Description

Investment Thesis

Poshmark is a founder-led apparel and accessories online resale marketplace with a core Millennial buyer/seller base increasingly interested in resale fashion for its cost-savings and environmental offset to fast fashion. For items valued over $500, Poshmark offers its own authentication services at what we think are favorable unit economics relative to peers. The marketplace also uses the mechanics of social media (liking, commenting, sharing closets) to make shopping fun and engaging. Poshmark, the public company, has been a less fun experience for shareholders with the Jan 2021 IPO priced at $42ps, closed at $102 on its first day, and now trades at $13.68ps. GMV growth has flatlined in Q2 and Q3 2021 due to missteps from navigating Apple’s IDFA, lapping lockdown induced online buying and increasing competition from Depop, Mercari, ThredUp, The RealReal and eBay, among others. Moreover, the Q4 2021 guide for negative $7-8m EBITDA was a credibility hit to the management team that highlighted the swing to profit in 2020. We believe that Poshmark will work through its user acquisition challenges from IDFA and return to growth in 2022 and beyond, an outcome which is not implied by the current $1.1b market cap ($464m EV) for a $1.8b GMV (2021e) marketplace with 20% take rates. Moreover, Poshmark’s ex-U.S. investments disguise the earnings power of the U.S. business. We believe that about 20% of S&M budget is going to ex-U.S. launches, primarily in Canada and Australia. In our base case for 2022, if we assume 17% GMV growth in the U.S. in 2022 and add back 20% of the S&M budget dedicated to ex-U.S. growth, EBITDA for the core U.S. business of ~$73m and with a current enterprise value of $464m trades at ~6X 2022 EV/EBITDA. Given the quality of the Poshmark community and mid-teens growth in the online resale category, the risk/reward setup appears favorable. In terms of strategic value, using Etsy’s bid for Depop as a comparable transaction, our Poshmark bear case GMV CAGR (2020-2025) of 13% and a 30% valuation discount implies a FV for POSH of $28, a 105% premium to current share price of ~$13.68.

Business Model Overview 

Poshmark (POSH) is an online marketplace for used or new clothing, shoes, and accessories that aims to combine the human connection of a physical shopping experience with the scale, reach, and ease of eCommerce. POSH’s unique distinction from other eCommerce sites is its use of a social media format in which users can follow other users and like, comment, and repost listings. The marketplace is centered around a central, curated newsfeed in which users can view content from sellers they follow as well as content recommended by POSH. POSH also offers curated categories for browsing including accessories, bags, apparel, jewelry, makeup, pet goods, and more.

The company was founded by Manish Chandra, Navin Chaddha, and Tracy Sun in 2011 after Manish sold Kaboodle, a social shopping website that would serve as a prototype for Poshmark. Iterating from his learnings at Kaboodle, Manish aimed to create a mobile-first social marketplace where engagement and revenue existed in a positive feedback loop rather than trying to drive revenue after building engagement. Because buying fashion is often a discovery process instead of a direct search process, it was a logical subject for the creation of a social marketplace. At the time, resale marketplaces for fashion existed in companies such as thredUp and eBay (and others such as Depop and The RealReal would also be founded in 2011) but none would conceive of the social element that is core to Poshmark’s business model.

In 2019 the company stated that it had >70m users, of which 31.7m are active users – users who have logged into the platform sometime over the past twelve months. They report that active users spend 27 minutes per day on the marketplace browsing, shopping, buying, selling, and connecting with each other via 56m interactions per day including 38m shares per day. 27 minutes per day puts POSH squarely in the realm of other social media platforms: TikTokers average 52 min, Youtubers 40 min, Snapchatters 30 min, Instagrammers 28 min, and Pinterest users 14 min in 2021. In the S-1, POSH noted that 87% of items purchased were preceded by a like, comment or offer on the marketplace. Social interactions also grew >90% in 2019.

Of the ~30m Active Users, 7.3m are Active Buyers (2021e) and >5m are Active Sellers. 34% of buyers who activated between 2012 and 2018 also activated as sellers by year-end 2019, and 39% of sellers activated between 2012 and 2018 also activated as buyers by year-end 2019. Engaging on both sides of the transaction drives interaction frequency with the platform (over and beyond the social aspect) and creates a circular economy within the ecosystem – 48% of sellers used a portion of their earnings on the marketplace to make purchases on the marketplace during the same year.

Poshmark boasts advantages for both buyers and sellers on its platform relative to competing marketplaces. For sellers, POSH offers end-to-end tools to support listing, merchandising, promotions, pricing, fulfillment, and customer support capabilities that can be accessed through a mobile phone. This comprehensive set of tools enables sellers of all sizes—including casual users looking to sell old items, growing independent sellers, boutique brands, and major retailers—to utilize the platform. Moreover, POSH’s format, in which sellers can build their own page, gain followers, and maintain social interactions with buyers, allows POSH sellers to build and control their brand.

The company has recently taken steps to broaden its seller tools in order to provide greater functionality to power sellers and brands, including launching Listing Videos, My Shopper, and My Closet Insights tools as well as Official Brand Closets. Listing Videos are TikTok-like videos that populate the main feed and leverage Poshmark’s social graph to generate sales. My Shopper is similar to clienteling in retail or department stores:  it enables sellers to provide personalized services to clients including adding previously liked items to a bundle, sending offers on bundles, and generating urgency through commenting on bundles that are specific and personalized for individual past shoppers. My Shopper also enables sellers to tap into buyers’ profiles to better understand them, and see which shoppers are interested in which inventory. eBay allows you to send direct offers but nothing else – Mercari and thredUp do not offer a similar tool. My Closet Insights is a sales and inventory analytics tool available through the POSH app and website for power sellers. Sales analytics includes sales summary and comparison chart, brand insights charts, top-selling categories (by sales, ASP, and listings), and Order Insights by type (Buy Now, Bundle, or Bundle Buy Now). Inventory analytics includes a summary of current/past inventory counts, brands in inventory, and listing insights (categories by value, average price, and availability). eBay and Mercari provide similar tools, while thredUp does not. Regardless of the toll of each platform, some sellers cross list items and there is software designed to make this easy. 

