ThredUp Stock Reverses on AI Buzz, Eyes Double-Digit Gains

Key Points

• ThredUp's stock price action is in a reversal that can increase it by another $7 this year.
• AI drives both front-end and back-end business improvements and has significantly improved the outlook. 
• Analysts' sentiment is shifting back into bullish mode, providing some lift for the action in 2025.

ThredUp NASDAQ: TDUP is not a technology company per se, nor an AI-specific play, but it is a poster child representing what AI can do for a business. At face value, the lean into AI, including front- and back-of-house operations, has lifted the stock’s price from penny stock territory, gaining roughly 1,000% in less than 12 months, and has it on track to double again in the coming quarters. 

So what does ThredUp have to do with AI? ThredUp utilizes AI's data-driven insights to automate back-end procedures, enhance the inspection process, and attract, manage, and engage with clients for its resale business. Tools introduced in 2024 include Image Search, Virtual Stylist, and Personalized Recommendations.

The Image Search allows users to upload pictures and have ThredUp’s platform seek, find, and display similar fashion items. The Virtual Stylist is a chat feature that provides recommendations based on customer inputs, and Personalized Recommendations utilize the full range of data to offer a personalized shopping experience for each client. 

The technical action in late May is robust, bearing the hallmarks of a Bullish Flag Pattern that suggests this market is just getting started. The stock price could rise by another $7 in this scenario and continue to rise, assuming, of course, that the business remains healthy. 

ThredUp Divests European Business, Focuses on U.S. Operations

Among the highlights from ThredUp’s 2024 is the divestiture of its European retail operations. The company sold more than 90% of the stake, choosing to focus on its U.S. operations, which was a timely move. ThredUp is viewed as a tariff beneficiary because consumers can use its platform to find products that are already in the U.S. and not exposed to higher pricing. 

The impact of AI is also noticeable in the results. Although the headline revenue in Q1 is down 10% year-over-year (YOY), the core, ongoing business grew by 10%, outpacing consensus, and the operating losses are narrowing.

Revenue strength was driven by a 6% increase in active buyers, a 16% increase in orders, and a stunning 95% increase in new active buyers, a company record. 

Margin is another area of strength aided by AI. The company’s gross margin contracted slightly compared to last year but remains robust at nearly 80%, while the operating metrics improved. The adjusted EBITDA margin improved by 240 basis points, significantly increasing core profitability and reducing reported losses.

The critical detail is that the comprehensive losses contracted by more than 65%, leaving the company on track to reach GAAP profitability before the decade's end.

The guidance is central to ThredUp's stock price outlook. The company raised its guidance for the year, including a forecast for 10% growth in Q2 and the remainder of the period. The guidance is likely cautious due to the impacts of AI on customer engagement, retention, and spending habits, so investors may see improvements as the year progresses. 

Analysts' Interest in TDUP Stock Is Reinvigorated: Upgrade Cycle to Come

The primary takeaway from the analyst activity in 2024 and 2025 is that ailing business performance led to dwindling coverage, eventually to nothing, setting the market up for a sentiment shift sparked by the FQ1 release. The release catalyzed two positive revisions from analysts who rate this stock as an Outperform/Overweight.

They set a target of roughly $7 for the stock, which is fair value relative to the late May price points, but are likely the first in what will be a string of positive news.

The opportunity for investors is to get into this AI-powered recovery/rebound story before analysts’ momentum builds and they lead the retail stock price to new highs.