Rent The Runway's Strong Unit Economics And Proprietary Data Advantage To Expand Margins: Analyst

JMP Securities analyst Andrew Boone reiterated a Market Outperform rating on the shares of Rent the Runway Inc RENT with a price target of $6.

Given 55% of subscriber churn is from users in their first 90 days, Rent the Runway is focused on better onboarding customers and acclimating them to RTR, said the analyst.

The company launched a text-based concierge service in early May, which checks in with customers, makes recommendations, and answers customer questions through a mix of automation and human agents and is limited to a subset of new subscribers today, the analyst added.

With RTR limiting shipments for subscribers after it eliminated unlimited subscriptions in September 2020, the importance of inventory depth has increased, noted the analyst.

So RTR is increasing the depth of its most popular items, in some cases by up to 6 times, as it is working to improve in-stock rates, the analyst said.

The company plans to ask users to identify as subscribers or reserve customers before browsing inventory, as only subscribers will be shown inventory that is currently available, commented the analyst.

Reserve customers are shown inventory that can be booked in the future even if it is unavailable today.

The analyst said that the plan to introduce AI-powered search allowing consumers to describe the event rather than the clothing should make discovery easier on RTR.

RTR expects active subscriber growth to accelerate to +25% Y/Y by year end, up from +8% Y/Y in 1Q23, as it has seen retention improvements in a limited test of concierges and inventory depth.

The analyst believes the company is conservatively extrapolating these gains across its larger user base as it continues to expect it can accelerate growth in 2H23.

The analyst’s price target and rating is based on the company’s compelling customer value proposition for both consumers and brands, its proprietary data advantage, and strong unit economics that can lead to expanding margins as RTR grows.

Price Action: RENT shares are trading higher by 9.1% at $2.39 on the last check Wednesday.