POSH also recently announced Official Brand Closets, an enterprise-oriented tool that enables brands to directly create their own official listings on the platform. Poshmark had 9,431 brands on the marketplace as of September 2020 and mentioned in the 3Q21 earnings call that there are 140+ smaller brands using the Brand Closet Program. Known participants include medium-to-large sized brands such as Free People, Lucky Brand, Dose of Colors, and Hue. Typically, listings from the brand itself would appear next to listings from individual sellers – the Official Brand Closet is effectively a filter that enables you to distinguish the brand’s own listings. Official Brand Closet listings also get priority positioning on the search results page as well as access to email campaigns, which is not available to power sellers.

Listings in the Official Brand Closet are almost always New With Tags (as opposed to secondhand, which is the typical POSH listing), and include various discounted items (~30-60%) for goods that may be out of season and would normally be sold at clearance levels. Therefore, Official Brand Listings on Poshmark could serve as an alternative channel for some brands to get rid of dated inventory. Medium-size, niche, and indie brands may also find the feature useful for enabling them to leverage existing social graphs on POSH to build their brand. Professional resellers have indicated that the Official Brand Closet button could cause users to perceive other listings as being “second-rate.”

For buyers, Poshmark allows a highly accessible experience with a single payment process, shipping process, and buying experience across all devices. Additionally, POSH allows a customized experience for buyers in which they can continuously engage with preferred sellers, support sellers by promoting their content through likes, comments and reposts, and receive data-driven personalization of content from POSH. Lastly, POSH facilitates a value shopping experience for buyers with sellers offering a vast array of over 200m secondhand items.

The average order value in 2019 was $33. Paired with an average of 6.3 orders from active buyers in 2019, average spend per active buyer was $208/yr. As shown below, buyer cohorts from 2012-2015 continued to be engaged by 2019 and increased their Buyer GMV on POSH from $169 million in 2016 to $231 million in 2019, representing a CAGR of 11%. Seller cohorts from 2012-2015 had similar dynamics, increasing their Seller GMV on POSH from $169 million in 2016 to $231 million in 2019. Buyer and Seller cohorts in following years (2015-2019) also retained a high percentage of GMV in subsequent years. Poshmark indicated that payback periods on marketing spend by cohort were ~2 years.

Source: Poshmark S-1 Filing

In 2019, around 74% of gross merchandise value (GMV), which is defined as the total dollar value of transactions in the period, prior to returns and cancellations, was on secondhand items. In 2019, 53% of GMV was comprised of items that sold for <= $50, 30% GMV were items between $51-200, and 17% where >=$200. As of Q3 2021, >=$200 items were “low 20’s” percent of GMV, aided by a partnership with Affirm offering multiple payment options. Given that average order value is $33, there are likely a large number of items sold for prices well below $50/item.

Source: Poshmark S-1 Filing

Poshmark’s users are located in the US, Canada, India, and Australia. As of the end of 2019, 83% of active users were female. Poshmark over-indexes in Gen Z (27% compared to 16% in the general population), but the marketplace is really dominated by Millennials (53% compared to 31% of the general population). By skewing heavily towards younger buyers/sellers (>80% Millenials + Gen Z), POSH has favorable exposure to income tailwinds that may help to drive up AOVs over time, contributing to GMV growth, assuming that POSH users remain loyal.

A typical transaction would occur as follows. First, to sell an item a seller must upload photos on the mobile app and enter information including details, category, quantity, size, brand, color, NWT or used, original price, listing price (with suggested price algorithm), and choose whether or not to offer discounted shipping (if discounted shipping is offered, the seller pays the difference between $7.45 and the discounted cost). Typically, sellers will aggressively follow users (including new users, who will get 50-100 follows upon registering) to try to get follow-backs. Sellers will then share their closet multiple times a day, either manually or through the use of bots or human assistants in order to draw attention to newly listed items and existing inventory. Some sellers find these mechanics cumbersome although this is required to rank well given the feed algorithm. A buyer either through a directed search or through browsing the feed may discover an item that she wants to purchase and like the item, make an offer, or buy now.

Sellers can utilize various special events, such as Posh Parties or Closet Clear Outs, to drive sales. Posh Parties are themed real-time virtual shopping events hosted by Poshers selected on a rotating basis from a wait list, who are responsible for curating a collection of fashion items that follow the theme of the party and sharing those items with live attendees. 4 Posh Parties are hosted each day with the themes of Brand, Category, Department, and Style respectively. In the S-1, POSH states that Active Users on the platform are 17% higher during Posh Parties. Closet Clear Out is a promotion where if the seller drops the price of an item by 10%, all users who have liked the item will receive a notification and receive discounted shipping fees (with Poshmark paying for any difference in shipping).

Once the buyer and seller agree to a transaction, a shipping label will be sent to the seller’s email address. The seller is then required to print the label and ship the purchased item within 5 days after receiving the shipping label – many sellers will try to ship out their goods in batches in order to reduce their logistics burden. Poshmark only offers flat rate shipping labels for USPS Priority Mail which are $7.45 and allow up to 5 pounds. Because shipping costs are high relative to item costs, buyers are incentivized to purchase goods in bundles in order to spread the fixed cost. Notably, Poshmark’s lack of a centralized item warehouse (like ThredUP, REAL) means that the bundle of goods must be purchased from the same seller in order to incur a single shipping charge – this dynamic may help to foster individualized relationships between sellers and buyers. After the buyer receives the item, they have only 3 days to inform POSH if the item is damaged, incorrect/missing, not as described, or not authentic. The returns policy does not cover poor fit or changed mind. If the return is approved, Poshmark will send a shipping label for the seller to return the good to the buyer – in this case, Poshmark covers the cost of the return logistics. If a return is approved, the buyer also has 5 days to ship back and receive a refund. Otherwise, the buyer can relist (Reposh) the item using a simple re-listing process.

