ThredUp Inc. (NASDAQ:TDUP) is a leading online resale platform that is revolutionizing the way consumers buy and sell secondhand apparel, shoes, and accessories. The company's innovative approach, powered by advanced technologies and a focus on sustainability, has positioned it as a trailblazer in the rapidly growing resale market.

Business Overview

ThredUp was founded in 2009 with the mission to inspire the world to think secondhand first. The company operates a large-scale online resale platform that enables consumers to buy and sell primarily secondhand apparel, shoes, and accessories. ThredUp's proprietary operating platform, which includes distributed processing infrastructure, proprietary software and systems, and data science expertise, has been the foundation for its success in the rapidly emerging resale economy.

The company's marketplaces allow buyers in the U.S. and Europe to browse and purchase resale items across a wide range of price points, from value to premium and luxury brands. On the seller side, ThredUp makes it easy for consumers to clean out their closets and unlock value, either for themselves or for the charity of their choice, while also contributing to a more sustainable fashion future.

In addition to its core marketplace, ThredUp offers Resale-as-a-Service (RaaS), which allows leading brands and retailers to conveniently offer a scalable closet clean-out service and/or resale shop to their customers. This RaaS offering is expected to accelerate the growth of the resale category and form the backbone of the modern resale experience both domestically and internationally.

Financials

For the full year 2023, ThredUp reported annual revenue of $322.0 million, a decrease from the previous year's $334.3 million. The company's net loss for the year was $71.2 million, compared to a net loss of $59.0 million in the prior year. Annual operating cash flow was -$22.6 million, and annual free cash flow was -$38.6 million.

In the first quarter of 2024, ThredUp generated revenue of $79.6 million, representing a 4.8% increase year-over-year. Gross profit for the quarter was $55.3 million, an 8.3% increase compared to the same period in 2023. The company's gross margin improved to 69.5%, up from 67.3% in the prior-year quarter.

Active buyers reached 1.7 million, a 3.7% increase year-over-year, while orders grew 9.3% to 1.7 million. ThredUp reported a GAAP net loss of $16.6 million for the first quarter of 2024, compared to a net loss of $19.8 million in the same period last year. Adjusted EBITDA loss was $0.7 million, or -0.9% of revenue, a significant improvement from the $6.6 million loss, or -8.7% of revenue, in the first quarter of 2023.

Outlook

For the second quarter of 2024, ThredUp expects revenue in the range of $81 million to $83 million, with gross margin between 71% and 73%. The company anticipates positive adjusted EBITDA of 1% to 3% of revenue.

For the full year 2024, ThredUp has updated its guidance. The company now expects revenue in the range of approximately $328 million to $338 million, with gross margin between 71% and 72%. ThredUp also expects positive adjusted EBITDA of 2% to 4% of revenue, a significant improvement from its previous outlook.

The company's recent reorganization efforts, which included a 20% reduction in its global corporate workforce, are expected to deliver $13 million in savings in 2024, or $17 million on an annualized basis. ThredUp plans to reinvest approximately half of these savings into strategic initiatives, such as AI product development, increased processing capacity in its distribution centers, and enhanced marketing efforts.

Geographic and Segment Performance

ThredUp's business is primarily focused on the U.S. market, with a growing presence in Europe through its acquisition of Remix Global EAD in 2021. In the first quarter of 2024, the company's U.S. operations achieved a record gross margin of 80.1%, a 560 basis point improvement over the same period last year.

The company's revenue is primarily generated from two main segments: Consignment and Product. In the first quarter of 2024, Consignment revenue grew 31.7% year-over-year, while Product revenue declined 37.6%. This shift towards a higher mix of Consignment revenue is a strategic focus for ThredUp, as it typically generates higher gross margins compared to Product revenue.

Technological Advancements and AI-Powered Innovation

ThredUp has been at the forefront of leveraging advanced technologies, such as artificial intelligence (AI) and machine learning, to enhance the customer experience and drive operational efficiencies. In the past 60 days, the company has launched a new AI-powered search experience and created two new AI-powered tools that allow consumers to "thrift any style that inspires them."

These AI-powered features are designed to make ThredUp the easiest place for consumers to discover and purchase secondhand items, regardless of the source of their inspiration. The company believes that these technological advancements, combined with its existing competitive advantages in supply chain infrastructure, proprietary data, and marketplace dynamics, will further strengthen its long-term defensibility and growth potential.

Sustainability and Impact

Sustainability is a core tenet of ThredUp's business model. The company's operations are designed to promote a more circular fashion economy, reducing waste and environmental impact. ThredUp has also been actively involved in advocacy efforts, such as being a founding member of the American Circular Textiles Coalition, which helped advocate for the inclusion of $14 billion in incentives for textile circularity in the Americas Act, a bipartisan trade bill.

As ThredUp continues to balance purpose and profits, it remains committed to driving positive impact beyond its core business operations. The company's advocacy efforts and support for sustainable fashion initiatives demonstrate its dedication to making the fashion industry more environmentally friendly and planet-friendly.

Risks and Challenges

While ThredUp has made significant strides in its transformation, the company faces several risks and challenges that investors should be aware of. These include the ongoing volatility in the consumer environment, the ability to effectively deploy and scale new AI-powered technologies, the potential for increased competition in the resale market, and the ability to maintain its operational efficiency and cost structure as the business grows.

Additionally, the company's transition towards a higher mix of Consignment revenue may temporarily impact its top-line growth, as Consignment revenue is recognized net of seller payouts, unlike Product revenue. However, ThredUp believes that this shift will ultimately result in higher gross margins and improved profitability over the long term.

Conclusion

ThredUp's journey as a leading online resale platform has been marked by innovation, sustainability, and a relentless focus on transforming the fashion industry. With its AI-powered advancements, strategic investments, and a renewed emphasis on profitability and free cash flow, the company is well-positioned to capitalize on the rapidly growing resale market and deliver long-term value for its shareholders.

As ThredUp continues to execute on its strategic priorities, investors should closely monitor the company's progress in driving operational efficiencies, expanding its customer base, and leveraging its technological capabilities to enhance the customer experience and drive sustainable growth.