Is The RealReal The Real Deal In Online Goods? The Street Debates

The RealReal REAL, an online marketplace for authenticated luxury goods, hit the public market for the first time in June and shares remain about 20% higher compared to its $20 IPO pricing.

The Analysts

Raymond James' Aaron Kessler initiated coverage of The RealReal's stock with a Market Perform rating.

KeyBanc Capital Markets' Edward Yruma initiated coverage at Overweight, $31 price target.

Stifel's Scott Devitt initiated coverage at Buy, $30 price target.

The RealReal traded around $25 per share Tuesday afternoon.

Raymond James: Fairly Valued Stock

The global market for personal luxury goods is modeled to expand at a 3% to 5% compounded annual growth rate off $294 billion in 2018 and could reach as high as $412 billion in 2025, Kessler wrote in a note. The RealReal is looking to target the second-hand or resale segment which faces multiple headwinds, including inconsistent authentication standards and poor pricing.

The RealReal's business model addresses issues through multiple consignment options, completing secondary tasks like photographs on behalf of the consignors, offering a consistent and uniform authentication process for every item and competitive commissions at a fast pace.

As the company acquires new buyers and consignors, Kessler said a path exists for 25% long-term growth and long-term EBITDA margins of around 25%.

See Also: Luxury Brand Growth Driven By Virtual Reality, E-Commerce

KeyBanc: Creating A New Market

The RealReal is not only exposing itself to the approximate global luxury market, but is creating a brand new market for nearly new luxury goods at a compelling cost, Yruma wrote. The company is also allowing for a new cycle of luxury purchases to occur where buyers "recycle" their new purchases in a strong resale market which helps stimulate new luxury good sales.

Shares of The RealReal are trading around 4.8 times 2020 EV/sales, which Yruma said implies a three-turn discount to fellow e-commerce goods platform Etsy Inc ETSY. Since The RealReal boasts among the most compelling secular tailwinds, it's uniquely positioned versus other online and physical competitors which makes the stock look "attractive" at current levels.

Stifel: Favorably Positioned

The RealReal's biggest competitive concern is merely consumers keeping products they purchased, Devitt wrote. As the market is expected to expand over the coming years, TheRealReal is favorably positioned against existing and potentially new competitors for five key reasons:

• The full-service model from start to finish represents a high quality transaction.
• An authentication process adds a layer of trust.
• Data and insight from 9.4 million transactions completed.
• Multi-channel distribution.
• Existing scale.