Poshmark charges a fee of 20% of the final price for sales $15 and over, or a flat rate of $2.95 for sales under $15. These fees have remained unchanged from the inception of the business. GMV is calculated as the total dollar value of transactions on the platform in a given period, prior to returns/cancellations and excluding shipping/sales taxes. The company recognizes revenue net of estimated returns and cancellation, based upon historical figures. In 2018, 2019, and 2020, cancellations were 12%, 12%, and 14% of GMV respectively, while returns were 2%, 2%, and 2% of GMV. As a result, the take rate has been 18.4%, 18.5%, and 18.3% over the past 3 years. Poshmark then recognizes costs of net revenue of credit card processing, transaction fees for order related payments, and hosting expenses associated with operating the platform. Cost of Net Revenue was 2.93%, 3.27%, and 3.24% of GMV for 2018, 2019, 2020.

Recently, the marketplace has pursued international expansion. POSH launched Canada in May of 2019, Australia in February 2021, and India in September of 2021. Users can log in with the same account information across all markets but must browse listings specifically within a region. There does not appear to be inter-regional browsing, purchasing, or shipping capabilities at the moment – the network is limited to a single geography. The quantity of items available internationally, particularly in India and Australia, appear to be significantly less than that available in the US and Canada to a lesser degree, but the launch is still in very early stages. Poshmark also commissioned research into Australians’ shopping habits, estimating that Australians aged 18-45 have $5bn of unworn post-pandemic clothing that could be converted into cash. Vogue also noted that Poshmark has plans to “lean on India’s local influencers and celebrities to drive user acquisition” and will host events to spread awareness of the platform in the region.

The company has 558 FTE and is based in Redwood City, CA. Employees are located around the world including the US, India, Canada, and Australia, regions where Poshmark has officially launched its marketplace. Outside of the US, the largest concentration of employees was in India, where it has software engineering and regional customer support teams.

Moat / Opportunity 

Poor sales execution related to IDFA changes can be remedied

In Q3 2021, Poshmark reported a q/q decline of $7m in GMV while in the prior 3 years q/q GMV for the same period has grown $23m, $17m and $15m. Management cited on both Q2 2021 and Q3 2021 earnings calls the impact of Apple’s IDFA changes to the reduced efficacy of campaigns leading to an increased cost of new users and an increase in the payback period. Moreover, management guided to an increase in advertising investment in Q4 2021 and EBITDA of $-7m to $-8m for the quarter to support GMV growth.   

The company said that in Q2 2021 due to IDFA uncertainty it had shifted its marketing mix somewhat to TV and partnerships, thus reducing spending on Facebook and Google which have historically been the most effective channels and comprised 80% of ad budget.  We believe that Poshmark can improve its attribution model, especially relative to subscale peers, to work better under IDFA. We believe management might have been reluctant to make changes to their marketing model around the time of the IPO in January 2021 due to the risk of adversely impacting revenue so soon after the IPO. We belieive there is bottlenecking in general on decision making. Calls we completed with other Facebook marketers in Q2 2021 indicated that almost all firms were deploying new attribution models at exactly this time in preparation for the April 2021 launch of iOS 14.5. Poshmark likely has the advertising scale and is able to build internal systems to overcome the impacts of IDFA after a new attribution model is launched and that both user acquisition and GMV led Google shopping ads will have improved performance as early as Q4 2021. We expect this to be a catalyst to return to GMV growth which is the key cloud on the company at this time.

Poshmark’s primary moat is a diverse and stable U.S. marketplace in the growing online resale category 

Poshmark enjoys a diverse and high quality seller community that supports robust network effects. Poshmark has >5m active sellers. We believe that the vast majority of GMV is being sold by individuals or casual sellers. We believe there is a limited reliance on large power sellers as is more common at eBay, for example. About 30% of GMV is men’s apparel even though most of this is being listed and purchased by women for the benefit of their spouse. Importantly, 34% of buyers who activated between 2012 and 2018 also activated as sellers by year-end 2019, and 39% of sellers activated between 2012 and 2018 also activated as buyers by year-end 2019. The following seller cohort chart demonstrates that long-time sellers on Poshmark continue to be engaged sellers while new seller cohorts have made similar contributions to GMV volumes.

Source: Poshmark S-1 Filing

To better understand the competitive landscape from a consumer’s point of view, we asked a woman to order clothing for herself in equal parts from Poshmark, eBay, ThredUp and Mercari comprising 44 orders and 128 items in total. eBay and Poshmark scored best in terms of selection and pricing. Poshmark also scored well for ease of initial search, packaging and user interface. ThredUp’s model from a central warehouse scored very well for overall listing quality, ease of bundling products and lower shipping costs for multi-item orders. Mercari scores poorly for most of these buyer attributes.

There are demonstrable tailwinds in the resale category. ThredUp believes that is has a sizable and growing market to still penetrate in the US. According to the GlobalData January 2020 Consumer Survey, 62M women bought secondhand in 2019, growing +10.7% from 2018, and ~70% of those surveyed said they have or are open to buying secondhand. Additionally, this market is pushed by consumer trend tailwinds including more conscious consumerism, specifically with regards to sustainability, and as Millennials and Gen Z continue to make up a larger share of national spend.

Unit economics of luxury goods and sneakers appear attractive and are growth markets for Poshmark

Poshmark has noted that items valued over $200 have increased from 17% of GMV mix in 2019 to “low 20’s%” of mix in Q3 2021. Although Poshmark monetizes at a flat 20% take rate for items valued over $15.95, increases in average order value, last reported at $33 in 2019, would be positive to gross profit dollars, all else equal.  An increased mix in authenticated luxury goods is an obvious vector for Poshmark to increase average order value. We believe that 80% of Poshmark-authenticated items consist of handbags. We counted inventory of ten iconic handbags and found that Poshmark, eBay and Tradesy had comparable numbers of listed items. Although these inventory levels don’t indicate handbag GMV, it is one potential proxy of market share. 

