The RealReal (NASDAQ:REAL) Misses Q3 Revenue Estimates, Stock Drops

Adam Hejl /
2022/11/08 4:22 pm EST

Secondhand luxury marketplace The RealReal (NASDAQ: REAL) fell short of analyst expectations in Q3 FY2022 quarter, with revenue up 20% year on year to $142.7 million. Guidance for the next quarter also missed analyst expectations with revenues guided to $155 million at the midpoint, or 11.3% below analyst estimates. The RealReal made a GAAP loss of $47.2 million, improving on its loss of $57.1 million, in the same quarter last year.

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The RealReal (REAL) Q3 FY2022 Highlights:

  • Revenue: $142.7 million vs analyst estimates of $149.2 million (4.35% miss)
  • EPS (non-GAAP): -$0.38 vs analyst estimates of -$0.40
  • Revenue guidance for Q4 2022 is $155 million at the midpoint, below analyst estimates of $174.8 million
  • Free cash flow was negative $17.3 million, compared to negative free cash flow of $46.3 million in previous quarter
  • Gross Margin (GAAP): 60.1%, in line with same quarter last year
  • Trailing 12 months Active Buyers : 950 thousand, up 178 thousand year on year

“As we continue to focus on profitable growth, our objective is to accelerate our timeline to profitability and demonstrate the efficacy of our business model. We believe there are levers in the business that may enable us to reach profitability with lower top-line growth than previously projected. To this end, we are focused on the following strategic initiatives: (1) overhauling our consignor commission structure, (2) further optimizing our pricing, (3) taking a more aggressive approach on costs, and (4) capitalizing on potential new revenue streams. We are confident that these strategic initiatives will have a meaningful positive impact on our business. However, it may take a quarter or two for these initiatives to be fully reflected in our financial results.” said Rati Sahi Levesque, Co-Interim Chief Executive Officer (“CEO”) and President 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.

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 which feed back into further customer acquisition.

Sales Growth

The RealReal's revenue growth over the last three years has been strong, averaging 29.9% annually.

The RealReal Total Revenue

This quarter, The RealReal reported a decent 20% year on year revenue growth, but this result fell short of what analysts were expecting.

Guidance for the next quarter indicates The RealReal is expecting revenue to grow 6.8% year on year to $155 million, slowing down from the 67.1% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 22% over the next twelve months.

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Usage Growth

As a online marketplace, The RealReal generates revenue growth both by growing the number of buyers using the platform and how much each of those buyers spends.

Over the last two years the number of The RealReal's paying users, a key usage metric for the company, grew 19.8% annually to 950 thousand users. This is a strong growth for a consumer internet company.

The RealReal Trailing 12 months Active Buyers

In Q3 the company added 178 thousand paying users, translating to a 23% growth year on year.

Key Takeaways from The RealReal's Q3 Results

Since it has still been burning cash over the last twelve months it is worth keeping an eye on The RealReal’s balance sheet, but we note that with a market capitalization of $132.7 million and more than $300.4 million in cash, the company has the capacity to continue to prioritise growth over profitability.

We enjoyed seeing The RealReal’s strong user growth this quarter. That feature of these results really stood out as a positive. On the other hand, user growth didn't not translate to revenue growth and the company missed analysts' expectations this quarter and it was unfortunate to see that the revenue guidance for the next quarter also missed expectations. Overall, this quarter's results could have been better. The company is down 8.57% on the results and currently trades at $1.12 per share.

The RealReal may have had a tough quarter, but does that actually create an opportunity to invest right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

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The author has no position in any of the stocks mentioned.