Chen
Hello, are you guys there?
Michael Ilczynski
Yes.
Wei-Weng Chen
Excellent. All right. Sorry I just jointed the called a little bit late listened to that. But just wanted to talk about the OpEx firstly a quarter where you said you weren’t giving revenue guidance, but the expectation that in FY 2023 we see OpEx sort of go up let’s say at the midpoint $30 million. Is that going to be offset by revenue or sort of EBITDA losses kind of widen in ’23?
A – Emma Clark
So yes, we did get asked this question before. And unfortunately, no, we cannot give you any more revenue guidance other than that we are returning to growth across the year.
Wei-Weng Chen
Okay. No, worries. And then the other question I had, was can you maybe give us — I mean if I think lets say, Slide 23, you go through FY 2022 and then there’s a bit of great base in FY 2026 2027, with your I guess you’re long term target, can you maybe fill in the gap a bit in terms of kind of what you’re expecting in terms of, how we get from FY 2022 to the longer-term targets?
A – Emma Clark
Yes. Okay. So obviously, we’re not going to – necessarily, we’re not giving revenue guidance next year. So we’re not certainly going to give revenue guidance right out every year to FY 2026 FY 2027. Well, how I would answer your question is to say that, if you — in any model popping certain revenue growth for next year and then put somewhere between 20% and 30% revenue growth CAGR for the remaining period, you will get to FY 2026 FY 2027. Now obviously, as we’ve discussed earlier it’s not necessarily a linear quarter-to-quarter. Certainly, we experienced volatility quarter-to-quarter. But over that long-term, really it’s our historical growth rates that need to be maintained over a five-year period that gets there.
Michael Ilczynski
Yes. So I think if you pull up Wei-Weng, you can see when we look back from FY 2018 we look through COVID to where we are now you can see how they’ve grown at both NPR and gross profit and gross margin. And then obviously, when we’re talking about returning to revenue growth over the full year for FY 2023 without specifying, how much you can see that that we’ve had the pump from COVID and we’ve dropped down this year. You can clearly say, that we now we expect that to return to growth.
So from our perspective, if you look at the historical rate from FY 2018 to FY 2022 and then you look at what we’re projecting for the years forward, we don’t expect it to be linear. But we do expect obviously, revenue growth over the next three, four, five years to significantly outpace OpEx growth over those periods. And that’s what enables us to increase the set ourselves back to EBITDA positive over time and then obviously, get us to those margins that we’re looking at over a four- to five-year period.
Operator
Thank you. Ladies and gentlemen, we have reached the end of the question-and-answer session. And I’d like to hand the call back over to Michael Ilczynski, for closing remarks. Over to you, sir.
Michael Ilczynski
Thank you, Vikram. I just want to take thanks to everyone for tuning in. Thanks for your support over the past 12 months and we look forward to catching up with many of you over the days ahead.
Operator
Thank you very much, sir. Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may now disconnect.
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