The RealReal Earnings: Quarterly Outperformance and Tempered Guidance Offset; Shares Still Pricey

No-moat The RealReal posted solid quarterly earnings, with revenue of $144 million and a diluted net loss of $20 million (excluding irregular items) beating our $133 million and $21 million loss estimates, respectively. Strong results were driven by improvements in the firm's consignment business, which grew 13% annually, and by changes in its fee structure and inventory sourcing, which drove take rate expansion of 200 basis points and a striking 1,100-basis-point improvement in consolidated gross margin to 74.6%. Much of that is tied to the firm's election to shift investment away from its first party inventory business, which runs at just 10% gross margins and has historically been used to fill inventory gaps on The RealReal's online platform and in its physical stores. While we view the moves as prudent in light of looming debt maturities in 2028 and 2029, driving its need to get profitable quickly, we do think that pulling back on first-party inventory, physical stores, and marketing investments will likely make it more challenging for the firm to defend its competitive positioning in the long run. As a result, we now expect the firm to capture a high-teens share of the US online luxury resale market, down from our roughly 33% estimate at the peak of the firm's growth. Given that our prior estimates fell in the firm's guided range for revenue, GMV, and adjusted EBITDA, we expect to increase our $2.08 fair value estimate by a low-single-digit percentage, consistent with time value.