Concerned Investor Michael McConnell Issues Open Letter to RedBubble Shareholders
Michael McConnell, a holder of 800,000 shares of RedBubble Limited ("RBL" or the "Company") (ASX: RBL, ADR: RDBBY) today issued the following open letter to RBL shareholders:
June 28, 2023
Dear Shareholders,
My name is Michael McConnell and I write to you again as a concerned RedBubble ("RBL" or the "Company") shareholder. I own 800,000 RBL shares acquired at an average cost significantly above the current price of approximately $0.34 per share.
What has happened since my letter in early April?
- The Company issued a market update on April 20th
- The Company issued a further market update on May 10th
- I participated in a video call with the CEO on May 17th
I, and the investment community, have been underwhelmed by these Company communications and, not surprisingly, the share price has declined a further approximately 25% over the last 10 weeks to an all-time low.
The red flags are many and the case for substantive changes could not be more compelling.
During my roughly 35-minute call with the CEO, Martin Hosking indicated that he was focused on driving profit and growth: thank you, a blinding glimpse of the obvious.
I believe it a relatively straightforward exercise in this situation to reduce costs to achieve cash flow break-even: simply reverse the misguided and ineffective allocation of circa $50mm of incremental capital over the last 18-24 months. Yet, as investors well know, one does not shrink to prosperity.
The key investor question then becomes, what has this CEO, and the Board, learned over the last five years of failed leadership and strategies that support the notion that today's ideas will result in sustained value creation for the shareholders going forward. In our conversation, Hosking struggled to describe an operating methodology and leadership cadence that gave me confidence he is a proactive operator capable of driving operational trends through an intentional management approach. Instead, not unlike recent RBL CEOs, his seemingly reactive approach rests on trying a number of initiatives and hoping that one of them works. I do not believe he is a strong operational leader, does not know how to choose growth operators and, accordingly, while the Company will likely get to cash flow break-even, investors are left with little confidence in a go forward value creating growth strategy.
Additionally, I got the impression that he agreed there was a significant value gap between the then share price and intrinsic value and that he acknowledged it was the Board's responsibility to address this value gap. Yet, the Board continues to dodge fundamental accountability. The same people sit around the table that have overseen the Company and its numerous missteps over the last couple years, except the newest addition from Wayfair, a company that faces its own operational challenges and whose value has also declined significantly. As described in a prior letter, Anne Ward and Ben Heap seem to often sit on Boards whose stocks trade down significantly after their appointment. Star Entertainment Group, on whose Board both sit, has declined a further 30% since early April and appears an unmitigated disaster both operationally and in its governance policies and practices.
What to do?
I urge shareholders to demand the following:
Disclosure of sufficient operating detail around key metrics and trends that give confidence Hosking has his hand on the tiller of this ship and it's headed in a value creating direction. RBL is a business rich in daily data; a seasoned operating executive would simply share data and trends from their weekly operating dashboard. On our call, Hosking indicated that he has such a dashboard with key metrics: sharing those data points and, importantly, operating trends, would give shareholders confidence management's plan is driving operational improvements.
Without significant changes to the Board, I believe oversight, governance and strategy will remain weak, accountability low and operating performance underwhelming. Given their poor track records as non-executive directors at both the Company and Star Entertainment, Heap and Ward should resign. This Company needs no nonsense, experienced, non-executive directors chosen by the shareholders rather than an incumbent Board. Such an opportunity will likely present itself at this year's annual general meeting given the first strike the Company received at the 2022 AGM.
Time is of the essence. This group has failed to deliver for too long and it is not reasonable for them to request and expect continued patience and trust from long suffering holders. Without significant near-term changes, such as those described above, I believe the Company should pursue all strategic alternatives, including a possible sale or merger of the Company, before shareholders see even further erosion of value.
Additionally, here is a link containing my letters to this Board over the last 12 months: https://docs.google.com/document/d/1Vd2_-MO6oYftQCMr1AyPQP_1iEnGnjZjotnNxJCuJsY/edit?usp=sharing
The many operating and governance issues were known then and they have only gotten worse with the passage of time.
I encourage all shareholders to communicate with members of the RBL Board and management and demand substantive accountability and change.
Yours Respectfully,
Michael McConnell
Los Angeles, CA
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