Poshmark now has access to the resources of a profitable multinational sponsor, affording investments in marketing and international expansion

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 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, evidenced by the firm’s pending acquisition by narrow-moat South Korean Conglomerate Naver (expected to close in the first quarter of 2023), particularly as the scope of resale firms’ offerings see increasing category, price point, and geographic overlap. 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. Working in its favour, the firm now has access to the resources of a profitable multinational sponsor, affording investments in marketing and international expansion that were previously off the table as investors demanded a quicker route to profitability.

Each international market must be approached as a 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 the firm’s entry into India will remain dubious, which has proven notoriously difficult to monetize. Finally, the management is 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

Poshmark’s financial strength is sound. The firm carries no long-term debt, has $581 million in cash and cash equivalents on its balance sheet as of the second quarter of 2022, and the firm is to be free cash flow positive (operating cash flow plus capital expenditures) by 2024. 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. Provided that the firm realizes the planned $30 million run-rate synergies from its acquisition by narrow-moat South Korean conglomerate Naver, Poshmark could achieve operating profitability as early as 2024.Poshmark’s waterfall of investment priorities as consistent with other high growth firms: pursuing internal investments and strategic mergers and acquisitions. There’s no 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 2027, 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, it will encourage management to consider optimizing the firm’s capital structure (adding debt) and initiating a cash dividend, but this remains a long-dated concern as forecasts 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.
The firm’s planned acquisition by Naver could accelerate marketing spending, customer acquisition, and position Poshmark more effectively to win the peer-to-peer resale space.

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, hence 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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