The RealReal Inc. (NASDAQ: REAL) posted their results for Q4 2019.

Revenue was $97.3M, which beat analysts’ expectations of $91.43M

EPS was -$0.17 which beat consensus analysts’ estimates of -$0.19

RealReal stock has taken some big hits since their IPO in July 2019. The stock is now trading at just below $15/share which is down from their all time highs of more than $28/share. Part of the problem remains that the company is not yet profitable despite posting some impressive revenue growth.

But First, What is RealReal?

RealReal is a luxury item consignment store that operates both online and in brick-and-mortar locations. This means that individuals or other companies can delegate the task of selling their luxury items to RealReal and in exchange for a cut of the profits. RealReal would also make sure to properly vet the authenticity of the items to make sure that the item is not counterfeit. The value proposition of RealReal is to provide the consumers some peace of mind when they shop for luxury items online since counterfeiting is a huge problem especially when it comes to expensive luxury goods.

To achieve this goal, RealReal employs an in-house staff of experts including horologists, gemologists, art curators and luxury fashion authenticators who inspect items for authenticity and value.

RealReal And The eCommerce Space

RealReal has the advantage of being one of the only players in this rather niche market of luxury item consignment since no other company that’s around the same scale as RealReal competes with them directly. However, the closest comparable would be online fashion and another company that has gained much attention in this space is Revolve Group.

We see that although the Forward P/S ratio is higher than Revolve, it is currently about the same as a company like eBay. Although eBay is a lot more mass market focused and does not have a formal authenticity vetting process, RealReal is valued similarly on a forward P/S basis.

Looking a revenue growth tells us a different story however, analysts are expecting RealReal to grow revenues of about 32.6% in 2020, compared to Revolve’s 21% and eBay’s -9% for the same time period.

RealReal also has a strong cash position with more than 3 times cash compared to total liabilities.

RealReal’s guidance for Q4 from last quarter was also promising. The company expects EBITDA as a percentage of revenue to grow to -15% from the -26% reported last quarter.

The RealReal remains a high risk and high flying stock. If they can continue to post huge growth, the company seem to be a bargain at current levels, but this stock comes with very high risk especially since the luxury item market will be the first to be hammered by negative macroeconomic concerns such as if a recession occurs.


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