What happened
Shares of digital consignment company The RealReal (REAL -1.18%) fell on Friday after an analyst appeared to doubt the vision that management laid out earlier this year. As of 12:45 p.m. ET, The RealReal stock is down 7%, but it was down 12% earlier in the session.
So what
Cowen analyst Oliver Chen downgraded The RealReal stock today in a big way. Previously Chen had a price target of $14 per share, suggesting more than 300% upside from where the stock traded yesterday. However, Chen has now lowered his price target to a measly $3 per share, according to The Fly, citing a "bumpy path to profitability."
Chen's comment appears directly related to The RealReal's "Vision 2025" guidance. In March, the company outlined a path to positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) in 2024. It expects to follow this up in 2025 with adjusted EBITDA of over $100 million.
Now what
To Chen's point, The RealReal already appears to be struggling with profitability. Management originally guided for an adjusted EBITDA loss of $80 million to $100 million in 2022. But with its second-quarter report, it lowered this guidance to an adjusted EBITDA loss of $100 million to $110 million -- not a great start.
Part of The RealReal's profitability plan hinges on ongoing revenue growth, and results in the first half of 2022 were promising in that regard, with revenue up 48% from the comparable period of 2021. Orders, active buyers, and the company's take rate have consistently tracked higher over the past two years as well, showing the platform is gaining adoption in a competitive market.
In summary, many aspects of The RealReal's business are solid. But management still has a lot of work to do. Moreover, investors shouldn't expect a quick bottom-line turnaround considering management is still projecting almost two more years of losses.
