This was a good quarter for REAL and inline with the way we’d expect the model to be tracking as the company executes its strategy towards profitability by eliminating money losing items, sacrificing GMV growth, for improving profit flow. GMV was -7.5% slowing from -6.8% last Q, but gross profit grew 10% accelerating from flat in 2Q. This quarter saw cash burn of $19mm, slightly more than 3Q last year, but improved over 2Q. The company ended the Q $187mm in cash, which at the current burn rate would last probably about 2.5 years (though with a convertible debt maturity in 2025). EBITDA is tracking in the right direction though, as this Q was -$7mm vs -$28.2 last year. Plus, as the company has been executing its profitability strategy YTD EBITDA is $36mm better than last year with 4Q tracking to around breakeven vs -$20.2mm last year. The company reiterated its target of getting to positive EBITDA for full year 2024.
REAL has a moat around the best resale authentication and brand in the luxury space, it’s accelerating profitability by eliminating low-value (and money losing) brands/products from its portfolio, it can build a highly profitable advertising business, it has the potential to strike deals with the Neiman’s, Saks, and Bloomingdales of the world (New CEO from Neiman) or work directly with the brands to be the clearance mechanism for luxury goods, with poor prior management it has low hanging fruit for both improving profits and growing the business, and it’s likely to be cash flow positive within 12 months which eliminates the risk around the debt. As the company continues to execute the strategy and this consignment model demonstrates how profitable it can be, with huge returns on assets we think this stock has the ability to be a multi-bagger over a TAIL duration with upside to $10+ vs the current price of $1.90.
