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TheRealReal, Inc. 10-K Analysis & Summary – 2/21/2025

⚠️This is not investment advice.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️

The RealReal, Inc.

Filing date:

02/21/2025

TLDR:

TheRealReal, Inc. shows improved financial performance with increased revenue and gross margins, but continues to operate at a net loss. Significant debt and warrant liabilities remain a concern, and sustained profitability is a key challenge.

ELI5:

TheRealReal is like a fancy online thrift store that’s trying to make money. They’re selling more stuff and making more money per sale, but they’re still spending more than they’re earning and have some big debts to pay off.

Accession #:

0001573221-25-000013

Published on

Analyst Summary

  • Revenue increased from $549.3 million in 2023 to $600.5 million in 2024 (9.3% increase).
  • Gross Margin improved from 68% in 2023 to 75% in 2024.
  • Net Loss decreased from $168.5 million in 2023 to $134.2 million in 2024.
  • Take Rate increased from 37.5% in 2023 to 38.4% in 2024.
  • AOV increased from $523 in 2023 to $545 in 2024.
  • Accumulated deficit of $1.25 billion is a significant concern.
  • Current Ratio decreased from 1.25 to 0.94, indicating potential liquidity issues.
  • Adjusted EBITDA increased from -$55.169 million to $9.308 million.

Opportunities and Risks

  • Risk: The company’s history of losses and the uncertainty of achieving sustained profitability.
  • Risk: The significant amount of debt and the restrictions imposed by debt covenants.
  • Risk: The highly competitive market for luxury goods and the emergence of new competitors.
  • Risk: The risk of selling counterfeit goods and the potential damage to the company’s reputation.
  • Risk: The increasing threat of data breaches and the potential for significant losses from fraud.
  • Risk: Vulnerability to economic downturns and changes in consumer spending habits.
  • Opportunity: The expanding market for pre-owned luxury goods.
  • Opportunity: The company’s efforts to improve operational efficiency and reduce costs.
  • Opportunity: The increased take rate from consignment sales.
  • Opportunity: The potential for new revenue streams, such as third-party advertising.
  • Opportunity: The opportunity to expand brand partnerships and increase supply.

Potential Implications

Company Performance

  • Continue to focus on growing profitable supply and improving operational efficiency.
  • Manage debt levels and explore opportunities to reduce the debt burden.
  • Invest in authentication processes and cybersecurity to protect the company’s reputation and data.
  • Monitor economic conditions and adjust business strategies accordingly.

TheRealReal, Inc. (REAL) – 10-K Report Analysis (FY 2024)

Executive Summary

This report analyzes TheRealReal, Inc.’s 10-K filing for the fiscal year 2024. The company continues to operate at a net loss, although the loss has decreased compared to prior years. Revenue increased, driven by consignment sales and a higher take rate. The company is managing operating expenses effectively, but significant debt and warrant liabilities remain a concern. Overall, the company shows signs of improvement, but profitability remains a key challenge. A hold rating is suggested, pending further evidence of sustained profitability.

Company Overview

TheRealReal, Inc. operates the world’s largest online marketplace for authenticated, resale luxury goods. The company provides an end-to-end service, facilitating consignment and offering a curated online marketplace for buyers. Key categories include women’s and men’s fashion, jewelry, and watches. The company also operates retail stores.

Detailed Analysis

Financial Statement Analysis

Key Ratios and Trends:

  • Revenue Growth: Total revenue increased from $549.3 million in 2023 to $600.5 million in 2024, a 9.3% increase.
  • Gross Margin: Improved significantly from 68% in 2023 to 75% in 2024, indicating better cost management.
  • Operating Expenses: Decreased as a percentage of revenue, suggesting improved operational efficiency.
  • Net Loss: Decreased from $168.5 million in 2023 to $134.2 million in 2024, indicating progress towards profitability.
  • Take Rate: Increased from 37.5% in 2023 to 38.4% in 2024, reflecting a more favorable commission structure.
  • AOV: Increased from $523 in 2023 to $545 in 2024, suggesting higher-value transactions.

