While ThredUp has lost some of its users over the last year, its revenue has grown by a healthy 8% year-over-year in the last quarter, according to its second-quarter earnings report on August 8. That revenue growth is, in large part, thanks to its booming resale-as-a-service business where it provides the infrastructure for brands to offer their own resale options.
CEO James Reinhart revealed on the call that ThredUp added 11 new brands to its RAAS program in the quarter, bringing the total to more than 50. Of the 10 brands with the largest resale programs, based on number of listings, six are powered by ThredUp. The influx of big brands like American Eagle and Toms has helped ThredUp inch closer to its goal of reaching profitability by the end of this year, Reinhart said.
“That we are on track to break even in Q4, which is traditionally not our best quarter, gives us a lot of confidence in the momentum building in the business into next year when we get into our better quarters,” he said.
Reinhart also pointed out that ThredUp has now exceeded its guidance for every quarterly earnings since it went public in 2021, again driven primarily by the growth of its RAAS business. Profitability seems all but assured within the next two quarters, according to executives at the company. ThredUp does not share specific revenue splits between its product and RAAS businesses.
“In Q2, we saw yet another quarter of sequential EBITDA improvement since announcing our intention to hit breakeven earlier this year,” Reinhart said on the call. “With each quarter, our confidence level in achieving this goal increases, and we have even clearer sight of hitting this milestone in Q4 2023. Let me also emphasize that breakeven is just a waypoint. We are committed to building an enduring business that generates significant free cash flow over time.”
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Contrast ThredUp’s approach toward profitability with another resale company, The RealReal. The luxury consignment resale platform also reported quarterly earnings on August 8 with a similar emphasis on profitability. The report showed the company’s revenue as down by 15% year-over-year. However, profit margins increased 908 basis points, bringing net losses down from $53 million to $41 million. (For reference, ThredUp’s net loss this quarter was $5 million.)
The RealReal, which does not partner with any brands nor do any back-end resale-as-a-service work like ThredUp, projects that it will become profitable sometime in 2024. The hope is that simply shifting the type of inventory it sells will push it into the black.
“During the second quarter, we continued to transition away from company-owned inventory and consigned items that sell for under $100, which are not profitable for The RealReal,” said CEO John Koryl on the call. “These actions resulted in higher average order value, a higher gross margin rate, reduced company-owned inventory and a smaller Adjusted EBITDA loss, compared to the prior year. We view the shift to a higher gross margin rate as a structural change to our business model. Therefore, we believe the changes implemented in 2023 will reset the company to a slightly smaller but more profitable business.”
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And while The RealReal’s recent profit-seeking efforts have been positive, there’s a lot of movement behind brands setting up their own resale programs through RAAS companies like ThredUp, Archive, Trove and Recurate, which together work with over 150 fashion brands.
Reinhart told Glossy in July that RAAS can be profitable for both resale companies like ThredUp and the brands it partners with, although it may take some time for brands to scale this portion of their business.
“You can’t learn the best way to use resale until you start it,” Reinhart told Glossy. “We tell brands to think about what they want to accomplish and what they want to learn when they go into resale. Is it relevance? Is it engagement? And, like most things, these things take time.”
