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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.

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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.

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