The RealReal raised $300 million in its initial public offering, exceeding expectations en route to a market value of more than $2 billion.
In a regulatory filing earlier this month when the luxury resale firm set the terms for its IPO, The RealReal was planning to raise $270 million and garner a market capitalization of $1.5 billion at the mid-point of its $17 to $19 per share range. Instead, the company priced Thursday night at $20 a share, and quickly shot up to $29.90 in trading Friday morning, or up 49.8 percent to give it a market cap of $2.47 billion. Shares of The RealReal closed its first-day of trading at $28.90, representing a 44.5 percent jump from its $20-a-share selling price and a market capitalization of $2.39 billion.
Alex Fitzgerald, a manager in the consumer and retail practice at global strategy and management consulting firm A.T. Kearney, said, “This is a test of the resale market. So far, in the early hours, the market sentiment is very positive. Investors like the revenue growth this market has shown, and resale is the one to watch.”
Fitzgerald, who has done a deep dive on what captures the attention of millennials and Generation Z, noted in her RealReal research that consumers who consign items to the company are more likely to purchase from the site, whereas those who just purchase are less likely to also consign.
“For this market [model] to work, The RealReal is going to need both sides,” she said. That’s because the only way for the company to grow is to make sure it has a steady flow of top-notch, luxury-branded merchandise on its site.
According to Fitzgerald, the success of the site is that it gives millennials the experience of a treasure hunt online, and the price point–as opposed to buying brand new–makes the concept the equivalent of buying luxury goods at an the off-price value.
Other online sites have consumers pile up their carts, only to abandon them a short time later. According to the A.T. Kearney expert, the reason The RealReal model works for now is because consumers who search on the site know that they have to act right away because of inventory scarcity. Checking off a box for value-conscious consumers is the belief they are helping to save the planet by partaking in the circular economy.
The RealReal was founded in 2011 by Julie Wainwright, a serial entrepreneur, who is the company’s chief executive officer.
Revenues rose 55 percent to $207.4 million last year, but it has yet to turn a profit The company’s loss widened to $75.8 million in 2018, according to a regulatory filing with the Securities and Exchange Commission earlier this month.