Source: Self-sourced from respective websites (2021) 

Poshmark’s trusted “social selling” allows for stronger pricing compared to other marketplaces where the identity of the seller is less known. This pricing advantage helps to sustain Poshmark’s 20% take rate (which is applied to all products regardless of category or value) compared to eBay which has a 15% take rate for handbags <$2000 in value. Given the difficulties in comparing pricing for used items of differing condition levels, we did not attempt to empirically  determine potential pricing differences for the “same” products for different marketplaces.

Poshmark continues to invest in its internal authentication services which we believe is a profitable approach to authentication. Poshmark’s authentication service is only available for items valued over $500 and probably accounts for ~10% of GMV. Poshmark only receives products for authentication after they have been sold on the platform. We deduced the following gross margins for authentication services assuming different average values of items to be authenticated. Sending and receiving merchandise appears to be the greatest component of cost.

Source: Internal estimates (2021)

Since Poshmark has a minimum authentication threshold of $500, we estimate that the average authenticated item at Poshmark is valued at $750 with a gross margin for this service extrapolated between 61-81%, likely much higher than the authentication services like REAL that need to sift through a larger volume of items of lesser value even before they are sold. 

In order to grow its sneaker business, Poshmark acquired Suede One to enable internal virtual sneaker authentication. As the average value of a sneaker is <$500, the gross margins on touching a sneaker in a warehouse are too low. A virtual approach to authentication appears to be the right strategy. eBay’s free sneaker authentication services and suspension of final value fees for sneakers sold over $100 was reported to have hurt Poshmark’s sneaker inventory. As of December 2021 eBay has now reinstated an 8% final value fee for sneakers over $100. eBay also acquired its sneaker authentication partner, Sneaker Con, in December 2021 which had helped eBay to authenticate 1.6m sneakers in the last year while eBay has a current inventory of 1.9m sneakers. The ability of Poshmark to offer authentication remotely for both sneakers and luxury items valued <$500 should help to grow its share of GMV related to higher valued items and compete more effectively with eBay, and other platforms like StockX, in this important and growing category.

Downside risk is limited due to low valuation and potential strategic value

Poshmark’s ex-U.S. investments disguise the earnings power of the U.S. business. We believe that about 10% of S&M budget, which is almost entirely advertising given the small headcount, was dedicated to the launch of Canada in 2019. If the same investment is being made in Australia (inclusive of this India launch in late 2021) in 2021, and if the Canadian investment is ongoing then about 20% of the current S&M budget is potentially being dedicated to growth marketing in early stage markets. In our base case for 2022, if we assume 17% GMV growth in the U.S. and add back 20% of the S&M budget dedicated to ex-U.S. growth, EBITDA for the core U.S. business could be $73m relative to a current enterprise value of $464m with the core U.S. business trading for 6X 2022 EV/Adj EBITDA.

Etsy’s acquisition of Depop for $1.625B in June of 2021 also provides us with a comparable transaction to help us triangulate and sanity check a fair value for Poshmark. Using the acquisition as a precedent transaction, we estimate the current fair value for Poshmark to be $41.28 per share in the base case, $53.57 in the bull case, and $27.65 in the bear case to a strategic acquirer. 

We made estimates of Depop’s GMV (historical and forward through 2025) using disclosed information that Depop had a GMV CAGR of 80% from 2017-2020 and grew 100% into 2020. We model a Depop GMV CAGR (2020-2025) of 38%, ending 2025 w/ $3.3B vs $2.6b in our bear case for POSH. Next, we take $70m of Depop revenue in 2020 and the calculated GMV to figure out Depop’s take rate, which is 11%. Using Poshmark’s gross margins, which have been relatively flat across GMV levels historically, we assume the same for Depop to calculate gross profits through 2025. We can then figure out the implied Revenue and Gross Profit multiples against 2025 financials.

Next, we take our revenue estimates for POSH and apply a take rate of 18%. From that we can derive POSH's revenue projections through 2025 and apply the gross profit estimates to reach gross profit projections. We then apply the EV/’25 Rev and EV/’25 GP multiples from the Depop transaction to POSH’s 2025 Revenue and GP to reach the implied POSH Enterprise Value at the precedent transaction multiples. Utilizing 2025 Revenue and GP multiples helps to adjust for the differences in near term growth rates; after reaching EV as above, we then apply a further discount to account for growth differentials (25% y/y for Depop vs 7% for POSH in bear case) in the out year. We adjust the discount based upon the case and compare to current equity value, as well as our estimated equity value. 

To summarize, using our POSH bear case GMV CAGR (2020-2025) of 13% and a 30% valuation discount implies a FV for POSH of ~$28 (105% premium to current share price of ~$13.68 per share) when using Etsy’s bid for Depop as a comparable transaction.

Source: Internal estimates, public news sources regarding Depop (2021)

Capital Allocation & Management History

Much of Poshmark’s growth strategy has been centered around high marketing spend to grow the platform, though its rate of investment here has slowed recently. S&M spend as a percentage of revenue was 59.6% in 2018 and 64.5% in 2019 with a reduction in 2020 to 35.5% of revenue. In the first nine months of 2021, spend has increased to 43.2% though still remains well below its former rate. 

Poshmark has only completed two acquisitions—an acquisition in 2016 of competing commerce marketplace app TotSpot for an undisclosed sum. In October 2021, POSH announced an acquisition of Suede One, a platform that combines machine learning, computer vision, and expert human review to virtually authenticate sneakers. Total consideration for acquisition was $6.6M in cash with potential for up to an additional $2.5M upon the achievement of earnout conditions. With this acquisition, Poshmark is augmenting its current authentication technologies in efforts to encourage resell of higher priced sneakers and potentially other luxury categories on their platform.

