The RealReal (REAL) enjoyed a solid reception from the market after going public today. The online consignment store for luxury goods sold 15 mln shares at $20/share, above the $17-19 expected range.
The stock opened 40% higher at $28 before closing up 44.5% at $28.90/share, giving the company a market value of ~$2.4 bln.
REAL is the world's largest online marketplace for authenticated, consigned luxury goods. The company aggregates and curates unique, pre-owned luxury supplies that are exclusive to The RealReal across multiple categories, including women's, men's, kids', jewelry and watches, and home and art.
The company leverages its proprietary technology and data analytics to provide world-class service, making consignment easy, convenient, reliable, and fast. As a result, the company unlocks luxury supply from first-time consignors, converts consignors who typically consign at local brick-and-mortar shops to its online marketplace, and drives high repeat consignment rates.
In 2018, it added ~2.6 mln new items to its online marketplace. REAL's trained experts build trust with its buyer base by thoroughly inspecting the quality and condition of, and authenticating, every item it receives.
A strong network effect drives the growth of the company's online marketplace. As the company brings more consignors onto its platform, it unlocks more high-quality, luxury supply, which increases its merchandise assortment and attracts more buyers. This in turn increases sales velocity and commissions for consignors .
REAL generates revenue from orders processed through its website, mobile app, and three retail stores located in New York and Los Angeles. Its revenue is primarily based on its take rates from these transactions.
Market & Industry
REAL participates in the large and growing personal luxury goods market, which was expected to reach $294 bln in 2018 and is expected to grow to between $362-412 bln in 2025, according to Bain.
Luxury goods retain value over time as a result of their enduring desirability and durability, making them particularly well-suited for resale.
The total addressable market of luxury products in U.S. homes potentially available for resale, including men's and women's apparel, handbags, shoes, watches, jewelry, high-end furniture, and art valued below $250,000, is approximately $198 bln, according to Frost & Sullivan.
REAL believes it is well-positioned to benefit from several favorable industry and consumer trends, including the accelerating shift of luxury to digital channels, the increasing acceptance of resale, a rising value consciousness, and a desire to embrace sustainability.
The existing luxury resale market is outdated, fragmented, difficult to access, and laden with counterfeit goods. Primarily due to these challenges, a vast quantity of consignable luxury goods languishes in homes, and buyers can be hesitant to purchase pre-owned luxury goods.
Last year, revenue grew 55% to $207 mln. The company's operating loss grew 43% to $74 mln as gross margins expanded ~50 bais points to 66%.
For the three months ended March 31, 2019, consignment and service revenue increased by $15.2 mln, or 37%. The growth was driven primarily by a 42% increase in GMV resulting from growth in both active consignors and active buyers, as well as an improvement from 35.1% to 35.3% in its take rate due to changes to its commission structure that yielded a higher take rate on lower-priced items. Total revenue grew 49% to $69.3 mln.
GMV growth was driven by a 40% increase in active buyers, as well as a 1% increase in AOV (average order value).
Total operating expenses grew by 47% yr/yr to $65.6 mln driven by a 48% increase in operations and technology expense. The increase in that category was primarily due to investments related to expanding its merchandising and fulfillment facilities, opening its first retail stores, and growing its talent.
REAL had an operating loss of ($23.2) mln compared to ($13.9) mln in the year ago period.
Investors will be focused on top-line growth and the path to profitability. Like most growth companies going public, there is a warning in the S-1 filing that the company may never achieve profitability.