REAL – Why Shares of The RealReal Tanked 18% in Early Trading Today

What happened

Shares of The RealReal (NASDAQ:REAL), an online retailer of secondhand luxury goods, fell a painful 18% at one point in early trading on Tuesday. Although that deep decline abated to some degree, by roughly 11 a.m. EST today the stock was still lower by 12.5%. It was earnings, released after the market close on Monday, that drove the declines.  

So what

The RealReal posted revenue of $84.6 million in the fourth quarter of 2020, a 10% decline from the same period in 2019. On an adjusted basis, the retailer lost $0.49 per share, much worse than the loss of $0.17 in the previous year. Analysts, meanwhile, had been expecting the quarterly loss to be $0.41 per share. Investors tend to be disappointed when companies miss Wall Street projections, so the price decline here makes total sense.   

A woman raising her arms in triumph in front of a computer.

Image source: Getty Images.

That said, there were some other worrisome takeaways from the earnings update. Specifically, in the quarterly commentary, the company noted that the coronavirus had disrupted its “path to profitability” and that continued uncertainty around the pandemic precluded it from offering a full 2021 outlook. That’s not a comforting thing for investors to hear, given that the fourth quarter’s financial results were so weak. Indeed, the lack of a forecast probably didn’t help Wall Street sentiment here.   

Now what

The RealReal is basically an upstart online retailer trying to prove its business model has legs. The pandemic clearly made that harder, since buying and selling secondhand high-end goods, even online, probably wasn’t a priority for most people in 2020. Although management is trying to put its best foot forward, this business still looks like a work in progress.