Secondhand luxury marketplace The RealReal (NASDAQ: REAL) reported Q3 CY2024 results exceeding the market’s revenue expectations, with sales up 11% year on year to $147.8 million. Guidance for next quarter’s revenue was optimistic at $161.5 million at the midpoint, 2.3% above analysts’ estimates. Its non-GAAP loss of $0.09 per share was also 12.9% above analysts’ consensus estimates.
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The RealReal (REAL) Q3 CY2024 Highlights:
- Revenue: $147.8 million vs analyst estimates of $143.2 million (3.2% beat)
- Adjusted EPS: -$0.09 vs analyst estimates of -$0.10 (slight beat)
- EBITDA: $2.32 million vs analyst estimates of -$225,000 (beat)
- Revenue Guidance for Q4 CY2024 is $161.5 million at the midpoint, above analyst estimates of $157.8 million
- EBITDA guidance for the full year is $6.2 million at the midpoint, above analyst estimates of $3.58 million
- Gross Margin (GAAP): 74.9%, up from 70.6% in the same quarter last year
- Operating Margin: -9.9%, up from -16.9% in the same quarter last year
- EBITDA Margin: 1.6%, up from -5.2% in the same quarter last year
- Free Cash Flow was $2.13 million, up from -$9.76 million in the previous quarter
- Active Buyers : 389,000, up 25,000 year on year
- Market Capitalization: $324.4 million
“I am pleased to report strong results for the third quarter, and I am encouraged by the continued strength in supply trends as we enter the fourth quarter," said Rati Levesque, Chief Executive Officer of The RealReal.
Company Overview
Founded by consignment store aficionado Julie Wainwright, The RealReal (NASDAQ: REAL) is an online marketplace for buying and selling secondhand luxury goods.
Online Marketplace
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.
Sales Growth
A company’s long-term performance can give signals about its business quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Over the last three years, The RealReal grew its sales at a decent 12.3% compounded annual growth rate. This is a useful starting point for our analysis.
This quarter, The RealReal reported year-on-year revenue growth of 11%, and its $147.8 million of revenue exceeded Wall Street’s estimates by 3.2%. Management is currently guiding for a 12.6% year-on-year increase next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 8.4% over the next 12 months, a deceleration versus the last three years. This projection is underwhelming and illustrates the market thinks its products and services will face some demand challenges. At least the company is tracking well in other measures of financial health.
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Active Buyers
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.
The RealReal struggled to engage its active buyers over the last two years as they have declined by 14.4% annually to 389,000 in the latest quarter. This performance isn't ideal because internet usage is secular. If The RealReal wants to accelerate growth, it must enhance the appeal of its current offerings or innovate with new products. 
Luckily, The RealReal added 25,000 active buyers in Q3, leading to 6.9% 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 for consumer internet businesses like The RealReal 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 growth has been exceptional over the last two years, averaging 27.1%. Although its active buyers shrank during this time, the company’s ability to successfully increase monetization demonstrates its platform’s value for existing users. 
This quarter, The RealReal’s ARPU clocked in at $379.83. It grew 3.8% year on year, slower than its user growth.
Key Takeaways from The RealReal’s Q3 Results
We were impressed by how significantly The RealReal blew past analysts’ EBITDA expectations this quarter. We were also glad its full-year EBITDA guidance exceeded Wall Street’s estimates. On the other hand, its users missed and its revenue growth stalled. Overall, this quarter was mixed. The stock remained flat at $3.03 immediately following the results.
So should you invest in The RealReal right now? The latest quarter does matter, but not nearly as much as longer-term fundamentals and valuation, when deciding if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.