The RealReal: Investors Should Take Profits After Unexpected 40% Surge

No-moat The RealReal saw its shares surge more than 40% during Dec. 9 trading, reflective of a massive price target increase from a competing sale-side firm, as reported by MSN. The report correctly credits the beleaguered e-commerce company for improving gross margins in its consignment business, now registering roughly 75%, from 60% prepandemic. Meanwhile, the company has increased its take rate on low-value goods and worked to widen its mix of more-profitable big-ticket items. We maintain that The RealReal's cost-cutting efforts undermine its long-term competitive position. Few firms can cost-cut their way to growth, and an onerous fee structure, with striking 80% commissions on items sold at sub-$100 price points and an uncompetitively high 30% take rate on products sold at north of $5,000, are liable to continue to funnel sellers toward more price competitive self-service options like eBay and Poshmark. Those firms’ authentication investments render them increasingly viable substitutes in a competitive luxury resale market. Further, The RealReal’s marketplace is and always has been supply constrained, with 92% and 91% sell-through ratios in 2023 and 2022, so we view any monetization efforts that disincentivize incremental listings as a substantial issue in a winner-take-most e-commerce space.