The RealReal (REAL)

Secondhand luxury marketplace The RealReal (NASDAQ: REAL) reported Q2 CY2025 results exceeding the market’s revenue expectations, with sales up 14% year on year to $165.2 million. On top of that, next quarter’s revenue guidance ($168.5 million at the midpoint) was surprisingly good and 5.1% above what analysts were expecting. Its non-GAAP loss of $0.06 per share was $0.02 above 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 sales performance can indicate its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Over the last three years, The RealReal grew its sales at a sluggish 4.1% compounded annual growth rate. This was below our standard for the consumer internet sector and is a tough starting point for our analysis.

This quarter, The RealReal reported year-on-year revenue growth of 14%, and its $165.2 million of revenue exceeded Wall Street’s estimates by 3.6%. Company management is currently guiding for a 14% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 10.1% over the next 12 months, an acceleration versus the last three years. This projection is above the sector average and implies its newer products and services will fuel better top-line performance.

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 39.9% annually to 1 million in the latest quarter. This growth rate is among the fastest of any consumer internet business and indicates its offerings have significant traction.

In Q2, The RealReal added 620,000 active buyers , leading to 163% 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 11.7% 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 $165.02. 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 74.1% gross margin over the last two years. Said differently, roughly $74.06 was left to spend on selling, marketing, and R&D for every $100 in revenue.

The RealReal’s gross profit margin came in at 74.3% 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 1.3 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.

The RealReal has done a decent job managing its cost base over the last two years. The company has produced an average EBITDA margin of 1.2%, higher than the broader consumer internet sector.

Looking at the trend in its profitability, The RealReal’s EBITDA margin rose by 25.5 percentage points over the last few years, as its sales growth gave it operating leverage.

In Q2, The RealReal generated an EBITDA margin profit margin of 4.1%, up 5.4 percentage points year on year. The increase was solid, 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.

In Q2, The RealReal reported adjusted EPS at negative $0.06, up from negative $0.13 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street is optimistic. Analysts forecast The RealReal’s full-year EPS of negative $0.24 will reach break even.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

The RealReal’s demanding reinvestments have consumed many resources over the last two years, contributing to an average free cash flow margin of negative 3.5%. This means it lit $3.46 of cash on fire for every $100 in revenue.

Taking a step back, an encouraging sign is that The RealReal’s margin expanded by 27.2 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 $11.37 million of cash in Q2, equivalent to a negative 6.9% margin. The company’s cash burn was similar to its $9.76 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 $16.4 million of cash over the last year, and its $335.5 million of debt exceeds the $94.35 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 impressed by The RealReal’s optimistic EBITDA guidance for next quarter, which blew past analysts’ expectations. We were also excited its EBITDA outperformed Wall Street’s estimates by a wide margin. On the other hand, its number of active buyers slightly missed. Overall, we think this was a decent quarter with some key metrics above expectations. The stock traded up 27.1% to $7.03 immediately after reporting.

Updated: November 8, 2025 at 9:09 PM EST

When considering an investment in The RealReal, investors should account for its valuation and business qualities as well as what’s happened in the latest quarter.

The RealReal is a pretty decent company if you ignore its balance sheet. Although its revenue growth was weak 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 31.3x. Certain aspects of its fundamentals are attractive, but we aren’t investing at the moment because its balance sheet makes us uneasy. Interested in this company and its prospects? We recommend you wait until it generates sufficient cash flows or raises money.

Wall Street analysts have a consensus one-year price target of $12.63 on the company (compared to the current share price of $10.93).