42% of shares are still held by VCs. The largest shareholder is Mayfield, represented on the board by Navin Chaddha, with 17.25m shares for 22% ownership. GGV Capital, represented on the board by Hans Tung, held 4m shares class B shares (5.3% ownership). GGV has since sold off approximately 1m shares since the IPO. Anderson Investments Pte. Ltd., represented on the board by John Marren, holds 6.0m shares for 7.7% shares. Anderson Investments is a subsidiary of Temasek Holdings, a sovereign wealth fund of Singapore. Menlo Ventures with 5.2m shares of 6.7% ownership. 

In 2020, base salaries for named executive officers were: $425K for CEO Manish Chandra, $390K for former CEO Anan Kashyap, and $390K for COO John McDonald. These were adjusted upward halfway through the year from $385K, $350K, and $350K respectively. In 2020, target bonuses for these named executive officers were set at 80%, 60%, and 60% respectively of base salary and were achieved through equally weighted GMV performance and EBITDA performance metrics. The company states that they do not have a formal policy with respect to granting equity incentive awards to executive officers, but periodically review  executive equity compensation grants. In August 2020 the board approve a round of RSU grants to named executive officers and stock options were granted to Chandra in September 2020. 

Manish Chandra—Co-Founder, Chief Executive Officer

Chandra founded Poshmark in 2011 and has served as CEO since its founding. Prior to starting POSH, Chandra founded and served as CEO for social shopping service Kaboodle, Inc, which served as inspiration for POSH. Chandra founded Kaboodle in 2005, sold it to Hearst Corporation in 2007, and stayed on as CEO until he started POSH. Early in his career, Chandra was a VP in marketing at Versant Corporation (1995-2005) and prior worked as a software engineer at both Intel and Sybase Corp. 

Chandra owns 5.4m class B shares for 7% ownership of total stock. He also had 98K unvested RSUs; 25% of these vested on April 1st, 2020 and the rest vest equally over 12 quarterly installments. At the end of 2020, Chandra had 645K exercisable stock options spread across strike prices of $1.11, $1.52, and $10.77. He also had 531K unexercisable stock options spread across the strike prices of $1.52, $10.77, and $21.03.

Manish sold 795k shares in the 2019-2020 period for a total price of $14.7m. Manish has sold no shares since the IPO.

Rodrigo Brumana—Incoming Chief Financial Officer

On 11/16/21, the company announced that Rodrgio Brumana would join as the CFO of Poshmark on December 1st, 2021 following the departure of longtime POSH CFO, Anan Kashyap (2016-2021). The company announced Kashyap’s August departure in June 2021; since August, Kashyap has continued to serve an advisory role while VP of Finance Kapril Agrawal has served as Interim CFO.

Brumana is joining Poshmark with a strong background in related marketplaces. For the last year, Brumana has served as CFO at Amazon Private Brands. Prior, he served as CFO at OfferUp, a unicorn C2C marketplace app, from 2018-2020, departing after its March 2020 merger with LetGo. Brumana has also served as Head of Finance and Analytics in the Americas at eBay (2015-2018) and as VP of Finance at RetailMeNot (2013-2015) among various other roles.

John McDonald--Chief Operating Officer 

McDonald has served as COO of Poshmark since September 2018 after being promoted from VP of Business Operations, a role he served in from 2013-2018. Prior to this role, McDonald served as VP of Sales and Support at Ning, a platform for creating social network sites, from 2009-2011. He then was GM of Ning until 2013 after it was acquired by Glam Media in 2013. McDonald also served in several roles at eBay including Director of Corporate Management (2002-06), Sr Director of US Trust and Safety (2006-08), and Sr Director of Seller Experience (2008-09). McDonald holds 119k shares.  He also holds 92k RSUs and a mix of stock options. 

Gautam Golwala—Co-Founder, Chief Technology Officer

Golwala cofounded Poshmark in 2011 and has served as CTO since its founding. Golwala also came from Kaboodle, where he joined at the company’s beginning in 2005 and served as VP of Engineering. Prior, Golwala worked as Sr. Architect and Manager at Yodlee (1999-2005) and as a software engineer at both Querisoft and Interlop at the beginning of his career.

Chetan Pungaliya—Co-Founder, Senior Vice President of Engineering

Pungaliva co-founded Poshmark in 2011, before which he co-founded and served as VP of Engineering at Kaboodle. Pungaliva served as VP of Engineering at another social e-commerce startup, InhaleDigital, briefly (2010-2011) in between his time at Kaboodle and his start at POSH. Earlier in his career, Pungaliva served as Director of Engineering at StarCite (1999-2005), Software Engineer at Versata Corp. (1996-1999), and Software Design Engineer at MediaWay Inc. (1994-1996).

Tracy Sun—Co-Founder, Senior Vice President of Seller Experience

Sun cofounded Poshmark in 2011 and serves as SVP of New Markets. Prior, Sun founded her own social e-commerce business, Co-Founder, where users were enabled to create designs and share them with other users. Sun ran Co-Founder from 2007-2009. Sun started her career in business in merchandising at Brooklyn Industries (2004-2007) after deviating from a career in clinical neuroscience research.

Competition

POSH faces competition from a variety of players in the fashion resale market. These include traditional brick and mortar consignment stores as well as direct online competitors Depop, ThredUp, Mercari, eBay and TheRealReal among others. Although all of the players outside of traditional consignment stores utilize the online resale marketplace model, many of them differ by offering a broader or narrower selection of goods or by handling the product themselves in a managed marketplace. None of the competitors offer a social aspect to the platform that is comparable to POSH.

Traditional Consignment Stores

Compared to POSH, these players take a much higher cut of sales with a 50/50 split being the industry standard, consistent with the greater role they play in the ultimate sale of the item and the high retail overhead. With traditional consignment stores vs platforms like POSH, sellers trade-off a larger payout rate for less effort in selling. For buyers, while traditional consignment stores may be preferable due their facilitation of an in-person experience that allows for a closer inspection of clothes, online alternatives such as POSH unlock a much broader set of choices. Though there are some large consignment chains such as Buffalo Exchange and Plato’s Closet, the market is highly fragmented with many independent consignment businesses with only one location. There is great heterogeneity with regards to the type of items sold and the target demographic of local, independent consignment stores. 

