ThredUp (TDUP)

Online fashion resale marketplace ThredUp (NASDAQ:TDUP) reported Q1 CY2025 results beating Wall Street’s revenue expectations, with sales up 10.5% year on year to $71.29 million. On top of that, next quarter’s revenue guidance ($73.5 million at the midpoint) was surprisingly good and 3.7% above what analysts were expecting. Its GAAP loss of $0.04 per share was 42.9% above analysts’ consensus estimates.

Company Overview

Founded to revolutionize thrifting, ThredUp (NASDAQ:TDUP) is a leading online fashion resale marketplace offering a wide selection of gently-used clothing and accessories.

Thanks to social media and the internet, not only are styles changing more frequently today than in decades past but also consumers are shifting the way they buy their goods, favoring omnichannel and e-commerce experiences. Some apparel and accessories companies have made concerted efforts to adapt while those who are slower to move may fall behind.

ThredUp’s main competitors are Poshmark (owned by Naver Corporation, KRX:035420), The RealReal (NASDAQ:REAL), Depop (owned by Etsy NASDAQ:ETSY), and Mercari (OTCMKTS:MCARY).

Reviewing a company’s long-term sales performance reveals insights into its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Regrettably, ThredUp’s sales grew at a sluggish 8.3% compounded annual growth rate over the last five years. This was below our standard for the consumer discretionary sector and is a poor baseline for our analysis.

Long-term growth is the most important, but within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends and consumer preferences. ThredUp’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 2% annually.

We can dig further into the company’s revenue dynamics by analyzing its number of orders, which reached 1.37 million in the latest quarter. Over the last two years, ThredUp’s orders averaged 6.5% year-on-year declines. Because this number is lower than its revenue growth during the same period, we can see the company’s monetization has risen.

This quarter, ThredUp reported year-on-year revenue growth of 10.5%, and its $71.29 million of revenue exceeded Wall Street’s estimates by 4.4%. Company management is currently guiding for a 10.2% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 5.2% over the next 12 months. While this projection indicates its newer products and services will catalyze better top-line performance, it is still below the sector average.

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

ThredUp’s operating margin has been trending up over the last 12 months, but it still averaged negative 15.6% over the last two years. This is due to its large expense base and inefficient cost structure.

In Q1, ThredUp generated a negative 7.6% operating margin. The company's consistent lack of profits raise a flag.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Although ThredUp’s full-year earnings are still negative, it reduced its losses and improved its EPS by 32.3% annually over the last five years. The next few quarters will be critical for assessing its long-term profitability.

In Q1, ThredUp reported EPS at negative $0.04, up from negative $0.15 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. We also like to analyze expected EPS growth based on Wall Street analysts’ consensus projections, but there is insufficient data.

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.

While ThredUp posted positive free cash flow this quarter, the broader story hasn’t been so clean. Over the last two years, ThredUp’s demanding reinvestments to stay relevant have drained its resources, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 5%, meaning it lit $4.96 of cash on fire for every $100 in revenue.

ThredUp’s free cash flow clocked in at $3.93 million in Q1, equivalent to a 5.5% margin. This result was good as its margin was 2.2 percentage points higher than in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, causing temporary swings. Long-term trends trump fluctuations.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

ThredUp’s five-year average ROIC was negative 48.9%, meaning management lost money while trying to expand the business. Its returns were among the worst in the consumer discretionary sector.

ThredUp reported $46.78 million of cash and $56.79 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $10.6 million of EBITDA over the last 12 months, we view ThredUp’s 0.9× net-debt-to-EBITDA ratio as safe. We also see its $1.33 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by ThredUp’s optimistic full-year revenue guidance, 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 orders missed. Zooming out, we think this was a solid print. The stock traded up 2.7% to $4.55 immediately following the results.

Updated: May 21, 2025 at 10:17 PM EDT

Before investing in or passing on ThredUp, we urge you to understand the company’s business quality (or lack thereof), valuation, and the latest quarterly results - in that order.

We cheer for all companies serving everyday consumers, but in the case of ThredUp, we’ll be cheering from the sidelines. To kick things off, its revenue growth was uninspiring over the last five years. And while its projected EPS for the next year implies the company’s fundamentals will improve, the downside is its number of orders has disappointed. On top of that, its relatively low ROIC suggests management has struggled to find compelling investment opportunities.

ThredUp’s EV-to-EBITDA ratio based on the next 12 months is 95.7x. At this valuation, there’s a lot of good news priced in - we think there are better opportunities elsewhere.

Wall Street analysts have a consensus one-year price target of $7.25 on the company (compared to the current share price of $7).

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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