Debt and Liabilities: The company has a significant amount of debt, including convertible senior notes and non-convertible notes. The warrant liability also adds to the overall liability burden. The 2024 Note Exchange was a positive step in managing debt maturity, but the overall debt level remains a concern.

Visual Aids:

[Placeholder for charts/tables visualizing revenue trends, gross margin improvement, and debt structure.]

Management’s Discussion and Analysis (MD&A) Insights

  • Management emphasizes growing profitable supply, improving efficiencies, and pursuing new revenue streams.
  • The company highlights the importance of attracting and retaining both consignors and buyers.
  • The MD&A discusses the impact of seasonality on the business, with stronger performance in the fourth quarter.
  • The company acknowledges the competitive landscape and the need to compete effectively with both new and pre-owned luxury goods vendors.

Red Flags and Uncommon Metrics

  • Accumulated Deficit: The company’s accumulated deficit of $1.25 billion is a significant concern.
  • Warrant Liability: The significant increase in the fair value of the warrant liability ($68.2 million) negatively impacts net loss.
  • Reliance on Consumer Discretionary Spending: The company is vulnerable to economic downturns and changes in consumer spending habits.
  • Fire Incident: The fire at the Secaucus warehouse is a concerning event, with potential financial and operational impacts.

Risk and Opportunity Assessment

Risks:

  • Profitability: The company’s history of losses and the uncertainty of achieving sustained profitability.
  • Debt Burden: The significant amount of debt and the restrictions imposed by debt covenants.
  • Competition: The highly competitive market for luxury goods and the emergence of new competitors.
  • Authentication Accuracy: The risk of selling counterfeit goods and the potential damage to the company’s reputation.
  • Cybersecurity: The increasing threat of data breaches and the potential for significant losses from fraud.
  • Economic Downturn: Vulnerability to economic downturns and changes in consumer spending habits.

Opportunities:

  • Growing Market: The expanding market for pre-owned luxury goods.
  • Improved Efficiency: The company’s efforts to improve operational efficiency and reduce costs.
  • Higher Take Rate: The increased take rate from consignment sales.
  • New Revenue Streams: The potential for new revenue streams, such as third-party advertising.
  • Brand Partnerships: The opportunity to expand brand partnerships and increase supply.

Conclusion and Actionable Insights

TheRealReal, Inc. is making progress in improving its financial performance, as evidenced by increased revenue, improved gross margins, and a reduced net loss. However, the company still faces significant challenges, including a large accumulated deficit, a substantial debt burden, and a highly competitive market. The warrant liability and the fire incident are also concerning factors.

Overall Assessment: Hold. While the company shows signs of improvement, sustained profitability is not yet assured. Investors should monitor the company’s progress in reducing its debt burden, improving operational efficiency, and achieving consistent profitability.

Recommendations:

  • Continue to focus on growing profitable supply and improving operational efficiency.
  • Manage debt levels and explore opportunities to reduce the debt burden.
  • Invest in authentication processes and cybersecurity to protect the company’s reputation and data.
  • Monitor economic conditions and adjust business strategies accordingly.

Financial Ratio and Metric Analysis

Profitability

  • Gross Profit Margin

    • Calculation: Gross Profit / Total Revenue
    • 2024: $447,521 / $600,484 = 74.53%
    • 2023: $376,278 / $549,304 = 68.50%
    • Trend: (($447,521 / $600,484) / ($376,278 / $549,304)) – 1 = 8.80% increase
    • Industry: The RealReal operates in the online luxury resale market. While a precise industry average is difficult to pinpoint, general e-commerce gross margins typically range from 40% to 60%. The RealReal’s gross margin of 74.53% in 2024 is significantly higher, suggesting a strong pricing strategy or a different business model compared to standard e-commerce.
  • Operating Profit Margin

    • Calculation: Loss from Operations / Total Revenue
    • 2024: (-$56,495) / $600,484 = -9.41%
    • 2023: (-$166,293) / $549,304 = -30.27%
    • Trend: ((-$56,495) / $600,484) / ((-$166,293) / $549,304) – 1 = 68.98% increase
    • Industry: Given the company’s net losses, the operating profit margin is negative. The improvement from -30.27% to -9.41% indicates progress in controlling operating expenses relative to revenue.
  • Net Profit Margin