Prior to COVID-19 many consignment stores had established an online presence through a website or social media. COVID-19 forced most businesses that did not already have an internet presence to establish a presence. However, for most cases we found that it is difficult for local consignment stores to maintain both a physical presence and a full online presence—either through running an online store through their own website or starting a store on a third-party platform like POSH--as cross-listing their massive and constantly recycling inventory online is a heavy burden on store owners. 

Depop

Depop is a mobile and web resale marketplace that specifically focuses on vintage and underground brands that particularly resonate with GenZ. The company is headquartered in London, UK, but the majority of its GMV likely comes from the USA – in 2019, CEO Maria Raga stated that the US would account for 15 million users by 2022 and was on its way to becoming Depop’s biggest market. Major brands on Depop include Nike, Adidas, Zara, Brandy Melville, Levi’s, and the North Face. Founded in 2011, Depop had 4m buyers and 2m sellers as of 2020, and 90% of active Depop users are younger than 26 – Depop skews heavily towards Gen Z followed by Millennials. Depop offers seller tools including bundled sales, video listings, price benchmarking, and sales history and reviews online mention that their search functionality is not great. Similar to Poshmark, Depop does not ever touch the product; upon purchase, Depop will send the seller a shipping label and relies on USPS for logistics. However, the platform has the most modern looking UI across both its web page and mobile app, which could explain its popularity with Gen Z buyers. Depop relies solely on PayPal for payout functionality.

Depop is on pace to do $1B of GMV in 2021 and has a GMV CAGR of 80% from 2017-2020. The company has 400 employees and has a take rate of 11%, lower than POSH’s 20% take rate. In June of 2021, Etsy announced that it was acquiring Depop for $1.6B at transaction multiples of 2.5x GMV and 22x sales. Etsy’s acquisition of Depop follows the acquisition of Reverb and is in line with its strategy of operating and acquiring two-sided online marketplaces. The deal expands Etsy’s presence in Gen Z and apparel. Shipping costs on Depop range from $4.50 for a small item to $15 for an extra-large item, versus POSH’s flat rate of $7.45; a seller can also request for the buyer to cover shipping.

ThredUp

While similar to POSH in its focus on women’s apparel and accessories, ThredUp (TDUP) operates a managed marketplace model, serving as a middleman in the resale process more similar to traditional consignment instead of merely directly connecting buyers and sellers through a platform. To sell through TDUP, prospective sellers pack clothes in a ThredUp Clean Out bag or their own box and ship it to a TDUP warehouse. TDUP employees then handle the processing of items which includes quality inspection, photography, product description, pricing, and posting. TDUP recognizes revenue from selling items net of a variable payout to sellers. TDUP is said to be better suited for casual sellers who are looking to sell a high-volume of lower-end items that might otherwise be donated due to the lack of effort required to sell through the platform. More serious resellers may use TDUP as a last resort for clothes that aren’t selling on other platforms or in some cases as a means of sourcing cheap clothes to sell for higher prices on other platforms. Since items are quality inspected and listings are systematically generated, TDUP offers a cleaner buying experience that could attract buyers who are skeptical of online consignment. Compared to POSH, ThredUp users generally skew older with Generation X using the platform most (47.3% of buyers and 53.2% of sellers), followed by millennials (27.3% of buyers, 28.1% of sellers).

Consistent with a traditional consignment model and the greater cost burden that ThredUp shoulders, TDUP takes a much larger cut of revenue from sold items. The average seller payout ratio at TDUP is 19%. Seller payout ratios scale based on item value with items above $200 granting an 80% payout ratio. In 2020, average order value was $68.95 with typically 4 items per order; compared to average revenue per order of $46.92, which considers incentives and returns, at a take rate of 68%. Active buyers, who are described as buyers who have bought something on TDUP in the 12 last months, reached 1.4M in at the end of 3Q21, growing 14%. Based on projected revenue of $250M for FY ’21 and their take rate remaining even at 68%, total platform GMV looks to be approximately $367.6M for FY ’21.  

Mercari

Mercari is unique from most competitors considered here in that it did not develop out of the US but instead expanded from Japan. Today, Mercari operates separate marketplaces in Japan, the US, and the UK.  Compared to POSH, Mercari encompasses a much broader range of items outside of apparel and accessories including electronics, toys, and home décor and furniture, much like eBay. Mercari is described as less refined than other platforms with low-effort listings and fewer tools available to sellers. Items are said to typically take longer to sell on Mercari with lower traffic and reach. The combination of these factors makes Mercari a fit for casual sellers who want to quickly upload a large variety of goods as well as a fit for professional resellers looking to cross-sell items listed on other platforms. 

Mercari charges a commission fee of 10% per item with no listing fee as well as a $2.9% + $0.30 payment processing fee. In FY ’21 (ending June 30th), Mercari’s Japanese marketplace reached $6.89B in GMV, growing 25%, with 19.5M MAUs, growing 12%. In the US in FY ‘21, their marketplace GMV was $1.09B, growing 68%, with 4.6M MAUs at year end, growing 9.5%.  In the US, women’s apparel makes up approximately 28% of GMV for $305M in FY’ 21 GMV, home is 6% of GMV for $65.4M, beauty is 5% of GMV for $54.5M, and kids apparel is 4% of GMV for $43.6M. Mercari’s US marketplace has seen a considerable slowdown recently with quarterly GMV shrinking 6.25% sequentially and then nearly 10% sequentially in 2Q21 and 3Q21.

