Please ensure Javascript is enabled for purposes of website accessibility

Why The RealReal Stock Dropped Like a Rock Today

By Jon Quast – Aug 10, 2021 at 2:35PM

Key Points

  • The RealReal missed expectations on the top and bottom lines.
  • By continuing to grow its user base and invest in its business, the company's prospects aren't as bleak as you might think from today's drop.

Motley Fool Issues Rare “All In” Buy Alert

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Wall Street expected better results from the company, but the news today wasn't all bad.

What happened

Shares of luxury resale marketplace The RealReal (REAL -3.33%) dropped like a rock on Tuesday after the company released financial results that fell short of analysts' expectations. As of 1:40 p.m. EDT, the stock was down a whopping 18% and is now down 54% from its 52-week high.

So what

For the second quarter of 2021, The RealReal's revenue was up 83% year over year to $105 million. This revenue growth was propelled by strong gross merchandise volume (GMV) growth of 91%.

While the GMV was a record for the company, the annualized growth rate needs to be kept in context. GMV was down 20% in the same quarter last year, meaning GMV is up just 53% over the past two years. Moreover, analysts expected the company to do roughly $3 million more in revenue in Q2 than it actually did.

A visibly tired person closes their eyes while sitting at a desk in front of a computer and a notebook.

Image source: Getty Images.

On the bottom line, The RealReal's results also fell short of expectations. The company had a net loss of almost $71 million, which translated to a loss per share of $0.78, according to generally accepted accounting principles (GAAP).

Again, Wall Street expected a net loss of only $0.54 per share. To be fair, $11 million of this net loss should be a one-time charge to settle a court case and shouldn't be an ongoing expense going forward.

Now what

The apparel and accessory resale space is competitive. With that context, I see two positive takeaways from The RealReal's Q2.

First, its customer base is still growing at a sound clip. It ended Q2 with 730,000 active buyers, up 19% year over year and also up 6% from just last quarter. Considering the company spent 12.5% of revenue on marketing in Q2, this user growth is a positive sign for the business.

Additionally, The RealReal's new facility in Arizona opened in June. This facility will be a hub for providing authentication services (proving luxury-brand merchandise isn't fake) for the company's customers, and could be something that differentiates it from competitors. In a crowded space, growing users and differentiating your brand from the others are two keys to long-term success. 

Jon Quast 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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

The RealReal Stock Quote
The RealReal
REAL
$1.45 (-3.33%) $0.05

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
349%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/30/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.