The RealReal (REAL)

Secondhand luxury marketplace The RealReal (NASDAQ: REAL) met Wall Street’s revenue expectations in Q1 CY2025, with sales up 11.3% year on year to $160 million. On the other hand, next quarter’s revenue guidance of $159 million was less impressive, coming in 0.8% below analysts’ estimates. Its non-GAAP loss of $0.08 per share was in line with analysts’ consensus estimates.

Company Overview

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 that feed back into further customer acquisition.

A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last three years, The RealReal grew its sales at a tepid 6.2% compounded annual growth rate. This fell short of our benchmark for the consumer internet sector and is a rough starting point for our analysis.

This quarter, The RealReal’s year-on-year revenue growth was 11.3%, and its $160 million of revenue was in line with Wall Street’s estimates. Company management is currently guiding for a 9.7% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 8.5% over the next 12 months. While this projection implies its newer products and services will catalyze better top-line performance, it is still below average for the sector.

User 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 active buyers , a key performance metric for the company, increased by 18.5% annually to 985,000 in the latest quarter. This growth rate is among the fastest of any consumer internet business and indicates its offerings have significant traction.

In Q1, The RealReal added 601,000 active buyers , leading to 157% year-on-year growth. The quarterly print was higher than its two-year result, suggesting its new initiatives are accelerating user growth.

Revenue Per User

Average revenue per user (ARPU) is a critical metric to track because it measures how much the company earns in transaction fees from each user. ARPU also gives us unique insights into a user’s average order size and The RealReal’s take rate, or "cut", on each order.

The RealReal’s ARPU fell over the last two years, averaging 5.5% annual declines. This isn’t great, but the increase in active buyers is more relevant for assessing long-term business potential. We’ll monitor the situation closely; if The RealReal tries boosting ARPU by taking a more aggressive approach to monetization, it’s unclear whether users can continue growing at the current pace.

This quarter, The RealReal’s ARPU clocked in at $162.47. It declined 56.6% year on year, worse than the change in its active buyers .

For online marketplaces like The RealReal, gross profit tells us how much money the company gets to keep after covering the base cost of its products and services, which typically include payment processing, hosting, and bandwidth fees in addition to the costs necessary to onboard buyers and sellers, such as identity verification.

The RealReal has robust unit economics, an output of its asset-lite business model and pricing power. Its margin is better than the broader consumer internet industry and enables the company to fund large investments in new products and marketing during periods of rapid growth to achieve outsized profits at scale. As you can see below, it averaged an excellent 73.1% gross margin over the last two years. That means The RealReal only paid its providers $26.89 for every $100 in revenue.

The RealReal’s gross profit margin came in at 75% this quarter, in line with the same quarter last year. On a wider time horizon, The RealReal’s full-year margin has been trending up over the past 12 months, increasing by 3.2 percentage points. If this move continues, it could suggest better unit economics due to more leverage from its growing sales on the fixed portion of its cost of goods sold (such as servers).

Consumer internet businesses like The RealReal grow from a combination of product virality, paid advertisement, and incentives (unlike enterprise software products, which are often sold by dedicated sales teams).

The RealReal is extremely efficient at acquiring new users, spending only 12.1% of its gross profit on sales and marketing expenses over the last year. This efficiency indicates that it has a highly differentiated product offering and strong brand reputation, giving The RealReal the freedom to invest its resources into new growth initiatives while maintaining optionality.

Investors regularly analyze operating income to understand a company’s profitability. Similarly, EBITDA is a common profitability metric for consumer internet companies because it excludes various one-time or non-cash expenses, offering a better perspective of the business’s profit potential.

Although The RealReal was profitable this quarter from an operational perspective, it’s generally struggled over a longer time period. Its expensive cost structure has contributed to an average EBITDA margin of negative 1.2% over the last two years. Unprofitable consumer internet companies require extra attention because they spend heaps of money to capture market share. As seen in its historically underwhelming revenue performance, this strategy hasn’t worked well so far, and it’s unclear what would happen if The RealReal reeled back its investments. Despite this, we’re optimistic given the merits in other aspects of its business.

On the plus side, The RealReal’s EBITDA margin rose by 27.1 percentage points over the last few years, as its sales growth gave it operating leverage. Still, it will take much more for the company to reach long-term profitability.

This quarter, The RealReal generated an EBITDA profit margin of 2.6%, up 4.1 percentage points year on year. The increase was encouraging, and because its EBITDA margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, R&D, and administrative overhead.

We track the change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Although The RealReal’s full-year earnings are still negative, it reduced its losses and improved its EPS by 45.4% annually over the last three years. The next few quarters will be critical for assessing its long-term profitability. We hope to see an inflection point soon.

In Q1, The RealReal reported EPS at negative $0.08, up from negative $0.12 in the same quarter last year. This print beat analysts’ estimates by 1.5%. Over the next 12 months, Wall Street is optimistic. Analysts forecast The RealReal’s full-year EPS of negative $0.30 will reach break even.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

The RealReal’s demanding reinvestments have consumed many resources over the last two years, contributing to an average free cash flow margin of negative 6.1%. This means it lit $6.13 of cash on fire for every $100 in revenue.

Taking a step back, an encouraging sign is that The RealReal’s margin expanded by 32.1 percentage points over the last few years. The company’s improvement shows it’s heading in the right direction, and continued increases could help it achieve long-term cash profitability.

The RealReal burned through $35.85 million of cash in Q1, equivalent to a negative 22.4% margin. The company’s cash burn increased from $5.61 million of lost cash in the same quarter last year.

As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.

The RealReal burned through $17.64 million of cash over the last year, and its $504.3 million of debt exceeds the $139.6 million of cash on its balance sheet. This is a deal breaker for us because indebted loss-making companies spell trouble.

Unless the The RealReal’s fundamentals change quickly, it might find itself in a position where it must raise capital from investors to continue operating. Whether that would be favorable is unclear because dilution is a headwind for shareholder returns.

We remain cautious of The RealReal until it generates consistent free cash flow or any of its announced financing plans materialize on its balance sheet.

We were very impressed by The RealReal’s number of users this quarter. We were also happy its EBITDA outperformed Wall Street’s estimates. On the other hand, its full-year EBITDA guidance missed significantly and its EBITDA guidance for next quarter fell short of Wall Street’s estimates. Overall, this quarter could have been better. The stock traded down 10.5% to $6.53 immediately following the results.

Updated: May 16, 2025 at 10:17 PM EDT

We think that the latest earnings result is only one piece of the bigger puzzle. If you’re deciding whether to own The RealReal, you should also grasp the company’s longer-term business quality and valuation.

Aside from its balance sheet, The RealReal is a pretty decent company. Although its revenue growth was uninspiring over the last three years , its growth over the next 12 months is expected to be higher. And while The RealReal’s ARPU has declined over the last two years, its rising cash profitability gives it more optionality. On top of that, its expanding EBITDA margin shows the business has become more efficient.

The RealReal’s EV/EBITDA ratio based on the next 12 months is 21.9x. Despite its notable business characteristics, we’d hold off for now because its balance sheet concerns us. Interested in this company and its prospects? We recommend you wait until its debt load falls or its profits increase.

Wall Street analysts have a consensus one-year price target of $8.73 on the company (compared to the current share price of $5.49).

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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