ThredUp (TDUP) Q2 2025: New Buyer Acquisition Jumps 74%, Igniting Marketplace Flywheel
ThredUp’s Q2 marked a decisive inflection, with record new buyer growth and operational leverage unlocking a virtuous cycle in its managed resale marketplace. AI-driven product improvements and premium supply expansion are compounding, while cautious Q4 guidance underscores management’s discipline in a volatile macro. Marketplace liquidity and proprietary infrastructure advantages are accelerating, with long-term competitive barriers rising as the flywheel spins faster.
Summary
- Marketplace Liquidity Surges: Record new buyer and seller growth show the managed platform’s network effect is compounding.
- AI Product Investments Drive Conversion: Enhanced user experience and funnel efficiency fuel accelerating order growth and lower customer acquisition costs.
- Capital Allocation Remains Disciplined: Management reinvests upside into growth, yet maintains margin and cash generation focus amid macro uncertainty.
Performance Analysis
ThredUp delivered a standout Q2, with revenue growth accelerating and both gross margin and adjusted EBITDA margin exceeding internal targets. The company’s managed marketplace, which connects buyers and sellers of secondhand apparel, benefited from a 74% year-over-year surge in new buyer acquisition—a record for the business—and a 17% increase in active buyers. Orders climbed 21%, reflecting broad-based engagement across the platform.
Operational leverage was evident as adjusted EBITDA more than doubled year-over-year, supported by higher average selling prices from premium supply and improved funnel conversion rates. Gross margin ticked up as premium service kits, which carry higher service fees and attract new sellers, expanded their share of supply. Notably, ThredUp generated positive cash flow for the quarter, underscoring a disciplined approach to reinvestment and capital allocation.
- Premium Supply Mix Shift: Higher-value items and premium kits drove average selling price gains, supporting margin expansion even as new buyer incentives increased.
- AI-Driven Funnel Efficiency: Visitor-to-signup rates rose 30% and signup-to-purchase rates jumped 60%, yielding an 18% improvement in overall visitor conversion.
- Operational Bottlenecks Managed: Fast-growing demand outpaced hiring in processing operations, but did not disrupt service or supply chain throughput.
Management’s guidance for Q3 points to further acceleration, with 25% top-line growth expected, though Q4 guidance remains conservative due to seasonal and macro headwinds. The company’s ability to scale supply, maintain high engagement, and invest in growth while generating cash is a notable proof point for the managed resale model.
Executive Commentary
"We acquired more new customers in the second quarter than at any other time in our history, with new buyer acquisition up 74% year over year. Active buyers were up 17% year over year, and orders were up 21% year over year. Again, our approach in 2025 is simple: maintain our gross margin and bottom line efficiency, and reinvest incremental dollars we generate back into growing new buyers and sellers in our marketplace."
James Reinhart, CEO and Co-founder
"Our outperformance was driven by significant investments into marketing and inbound processing in order to drive our marketplace flywheel. These investments resulted in our second consecutive record quarter of new buyer acquisition, with new buyers up 74% year over year. We finished the quarter with 1.5 million active buyers for their trailing 12 months, up 16.5% over last year, while orders were up 20.8% to 1.5 million."
Sean Sober, Chief Financial Officer
Strategic Positioning
1. AI-Led Product Innovation
ThredUp’s 18-month investment in AI-driven product features is translating into measurable business gains. Features like visual search, AI model images, and personalized recommendations are boosting conversion rates and elevating the shopping experience, with a combined 18% improvement in visitor-to-customer conversion. Management’s ambition is to make secondhand shopping indistinguishable from new, leveraging proprietary data and automation to close the gap with traditional e-commerce.
2. Premium Supply and Seller Experience Expansion
Premium service kits, carrying fees up to $34.99, grew 44% quarter-over-quarter and are attracting new, higher-value sellers. ThredUp is also innovating with features that encourage buyers to become sellers, such as enabling resale during returns. This dual-sided marketplace strategy increases liquidity and deepens engagement, supporting both supply quality and buyer acquisition.
3. Resell as a Service (RAS) Ecosystem Strategy
The shift to an open-source model for RAS is re-engaging over 60 brands, positioning ThredUp as the “universal e-commerce layer” for branded resale. While still early, management likens this platform approach to AWS or Shopify, aiming to become the operational and technology backbone for industry-wide secondhand commerce. Material revenue from RAS is not expected until 2026, but the groundwork is being laid for long-term ecosystem leverage.
