The RealReal (NASDAQ:REAL) Reports Q4 In Line With Expectations But Stock Drops
Secondhand luxury marketplace The RealReal (NASDAQ: REAL) reported results in line with analysts' expectations in Q4 FY2023, with revenue down 10.2% year on year to $143.4 million. On the other hand, next quarter's revenue guidance of $140 million was less impressive, coming in 1.6% below analysts' estimates. It made a non-GAAP loss of $0.07 per share, improving from its loss of $0.29 per share in the same quarter last year.
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The RealReal (REAL) Q4 FY2023 Highlights:
Revenue: $143.4 million vs analyst estimates of $142.5 million (small beat)
EPS (non-GAAP): -$0.07 vs analyst estimates of -$0.11
Revenue Guidance for Q1 2024 is $140 million at the midpoint, below analyst estimates of $142.2 million
Management's revenue guidance for the upcoming financial year 2024 is $592.5 million at the midpoint, beating analyst estimates by 1.9% and implying 7.9% growth (vs -8.9% in FY2023)
Free Cash Flow of $3.79 million is up from -$19.05 million in the previous quarter
Gross Margin (GAAP): 74%, up from 60.5% in the same quarter last year
Trailing 12 months Active Buyers : 922,000, down 76,000 year on year
Market Capitalization: $176.7 million
“In the fourth quarter of 2023, The RealReal delivered positive Adjusted EBITDA and positive free cash flow. These are historic milestones and firsts for the company since our IPO in 2019. Our strategic shift to re-focus on the consignment business is delivering strong progress in our results. We refined our growth model with a focus on profitable supply and in the process we significantly improved our margin structure. We intend to carry forward this improved margin structure as we reaccelerate growth going forward,” 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 26.7% annually. This quarter, The RealReal reported a year on year revenue decline of 10.2%, in line with analysts' estimates.
The RealReal is expecting next quarter's revenue to decline 1.3% year on year to $140 million, improvement on the 3.3% year-on-year decrease it recorded in the same quarter last year. For the upcoming financial year, management expects revenue to be $592.5 million at the midpoint, representing 7.9% growth compared to the -8.9% decline in FY2023.
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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 14.6% annually to 922,000. This is solid growth for a consumer internet company.
Unfortunately, The RealReal's users decreased by 76,000 in Q4, a 7.6% drop since last year.
Revenue Per User
Average revenue per user (ARPU) is a critical metric to track for consumer internet businesses like The RealReal because it measures how much the company earns in transaction fees from each user. Furthermore, ARPU gives us unique insights as it's a function of a user's average order size and The RealReal's take rate, or "cut", on each order.
The RealReal's ARPU has declined over the last two years, averaging 3.1%. Although the company's users have continued to grow, it's lost its pricing power and will have to make improvements soon. This quarter, ARPU declined 2.8% year on year to $155.50 per user.
Key Takeaways from The RealReal's Q4 Results
It was good to see The RealReal beat analysts' revenue expectations, but looking under the hood, we weren't as impressed. Its average order value was 10% larger than in the same quarter last year thanks to higher prices for its products. That is encouraging, but we care most about sales volumes, which declined 17%. Furthermore, its number of active buyers fell.
On the bright side, the company delivered positive EBITDA for the first time as it focused on its consignment business, a strategic shift it enacted in 2023. Its revenue and EBITDA guidance for the full year 2024 also topped Wall Street's projections.
Overall, this was a decent quarter. The company is down 5.6% on the results and currently trades at $1.67 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.
