The RealReal Inc.: Fashion Fad or Long-Term Investment?

The RealReal Inc. (Real), a San Francisco, California-based start-up engaged in the trade of used luxury goods, experienced significant growth in its revenue and customer base in fiscal year (FY) 2018, but it was yet to turn profitable after nine years in the business. The reported accumulated losses until the quarter ended March 2019 were US$280.98 million. On June 27, 2019, Real launched its initial public offering (IPO) at US$20 per share. Would investing in the company be worthwhile for investors? What parameters would realistically indicate the future prospects of an emerging growth company like Real?

The case is suitable for graduate- and postgraduate-level courses on business valuation and entrepreneurship, entrepreneurship finance, corporate finance, and financial management. Students will examine the business profile of a pre-owned luxury goods marketplace and undertake the challenge of valuing a start-up platform business with limited historical data, exploring different valuation approaches and assumptions. After working through the case and assignment questions, students will be able to do the following:<ul><li>Understand the fundamentals of the pre-owned luxury goods industry and the key performance terms used in the industry.</li><li>Employ a SWOT analysis to understand Real’s competitive position.</li><li>Understand the characteristics, key factors, and risks in determining the value of start-up and growth companies. </li><li>Estimate the value for Real’s equity shares using top-down and bottom-up approaches to the discounted cash flow (DCF) method.</li><li>Learn a basic forecasting method to construct a firm-level income statement and balance sheet.</li><li>Understand how sensitivity analysis is performed using Microsoft Excel’s what-if analysis data-table function.</li></ul>

• valuation
• online marketplace
• IPO
• start-up
• finance