Research from Water Tower Research, Water Tower Research

Water Tower Research

Research from Water Tower Research

Water Tower Research is a leading equity research firm that provides research on micro, small and mid cap companies.

Water Tower Research was founded by Wall Street veterans after witnessing a fundamental shift in the investment research industry with the result being a declining knowledge base among investors, a lack of awareness and a shrinking pool of fundamental research being conducted on companies across the small-cap and micro-cap spectrum. The same issues are now increasingly occurring in the mid-cap space. This sea change within the investment community is impacting not only the companies themselves but also current shareholders and potential investors. With significantly less active sell-side sponsorship by Wall Street, a substantial information gap has developed between companies and various constituents in the financial community. The net result is fewer channels for insight and information to flow between companies and investors.

Equity Research Firm

Thematic (Sector/Industry)

<ul><li>The WTR Consumer Products Index is down 17.5% YTD through June 23, 2025, on a 2.8x decline in its 12-month prospective absolute P/E ratio to 15.3x from 18.1x at the end of 2024.</li><li>Prospective earnings for the index are down 2.3% so far this year, but we note that it has outperformed the broader S&amp;P 600 Small Cap Index, which is down 6.3%.</li><li>Meanwhile, the S&amp;P SmallCap 600 Index is down 13.1% YTD, better than the WTR Consumer Products Index, despite relative earnings underperformance versus our index, as its prospective absolute P/E ratio compressed a lesser 1.2x to 15.3x from 16.5x at the end of 2024. </li></ul>

The WTR Consumer Products Index is down 17.5% YTD through June 23, 2025, on a 2.8x decline in its 12-month prospective absolute P/E ratio to 15.3x from 18.1x at the end of 2024.Prospective earnings for the index are down 2.3% so far this year, but we note that it has outperformed the broader S&amp;P 600 Small Cap Index, which is down 6.3%.Meanwhile, the S&amp;P SmallCap 600 Index is down 13.1% YTD, better than the WTR Consumer Products Index, despite relative earnings underperformance versus our index, as its prospective absolute P/E ratio compressed a lesser 1.2x to 15.3x from 16.5x at the end of 2024. 

WTR Consumer Products Index Lags S&P 600 YTD Despite Relative Earnings Outperformance

Equity Bottom-Up

<ul><li>Trading at a discount to REAL. ThredUp (TDUP) and The RealReal (REAL) are largely in the same business and have similar business models.</li><li>Based on FactSet consensus, TDUP is currently trading at less than 1x NTM revenue, while REAL is trading at ~2.5x. TDUP has very modest debt and its US business has been adjusted EBITDA profitable for the past five consecutive quarters, which gives it a leg up versus where REAL was a year ago.</li><li>Now, post the European divestiture, when management can devote both time and capital to the US business alone, the focus should be on top-line growth. </li></ul>

Trading at a discount to REAL. ThredUp (TDUP) and The RealReal (REAL) are largely in the same business and have similar business models.Based on FactSet consensus, TDUP is currently trading at less than 1x NTM revenue, while REAL is trading at ~2.5x. TDUP has very modest debt and its US business has been adjusted EBITDA profitable for the past five consecutive quarters, which gives it a leg up versus where REAL was a year ago.Now, post the European divestiture, when management can devote both time and capital to the US business alone, the focus should be on top-line growth. 

ThredUp, Inc. - Time to Look at ThredUp Once Again; Initiating Coverage

<ul><li>4Q results in line with pre-announcement. REAL delivered $504 million in gross merchandise volume (GMV), $164 million in revenue, $11 million in adjusted EBITDA, and for the first time in its history, generated positive FCF of ~$800k for the full year.</li><li>More importantly, the company restructured its debt, which extended maturities.</li><li>REAL expects HSD-LDD growth in the mid-term. For 2025, the company guided to GMV of $1.96-1.99 billion, up 7-9% Y/Y (versus the Street at $1.96 billion), revenue of $645-660 million, up 7-10% Y/Y (versus the Street at <span style="font-size: var(--content-font-size);">$655 million), and EBITDA of $20-30 million.</span></li></ul>

4Q results in line with pre-announcement. REAL delivered $504 million in gross merchandise volume (GMV), $164 million in revenue, $11 million in adjusted EBITDA, and for the first time in its history, generated positive FCF of ~$800k for the full year.More importantly, the company restructured its debt, which extended maturities.REAL expects HSD-LDD growth in the mid-term. For 2025, the company guided to GMV of $1.96-1.99 billion, up 7-9% Y/Y (versus the Street at $1.96 billion), revenue of $645-660 million, up 7-10% Y/Y (versus the Street at $655 million), and EBITDA of $20-30 million.

The RealReal, Inc - Expect Profitable HSD-LDD Top-Line Growth to Continue

<ul><li>We are initiating coverage of REAL. Post-COVID, almost all of the small-cap online apparel retailers have tried to restructure their businesses to focus on profitability.</li><li>REAL has been a standout case. After issuing a five-year outlook in March 2022 that emphasized growth (virtually at all costs), REAL reversed its strategy in a bid to become EBITDA and free cash flow (FCF) positive as quickly as possible.</li><li>In the process, it materially de- emphasized (1) its direct sales business, which was inherently lower-margin and exposed REAL to both pricing pressure and inventory risk, and (2) the lower-priced consignment items, which were loss-making from the get-go. </li></ul>

We are initiating coverage of REAL. Post-COVID, almost all of the small-cap online apparel retailers have tried to restructure their businesses to focus on profitability.REAL has been a standout case. After issuing a five-year outlook in March 2022 that emphasized growth (virtually at all costs), REAL reversed its strategy in a bid to become EBITDA and free cash flow (FCF) positive as quickly as possible.In the process, it materially de- emphasized (1) its direct sales business, which was inherently lower-margin and exposed REAL to both pricing pressure and inventory risk, and (2) the lower-priced consignment items, which were loss-making from the get-go. 

The RealReal, Inc. - Not REALly Out of the Woods Yet; Initiating Coverage

United States

The RealReal, Inc. owns and operates a members-only consignment marketplace for luxury goods. The Company specializes in curating and authenticating a full range of previously owned luxury products such as clothing, shoes, accessories, and jewelry that are sold on consignment. The RealReal markets its products and services throughout the United States.

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RealReal Inc (REAL US)

WTR Consumer Products Index Lags S&P 600 YTD Despite Relative Earnings Outperformance

The WTR Consumer Products Index is down 17.5% YTD through June 23, 2025, on a 2.8x decline in its 12-month prospective absolute P/E ratio to 15.3x...

Water Tower Research

ThredUp, Inc. - Time to Look at ThredUp Once Again; Initiating Coverage

Trading at a discount to REAL. ThredUp (TDUP) and The RealReal (REAL) are largely in the same business and have similar business models.

Water Tower Research

The RealReal, Inc - Expect Profitable HSD-LDD Top-Line Growth to Continue

4Q results in line with pre-announcement. REAL delivered $504 million in gross merchandise volume (GMV), $164 million in revenue, $11 million in...

Water Tower Research

The RealReal, Inc. - Not REALly Out of the Woods Yet; Initiating Coverage

We are initiating coverage of REAL. Post-COVID, almost all of the small-cap online apparel retailers have tried to restructure their businesses to...

Water Tower Research

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