What happened
Shares of ThredUp (TDUP 1.30%), an online retailer of secondhand clothing, fell sharply in early trading on March 8, losing as much as 23% of their value in the first few minutes of trading. By roughly 10:30 a.m. ET the stock had pared that loss dramatically, but was still off by around 6% or so. The company's fourth-quarter 2021 earnings release, released after the market closed on March 7, was the big problem. There was good news and bad news.
So what
On the top line, ThredUp reported fourth-quarter 2021 revenue of $72.9 million, with full-year 2021 revenue of $251.8 million, up 68% and 35%, respectively. On the bottom line, the company lost $17.9 million for the quarter, slightly worse than the $17 million it lost in the final quarter of 2020. For the full year the retailer's loss tallied up to $63.2 million, notably worse than the $47.9 million it lost in the same period of 2020. The company's initial public offering (IPO) was held in March 2021, so financial results don't really have comparable periods for per-share numbers. That said, in the fourth quarter the company's $0.18-per-share loss was worse than the $0.16 Wall Street had been expecting, even though the company's top line actually beat expectations. Investors don't like it when companies miss earnings.
Image source: Getty Images.
The secondhand clothing retailer, meanwhile, is still in growth mode, highlighting that it closed an acquisition in the fourth quarter that gives it entry into Europe. On the business side, it had a record number of active buyers in the fourth quarter while orders hit a new high for the full year. But growth costs money, and ThredUp is planning to keep spending, including on processing and distribution assets both domestically and abroad. That's likely to keep the company in the red during 2022, though for the full year management is currently projecting annual sales of up to $340 million. That said, the first quarter of 2022 is projected to be roughly flat to slightly down from the fourth quarter of 2021. This probably isn't as bad as it sounds, however, given that the fourth quarter tends to be the biggest sales quarter for most retailers. Still, analysts were clearly hoping for a more positive outlook, given that ThredUp got hit with a number of drastically reduced price targets. That's another thing investors don't like to see. So the early negativity makes some sense, even though calmer heads appear to have prevailed as the market moved through the first hour of trading.
Now what
ThredUp is a young company building out its operations. That takes time and capital. Moreover, growth doesn't normally happen in a smooth line. For more aggressive investors, the long-term bet is that this company can create a profitable business. That's just not going to happen anytime soon, which is why more conservative types should probably watch this name from the sidelines. And, if you do step in here, go in knowing that today's volatility could be a pretty common occurrence.