4. Proprietary Infrastructure and Data Moat
ThredUp’s decade-long investment—over $400 million—in supply chain automation, data, and software is a formidable competitive barrier. The company processes millions of unique SKUs, using automation for inbound identification, measurements, and outbound logistics. This infrastructure enables scalable, cost-efficient operations and rapid AI feature deployment, making replication by new entrants costly and time-consuming.
5. Disciplined Growth and Capital Allocation
Despite growth acceleration, management remains disciplined, reinvesting incremental EBITDA into growth drivers while maintaining positive cash flow and margin targets. Marketing spend is tightly managed to ensure payback within a year, and seasonal pullbacks are planned to avoid inefficient spend during high-ad rate periods.
Key Considerations
Q2’s results signal a structural shift in ThredUp’s marketplace momentum, but investors should weigh both the compounding advantages and the external risks that could impact sustainability.
Key Considerations:
- Marketplace Flywheel Acceleration: Record new buyer and seller growth, coupled with improved conversion, signal a self-reinforcing growth cycle.
- AI Product Differentiation: Enhanced funnel efficiency and customer experience are lowering acquisition costs and supporting margin expansion.
- Premium Supply Growth: Mix shift toward higher-value items is boosting average selling prices, but requires ongoing investment in seller experience.
- RAS Platform Potential: Early traction with apparel brands could unlock a new ecosystem revenue stream, but meaningful impact is likely in 2026 and beyond.
- Seasonal and Macro Guardrails: Conservative Q4 guidance reflects both historical resale seasonality and uncertainty around consumer demand and ad rates.
Risks
Macro volatility, including weak jobs and housing data, could pressure consumer demand and advertising efficiency, especially in Q4. Competitive ad markets remain dynamic, as fast fashion and e-commerce players like Shein and Timu shift spending patterns. Operational scaling risks persist, as rapid demand growth tests processing capacity and supply chain flexibility. Finally, RAS adoption timelines are uncertain, with brand partnerships subject to contract cycles and industry inertia.
Forward Outlook
For Q3 2025, ThredUp guided to:
- Revenue of $76 to $78 million (25% YoY growth at midpoint)
- Gross margin of 77% to 79%
- Adjusted EBITDA of ~4.5% of revenue
For full-year 2025, management raised guidance:
- Revenue of $298 to $302 million (15% YoY growth at midpoint)
- Gross margin narrowed to 78% to 79%
- Adjusted EBITDA of ~4.2% of revenue
Management highlighted:
- Earlier marketing and processing investments in Q3 to capture momentum
- Seasonal Q4 step-down due to holiday resale slowdown and higher ad rates
Takeaways
ThredUp’s Q2 results mark a clear inflection in the managed resale model, as network effects, AI product innovation, and premium supply expansion combine to accelerate growth and profitability. Disciplined capital allocation and operational leverage support a sustainable growth trajectory, but external risks and seasonal variability remain real watchpoints.
- Marketplace Flywheel in Motion: Record buyer and seller growth, improved conversion, and positive cash flow show the model’s compounding power.
- AI and Infrastructure Moat: Proprietary data and automation are enabling rapid product innovation and margin gains.
- RAS and Brand Ecosystem Upside: Early traction with apparel brands could unlock a new, high-margin growth vector in 2026.
Conclusion
Q2 2025 was a breakout quarter for ThredUp, with marketplace liquidity and operational leverage driving accelerating growth and margin expansion. AI-led product improvements and disciplined reinvestment are compounding ThredUp’s competitive advantages, while management’s cautious Q4 outlook reflects prudent risk management. The company’s long-term trajectory as a scaled, data-driven managed marketplace is coming into sharper focus.
Industry Read-Through
ThredUp’s acceleration signals a broader inflection for managed resale and circular fashion platforms, as AI-driven user experiences and operational infrastructure become critical differentiators. Tariff policy and fast fashion ad market volatility are shifting the economics of new versus secondhand, benefiting value-driven platforms. Apparel brands are increasingly seeking scalable resale partners, suggesting that open-platform RAS models could become industry standard. Other e-commerce and marketplace operators should note the power of proprietary data, automation, and disciplined capital allocation in driving durable competitive moats.