Poshmark Plugs Along as Naver Deal Set to Close in Q1 2023

Equity Analyst

Sean Dunlop

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 favor, 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.

We note that 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 we remain dubious of the firm's entry into India, which has proven notoriously difficult to monetize. Finally, we'd encourage 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.

Business Strategy & Outlook

The e-commerce resale industry has emerged as one of the clearest post-pandemic winners, with mobility restrictions, limited services availability to compete for wallet share, and an interest in generating supplemental income seeing some 36.2 million first-time sellers and 33 million first-time buyers enter the market in 2020, per a ThredUp and GlobalData report. While the addressable market remains small, with the domestic online apparel resale market clocking in at an estimated $14 billion in 2021 (shy of 1% of the global fashion and luxury apparel market), it is expected to grow at roughly a 23% annual CAGR through 2026, resulting in the quick emergence of a motley consortium of e-commerce resale specialists fighting to carve out a durable niche in the space. Competition abounds, with operators slicing up the market into a slew of often overlapping enclaves, roughly split between social commerce, hybrid consignment, and e-commerce resale platforms on the channel side, with price points, apparel categories, and inventory sourcing distinguishing firms by assortment. Considering this backdrop, we’re intrigued by Poshmark’s competitive position, with the firm’s $1.8 billion in 2021 gross merchandise volume, or GMV, suggesting low-teens percentage share of the domestic resale market, targeting an intermediate-priced, primarily millennial and Gen Z audience through a social marketplace that encourages building a user base, participating in themed “Posh Parties,” and haggling over prices, not unlike a bazaar. The firm boasts a capital-light, peer-to-peer marketplace model, akin to those embodied by narrow-moat eBay and wide-moat Etsy, bringing together 8 million active buyers, 4-5 million active sellers, and more than 30 million active users at the end of 2021 on a sticky mobile-application-driven adventure that incites an average of 27 minutes of browsing time per day (good for 9%-10% of total mobile screen time in 2021, per an App Annie report, or 18%-19% of time users spend on social media channels, per a Digital 2022 report). While we identify a handful of attractive secular drivers, we believe that a no-moat rating remains appropriate for Poshmark, with our analysis failing to uncover convincing evidence of a defensible competitive advantage, as we outline below. In broad strokes, we approach multihoming by both sides of the marketplace, massive greenfield space in a nascent industry, a competitive niche that skews toward mid-priced products, and potential entry by larger e-commerce and brick-and-mortar incumbents with trepidation, demanding analytical humility as we attempt to identify the winners and equilibrium state of an extremely dynamic market.

In our view, Poshmark’s current competitive position lends itself to two potential moat sources: a marketplace network effect, or data-driven intangible assets. Below, we consider attractive features in Poshmark’s business model before expounding on our belief that the firm doesn’t warrant a moat for either of the aforementioned sources in the current phase of industry development. Finally, we consider our expectations for long-term equilibrium in the fashion resale market, particularly considering recent merger and acquisition activity in the resale space. 

Considering Poshmark’s overarching strategy, we’d be remiss to overlook that the firm sits at the intersection of three attractive secular trends--a burgeoning resale market, the explosive growth of social commerce and, though it almost sounds trite to say by now, a continuing shift toward e-commerce over brick-and-mortar purchases. To frame the discussion, the e-commerce resale market is expected to grow at a 20%-25% annual rate through 2026 by our forecasts, driven by the effective disappearance of second-hand’s stigma and a massive influx of buyers and sellers sampling the channel as mobile commerce continues to democratize access. The resale trend is also attributable at least in part to sustainability concerns and circularity, though the cynics among us might suggest that consumers are more attracted to inventory variety and the relative affordability of closet flipping (perhaps offsetting the costs of “new” pieces by their take on recent sales). Regardless of the cause, survey data suggests that 86% of customers have purchased or intend to purchase secondhand clothing, nearly double the figure just five years ago (45%), while even longtime holdouts (China, luxury goods buyers) are beginning to warm to the idea. We'll get a much better glimpse of the extent to which this is the case after the closure of the firm's acquisition by South Korean conglomerate Naver (anticipated in the first quarter of 2023), with one of the top synergies highlighted to analysts tied to Poshmark's revamped ability to expand in Naver's core Asian-Pacific markets. 

