Secondhand luxury marketplace The RealReal (NASDAQ: REAL) reported results in line with analyst expectations in Q1 FY2023 quarter, with revenue down 3.27% year on year to $141.9 million. However, guidance for the next quarter was less impressive, coming in at $130 million at the midpoint, being 16.1% below analyst estimates. The RealReal made a GAAP loss of $82.5 million, down on its loss of $57.4 million, in the same quarter last year.
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The RealReal (REAL) Q1 FY2023 Highlights:
- Revenue: $141.9 million vs analyst estimates of $142.4 million (small miss)
- EPS (non-GAAP): -$0.36 vs analyst estimates of -$0.43
- Revenue guidance for Q2 2023 is $130 million at the midpoint, below analyst estimates of $154.9 million
- Free cash flow was negative $46.4 million, compared to negative free cash flow of $6.97 million in previous quarter
- Gross Margin (GAAP): 63.4%, up from 53.6% same quarter last year
- Trailing 12 months Active Buyers : 1.01 million, up 186 thousand year on year
“During the first quarter of 2023, we made progress on our financial and operating results. For the quarter, revenue exceeded the mid-point of our guidance, and Adjusted EBITDA exceeded the high-end of our guidance range. We believe our strategy of re-focusing efforts on the higher margin consignment business is starting to deliver results. During the first quarter, consignment revenue grew 22%, and direct revenue declined 49% year-over-year. Additionally, we made progress on minimizing lower-value consigned items. As a result of these actions, we expanded our gross margin in the first quarter, and we were able to deliver a higher take rate, more gross profit dollars, and improved profitability, ” 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.
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 26.8% annually. This quarter, The RealReal reported a rather lacklustre 3.27% year on year revenue decline, missing analyst expectations.
The RealReal is guiding for revenue to decline next quarter 15.8% year on year to $130 million, reverse on the 47.2% 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 8.25% 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 users on the platform and the average user size in dollars.
Over the last two years the number of The RealReal's paying users, a key usage metric for the company, grew 22.6% annually to 1.01 million. This is a strong growth for a consumer internet company.
In Q1 the company added 186 thousand paying users, translating to a 22.5% growth year on year.
Key Takeaways from The RealReal's Q1 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 $137.2 million and more than $247.1 million in cash, the company has the capacity to continue to prioritise growth over profitability.
It was great to see that The RealReal’s user base is growing. That feature of these results really stood out as a positive. On the other hand, it was unfortunate to see that the revenue guidance for the full year missed analysts' expectations and the revenue growth was quite weak. Overall, this quarter's results could have been better. The company is down 6.77% on the results and currently trades at $1.23 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.