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Why Shares of The RealReal Fell 29.5% in May

By James Brumley - Jun 8, 2021 at 4:46PM

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Some harsh fiscal realities are starting to set in for a bunch of investors following this company.

What happened

Shares of online consignment store The RealReal (REAL -14.59%) fell 29.5% in May, according to data from S&P Global Market Intelligence. Most of the loss was linked to its first quarter numbers. While the luxury apparel and accessories middleman reported better-than-expected revenue growth, the company's continued losses and the announced exit of a top executive sparked a sell-off that was exacerbated by a key downgrade.

So what

For the quarter ending in March, The RealReal produced $98.8 million in revenue, up 27% from the year-ago top line of $78.0 million, topping estimates of $96.0 million. While analysts correctly assumed the company would remain in the red, the losses continue to grow despite top-line growth. Last quarter's loss of $0.49 per share is bigger than $0.39-per-share loss booked for the comparable quarter of 2020.

Man watching a stock chart fall lower and lower.

Image source: Getty Images.

Chief Financial Officer Matt Gustke is also stepping down by the end of this year, per the company's quarterly report.

Broadly speaking, analysts are less than impressed with The RealReal's results history and the timing of Gustke's exit. BTIG downgraded the stock from a buy rating to neutral, suggesting that growth is likely to slow in the foreseeable future until the e-commerce platform starts making progress on the profit front. Morgan Stanley's analysts didn't alter their equal-weight rating of REAL shares but agreed that the ongoing losses are a concern.

Now what

The RealReal is taking steps to mitigate the stock's pullback. At last week's Piper Sandler Consumer Marketplace Conference, the company offered a business update, highlighting April's and May's strong year-over-year revenue increases from pandemic-suppressed results. Indeed, on a two-year basis, April's gross merchandise volume is up 56% from April 2019's pre-coronavirus figure, while May's is higher by 50%. CEO Julie Wainwright says the data "reflects the strong momentum we are experiencing coming out of COVID."

And perhaps it does.

In the absence of any evidence that growing the scope of the business is actually improving rather than worsening the bottom line, however, The RealReal remains a name reserved for speculators looking to capitalize on its volatility rather than a holding most long-term investors can buy and hold. The market still lacks any solid examples of such a business model achieving and sustaining viability.

James Brumley has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

The RealReal, Inc. Stock Quote
The RealReal, Inc.
REAL
$2.60 (-14.59%) $0.45
Morgan Stanley Stock Quote
Morgan Stanley
MS
$90.01 (-1.88%) $-1.72

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