We expect resale’s “share of closet,” to clock in around 25% by 2031, continuing gains seen over the past decade (when closet share increased to 9% from 4%). Ongoing market share donations look most likely to come from department stores, mid-price specialty chains, and hypermarkets, whose category relevance has quickly waned over the past five years, in our view. In many ways, people are accessing apparel resale because it’s grown so simple; one can list an item on Poshmark or Depop in a matter of minutes, and a quickly growing user base turns listings into sales increasingly quickly. It seems reasonable to surmise that the meaningfully smaller resale market of the past was attributable to a lack of means to monetize a closet, with expensive, illiquid, slowly moving secondary markets, where boutiques captured sky-high commissions, eroding most potential sellers’ appetite, while limiting the value retention of all but the most luxurious pieces.

The second sweeping trend, social commerce, is broadly defined as the integration of social and e-commerce experiences, often mediated through native content, affiliate marketing, and live selling events. Social commerce both dovetails with Poshmark’s core competencies and is expected to roughly triple from $492 billion in 2021 to $1.2 trillion globally by 2025 (a 25% annual clip), per an Accenture white paper, driven by a marked uptick in global mobile commerce penetration and the perception of authenticity and customization. The impersonal, faceless corporations of yore have been, at least partially, supplanted by peer-to-peer sales across popular platforms like Instagram, TikTok, and YouTube, with media companies proving increasingly adept at turning customer profiles in other mediums (likes, page views, dwell time) into effective product insights. The social commerce space is rapidly evolving, but investors need look no further than ByteDance’s (TikTok’s parent) swelling market capitalization, or the fact that nearly 9 in 10 of Poshmark's sales are predicated by a like, comment, or offer, to recognize that the opportunity merits careful consideration by incumbents, particularly those whose relationship with their customers is intermediated by third parties. 

Finally, the U.S. e-commerce market has had itself a moment over the last five years, to the tune of high-teens annualized growth (16.9% through 2021), against just high-single-digits (6.6%) in broader retail spending. Apparel, categorically, appears to be particularly well disposed, boasting an e-commerce penetration rate of 35%-40%, well ahead of low double-digit penetration (roughly 13%) across U.S. retail in aggregate. Other Poshmark markets, including Canada, Australia, and most recently India, are benefitting from similar structural shifts, though each carry their own suite of idiosyncratic considerations (shipping, value-added tax, or VAT, reverse logistics, regulation, infrastructure). As we contemplate this amalgam of factors, the levers for high-double-digit GMV growth appear well within reach, assuming effective execution and an ability to reach critical scale tipping points that would ensconce Poshmark in the consideration set for both retail entrepreneurs and a younger buyer base whose closet share increasingly skews toward secondhand clothing.

With this prelude, we pause briefly to applaud components of Poshmark’s competitive position; its scalability, emphasis on carving out one of the most durable moat sources in our coverage (a marketplace network effect), a high degree of cross-over between buyers and sellers, and social integration that seems to correlate strongly with dwell time and visitation, both of which augur well for conversion and life-time value. The firm boasts commanding gross margins, with no meaningful costs beyond cloud hosting and payment processing fees, consistent with an entirely third-party sales model. Its value increases meaningfully (albeit unilaterally) as new participants join the platform, suggesting the potential for the emergence of a defensible marketplace network--additional buyers increase speed of inventory turnover for sellers, while seller growth improves the breadth of platform offerings and inventory diversity. Over time, GMV scale could permit Poshmark to negotiate more favorable rates with logistics firms, payment processors, or other third-party vendors, affording leeway to pass savings along to its participants in the form of lower fees, spinning the growth flywheel ever faster. The platform provides both a forum for commerce and bridges the trust gap in online shopping, going so far as to authenticate items beyond certain price tiers (alleviating counterfeit concerns) and even swallowing return fees when sellers refuse to remit payment, defending the buyer experience. Further, the overlap between buyers and sellers is quite high, with some 39% of sellers becoming buyers, often funded by earnings on the platform, while 34% of buyers become sellers, at least among the 2012-18 cohorts. Dollar retention figures are also higher for buyers who also sell--clocking in at 112% in 2021--suggesting that those cohorts of users collectively spend more each year they're on the platform, an extremely unusual characteristic in retail e-commerce. Importantly, this pattern isn't simply isolated to an unusual 2020 and 2021 operating environment--net dollar retention registered at 108% for the 2012-15 cohorts (for each dollar those cohorts spent during their first year on the platform, they collectively spent 8% more the year after, and another 8% more the year after that, despite churn). Critically, this figure remains relatively stable regardless of the cohort’s level of initial spend--suggesting upside in absolute dollar and wallet share terms as the platform expands into adjacent sales layers, improves its search experience and ease of selling, and as buyers spend more during their first year of purchases. All this to say, we see a route to profitability by ratcheting back sales and marketing expenditures as user acquisition slows and generating leverage over administrative and platform development spending, with the social aspects of the marketplace proving sticky enough to serve as a form of retention marketing in and of themselves.

