Rent the Runway stock is soaring but significant risks remain

By:
on Apr 11, 2024
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  • Rent the Runway’s share price went parabolic this week.
  • The company published encouraging financial results.
  • Its user and revenue growth has slowed significantly.

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Rent the Runway (NASDAQ: RENT) stock price went parabolic on Thursday after the highly-embattled company published encouraging earnings and narrowed its loss. It surged by over 36% on Wednesday and by over 30% in the pre-market, pushing its total market cap to near $30 million. 

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Good earnings but there are risks

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Rent the Runway published encouraging results, which showed that its total revenue for the fourth quarter rose to $75.4 million. That brought the annual figure to over $298 million, a 0.6% increase from the previous year. 

Most importantly, the company narrowed its net loss to $24.8 million from the $26.2 million it made in the same quarter in 2023. That was an encouraging sign that the company’s cost-cutting strategy is working.

However, the results showed that Rent the Runway is still not in a good place. First, the number of active customers has continued moving downwards. Ending subscribers stood at 125,954, a 1% decrease from the same period in 2022.

As an unprofitable company, RENT needs to be showing steady growth in terms of the number of users and revenue. 

The other risk is in line with the first one. Its revenue rose by just 0.5% in the last quarter and by 0.6% in 2023. This growth trajectory is significantly lower than what the company used to do before. 

Rent the Runway expects that revenue growth will be in low single digits this year. It sees its revenue coming in between $73 million and $75 million. 

Further, there is a balance sheet issue. The company ended the last quarter with $84 million in cash and equivalents, down from $154.5 million in the same quarter in 2023. It also boosted its long-term debt from over $272 million to $306 million.

Therefore, I suspect that the company might take advantage of the ongoing stock surge to raise cash. It has already increased the number of outstanding shares from 3.04 million in 2022 to 3.32 million.

Rent the Runway stock price analysis

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RENT chart by TradingView

The 4H chart shows that the RENT share price has rebounded sharply in the past few days. It has soared from this month’s low of $4.60 to a high of $10.35 in a high-volume environment. Data by Yahoo Finance shows that the volume of shares on Wednesday stood at over 3.7 million, higher than the average 105k. 

This bullish momentum could continue in the next few days. However, because of the risks mentioned above, there is a likelihood that it will resume the downward trend. Investors will need to see more sustained revenue and user growth before betting on a rebound.

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