eBay

eBay is the original online marketplace for buying and selling goods. Similar to Mercari, eBay offers a broad range of items outside of apparel and accessories including consumer electronics, computers, home & garden, books/music/movies, and more. A slight majority of eBay’s GMV is international. Around 10% of GMV falls into the Clothing and Accessories category, which translates to ~$8-9B GMV per year. With 159M active buyers, eBay has a scaled network that is orders of magnitude larger than its peers in terms of both users and the SKUs that they contribute – eBay lists ~300k items for brand “Free People”, compared to ~5k on ThredUp. Additionally, eBay offers a significant number of listings that are New with Tags (130k of the 300k previously mentioned), compared to peers which skew much more heavily towards used items. eBay’s user demographics are also much more balanced between men and women (~51% to 49%) and older populations (22% are aged 45-54, 20% are aged 55-64) compared to Depop, ThredUp, or Poshmark, which have a mainly female user base who are Millennials or Gen Z.

eBay charges a commission based upon the category of the item, as well as insertion fees after the first 250 listings per month. For the broad Clothing and Accessories category, eBay charges 12.55% on the total amount of the sale up to $7.5k, and then 2.35% above that. The subcategory Women’s Bag and Handbags has a higher commission of 15% up to $2,000, and 9% above that. eBay’s GMV for 2021 is forecast to be $85B, a slight decrease from $86B in the prior year. Although GMV is roughly flat, eBay has been expanding its take rate from the addition of more ads and a native payments offering, resulting in an increase of almost 2.5% from 3Q20 to 3Q21.

TheRealReal

TheRealReal (REAL) provides online consignment for authenticated luxury goods across categories including women’s apparel, men’s apparel, jewelry/watches, home/fine art, and kids. REAL differs from other resale marketplaces in that it specifically focuses on luxury goods, resulting in much higher average order values but also the need for in-person authentication that drives up variable operating costs. Consignors can schedule an at-home pickup of their goods, get free direct shipping to send their items in, or drop off items at a retail location. REAL will then examine, authenticate, photograph, price, and take care of logistics for the item. REAL has opaque fee structures, with a flat 20% fee and then variable commission above that, and offers the ability to consign, trade for site credit, or sell and receive payment upfront. REAL’s user demographics are predominantly female (80%) with a household income of above $50,000 (81%) according to the 2019 S-1. Additionally, 54% of consignors were over 45 years old. Top-selling brands include Cartier, Chanel, Gucci, LV, Prada, Rolex, and Valentino. Women’s goods accounts for 65% of GMV, with Jewelry accounting for a further 26%. REAL had 649,000 active buyers, and ~80% of GMV comes from repeat buyers. 44% of buyers (~280k) are also consignors. 

The company has low return rates of 3% and a very high take rate of 35% on consigned goods, compared to 11% for Depop, 12% for eBay, and 20% for Posh. AOV is $490, more than double that of POSH and over 4x that of Depop. The company has 2,600 employees, much higher than peers due to the need to inspect, evaluate, authenticate, photograph, price, and write copy for each individual SKU. REAL is on pace to do ~$1.5B of GMV in 2021. Shipping to the US costs $11.95 for standard and $25 for express. TheRealReal also has 5 flagship retail stores where pickup is free. 

Brands’ Own Resale Services

Brands have made efforts to develop their own resale services, often through partnering with services and technology providers such as Trove. Trove enables brands to create their own in-house resale marketplaces by helping them repair items, price them for resale, and fulfill orders. Clients of Trove include Patagonia, REI, Levi’s, and Lululemon which was announced in April 2021. Patagonia is an investor in Trove. ThredUp also offers resale-as-a-service, working with Walmart, Everlane, Farfetch (a luxury goods marketplace), Gap, Adidas, and Crocs. 

Nike launched their fully in-house resale program “Nike Refurbished” in April of 2021. As one of the top two selling brands across sneaker resale platforms, Nike will focus on sneakers for its pre-owned program but aims to expand across categories in the future. Nike is often a first mover with respect to innovating in the fashion space but is also one of the few scaled brands that can afford to create a program like this entirely in-house. 

Brands may choose to provide their own resale services to bolster their association with sustainable consumption, as well as to gain control over resale inventory and profits. Trove Founder Andy Ruben stated that brands make 30% margins on average for in-house resale (at 60% of MSRP), versus none when conducted through a third-party marketplace. They also often provide store credit as a means of payout, entrenching customer dollars in the brand ecosystem. Business of Fashion notes that resale can also be an effective channel for reaching new buyers who are sustainably minded or simply priced out of the brand, with 70% of buyers on Trove’s platform purchasing from the brand for the first time in 2021. 

Valuation - DCF

Key assumptions for bull/bear/base cases:

• Take rates have been stable in the range of 18.2-18.5% for the prior four years.  We model 18.2% take rates for all cases. 

• Gross margins have been stable in the range of 82-84% for the period 2018-2021.  We model gross margins at 84% for all cases.

• R&D expenses have been stable in the range of 10.0-10.7% of revenue for the period 2018-2021. We model R&D at 10.5% of revenue through Stage 1 (10 year) for all cases. 

• S&M is historically the largest and least predictable expense line for Poshmark. S&M as a percentage of revenue was 59%, 64%, 35% and 44% (est) for years 2018-2021, respectively. 

Source: Internal estimates (2021)

We believe the S&M headcount is limited to perhaps 50 people such that the vast majority of the S&M budget consists of advertising, promotional credits and referral incentives for new user acquisition. Historically, the S&M costs have been significantly impacted by increasing competition for new users by Mercari, Depop, eBay and Amazon. Also, there has been an increasing reliance on remarketing of individual products via Google Shopping and Facebook ads, drawing traffic far beyond the Poshmark app. In 2019, 53% of active buyers were Millenials (ages 25-40) and 27% were Gen-Z (ages 11-24).

We believe this competition will persist and that Poshmark will increasingly “buy GMV” with Google Shopping ads, remarketing and promotional credits – a strategy similar to any other e-commerce website. Thus, we model S&M expenses as a function of GMV. In 2021, there is about ~$13 GMV/S&M dollar and we model $1.00 in additional efficiency per year through Stage 1 primarily due to increases in direct (free) traffic to Poshmark website and apps, the cessation of launching new markets outside the U.S., and slowing investment in user acquisition in its core demographics. By 2031, we model ~$23 GMV / S&M dollar or 24% of revenue vs. roughly 42% today.  

