The RealReal: Steady Growth and a Shift Toward Profitability
Financial achievements strengthen the company’s position in the luxury resale market.
The RealReal (NASDAQ: REAL) shares surged by 13% after Wells Fargo analysts upgraded their rating to "overweight" and raised the target price from $4 to $15. This reflects significant changes in the company’s strategy, which now focuses on profitability and operational efficiency.
Financial Progress
In Q3 2024, The RealReal reported an 11% increase in revenue, reaching $148 million. The company’s gross profit rose by $17 million to $111 million, with a gross margin of 74.9%, up by 430 basis points year-over-year. Net loss decreased to $18 million, a $5 million improvement compared to the same period last year.
The positive adjusted EBITDA of $2.3 million marked a milestone for the company, demonstrating profitability for the first time since its IPO in 2019. This achievement was driven by the transition to a highly profitable consignment model and a reduction in low-margin direct sales, which now account for less than 10% of total revenue.
Strategic Shift and Debt Restructuring
Under new management, The RealReal has focused on improving financial stability. In 2024, the company executed a debt restructuring that extended repayment timelines and reduced overall debt by $17 million. This move mitigated short-term financial risks and paved the way for generating positive free cash flow by 2025.
Growth in Key Metrics
The RealReal also achieved growth across several key operational metrics:
Active buyers increased by 7% to 389,000.
Average order value (AOV) rose by 2% to $522.
Total orders grew to 829,000, up 4% year-over-year.
Consignment revenues were the primary driver of growth, rising 14% year-over-year to $116.9 million, showcasing the success of the company’s luxury resale business model.
Outlook
The company’s achievements have inspired confidence among Wells Fargo analysts, who forecast sustained double-digit revenue growth, supported by favorable macroeconomic conditions and growing demand in the resale market. The RealReal’s management has also raised its full-year revenue outlook to $595–$602 million, with adjusted EBITDA expected to range between $4.7 million and $7.7 million.
Conclusion:
The RealReal is steadily improving its financial performance through the successful implementation of strategic changes and enhanced operational efficiency. The continued growth in revenue and margins, along with effective debt restructuring, underscores the company’s potential to solidify its position in the rapidly expanding luxury resale market. Investors and analysts are keenly observing the company’s next steps, as it promises to emerge as a leader in its niche.