The RealReal posts revenue peak but continues to face doubts over authenticity claims
In its second earnings report since going public this summer, American luxury consignment platform The RealReal announced a significant rise in its third-quarter revenues on Monday, but must now face up to renewed reports of flaws in its authentication process.
For the third quarter ended September 30, 2019, The RealReal’s total revenue increased 55% to $80.5 million, up from $51.8 million in the prior-year period. The company’s gross merchandise volume rose 48% year over year to $252.8 million.
Consignment and service revenues increased 53% to $69.8 million, while direct revenues totaled $10.7 million, up 75% from the previous year’s third quarter.
Nonetheless, The RealReal’s net loss widened to $25.3 million, or $0.30 per diluted share, compared to a loss of $25.1 million, or $0.30 per diluted share, in Q3 2018. This deepening loss reflected rising costs related to marketing, customer acquisition and the development of the company’s technological capacities.
“Q3 was a very strong quarter and speaks to the health and vibrancy of our marketplace. GMV and revenue growth accelerated, and we saw increased leverage in marketing as well as operations and technology,” said Julie Wainwright, The RealReal’s CEO and founder, in a release. “We are proud of the accelerating growth and operating leverage we demonstrated during the quarter, which we believe speaks to several unique aspects of our model including high buyer repeat rates and our flywheel where buyers become consignors and consignors become buyers.”
Year to date, the company reported total revenue of $220.7 million, up from $145.3 million in the first three months of 2018, while net loss for the period was $78.7 million ($2.28 per diluted share), compared to the prior-year period’s loss of $59.2 million ($7.12 per diluted share).
Looking forward, The RealReal expects to report GMV in the range of $292 million to $300 million in the fourth quarter, reflecting year-over-year growth of between 34% and 37%. For the full fiscal year 2019, the company expects to see GMV in the range of $997 million to $1 billion, reflecting an increase of between 40% and 41% compared to fiscal 2018.
Shares in The RealReal gained in after-hours trading on Monday following the publication of its third-quarter results but plummeted almost 11% on Tuesday after CNBC released a report questioning the platform’s authentication process.
Much of The Real Real’s reputation relies on its promise that everything that is sold on its platform is guaranteed authentic, thanks to an expert-led vetting process. As the company’s Facebook page claims, “with an expert behind every item, we ensure everything we sell is 100 percent real.”
However, the CNBC report, which cites former The RealReal employees and internal company documents, as well as unsatisfied customers, claims that this is not the case.
In particular, the report highlights that many of the items sold on the platform are not evaluated by expert authenticators but copywriters. According to the report, these copywriters are poorly trained by the company and are subject to overly strict quotas, a situation that leads to problems with merchandise not being identified.
And this isn’t the first time that the platform has received this kind of criticism. In September, Washington, D.C.-based consumer protection organization The Capitol Forum had already cited similar problems with The RealReal’s authentication process, while last year Chanel filed a lawsuit against the company, accusing The RealReal of selling counterfeit Chanel handbags.
The RealReal has largely abstained from commenting directly on the ongoing accusations. However, during the company’s conference call on Monday, Wainwright admitted for the first time that copywriters do deal with some of the items sold on the platform, with only “high risk” products being attended to by expert authenticators.
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