We believe that The RealReal Inc. (NASDAQ:REAL) is one of the grossly overvalued IPOs that have entered the stock markets in 2019. REAL was founded in 2011 and has been a serial cash incinerator from day one with no end in sight in a fiercely competitive sector, according to the IPO prospectus. Therefore, we also believe that bankruptcy is very likely, as presented in the next paragraphs.
The Business, The IPO And The Price Targets
REAL operates an online marketplace for consigned luxury goods. It offers resale product categories, including women's, men's, kids', jewelry and watches, as well as home and art products. Aside from the digital orders, REAL also generates revenue from three retail store locations in New York and Los Angeles.
REAL completed its IPO at $20 per share last June and raised $320.9 million in net proceeds after deducting underwriting discounts and commissions. Lock up period expires in late December 2019.
Credit Suisse, BofA Merrill Lynch, UBS Investment Bank, KeyBanc Capital Markets, Stifel, Cowen, and Raymond James were the underwriters, which means two things.
First, they received sizable commissions from this IPO of almost $400 million. Second, it's very likely that their clients bought a significant amount of REAL shares.
Therefore, it doesn't surprise us that some of these underwriters (i.e. Credit Suisse and BofA Merrill Lynch) have already published price targets that are higher than the IPO price. And we expect more price targets higher than the IPO price to be announced by the other underwriters in the next months. They are hyping their own offering.
On that front, we strongly recommend reading these two reports from Columbia Business School (one of the oldest business schools in the world) and Cornell University. The authors point out that there is a conflict of interest between investment
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