Today is shaping up negative for ThredUp Inc. (NASDAQ:TDUP) shareholders, with the analysts delivering a substantial negative revision to this year's forecasts. There was a fairly draconian cut to their revenue estimates, perhaps an implicit admission that previous forecasts were much too optimistic. Bidders are definitely seeing a different story, with the stock price of US$3.58 reflecting a 21% rise in the past week. It will be interesting to see if the downgrade has an impact on buying demand for the company's shares.
Following the latest downgrade, ThredUp's 13 analysts currently expect revenues in 2022 to be US$285m, approximately in line with the last 12 months. Per-share losses are expected to creep up to US$0.90. Yet prior to the latest estimates, the analysts had been forecasting revenues of US$318m and losses of US$0.82 per share in 2022. So there's been quite a change-up of views after the recent consensus updates, with the analysts making a serious cut to their revenue forecasts while also expecting losses per share to increase.
The consensus price target fell 19% to US$7.29, with the analysts clearly concerned about the company following the weaker revenue and earnings outlook. That's not the only conclusion we can draw from this data however, as some investors also like to consider the spread in estimates when evaluating analyst price targets. The most optimistic ThredUp analyst has a price target of US$18.00 per share, while the most pessimistic values it at US$3.50. We would probably assign less value to the forecasts in this situation, because such a wide range of estimates could imply that the future of this business is difficult to value accurately. With this in mind, we wouldn't rely too heavily on the consensus price target, as it is just an average and analysts clearly have some deeply divergent views on the business.
Of course, another way to look at these forecasts is to place them into context against the industry itself. It's pretty clear that there is an expectation that ThredUp's revenue growth will slow down substantially, with revenues to the end of 2022 expected to display 0.07% growth on an annualised basis. This is compared to a historical growth rate of 38% over the past year. By way of comparison, the other companies in this industry with analyst coverage are forecast to grow their revenue at 13% per year. So it's pretty clear that, while revenue growth is expected to slow down, the wider industry is also expected to grow faster than ThredUp.
The Bottom Line
The most important thing to take away is that analysts increased their loss per share estimates for this year. Unfortunately analysts also downgraded their revenue estimates, and industry data suggests that ThredUp's revenues are expected to grow slower than the wider market. The consensus price target fell measurably, with analysts seemingly not reassured by recent business developments, leading to a lower estimate of ThredUp's future valuation. Often, one downgrade can set off a daisy-chain of cuts, especially if an industry is in decline. So we wouldn't be surprised if the market became a lot more cautious on ThredUp after today.
With that said, the long-term trajectory of the company's earnings is a lot more important than next year. We have estimates - from multiple ThredUp analysts - going out to 2024, and you can see them free on our platform here.
Of course, seeing company management invest large sums of money in a stock can be just as useful as knowing whether analysts are downgrading their estimates. So you may also wish to search this free list of stocks that insiders are buying.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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