'All-Time' Retail Long $REAL Rips, Has More Upside

Key Concepts:

• RealReal (ticker symbol not explicitly stated, but implied)
• Long position
• Top-line growth
• Gross profit acceleration
• Basis points
• Base effects
• Supply growth
• EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization)
• P&L (Profit and Loss statement)
• Drawdown
• EBITDA multiple
• Exit strategy
• Acquisition
• eBay
• Amazon
• Luxury goods market
• Proof of concept
• Proof of profitability
• Proof of growth
• Pre-market trading
• Novice highs

RealReal Stock Analysis and Investment Thesis

This analysis focuses on the stock of "RealReal," a company identified as a top long position for Hedgei retail, with a potential to be their number one long ever. The investment thesis was initiated when the stock was trading at $1. The target price was set at $20, and the stock is currently trading at $12, showing a 15% pre-market increase. The speaker anticipates further upside once institutional trading commences.

Financial Performance and Growth Drivers

The company recently reported "phenomenal" financial results. Key highlights include:

• Top-line acceleration: Revenue growth increased from +12% to +17% in the latest quarter.
• Gross profit acceleration: Gross profit improved by 500 basis points.
• Full-year performance: The company achieved a significant beat for the full year, largely driven by the strong fourth-quarter performance.

Supply-Driven Business Model and Market Dynamics

The RealReal's business model is described as "very supply driven." The core principle is that if a high-demand item, such as a Rolex watch, is listed on their platform, it will sell within six weeks. Therefore, the primary focus is on acquiring and listing inventory.

The current market environment is characterized by:

• Consumer pressure at the low end: While not universally pressured, consumers at the lower income bracket are experiencing strain.
• Middle market stability: The middle segment of the market is described as "a push" (likely meaning stable or neutral).
• Strong high-end market: The luxury segment is performing well.
• Excess luxury goods: A significant factor driving supply is the overconsumption of luxury items (watches, handbags, shoes) during the pandemic. Consumers are now looking to monetize these assets to free up capital. This trend is expected to bolster supply growth for RealReal.

Financial Projections and Valuation

• EBITDA growth: The company is projected to achieve $100 million in EBITDA next year, a substantial increase from approximately $60 million this year.
• P&L acceleration: Every line item on the Profit and Loss statement is showing acceleration.
• EBITDA multiple: The speaker believes the company will eventually command a "real EBITDA multiple."
• Price target: The stock is projected to reach $20.

Potential Exit Strategy: Acquisition

A significant part of the investment thesis revolves around a potential exit strategy through acquisition.

• eBay as a prime candidate: The speaker strongly believes that eBay is a likely acquirer. eBay has a long-standing but unsuccessful history of trying to penetrate the luxury goods market for the past 20 years.
• RealReal's value proposition for eBay: RealReal offers eBay a company with proven concept, profitability, and growth in the luxury sector, which eBay has struggled to establish independently.
• Amazon as a secondary possibility: While eBay is considered more probable, Amazon is also mentioned as a potential acquirer.

Current Trading and Outlook

• Pre-market performance: The stock is up 15% pre-market.
• Intraday target: The speaker anticipates the stock could test $14 today.
• Breakout potential: The current price action suggests a breakout from "novice highs."
• Long-term conviction: The initial long call at $1 is reiterated, with the current pre-market price around $13.50 and a target of $20.

Cautionary Note

Despite the positive outlook, the speaker acknowledges the need to remain vigilant. They express a desire to avoid complacency due to the stock's significant gains and the potential for a drawdown in a couple of quarters if "pod one decelerates." However, they believe there is sufficient time before this potential deceleration occurs.

Call to Action

The video concludes with a call to action for viewers to subscribe to the Hedgei on YouTube channel and visit their website for more investing content.