Company Reports

We will discontinue analyst coverage of The RealReal on or about March 21, 2025. We provide analyst research and ratings on over 1,500 companies globally and periodically adjust our coverage according to investor interest and staffing.

The luxury apparel resale space has been chronically underserved, with an inefficient network of brick-and-mortar boutiques capturing the bulk of sales over the last decade. The RealReal exists to serve this end market more efficiently, with white-glove inventory sourcing, authentication protocols, and an online platform leading to step-change improvements in platform depth, turnover, and vibrancy. The company's strategy to focus on higher-value inventory, reduce its first-party sales, and slow investment is necessitated by its financial weakness. We believe that those moves may hurt the firm's long-term competitive position and expect competitive pressure to intensify as self-service marketplaces apply downward pressure to fees.

We plan to raise our $2.25 fair value estimate by a low-single-digit percentage—consistent with time value—for no-moat The RealReal after digesting the firm's fourth-quarter earnings release. Results arrived in line with the firm's warning on Feb. 10, 2025.

No-moat The RealReal made a preearnings announcement of a decent fourth-quarter 2024. The firm also announced the renegotiation of roughly two thirds of its $276.5 million in 2028 convertible notes (extending maturities until 2031) on Feb. 10, but softer guidance than hoped for 2025 sent shares spiraling lower by about 6% during intraday trading. While achieving a first full year of adjusted EBITDA profitability is a laudable step, we really struggle to make sense of current market valuations for a business that continues to sport significant flaws, from high variable costs limiting its margin upside to exceedingly competitive end markets. To this effect, we continue to maintain that the presence of well-capitalized competitors like narrow-moat eBay and Poshmark (a narrow-moat Naver subsidiary) are likely to result in ongoing market share losses for The RealReal, which has been forced by necessity to curtail many of its investment priorities as it seeks to achieve profitability. After digesting results and guidance, we plan to leave our $2.25 per share fair value estimate largely unchanged, with the business looking extremely overvalued at current prices.

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.

The luxury apparel resale space has been chronically underserved, with an inefficient network of brick-and-mortar boutiques capturing the bulk of sales over the last decade. The RealReal exists to serve this end market more efficiently, with white-glove inventory sourcing, authentication protocols, and an online platform leading to step-change improvements in platform depth, turnover, and vibrancy. The company's strategy to focus on higher-value inventory, reduce its first-party sales, and slow investment is necessitated by its financial precarity. We believe that those moves may hurt the firm's long-term competitive position and expect competitive pressure to intensify as self-service marketplaces apply downward pressure to fees.

There were few surprises in no-moat The RealReal's earnings release after third-quarter results arrived in line with its Oct. 28 prerelease figures. As expected, management provided very little context regarding 2025 expectations considering the CEO transition, giving Rati Levesque a chance to evaluate the business and consider her strategic priorities moving into the new year. We expect to raise our $2.14 per share fair value estimate by a low-single-digit percentage, consistent as we balance better-than-expected quarterly results, guidance for stronger fourth-quarter performance, and very little change to our long-term thesis, leaving shares trading in a range we'd consider significantly overpriced.

No-moat The RealReal announced a CEO transition and previewed positive preliminary third-quarter earnings results on Oct. 28, 2024. The market reaction was muted, with shares up between 1%-2% after the profit warning was digested. All else equal, we'd expect a similar change to our $2.14 fair value estimate, after the firm's $148 million in revenue, $433 million in gross merchandise volume, and $2.3 million in adjusted EBITDA edged our $137 million, $420 million, and $1 million respective estimates. Shares continue to look expensive.

The luxury apparel resale space has been chronically underserved, with an inefficient network of brick-and-mortar boutiques capturing the bulk of sales over the last decade. The RealReal exists to serve this end market more efficiently, with white-glove inventory sourcing, faithful authentication protocols, and an online platform leading to step-change improvements in platform depth, turnover, and vibrancy. We view the company's strategy as relatively sound, and appreciate its efforts to restructure its looming 2025 debt to assuage bankruptcy concerns.

No-moat The RealReal posted OK quarterly results, with $145 million in revenue topping our $141 million estimate, though a $19 million EBIT loss was wider than the $14 million we'd contemplated. The firm's progress toward adjusted EBITDA profitability was impressive, but it was captured in our prior forecast. With slightly lower guidance for the remainder of the year than we'd initially penciled in, offset by time value, we expect little change to our $2.14 fair value estimate. This leaves shares trading at a premium despite a hard selloff in the aftermarket, which we attribute to some combination of concern regarding the firm's restated active buyer number and a weak sales outlook. Addressing the former, the firm elected curiously to report active buyer count on a trailing three-month basis, with 381,000 active buyers representing just 40%-45% of annual active buyers and declining modestly over the past two years.

A dour consumer spending outlook suggests that the e-commerce industry is in for a challenging 2024-25, with top-line growth set to slow again in 2024 before a gradual return to 10%-plus annual growth by 2028. Despite the pressure, we continue to see investable opportunities for long-term investors, with wide-moat Allegro and narrow-moat Chewy representing our top picks. Overall, our thesis regarding online marketplaces remains intact: the largest, competitively advantaged players should continue to consolidate market share, with deeper expansion into advertising, financial services, and fulfillment set to strengthen their competitive edge. Our forecasts call for the average online marketplace in our coverage to expand take rate by 240 basis points between 2023-28, aligning with this view.

The luxury apparel resale space has been chronically underserved, with an inefficient network of brick-and-mortar boutiques capturing the bulk of sales over the last decade. The market that arose from that model was heavily fragmented, bound by retail catchment area, and featured high frictional costs, high commissions, and slow turnover—a far cry from other asset classes like cars, homes, and collectibles, which have long enjoyed more effective used marketplaces. The RealReal exists to serve this end market more efficiently, with white-glove inventory sourcing, faithful authentication protocols, and an online platform leading to step-change improvements in platform depth, turnover, and vibrancy. We view the company's strategy as relatively sound, and appreciate its efforts to restructure its looming 2025 debt to assuage bankruptcy concerns.

