The RealReal (NASDAQ:REAL) Q3: Beats On Revenue, Stock Soars
Secondhand luxury marketplace The RealReal (NASDAQ: REAL) announced better-than-expected results in Q3 FY2023, with revenue down 6.7% year on year to $133.2 million. On the other hand, next quarter's revenue guidance of $140 million was less impressive, coming in 6.2% below analysts' estimates. Turning to EPS, The RealReal made a non-GAAP loss of $0.15 per share, improving from its loss of $0.38 per share in the same quarter last year.
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The RealReal (REAL) Q3 FY2023 Highlights:
Revenue: $133.2 million vs analyst estimates of $125.2 million (6.4% beat due to higher GMV Average Order Value despite a miss on Active Buyers and Orders)
EPS (non-GAAP): -$0.15 vs analyst estimates of -$0.26
Revenue Guidance for Q4 2023 is $140 million at the midpoint, below analyst estimates of $149.3 million
Free Cash Flow was -$19.1 million compared to -$41.8 million in the previous quarter
Gross Margin (GAAP): 70.6%, up from 60.1% in the same quarter last year
Trailing 12 months Active Buyers : 954,000, up 4,000 year on year (miss vs. expectations of 973,000)
“Today we reported our best quarter of Adjusted EBITDA since the company’s IPO in 2019. Our strategic shift to re-focus on the higher-margin portion of the consignment business is delivering significant progress in our results,” said John Koryl, Chief Executive Officer of The RealReal.
Founded by consignment store aficionado Julie Wainwright, The RealReal (NASDAQ: REAL) is an online marketplace for buying and selling secondhand luxury goods.
Online Marketplace
Marketplaces have existed for centuries. Where once it was a main street in a small town or a mall in the suburbs, sellers benefitted from proximity to one another because they could draw customers by offering convenience and selection. Today, a myriad of online marketplaces fulfill that same role, aggregating large customer bases, which attracts commission-paying sellers, generating flywheel scale effects that feed back into further customer acquisition.
Sales Growth
The RealReal's revenue growth over the last three years has been strong, averaging 27% annually. This quarter, The RealReal beat analysts' estimates but reported a year on year revenue decline of 6.7%.
The RealReal is expecting next quarter's revenue to decline 12.3% year on year to $140 million, a reversal of the 10% year-on-year increase it recorded in the same quarter last year. Ahead of the earnings results, analysts covering the company were projecting sales to grow 6.4% over the next 12 months.
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Usage Growth
As an online marketplace, The RealReal generates revenue growth by increasing both the number of users on its platform and the average order size in dollars.
Over the last two years, The RealReal's users, a key performance metric for the company, grew 18.4% annually to 954,000. This is solid growth for a consumer internet company.
In Q3, The RealReal added 4,000 users, translating into 0.4% year-on-year growth.
Key Takeaways from The RealReal's Q3 Results
Although The RealReal, which has a market capitalization of $162.4 million, has been burning cash over the last 12 months, its more than $170.8 million in cash on hand gives it the flexibility to continue prioritizing growth over profitability.
We enjoyed seeing The RealReal exceed analysts' GMV (Gross Merchandise Value) and revenue expectations this quarter, driven by higher-than-expected Average Order Values (Active Buyers and Number of Orders missed). Adjutsed EBITDA also beat. On the other hand, revenue guidance for next quarter missed Wall Street's estimates. For the full year, GMV and revenue guidance was lowered but Adjusted EBITDA was raised, signaling a more profitable business. Overall, the results were mixed. The stock is up 8.6% after reporting and currently trades at $1.74 per share.
The RealReal may have had a tough quarter, but does that actually create an opportunity to invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.
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The author has no position in any of the stocks mentioned in this report.
