The world has changed significantly over the past couple decades. One of the major shifts is the move from owning to renting in certain industries where this wasn’t previously an option. For instance, some people no longer own a car and instead use Uber or Lyft to travel when they need car-based transportation.
Rent the Runway aims to provide a similar rental service for fashion. It allows users to purchase a subscription to rent expensive clothing pieces. This unique concept has proven itself, as the company had 115,000 active subscribers at the end of the fourth quarter of 2021. If you’re considering investing in this company, here’s what you should know.
Rent the Runway details
|Company name||Rent the Runway, Inc.|
|Founder(s)||Jennifer Hyman and Jennifer Fleiss|
|Location||Brooklyn, New York|
|Number of employees||Around 900 (estimate)|
|IPO date||Oct. 27, 2021|
Rent the Runway was founded in 2009 by CEO Jennifer Hyman and co-founder Jennifer Fleiss as a pop-up shop on Harvard’s campus. Later that year, the website was launched and the business began operations as a virtual designer closet and rented expensive fashion wear to its customers at a fraction of the cost of purchasing the clothing.
In 2014, the company launched its first brick-and-mortar store in New York City. The company moved to offer a subscription model in 2016, which the company still uses today.
The Rent the Runaway IPO date was Oct. 27, 2021. It is listed on the NASDAQ exchange and the stock was priced at $21 for the IPO with a company valuation of more than $1.7 billion. The company is based in Brooklyn, New York and currently employs an estimated 900 employees.
The company is currently a publicly traded company valued at a market capitalization, or market cap, of about $236 million based on the Rent the Runway share price of $3.60 (as of May 26, 2022). Notable investors in the company include T. Rowe Price (10.47%), Gilder, Gagnon, Howe & Co. LLC (8.27%), Franklin Advisers, Inc. (6.42%), and Ares Management LLC (5.56%).
Why do people want to invest in Rent the Runway?
Some stock market investors see a bright future in Rent the Runway. Since the company was founded in 2009, it’s become one of the go-to websites for renting fashion wear.
The company is taking advantage of two growing trends in the clothing space. The first is acquiring clothing online versus in person. The second is using second hand clothing versus buying new clothing.
Reasons to invest in Rent the Runway
Why invest in Rent the Runway? First, it appears to be on an upward trajectory as of May 2022. For example, the company had 115,000 subscribers at the end of 2021. This represents a 110% increase year over year.
The company’s 2021 revenue increased 29% from the previous year to a total of $203.3 million. In the fiscal year 2022, the company plans to achieve another 45% to 50% in revenue growth.
The business has positioned itself in two growing trends: online clothing sales and second hand clothing sales.
The company expects the online apparel market in the U.S. to increase from $107 billion in 2020 to $192 billion in 2025. Similarly, the second hand clothing resale market is expected to increase from $27 billion in 2020 to an estimated $77 billion in 2025. By renting clothing that gets reused by multiple people through online channels, the company can take advantage of these growing markets.
These trends make sense as people move away from owning expensive items and decide to rent them instead. This has already been done in the car industry through companies such as Uber and Lyft. Rent the Runway has made significant headway into the fashion rental category.
While Rent the Runway faced challenges during the pandemic when people didn’t need to rent this type of clothing, the world is slowly returning to a new normal. Some companies are starting to require employees to return to the office in at least a part-time capacity. This could help boost future growth.
The company has also made moves to manage risk and control costs for acquiring clothing. Rent the Runway purchases some clothing wholesale and has other pieces commissioned as exclusive to the site.
It also works with clothing manufacturers on a profit-sharing basis for consignment items. Because it doesn't own consignment items, it doesn’t carry as much risk if it does not perform well. In an interview with CNBC, Hyman cited this model as part of its path to cash flow profitability.
Pros of buying stock
- Growing online clothing sales
- Growing secondhand clothing sales
- Moving from owning to renting expensive items
- Multiple methods for acquiring designer clothes to rent or sell to consumers, including wholesale, profit-share, and exclusive designs.