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.

The headline from no-moat The RealReal's fourth-quarter earnings report is that the firm is not likely to go bankrupt until at least until 2028 after it restructured $145.8 million of its outstanding 2025 convertible notes (roughly 86% of that series). While the restructured notes carry an eye-popping 13% interest rate (8.75% cash plus 4.25% paid in kind), the restructuring reduces The RealReal's total debt load by $17 million and pushes repayment on that series out until 2029. At that point, we forecast the firm will be free cash flow positive, and we believe that capital markets may prove more accommodative. The deal, while punitive, is much less dilutive than our previous expectation for roughly 3 times dilution at unfavorable equity prices. The net effect is an 80% increase in our intrinsic valuation to $2.08 from $1.21. While opening prices for March 1 trading are extremely uncertain, shares traded close to our revised valuation after a roughly 20% jump in after-hours trading on Feb. 29.

The luxury apparel resale space has been chronically underserved, with an inefficient network of brick-and-mortar boutiques capturing the bulk of sales over the last decade. The market that arose from that model was heavily fragmented, bound by retail catchment area, and featured high frictional costs, high commissions, and slow turnover—a far cry from other asset classes like cars, homes, and collectibles, which have long enjoyed more effective used marketplaces. The RealReal exists to serve this end market more efficiently, with white-glove inventory sourcing, faithful authentication protocols, and an online platform leading to step-change improvements in platform depth, turnover, and vibrancy. We view the company's strategy as relatively sound, and appreciate its efforts to restructure its looming 2025 debt to assuage bankruptcy concerns.

The luxury apparel resale space has been chronically underserved, with an inefficient network of brick-and-mortar boutiques capturing the bulk of sales over the last decade. The market that arose from that model was heavily fragmented, bound by retail catchment area, and featured high frictional costs, high commissions, and slow turnover—a far cry from other asset classes like cars, homes, and collectibles, which have long enjoyed more effective used marketplaces. The RealReal exists to serve this end market more efficiently, with white-glove inventory sourcing, faithful authentication protocols, and an online platform leading to step-change improvements in platform depth, turnover, and vibrancy. We view the firm's strategy as relatively sound, but recognize that the it will need to get lean quickly to assuage market concerns and service its 2025 and 2028 convertible debt issuances.

No-moat The RealReal posted better-than-expected third-quarter earnings, with $133 million in sales and a $0.22 operating loss edging our $128 million and $0.28 loss forecasts. The firm has made progress in slowing its cash burn rate and approaching adjusted EBITDA profitability, with a revamped fee structure helping emphasize its more profitable consignment business and curtailing lower-value inventory. We view the moves as an appropriate strategy but something of a pyrrhic victory, with spending cuts in marketing and research and development shoring up near-term results but likely positioning the firm poorly to carve out a durable competitive advantage in a quickly growing luxury resale space. As we digest results, we expect to raise our $1.11 fair value estimate by a high-single-digit percentage, driven predominantly by better-than-expected margin performance, but we continue to view shares as overpriced, particularly after a 21%-22% surge in aftermarket trading.

The luxury apparel resale space has been chronically underserved, with an inefficient network of brick-and-mortar boutiques capturing the bulk of sales over the last decade. The market that arose from that model was heavily fragmented, bound by retail catchment area, and featured high frictional costs, high commissions, and slow turnover—a far cry from other asset classes like cars, homes, and collectibles, which have long enjoyed more effective used marketplaces. The RealReal exists to serve this end market more efficiently, with white-glove inventory sourcing, faithful authentication protocols, and an online platform leading to step-change improvements in platform depth, turnover, and vibrancy. We view the firm's strategy as relatively sound , but recognize that the it will need to get lean quickly to assuage market concerns and service its 2025 and 2028 convertible debt issuances.

While attributable to external factors like slowing consumer discretionary spending, we believe that The RealReal's current strategy stands to limit its long-term growth prospects, and exposes it to elevated competitive pressure, a view consistent with our no-moat rating. The firm is quickly shrinking its first party sales business in a move to boost profitability, but we believe that the lack of certain habitual draw products (jewelry, handbags) at higher price points may pinch the marketplaces ability to attract traffic and capture an enduring niche in the U.S. luxury resale space. While the market seemed to like results, with management targeting, by necessity, a strategy that shows solid progress toward at least adjusted EBITDA profitability before it has to tap capital markets (to service a $170 million debt repayment in 2025), we foresee the underinvestment in platform development and marketing that logically follows as substantial concerns for investors. On balance, we expect to lower our long-term gross merchandise volume forecast for the firm (to $4.5 billion, about a 10% haircut) but increase our operating margin estimate (to 7.3% of sales, up 140 basis points) in response to results, with a neutral to slightly negative impact to our $1.07 fair value estimate. Shares continue to look meaningfully overpriced.

The luxury apparel resale space has been chronically underserved, with an inefficient network of brick-and-mortar boutiques capturing the bulk of sales over the last decade. The market that arose from that model was heavily fragmented, bound by retail catchment area, and featured high frictional costs, high commissions, and slow turnover—a far cry from other asset classes like cars, homes, and collectibles, which have long enjoyed more effective used marketplaces. The RealReal exists to serve this end market more efficiently, with white-glove inventory sourcing, faithful authentication protocols, and an online platform leading to step-change improvements in platform depth, turnover, and vibrance. We view the firm's strategy as relatively sound , but recognize that the it will need to get lean quickly to assuage market concerns and service its 2025 and 2028 convertible debt issuances.