Turning now to a consideration of potential moat sources, most likely a network effect or intangible assets, we preach caution in inadvertently conflating growth and durable competitive advantages. In our view, Poshmark doesn’t boast access to a privileged resource or factor of production, hasn’t created meaningful barriers to success for a scaled resale competitor (yet), cannot point to sufficient network penetration or seller switching costs that render them prohibitively difficult to displace, and doesn’t appear to maintain unique inventory or price data. In many ways, the platform model lends itself to a frantic arms race for mind share and proprietary data, naturally consolidating around a winner with a commanding base of active buyers, a proprietary database in a unique category (price history for vintage musical instruments, art, collectibles), or otherwise the scale to fund expensive, analog moats that constitute massive barriers to entry, like wide-moat Amazon or wide-moat Mercadolibre’s sprawling fulfillment infrastructure. While Poshmark’s enclave is attractive in that it doesn’t fully lend itself to price transparency and relentless competition for $1 cheaper prices and 30-minute quicker fulfillment, prices are often bound by retail sales prices for newer seasons of the products in question and the widespread availability of viable substitutes, particularly inexpensive mass basics in more commoditized categories. While roughly 20% of Poshmark’s GMV could be ascribed to “luxury goods,” or those defined, in this case, by a $200 or greater sales price, there are entire marketplaces whose purview is luxury resale (the Vestiaire Collective, no-moat The RealReal, no-moat Farfetch) which may be better poised to target that space (though we expect that Poshmark’s lower net take rates could nibble at share for smaller-volume, three- to five-unit sales). As a result, the firm finds itself consigned to an intermediate assortment that largely features accessible aspirational brands, with an average order value of $35-$40, a price-elastic clientele (70% of customers predicated a purchase with an offer for a negotiated price), and an outsize impact from logistics costs, with a flat $7-$8 shipping fee assessed for most sales representing upwards of one fifth of the basket’s standalone value. These problems are not insurmountable--additional sales layers could drive increases in basket sizes, while the acquisition of Suede One could see an uptick in more profitable (to ship) luxury products--but the peer-to-peer format all but guarantees split orders, placing the firm at a distinct disadvantage to integrated retailers that are able to consolidate shipments in a fulfillment center or store prior to shipment. Moreover, the firm’s active buyer base of 8 million users represents an attractive inroad into a quickly growing market, but derails any meaningful argument for a marketplace network effect or data-driven competitive advantage. To the first point, some 33 million first-time buyers joined the resale market in 2020, in tandem with 36 million sellers--meaning that Poshmark will continue to be forced to defend its share in what’s effectively a greenfield space, with success in attracting and retaining new users remaining far from guaranteed. To the latter, we suggest that the category is not fully isolated from large business-to-consumer platform incumbents (Amazon, eBay, Mercari) in the way we might see with a more niche operator like Etsy, few of whose sellers utilize other online platforms, given (Etsy’s) massive share of category sales volumes. Finally, we consider the ease with which sellers can multi-home inventory on e-commerce resale platforms--Poshmark, Mercari, eBay, Depop, Vinted, or myriad others--a market structure that suggests only weak network effects and a bumpy route to durable economic value creation. Sales and marketing costs, representing a mid-40% share of sales, can only meaningfully come down, in our view, if competitors are consolidated or eliminated, with few distinguishing features of the platform--fulfillment infrastructure, seller tools, web services, buyer volume, turnkey services solutions--or cross-pollination across a suite of products like lending and advertising--preventing either side of the market from cross-platform shopping, much like U.S. consumers do with a narrow-moat Uber or a narrow-moat Lyft. We struggle to come up with a strong answer to justify sellers choosing Poshmark exclusively over its panoply of competitors, with the strongest arguments hinging on ease of selling, quicker sell-through on lower-priced items, and minor switching costs for power-sellers who have amassed a strong following on the platform. 

