On Tuesday, BTIG adjusted its outlook on The RealReal Inc. (NASDAQ: NASDAQ:REAL), increasing the price target to $4.00 from the previous $3.50, while sustaining a Buy rating for the stock. The adjustment follows The RealReal's third-quarter results for 2024, which aligned with its pre-announcement on October 28.
The company reported key performance indicators (KPIs) that showed signs of positive momentum. The number of quarterly active buyers increased by 8,000 quarter over quarter, reaching 389,000, after a 3,000 decline in the previous quarter. Despite a year-over-year decrease of 2.3% in orders per active buyer, this marked an improvement compared to the 4.3% decline in the last quarter.
The RealReal also saw a 1.8% year-over-year rise in average order value to $522, and a take-rate increase to 38.6%, which is up 50 basis points year over year and 20 basis points quarter over quarter. An exceptionally low return/cancellation rate of 22.6%, the lowest in four years, contributed to a 10.7% year-over-year growth in net merchandise value (NMV), outpacing the gross merchandise value (GMV) growth of 6.2% year over year.
The combination of NMV growth and take-rate expansion resulted in a 13.7% year-over-year increase in consignment revenue. Shipping revenue also grew by 13.4% year over year, which largely compensated for a 10.0% decline in direct revenue. Adjusted EBITDA was reported at $2.3 million, which represents a $9.3 million year-over-year improvement in EBITDA based on a $14.6 million increase in revenue.
For the fourth quarter of 2024, The RealReal reiterated its guidance from October 28, projecting GMV between $484 million and $500 million, revenue between $158 million and $165 million, and Adjusted EBITDA of $6.5 million to $9.5 million.
This guidance suggests a 12-15% sequential growth in GMV, which is slightly above the 11-12% growth seen in the same period over the past two years, but below the 25% holiday quarter growth experienced from 2017 to 2019.
RealReal's outlook is supported by a "quite healthy" supply and a positive demand trend, contrasting with some trade-down behavior noted in the last quarter. The company's strategy to emphasize value by showing the original primary list price of items appears to be resonating with consumers. The third quarter saw strengthening demand as it progressed, with this momentum carrying into the fourth quarter.
In light of these developments, BTIG has raised its price target for The RealReal to reflect an incrementally constructive view of the company while maintaining its Buy rating.
In other recent news, The RealReal reported a strong performance in its third quarter of 2024, with a 6% increase in Gross Merchandise Volume (GMV) to $433 million and an 11% rise in revenue to $148 million. This growth comes alongside a positive adjusted EBITDA of $2.3 million, marking the second consecutive profitable quarter for the company.
The firm's multi-channel approach, including the opening of new stores, has been a key factor in this success.
The RealReal has also raised its full-year guidance, projecting a Q4 GMV between $484 million and $500 million, and predicting full-year revenue to be between $595 million and $602 million. Despite a rise in operating expenses to $125 million, the company's growth strategies appear effective with a strong supply environment and integrated sales, marketing, and retail efforts.
In terms of plans, The RealReal aims to maintain its focus on operational excellence and customer service to drive further growth. New initiatives such as return insurance for final sale items are also being explored.
These recent developments suggest a positive trajectory for the company.
InvestingPro Insights
The RealReal's recent performance and BTIG's upgraded outlook are complemented by several key insights from InvestingPro. The company's impressive gross profit margin of 73.39% for the last twelve months as of Q2 2024 aligns with the positive take-rate increase mentioned in the article. This high margin suggests efficient management of consignment operations, a crucial factor in The RealReal's business model.
InvestingPro Tips highlight that the company "operates with a significant debt burden" and "may have trouble making interest payments on debt." These points underscore the importance of the improved Adjusted EBITDA reported in Q3, as it indicates progress towards financial stability.
The stock's high return over the last year, with a 101.99% price total return, reflects the market's positive reaction to The RealReal's strategic improvements and growth potential. However, investors should note that the stock "generally trades with high price volatility," which aligns with the company's current phase of recovery and growth.
For readers interested in a deeper analysis, InvestingPro offers 7 additional tips that could provide further insights into The RealReal's financial health and market position.
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