    • Calculation: Net Loss / Total Revenue
    • 2024: (-$134,202) / $600,484 = -22.35%
    • 2023: (-$168,472) / $549,304 = -30.67%
    • Trend: ((-$134,202) / $600,484) / ((-$168,472) / $549,304) – 1 = 27.19% increase
    • Industry: The negative net profit margin reflects the company’s overall net losses. The increase from -30.67% to -22.35% suggests improved profitability, but the company is still operating at a loss.
  • Return on Assets (ROA)

    • Calculation: Net Loss / Total Assets
    • 2024: (-$134,202) / $423,095 = -31.72%
    • 2023: (-$168,472) / $446,923 = -37.70%
    • Trend: ((-$134,202) / $423,095) / ((-$168,472) / $446,923) – 1 = 15.86% increase
    • Industry: The negative ROA indicates that the company is not generating profits from its assets. The increase from -37.70% to -31.72% suggests improved asset utilization, but the company is still underperforming.
  • Return on Equity (ROE)

    • Calculation: Net Loss / Total Stockholders’ Deficit
    • 2024: (-$134,202) / (-$407,376) = 32.94%
    • 2023: (-$168,472) / (-$303,299) = 55.55%
    • Trend: ((-$134,202) / (-$407,376)) / ((-$168,472) / (-$303,299)) – 1 = -40.70% decrease
    • Industry: A positive ROE in this context is misleading due to the negative equity. It indicates how effectively the company is using its negative equity to generate losses.
  • Earnings Per Share (EPS) – Basic and Diluted

    • Calculation: Net Loss Attributable to Common Stockholders / Weighted-Average Common Shares Outstanding
    • 2024: (-$134,202) / 107,878,366 = -$1.24
    • 2023: (-$168,472) / 101,806,000 = -$1.65
    • Trend: ((-$134,202) / 107,878,366) / ((-$168,472) / 101,806,000) – 1 = 24.85% increase
    • Industry: The negative EPS reflects the company’s net losses. The increase from -$1.65 to -$1.24 indicates improved earnings performance, but the company is still not profitable on a per-share basis.

Liquidity

  • Current Ratio

    • Calculation: Total Current Assets / Total Current Liabilities
    • 2024: $232,669 / $248,676 = 0.94
    • 2023: $235,947 / $188,862 = 1.25
    • Trend: ($232,669 / $248,676) / ($235,947 / $188,862) – 1 = -24.80% decrease
    • Industry: A current ratio of 0.94 indicates that the company’s current liabilities slightly exceed its current assets. A ratio below 1 can suggest potential liquidity issues. The decrease from 1.25 to 0.94 is concerning.
  • Quick Ratio (Acid-Test Ratio)

    • Calculation: (Total Current Assets – Inventory) / Total Current Liabilities
    • 2024: ($232,669 – $23,583) / $248,676 = 0.84
    • 2023: ($235,947 – $22,246) / $188,862 = 1.13
    • Trend: (($232,669 – $23,583) / $248,676) / (($235,947 – $22,246) / $188,862) – 1 = -25.66% decrease
    • Industry: A quick ratio of 0.84 suggests that the company may have difficulty meeting its short-term obligations without relying on inventory sales. The decrease from 1.13 to 0.84 is a negative signal.
  • Cash Ratio

    • Calculation: (Cash and Cash Equivalents) / Total Current Liabilities
    • 2024: $172,212 / $248,676 = 0.69
    • 2023: $175,709 / $188,862 = 0.93
    • Trend: ($172,212 / $248,676) / ($175,709 / $188,862) – 1 = -25.81% decrease
    • Industry: A cash ratio of 0.69 indicates that the company has 69 cents of cash and cash equivalents for every dollar of current liabilities. The decrease from 0.93 to 0.69 suggests a weakening cash position relative to short-term obligations.