- World slowly returning to some pre-pandemic activities
Reasons to avoid Rent the Runway
Rent the Runway is far from a perfect company. The business has grown significantly since it began, but it does not currently earn a profit. In fact, the company faced a net loss of $211.8 million in its 2021 fiscal year. Compare that with the company’s $203.3 million in revenue and you can see the company is not in the best financial position.
Another sign of a lack of profitability is its earnings per share, or EPS, of -8.52 in the past 12 months as of May 26, 2022 (also known as trailing 12 months, or TTM). EPS is determined by dividing a company’s profits by its outstanding shares of common stock. A higher EPS means a company is profitable, and a negative one, like Rent the Runway’s, shows it’s not profitable.
Rent the Runway also faces changes in the way the world works. When the company was founded, people mostly commuted daily to the office and needed presentable work attire. During the pandemic, many employees transitioned to a work-from-home environment. Today, many still work from home several days per week instead of heading into the office daily. This reduces the need for the type of clothing Rent the Runway offers.
As in any industry, the company could face threats from new competitors entering the market. The company currently acquires clothing using several methods. One of those methods is profit-sharing with brand partners. Brand partners could decide to start their own rental service to capture more revenue for themselves.
The business also faces issues with the cost of logistics. After the pandemic, shipping costs have increased drastically. Receiving supplies from manufacturers has become less reliable as well. These increased costs could put pressure on Rent the Runway’s bottom line and could impact the availability of new fashion trends.
Finally, Rent the Runway’s stock has not been performing well. It has fallen from its IPO price of $21 to the current price of $3.60 (as of May 26, 2022). This 83% fall is much greater than the one the NASDAQ index faced over the same period.
Cons of buying Rent the Runway stock
- Company does not turn a profit
- Consumers moving away from working in the office due to pandemic
- Risk of new competitors entering the space
- Cost and environmental impact of shipping and returning clothing for rentals
How to buy Rent the Runway stock
If you want to purchase Rent the Runway stock, you have a couple ways of doing so. The traditional method requires only a few steps. First, open a brokerage account. Once the account is open, deposit funds into the account. Finally, submit an order to purchase whole shares of the company.
Examples of brokerage firms you could complete this process through include Vanguard, Fidelity, Charles Schwab, E-Trade, and several others. You can check out our list of the best brokerage accounts to find an account that best fits your needs.
In the last decade or so, trading apps have made buying stocks much more accessible. Apps such as Robinhood and Stash are easy to sign up for. Rather than forcing you to purchase full shares of a stock, these apps often allow you to buy partial shares of stock. You don’t have to make a large initial deposit to get started, either. In fact, you could start investing with just a few dollars.
For these companies, you typically start by signing up for the app. Then, you deposit funds into your account. Finally, you decide how much you want to purchase in dollars instead of in shares. If you’re looking for an investing app to get started, check out our list of the best investment apps.
What is Rent the Runway’s stock symbol?
The Rent the Runway stock ticker is RENT. It’s traded on the NASDAQ exchange.
What is the lowest Rent the Runway stock price?
As of the time of this writing (May 26, 2022), the lowest price Rent the Runway stock has hit is $3.60 in May 2022.
Is Rent the Runway public?
Rent the Runway is a publicly traded company and has been since Oct. 27, 2021. It’s traded on the NASDAQ exchange.
Should you add Rent the Runway to your watch list? To decide whether Rent the Runway is a good fit for your portfolio, examine the company more closely by reading the company’s earnings reports and other news stories. If you need help figuring out how to invest money, consider consulting a financial planner.
If Rent the Runway doesn’t seem like a good fit but you’re still looking for a clothing company to invest in, you have other options. Stitch Fix (SFIX) is a subscription box-based clothing service that allows you to try on clothes before deciding whether to purchase or return them. thredUP (TDUP) is another option that works like an online consignment or thrift store.
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