• Tax rate of 25%

• PP&E Capex / Sales of 1.0%

• Stage II NOPAT Growth of 6%

• WACC of 10%

• No acquisitions.

Base Case (70% probability) - 

FYE 2021 DCF $37ps

Key assumptions:

• Poshmark’s U.S. current active buyers of 7.2m increases to 14.1m (7% CAGR) for the period 2021-2031.

• GMV per average active buyer increases at 4% CAGR for the period 2021-2030 due to cohort aging into more expensive clothing and category expansion. GMV per average active buyer was $243 in 2019 and ~$257 in 2021e.

• Modest success in expansion markets of Canada, Australia, U.K. and India, which are forecast to comprise 20% of total GMV in 2031 vs. 4% today.

• Sustained network effects drive operating leverage in sales and marketing from 40% of revenue to 31% of revenue in 2026. POSH current trades at 3X EV/EBITDA using our 2026 EBITDA forecast of $174m.

We forecast GMV growth by multiplying the number of active buyers by the GMV per average active buyer. Active buyers numbered ~7.6m as of the end of 2021 and GMV per average active buyer is $257/year (+6% y/y). 

Source: Poshmark SEC filing, Internal estimates (2021)

• Assuming that Poshmark addresses its near-term headwinds from IDFA, we model a U.S. active buyer CAGR of 7% in the U.S. through stage 1 with Poshmark increasing its U.S. active buyers from ~7.2m in 2021 to ~14m in 2031.  In 2021, Poshmark counted 6.7% of Millenials and 4.0% of Gen-Z as customers and we forecast that to increase to 10.9% and 6.6% in 2031.

• We model GMV per average active buyer increasing at a 4% CAGR through Stage 1 due to increased wallet share penetration as the resale clothing market becomes more liquid (e.g. more selection) and socially accepted. Other impacts include the increased mix of luxury goods and the increased buying power of Millenial and Gen-Z cohorts (80% of Poshmark active buyers) as they age and increase their disposable income. GMV / active buyer is $257 in 2021 and we forecast $380 in 2031. According to the BLS, women spent about $2,000/yr on apparel in 2020.

• Canada represents about 4% of total GMV today and we forecast that it will increase to 8% of GMV by 2031. Australia, U.K. and India are also forecast to comprise 4%, 4%, and 3% of GMV, respectively. In total, 80% of GMV in 2031 is forecast to be from the core U.S. market where Poshmark benefits from an early mover advantage and has an established brand and community.

Source: Poshmark SEC filing, Internal estimates (2021)

Bull Case (15% probability) -

FYE 2021 DCF $54ps

Key assumptions:

• We model a U.S. active buyer CAGR of 9% in the U.S. through stage 1 with Poshmark increasing its U.S. active buyers from ~7.2m in 2021 to ~17m in 2031.  In 2021, Poshmark counted 6.7% of Millenials and 4.0% of Gen-Z as customers and we forecast that to increase to 13.2% and 8.0% in 2031. 

• We model GMV per average active buyer increasing at a 8% CAGR through Stage 1. GMV / active buyer is $257 in 2021 and we forecast $554 in 2031. According to the BLS, women spent about $2,000/yr on apparel in 2020. 

• The bull case is likely dependent on Poshmark executing on several opportunities to improve its marketplace to include, 1) cross border shipping; 2) better internal search functionality; 3) in-app retargeting features; 4) faster domestic U.S. shipping options. 

Source: Poshmark SEC filing, Internal estimates (2021)

Bear Case (15% probability) -

FYE 2021 DCF $24ps

Key assumptions:

• We model a U.S. active buyer CAGR of 3% in the U.S. through stage 1 with Poshmark increasing its U.S. active buyers from ~7.2m in 2021 to ~9.6m in 2031.  In 2021, Poshmark counted 6.7% of Millenials and 4.0% of Gen-Z as customers and we forecast that to increase to 7.5% and 4.5% in 2031. 

• We model GMV per average active buyer increasing at a 0% CAGR through Stage 1. GMV / active buyer is $257 in 2021 and we forecast $257 in 2031. According to the BLS, women spend about $2,000/yr on apparel in 2020. 

• The bear case is dependent on increasing competition from Depop, Mercari, eBay, The RealReal, ThredUp and others. 

Source: Poshmark SEC filing, Internal estimates (2021)

Risks

• User acquisition costs for Poshmark were escalating throughout the 2018-2021 period even prior to the IDFA changes that have rendered legacy attribution models less useful. It is possible that Poshmark will not be able to address its IDFA challenges and/or that well-funded competitors like Mercari, Depop (now accessing Etsy’s balance sheet), Amazon and eBay will continue to outbid Poshmark for users. 

• The new lower 1099-K reporting threshold of $600/yr starting in 2022 is likely a headwind for some of Poshmark’s sellers who are unwilling to pay taxes on their earnings and therefore will choose not to list. This change in tax law impacts most all marketplaces and may reduce the TAM expansion opportunity.

• Poshmark’s impressive cash holdings of $589m, at roughly half of its marketplace capitalization, could be misallocated by over-spending in new markets like U.K. and India that already have resale marketplace incumbents like Depop. The high VC and insider ownership are likely to prevent this from happening. 

• Poshmark’s execution risk appears to reside largely with Manish (CEO) who makes most of the final decisions.

• Poshmarks’ technology appears to be antiquated. The UI feels dated relative to newer entrants like Depop and Mercari. Poshmark’s internal search tools and personalization processes appear to be below average. There is a mentality around ‘not built here’ that relies on internal tool development by the team in India which leads to prolonged delays for new features.  

• In order to remain competitive for listings against other marketplaces, Poshmark might need to reduce its take rate below 20%.

Catalyst

IDFA headwinds are remedied.