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While we were away last week, the IPO market kept chugging along with yet another smoking hot deal. I'm talking about The RealReal. That's real, r e a l, for all you home gamers. The online consignment store for luxury goods that came public with a bang on Friday. The deal priced at 20 bucks, a buck a buck above the proposed price range.
And then the stock immediately opened at $28. 40% gain right out of the gate. All aboard! Before closing at $28.90. Buyers had good reason. This is an intriguing story with a very fast growth rate. And at a time when the department stores are being eaten alive, The RealReal could be poised to make a killing.
But we hate to chase. And this thing ran up a lot on Friday. Fortunately, today the stock pulled back and it sank down more than two bucks, or 8%. You know what? I got to wonder if it's cooled down enough to start owning because this is a concept All right, maybe I'm biased. Many of my friends use it.
Uh more than even Rent the Runway. This has a powerful concept that I think the department stores should have adopted ahead of them. All right, so let's get to know this IPO. First, you need to understand how this company really works. The RealReal operates in a very interesting niche that reminds me of a company you may have seen on air, StockX.
That's that red hot digital platform for reselling fancy old sneakers, Nikes. Remember that? We had them on. StockX is privately held, but its business is booming because there's a huge market for used luxury goods. That's where The RealReal comes in. This is an online consignment shop, a store that helps people sell their used stuff, one that's specifically designed to handle luxury apparel brands, as well as watches, jewelry, home goods, even art.
The RealReal isn't just a platform, though. They also authenticate everything that comes their way, meaning you're much less likely to be suckered into fakes. Oh, I love this concept. There's tons of great high-end clothing and accessories that are just sitting in people's closets and bureaus. Maybe it doesn't fit you anymore.
Maybe your taste has changed. If there were a good way to sell the stuff for what it's worth, one that doesn't require a lot of hassle, then I think people would take advantage of it. And that's exactly what we're seeing with The RealReal. For the last 8 years, this company's been building up a loyal base of both sellers and buyers.
They're going up against a fragmented market that's tough to find and full of counterfeits. By making it easy to sell your high-end clothes and accessories on consignment, and then by authenticating the merchandise, they're pulling in all kinds of people who wouldn't normally buy or sell this stuff.
Plus, the people who use RealReal to sell their old stuff very often turn into buyers of other people's stuff. The company describes it as a flywheel effect. I couldn't agree more. This thing has a lot of people buzzing about it. Think about it. Do you really want to go to a brick-and-mortar consignment store and spend ages haggling with them?
Do you want to sell the stuff online via an auction site like eBay? Either way, you got to admit, it's a the house of pain. Yes, a pain in the neck. Then from the consumer side, do you really want to shop at a brick-and-mortar consignment store? The problem with shopping for used clothing, especially high-end clothing, is that it's a crap shoot.
Maybe the place you're going to has fabulous selection, or maybe it's all garbage. You can't really tell until you've gone through everything. I know lots of people enjoy this kind of treasure hunt shopping experience. I used to, but it's stressful, it's exhausting, especially if you don't find any treasure.
The RealReal solves all these problems. Limited selection of used merchandise? The company has more than 180 luxury managers across over 40 major metropolitan areas who search for people who might be willing to sell their luxury goods on consignment. They now built a terrific pipeline as 80% of the RealReal gross merchant merchandise value came from repeat sellers.
The company will come to your home for consultation, or you can drop your stuff off at one of their local one of their locations. They have 11 consignment offices and three retail stores in New York and LA, or you can just ship it to them straight to them for free. Once they get their hands on your stuff, The RealReal authenticates it, they write the description, they take the photos, they handle all the logistics, everything you'd have to do yourself if you tried to sell a used jacket on eBay.
And the consigners get good deals. On average, their commission comes to 65% of the selling price. From the perspective of potential buyers, you don't need to deal with a treasure hunt because The RealReal brings all this fancy merchandise together from all over the country. They curate it on their website, so you see the best stuff.
And after 8 years, they've gotten very good at this. Last year, 80% of the products on The RealReal site sold within 90 days of being listed, and they had a 96% sell-through ratio. So, how about the financials? Okay, last year the company delivered 55% revenue growth. And while that growth slowed to 49% in the first quarter of 2019, that's still a number that most retailers would kill for.
Can you imagine a department store getting those numbers? Holy cow. Active buyers and total orders both increased by 40% in the first quarter. That is However, as there often is, a fly in the ointment. Because The RealReal is in growth mode, the company's a long way from turning a profit. Normally, that wouldn't bother me much for a newly minted company, a newly minted IPO with so much potential.
The problem is that RealReal's margins are moving in the wrong direction. They didn't improve very much last year, and in the first quarter of 2019, they were actually down substantially. The gross margin, what they make on the cost of goods sold, declined by 470 basis points 61.2%, still high, but not what I wanted.