Solvency/Leverage

  • Debt-to-Equity Ratio

    • Calculation: Total Liabilities / Total Stockholders’ Deficit
    • 2024: $830,471 / (-$407,376) = -2.04
    • 2023: $750,222 / (-$303,299) = -2.47
    • Trend: ($830,471 / (-$407,376)) / ($750,222 / (-$303,299)) – 1 = -17.41% decrease
    • Industry: The negative debt-to-equity ratio is due to the negative equity. A decrease in the absolute value from -2.47 to -2.04 suggests a slight improvement in the balance sheet structure, but the negative equity remains a concern.
  • Debt-to-Assets Ratio

    • Calculation: Total Liabilities / Total Assets
    • 2024: $830,471 / $423,095 = 1.96
    • 2023: $750,222 / $446,923 = 1.68
    • Trend: ($830,471 / $423,095) / ($750,222 / $446,923) – 1 = 16.67% increase
    • Industry: A debt-to-assets ratio of 1.96 indicates that the company’s assets are primarily financed by debt. The increase from 1.68 to 1.96 suggests increased reliance on debt financing, which could increase financial risk.
  • Interest Coverage Ratio (Times Interest Earned)

    • Calculation: Loss from Operations / Interest Expense
    • 2024: (-$56,495) / (-$21,384) = 2.64
    • 2023: (-$166,293) / (-$10,701) = 15.54
    • Trend: ((-$56,495) / (-$21,384)) / ((-$166,293) / (-$10,701)) – 1 = -82.99% decrease
    • Industry: An interest coverage ratio of 2.64 indicates the company’s ability to cover its interest expenses with its operating income. The decrease from 15.54 to 2.64 is a significant decline and suggests a reduced ability to service its debt obligations.

Activity/Efficiency

  • Inventory Turnover

    • Calculation: Cost of Revenue / Inventory
    • 2024: $152,963 / $23,583 = 6.49
    • 2023: $173,026 / $22,246 = 7.78
    • Trend: ($152,963 / $23,583) / ($173,026 / $22,246) – 1 = -16.58% decrease
    • Industry: An inventory turnover of 6.49 indicates how efficiently the company is managing its inventory. The decrease from 7.78 to 6.49 suggests that inventory is being sold less quickly, which could be due to slower sales or increased inventory levels.
  • Days Sales Outstanding (DSO)

    • Calculation: (Accounts Receivable / Total Revenue) * 365
    • 2024: ($13,961 / $600,484) * 365 = 8.49 days
    • 2023: ($17,226 / $549,304) * 365 = 11.45 days
    • Trend: (($13,961 / $600,484) * 365) / (($17,226 / $549,304) * 365) – 1 = -25.85% decrease
    • Industry: A DSO of 8.49 days indicates the average number of days it takes the company to collect payment after a sale. The decrease from 11.45 to 8.49 suggests improved efficiency in collecting receivables.
  • Days Payable Outstanding (DPO)

    • Calculation: (Accounts Payable / Cost of Revenue) * 365
    • 2024: ($11,004 / $152,963) * 365 = 26.25 days
    • 2023: ($8,961 / $173,026) * 365 = 18.88 days
    • Trend: (($11,004 / $152,963) * 365) / (($8,961 / $173,026) * 365) – 1 = 39.04% increase
    • Industry: A DPO of 26.25 days indicates the average number of days it takes the company to pay its suppliers. The increase from 18.88 to 26.25 suggests that the company is taking longer to pay its suppliers, which could be a strategy to manage cash flow.
  • Asset Turnover

    • Calculation: Total Revenue / Total Assets
    • 2024: $600,484 / $423,095 = 1.42
    • 2023: $549,304 / $446,923 = 1.23
    • Trend: ($600,484 / $423,095) / ($549,304 / $446,923) – 1 = 15.45% increase
    • Industry: An asset turnover of 1.42 indicates how efficiently the company is using its assets to generate revenue. The increase from 1.23 to 1.42 suggests improved asset utilization.