Finally, as we consider the equilibrium structure of the resale market, it certainly strikes us as plausible that the apparel resale space ought to exist independently of traditional retail channels, in the same way that a separate platform for pets (narrow-moat Chewy), musical instrument resale (Reverb), or handmade products (Etsy) might. That is to say, while survey data suggests that north of 40% of industry executives anticipate that resale will be an “important part” of their business within five years, it likely doesn’t make sense for each brand to build their own logistics apparatus from scratch, particularly considering the intensely fragmented nature of the global apparel market. For upmarket apparel manufacturers, there exists a risk that discounted merchandise on the white-label website inadvertently cheapens the brand, which is why many luxury houses destroy, rather than liquidate excess inventory. For mid-scale mono-brand retailers, it’s unlikely that resale contribution margin would justify the expense of used inventory reverse logistics--collection, curation, and merchandising--while customers would have to be conditioned to look for used goods in-store. Considering this, a centralized marketplace for used products, rather than a motley collection of clothing resale platforms embedded in individual brands’ web properties or brick-and-mortar stores starts to make quite a bit of sense. Nevertheless, we struggle to rationalize the need for separate centralized marketplaces, particularly within the same categories or targeting the same demographics, espousing our view that consolidation in the space is effectively inevitable (and likely a prerequisite for durable profitability), as we’ve already begun to see with Etsy’s acquisition of Gen Z resale marketplace Depop in 2021 for $1.6 billion, and Naver's planned acquisition of Poshmark itself in the first quarter of 2023. 

Tying our thoughts together, we see traces of a network effect in Poshmark’s business, though each market figures to require onboarding both sides of the marketplace from scratch, much like Uber, Lyft, or food delivery companies’ forays into new geographies. The firm plays in an interesting sandbox, with meaningful exposure to quickly growing resale, social commerce, and e-commerce marketplaces, but a relatively nascent industry, lack of scale, proprietary data, or analog competitive advantages encourage caution in the consideration of an economic moat, with existence, beyond the creation of excess returns, not a foregone conclusion 10 years into the future, as we see it.

None

Economic Moat

Poshmark

Poshmark is a leading social marketplace for new and secondhand style for women, men, kids, pets, home, and more. By combining the human connection of physical shopping with the scale, ease, and selection benefits of ecommerce, Poshmark makes buying and selling simple, social, and sustainable. Its community of more than 80 million registered users across the U.S., Canada, Australia, and India, is driving the future of commerce while promoting more sustainable consumption.

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Leading fashion resale marketplae Poshmark today announced the launch of Posh Shows, live shopping powered by a vibrant community and real-time social experiences.

Poshmark Introduces Posh Shows, Live Shopping For Resale

Fashion resale platform Poshmark has entered the world of livestream shopping. The company Wednesday (April 5) debuted Posh Shows, which allows people to livestream on the site for the first time.

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Poshmark, a Redwood City, California-headquartered secondhand apparel marketplace, is laying off a proportion of its 800+ employees. The reduction is coming about two months after South Korean internet firm Naver completed its acquisition of the company earlier this year for $1.2 billion.

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NEW ORLEANS--( BUSINESS WIRE )--Former Attorney General of Louisiana Charles C. Foti, Jr., Esq. and the law firm of Kahn Swick & Foti, LLC (“KSF”) are investigating the proposed sale of Poshmark, Inc. (NasdaqGS: POSH) to Naver Corp. Under the terms of the proposed transaction, shareholders of Poshmark will receive only $17.90 in cash for each share of Poshmark that they own. KSF is seeking to determine whether this consideration and the process that led to it are adequate, or whether the consideration undervalues the Company.

POSHMARK INVESTOR ALERT by the Former Attorney General of Louisiana: Kahn Swick & Foti, LLC Investigates Adequacy of Price and Process in Proposed Sale of Poshmark, Inc. - POSH

NEW YORK--( BUSINESS WIRE )--Scott+Scott Attorneys at Law LLP (“Scott+Scott”), an international securities and consumer rights litigation firm, continues to investigate whether the directors of Poshmark, Inc. (“Poshmark”) (NASDAQ: POSH) breached their fiduciary duties to its shareholders in approving a merger with NAVER Corporation (“NAVER”) for inadequate consideration. If you are a Poshmark shareholder, you may contact attorney Joe Pettigrew for additional information toll-free at 844-818-6982 or jpettigrew@scott-scott.com .

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Poshmark, Inc. Reports Third Quarter 2022 Financial Results

REDWOOD CITY, Calif., Oct. 27, 2022 (GLOBE NEWSWIRE) -- Poshmark, Inc. (Nasdaq: POSH), a leading social marketplace for new and secondhand style for women, men, kids, pets, home and more, today announced it will release its third quarter 2022 financial results on Thursday, November 10, 2022, after market close. Due to the pending acquisition by Naver Corp. (KRX: 035420), Poshmark does not plan to host a conference call to discuss its third quarter results.