Beyond the numbers, you need to know that this company has real competition. eBay's coming at them with a similar service, eBay Authenticate. And there's another privately held company in the same business, Poshmark, that's planning to go public later this year. Worse, Poshmark and eBay Authenticate both take a They take a smaller cut, more like 20% versus 30% for The RealReal.
I think there's enough room for multiple players here, but competition it can be devastating to margins, and that's what I'm worried about anyway. I mean, this could end up being like Amazon's attempt to move in on Etsy in the handmade goods market, where the smaller, more specialized player ultimately triumphed without breaking a sweat.
Now, we know that when Elliott Management, the high-profile activist hedge fund, started pushing eBay's management for change earlier this year, they cited The RealReal as a company that was thriving because eBay had taken its eye off the ball. I agree. I said the same thing this morning to David Faber when we talked about this.
Now that Elliott's made peace, you have to wonder if eBay will become a more focused competitor. It's certainly possible. eBay's pretty good company. The other big concern, The RealReal CEO, Julie Wainwright, she was people see the CEO of pets.com, which of course has become the poster child for the excesses of the dot-com bubble.
I think it's a cheap shot to talk talk about it, but then again, I did bring it up. The business models aren't really comparable, and Wainwright's built The RealReal into a formidable outfit, but I wouldn't be doing my job if I didn't mention it, and people would say, "He's glossing over that." I think she's really good.
So, we've got an intriguing growth story with some hair on it. What What do we do? What do we do? Okay, if we assume the company can keep growing at its current growth rate, a generous assumption, it means the stock is trading at roughly seven times this year's sales estimates. Seven times sales for company with 49% revenue growth, it's a lot.
If you look at something like Revolve Group, which we just talked about a couple weeks ago, another online fashion play recently came public, that trades at less than four times this year's sales. Of course, The RealReal has roughly twice the growth rate, but on the other hand, it's unprofitable, while Revolve is making money.
Remember, we liked that Revolve deal. Put it all together, and I think it's too pricey here. Uh maybe even after today's pullback, although boy, do I want to say to just go buy it. Here's the bottom line. Despite its flaws, I think RealReal has a lot going for it, and there's absolutely a price where the stock's worth owning.
It's just not this one. I mean, right now it's at 26 and change. You got my blessing to buy it if it pulls back to 22.50 or less. Hey, things can happen. And if it doesn't, got to just say you missed it. How about we go to Rob in California? Rob. Hey, Jim. Uh I'm calling you uh to ask about a particular stock.
I'm a technician that uh that believes a chart is worth a thousand words. All right. And I'm calling about Nike. Uh I bought Nike last year and used Foot Locker as a proxy um and watched Foot Locker's uh stock soar. And then shortly thereafter, watched Nike soar from 67 to around 85 and bought some calls that went from 57 to around 85.
Um and I'm looking at the chart today, and I'm seeing two things that I'm not really liking. One is a double top. Right. I see that. is a And the other is that the 50-day moving average uh just recently crossed below the 100-day moving average, which tells me there's there could be some selling pressure in the near term.
I'm wondering if you would buy it now and if you think it might pull back to 80 um before you would buy again. Well, I think it moved up today because of trade talk and the insistence that it somehow levered only to China. They have a great relationship with China. I'd like to see it go back to 80, 82 before I buy it.
I understand your chart work. We talk about charts on Tuesday. I was surprised it went up this much. I'm not a buyer at this level. Needs to be lower. I agree with you. Ashwin in California. Ashwin. Yep. Hey, Jim. Thanks for your insights. I had a quick question about Lululemon. Yes. Uh athletic apparel.
Yeah. Uh I got I got in around 169, 170 right before their earnings. Uh still hanging on to them. Uh I saw a few analysts uh who have downgraded them from a buy to a hold. Uh and some some are underperform. I don't know why. Um their numbers look good. Um they are costly, expensive, but they're still looking good.
Uh fundamentals look good. Uh what are your thoughts on that? Ashwin, I like the stock right here. I like this stock to go to 200. They have a series of unbelievable quarters. They have amazing management. A downgrade? I got 100 stocks I'd downgrade before I would downgrade Lululemon. I'm sticking with it.
All right, let me keep it real. Real. The new IPO has a lot going for it, but at these prices, uh, I'm having trouble. Wait for a pullback. Much more Mad Money ahead including my exclusive with the CEO of Paychex to get a read on the job market and his stock. And why can't the oil stocks catch a serious bid?
I'm investigating. Now all your calls are rapid fire tonight AS IT'S THE LIGHTNING ROUND. So stay with C 1-800-743-CNBC. Miss something? Head to madmoney.cnbc.com.
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