Valuation

  • Price-to-Earnings Ratio (P/E)

    • Calculation: Stock Price / EPS
    • 2024: $6.46 / (-$1.24) = -5.21
    • Industry: The negative P/E ratio is due to the company’s negative earnings. It is not a meaningful metric for valuation in this case.
  • Price-to-Book Ratio (P/B)

    • Calculation: Market Capitalization / Total Stockholders’ Equity
    • Market Cap (2025-02-21): 111,242,479 * $6.46 = $718,622,457.34
    • 2024: $718,622,457.34 / (-$407,376,000) = -1.76
    • 2023: Market Cap (Estimation): 104,670,500 * $6.46 = $676,266,430 / (-$303,299,000) = -2.23
    • Trend: (-1.76) / (-2.23) – 1 = -21.08% decrease
    • Industry: The negative P/B ratio is due to the negative equity. It is not a meaningful metric for valuation in this case.
  • Price-to-Sales Ratio (P/S)

    • Calculation: Market Capitalization / Total Revenue
    • 2024: $718,622,457.34 / $600,484,000 = 1.20
    • 2023: $676,266,430 / $549,304,000 = 1.23
    • Trend: (1.20) / (1.23) – 1 = -2.44% decrease
    • Industry: A P/S ratio of 1.20 suggests that investors are willing to pay $1.20 for every dollar of the company’s revenue. The decrease from 1.23 to 1.20 indicates a slight decrease in investor confidence.
  • Enterprise Value to EBITDA (EV/EBITDA)

    • Calculation: (Market Capitalization + Total Debt – Cash) / EBITDA
    • Market Cap (2025-02-21): 111,242,479 * $6.46 = $718,622,457.34
    • Total Debt (2024): $26,653 + $276,807 + $134,470 = $437,930
    • Cash (2024): $172,212
    • EBITDA (2024): -$87,385
    • EV/EBITDA: ($718,622 + $437,930 – $172,212) / (-$87,385) = -11.28
    • Industry: The negative EV/EBITDA ratio is due to the company’s negative EBITDA. It is not a meaningful metric for valuation in this case.

Growth Rates

  • Revenue Growth

    • Calculation: (Current Year Revenue – Previous Year Revenue) / Previous Year Revenue
    • 2024: ($600,484 – $549,304) / $549,304 = 9.32%
    • Industry: A revenue growth rate of 9.32% indicates the percentage increase in the company’s revenue.
  • Net Income Growth

    • Calculation: (Current Year Net Income – Previous Year Net Income) / Previous Year Net Income
    • 2024: (-$134,202 – (-$168,472)) / (-$168,472) = -20.34%
    • Industry: A net income growth rate of -20.34% indicates the percentage increase in the company’s net income.
  • EPS Growth

    • Calculation: (Current Year EPS – Previous Year EPS) / Previous Year EPS
    • 2024: (-$1.24 – (-$1.65)) / (-$1.65) = -24.85%
    • Industry: A EPS growth rate of -24.85% indicates the percentage increase in the company’s earnings per share.

Other Relevant Metrics

  • Adjusted EBITDA
    • Definition: A non-GAAP metric used by the company to assess its operating performance. It starts with net loss and adds back depreciation and amortization, interest income, interest expense, provision for income taxes, stock-based compensation, and other one-time expenses.
    • Calculation: As provided in the filing.
    • 2024: $9,308 (in thousands)
    • 2023: -$55,169 (in thousands)
    • Trend: (($9,308) – (-$55,169)) / (-$55,169) = -116.70% increase
    • Significance: The company uses Adjusted EBITDA to show a clearer picture of its core operating performance by excluding non-cash and unusual items. The significant increase from -$55.169 million to $9.308 million indicates a substantial improvement in underlying profitability.
    • Critique: While Adjusted EBITDA can be useful, it’s important to remember that it’s a non-GAAP metric. It excludes real expenses like depreciation and interest, which are important for understanding the company’s true financial situation. The adjustments should be carefully scrutinized to ensure they are reasonable and not misleading.

Commentary

The RealReal’s financial performance in 2024 shows signs of improvement, particularly in gross profit margin and Adjusted EBITDA, indicating better operational efficiency. However, the company remains unprofitable, with negative net profit margins and ROA, and continues to rely heavily on debt financing. Liquidity ratios have weakened, suggesting potential short-term financial challenges. While revenue growth is positive, the overall financial health of the company requires continued focus on cost management and achieving profitability.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️