Online fashion retailer Revolve Group (NASDAQ: RVLV) reported Q3 CY2024 results beating Wall Street’s revenue expectations, with sales up 9.9% year on year to $283.1 million. Its GAAP profit of $0.15 per share was also 58% above analysts’ consensus estimates.
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Revolve (RVLV) Q3 CY2024 Highlights:
- Revenue: $283.1 million vs analyst estimates of $271.2 million (4.4% beat)
- EPS: $0.15 vs analyst estimates of $0.09 ($0.06 beat)
- EBITDA: $17.5 million vs analyst estimates of $10.15 million (72.4% beat)
- Gross Margin (GAAP): 51.2%, in line with the same quarter last year
- Operating Margin: 5%, up from 0.1% in the same quarter last year
- EBITDA Margin: 6.2%, up from 3.7% in the same quarter last year
- Free Cash Flow was $6.17 million, up from -$25.72 million in the previous quarter
- Active Customers : 2.63 million, up 118,000 year on year
- Market Capitalization: $1.78 billion
"We delivered exceptional results in the third quarter, highlighted by double-digit top-line growth, significant expansion of net income, and 85% growth in Adjusted EBITDA year-over-year," said co-founder and co-CEO Mike Karanikolas.
Company Overview
Launched in 2003 by software engineers Michael Mente and Mike Karanikolas, Revolve Group (NASDAQ: RVLV) is a next generation fashion retailer that leverages social media and a community of fashion influencers to drive its merchandising strategy.
Online Retail
Consumers ever rising demand for convenience, selection, and speed are secular engines underpinning ecommerce adoption. For years prior to Covid, ecommerce penetration as a percentage of overall retail would grow 1-2% annually, but in 2020 adoption accelerated by 5%, reaching 25%, as increased emphasis on convenience drove consumers to structurally buy more online. The surge in buying caused many online retailers to rapidly grow their logistics infrastructures, preparing them for further growth in the years ahead as consumer shopping habits continue to shift online.
Sales Growth
A company’s long-term performance can give signals about its business quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Luckily, Revolve’s sales grew at a decent 11.4% compounded annual growth rate over the last three years. This is a useful starting point for our analysis.
This quarter, Revolve reported year-on-year revenue growth of 9.9%, and its $283.1 million of revenue exceeded Wall Street’s estimates by 4.4%.
Looking ahead, sell-side analysts expect revenue to grow 4.8% over the next 12 months, a deceleration versus the last three years. This projection is underwhelming and illustrates the market thinks its products and services will see some demand headwinds.
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Active Customers
Buyer Growth
As an online retailer, Revolve generates revenue growth by expanding its number of buyers and the average order size in dollars.
Over the last two years, Revolve’s active customers , a key performance metric for the company, increased by 11.8% annually to 2.63 million in the latest quarter. This growth rate is strong for a consumer internet business and indicates people love using its offerings. 
In Q3, Revolve added 118,000 active customers , leading to 4.7% year-on-year growth. The quarterly print was lower than its two-year result, suggesting its new initiatives aren’t accelerating buyer growth just yet.
Revenue Per Buyer
Average revenue per buyer (ARPB) is a critical metric to track for consumer internet businesses like Revolve because it measures how much customers spend per order.
Revolve’s ARPB fell over the last two years, averaging 9.5% annual declines. This isn’t great, but the increase in active customers is more relevant for assessing long-term business potential. We’ll monitor the situation closely; if Revolve tries boosting ARPB by taking a more aggressive approach to monetization, it’s unclear whether buyers can continue growing at the current pace. 
This quarter, Revolve’s ARPB clocked in at $107.74. It grew 5% year on year, mirroring the performance of its active customers .
Key Takeaways from Revolve’s Q3 Results
We were impressed by how significantly Revolve blew past analysts’ EBITDA expectations this quarter. We were also excited its revenue outperformed Wall Street’s estimates. Overall, this quarter had some key positives. The stock traded up 7.6% to $28 immediately after reporting.
Revolve may have had a good quarter, but does that mean you should invest right now? We think that the latest quarter is only one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.