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NEW YORK--(BUSINESS WIRE)--Scott+Scott Attorneys at Law LLP (“Scott+Scott”), an international securities and consumer rights litigation firm, is investigating whether the directors of Poshmark, Inc. (“Poshmark”) (NASDAQ: POSH) breached their fiduciary duties to its shareholders in approving a merger with NAVER Corporation (“NAVER”) for inadequate consideration.

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REDWOOD CITY, Calif., Oct. 13, 2022 (GLOBE NEWSWIRE) -- Poshmark, Inc. (Nasdaq: POSH), a leading social marketplace for new and secondhand style, today announced it has been named to Fortune's 2022 Change the World list for promoting sustainability and helping to keep items in circulation and out of landfills.

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Wilmington, Delaware--(Newsfile Corp. - October 7, 2022) - Rigrodsky Law, P.A. is investigating Poshmark, Inc. ("Poshmark") (NASDAQ GS: POSH) regarding possible breaches of fiduciary duties and other violations of law related to Poshmark's agreement to be acquired by Naver Corporation. Under the terms of the agreement, Poshmark's shareholders will receive $17.90 per share.To learn more about this investigation and your rights, visit: https://www.rl-legal.com/cases-poshmark-inc.To contact Seth D. Rigrodsky or Gina M.

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NEW YORK , Oct. 5, 2022 /PRNewswire/ -- Juan Monteverde , founder and managing partner of the class action firm Monteverde & Associates PC (the "M&A Class Action Firm"), a national securities firm rated Top 50 in the 2018-2021 ISS Securities Class Action Services Report and headquartered at the Empire State Building in New York City, is investigating Poshmark, Inc. (POSH), relating to its proposed acquisition by NAVER Corp. Under the terms of the agreement, POSH shareholders will receive $17.90 in cash per share they own. Click here for more information: https://www.monteverdelaw.com/case/poshmark-inc.

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South Korean internet conglomerate Naver Corp (KR:035420, US:NHNCF) said early Tuesday that it agreed to buy social commerce marketplace Poshmark (US:POSH cnx.cmd.push(function() {var videoId = decodeURIComponent(""); cnx({ playerId: "0a52d238-33b5-4c04-ba5e-323e192cfbe8", mediaId: videoId}).render("b8b49474e42e4a61905a1353db504ac9"); });) for $17.90 per share in cash, or about $1.6 billion.

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NEW YORK , Oct. 4, 2022 /PRNewswire/ -- Rowley Law PLLC is investigating potential securities law violations by Poshmark, Inc. (NASDAQ: POSH) and its board of directors concerning the proposed acquisition of the company by Naver Corp. Stockholders will receive $17.90 for each share of Poshmark stock that they hold. The transaction is valued at approximately $1.2 billion and is expected to close by the first quarter of 2023.

ALERT: Rowley Law PLLC is Investigating Proposed Acquisition of Poshmark, Inc.

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NEW YORK , Oct. 4, 2022 /PRNewswire/ -- Weiss Law is investigating possible breaches of fiduciary duty and other violations of law by the board of directors of Poshmark, Inc. ("Poshmark" or the "Company") (NASDAQ: POSH), in connection with the proposed acquisition of the Company by NAVER Corporation.  Under the terms of the merger agreement, the Company's shareholders will receive $17.90 in cash for each share of Poshmark common stock owned.

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Naver is buying Poshmark (POSH) for $1.2 billion. These are the details.

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Shares of secondhand-fashion marketplace Poshmark Inc. rallied Tuesday after the company agreed to be acquired by South Korean search and e-commerce platform Naver Corp. for $1.2 billion a day earlier. Analysts say rival suitors for Poshmark POSH, +13.23% are unlikely due to the company's sluggish sales and struggles with its peers.

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MILWAUKEE , Oct. 4, 2022 /PRNewswire/ -- Ademi LLP is investigating Poshmark (NASDAQ: POSH) for possible breaches of fiduciary duty and other violations of law in its transaction with Naver Corp.  Click here to learn how to join the action: https://www.ademilaw.com/case/poshmark-inc or call Guri Ademi toll-free at 866-264-3995. There is no cost or obligation to you.

Shareholder Alert: Ademi LLP investigates whether Poshmark, Inc. has obtained a Fair Price in its transaction with Naver Corp

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