What Happened:
Shares of secondhand luxury marketplace The RealReal (NASDAQ: REAL) fell 21% in the morning session after the company reported second-quarter earnings results. Revenue guidance for the next quarter missed analysts' estimates, and the full-year guidance was dropped. In addition, the company continued to burn cash. Overall, this was a mediocre quarter for The RealReal.
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What is the market telling us:
The RealReal's shares are very volatile and over the last year have had 63 moves greater than 5%. But moves this big are very rare even for The RealReal and that is indicating to us that this news had a significant impact on the market's perception of the business. .
The biggest move we wrote about over the last year was 5 months ago, when the stock gained 37.2% on the news that the company reported fourth-quarter results that beat analysts' revenue expectations. The company delivered positive EBITDA for the first time as it focused on its consignment business, a strategic shift it enacted in 2023. Its average order value was 10% larger than in the same quarter last year thanks to higher prices for its products.
On the other hand, volumes declined by 17%. Furthermore, its number of active buyers fell. Looking ahead, its revenue and EBITDA guidance for the full year 2024 topped Wall Street's projections.
Overall, this was a decent quarter, with the promising guidance likely providing more reason for investors to stay positive. Additionally, there was a decent short interest of over 10% on the stock, which means that some investors were betting against the company. Short covering--those betting against it getting out of those positions following good results--may be magnifying the stock price move today.
The RealReal is up 26.1% since the beginning of the year, but at $2.49 per share it is still trading 45.4% below its 52-week high of $4.55 from May 2024. Investors who bought $1,000 worth of The RealReal's shares 5 years ago would now be looking at an investment worth $108.04.
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