Poshmark Poised for Outsize Growth as Resale Economics and Acceptance Drive Traction

Business Strategy & Outlook

Poshmark is among the largest apparel resale platforms on the market, boasting an interactive marketplace that benefits from a triumvirate of secular tailwinds: social commerce, an ongoing mix shift toward online retail sales, and the stratospheric growth of the apparel resale market. The firm’s strategy coalesces around four key priorities: product innovation, category expansion, international growth, and buyer acquisition. As per neutral view of management’s road map, with the research leaving us unconvinced that Poshmark’s international thrusts are poised to generate excess returns for investors, and surmise that purportedly adjacent categories like consumer electronics, art, or pets may not be concordant with the firm’s apparel core competency.

As a slew of firms have entered the resale space, competition has arisen around exclusive access to customers, inventory assortment, and distribution channels, with long-term equilibrium remaining uncertain. Consolidation looks inevitable, particularly as the scope of those companies’ offerings see increasing overlap, commensurate with category, price point, and geographic expansion. Poshmark’s right to win hinges on its ability to convincingly answer the “why Poshmark?” query, attracting platform participants with some combination of competitive seller services, frictionless listing, quick inventory turnover, attractive fees, broad assortment, and authentication services.

The until cross-listing is viable, each international market must be approached as greenfield development, with local competitors boasting a home field advantage at the outset. Winning any of a handful of culturally similar markets (Canada, Australia, the U.K., Germany, France) would meaningfully expand the long-term addressable market, but it remain dubious of the firm’s entry into India, which has proven notoriously difficult to monetize. Finally, the management to target efforts at ameliorating the shipping pain point, with more diversified last-mile providers and a thrust toward higher-priced products likely helping to defray costs that currently constitute about a quarter of average order values, weighing on GMV growth.

Financial Strengths

The Poshmark’s financial strength as sound. The firm carries no long-term debt, has $597 million in cash and cash equivalents on its balance sheet as of the first quarter of 2022, and figures to be free cash flow positive in each of the next three years, by the calculations. The management has adequate wiggle room to pursue moat-bolstering investments, while narrowing operating losses should provide a route to enduring operating profitability by 2026.

Following its IPO, the firm’s capital structure has simplified meaningfully, retiring $50 million in convertible notes issued during the third quarter of 2020 that carried a panoply of derivative clauses. Shareholder dilution hereafter should be limited to those shares issued in the normal course of business. The Poshmark’s waterfall of investment priorities as consistent with other high growth firms: pursuing internal investments and strategic mergers and acquisitions. One cannot anticipate pressure building for shareholder returns through repurchases or cash dividends until the firm achieves operating profitability, with the model suggesting the inception of a modest repurchase program in 2026, though this timeline could be delayed by a strategic acquisition or more circuitous route to positive earnings. As Poshmark emerges from its high-growth phase, and encourage management to consider optimizing the firm’s capital structure (adding debt) and initiating a cash dividend, but this remains a long-dated concern that don’t contemplate a dividend until 2030.

Bulls Say

Five straight quarters of operating profitability during 2020 and 2021 (ending in the third quarter of 2021) suggest a strong underlying business model once customer acquisition costs normalize.

Early traction in Australia and Canada could augur well for long-term success in those and other culturally similar markets.

Adding APIs and analytics tools for wholesalers and liquidators could add another platform use case, while generating higher units per transaction, average order values, and fulfillment cost leverage.

Company Description

Poshmark is one of the largest players in a quickly growing e-commerce resale space, connecting more than 30 million active users on a platform that sells men’s and women’s apparel, accessories, shoes, and more recently consumer electronics and pet products. The marketplace operates in four countries–the U.S., Canada, Australia, and India–with a capital-light, peer-to-peer model that dovetails nicely with prevailing trends toward social commerce, apparel resale, and an ongoing pivot toward the e-commerce channel. With $1.8 billion in 2021 gross merchandise volume, or GMV, the estimate that the firm captured about 13%-14% of the domestic online resale market, with rolling lockdowns and tangled supply chains providing a meaningful impetus for channel trial during 2020 and 2021.

(Source: Morningstar)

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