The RealReal Earnings: Slowing Cash Burn, Narrowing Losses Mark Progress; Shares Expensive

No-moat The RealReal posted better-than-expected third-quarter earnings, with $133 million in sales and a $0.22 operating loss edging our $128 million and $0.28 loss forecasts. The firm has made progress in slowing its cash burn rate and approaching adjusted EBITDA profitability, with a revamped fee structure helping emphasize its more profitable consignment business and curtailing lower-value inventory. We view the moves as an appropriate strategy but something of a pyrrhic victory, with spending cuts in marketing and research and development shoring up near-term results but likely positioning the firm poorly to carve out a durable competitive advantage in a quickly growing luxury resale space. As we digest results, we expect to raise our $1.11 fair value estimate by a high-single-digit percentage, driven predominantly by better-than-expected margin performance, but we continue to view shares as overpriced, particularly after a 21%-22% surge in aftermarket trading.