Poshmark Inc (NASDAQ:POSH) is a fashion resale platform that continues putting up great numbers since its January 2021 initial public offering (IPO). But its market price tanked in its first year, as the company struggled to sustain investor interest. Initially priced at $42, the share price more than doubled to a high of $104.98 before plummeting nearly 80 percent over the next 12 months.
So, what happened to Poshmark stock?
Initially viewed as a lockdown play, the company leveraged its balance sheet to acquire companies like Suede One and gain partnerships through Brand Closets. It has expanded beyond a secondhand fashion market, but it’s a fiercely competitive industry with both big and small players trying to eat its lunch.
The Fashion Market Size
The global apparel industry is a $1.9 trillion market expected to grow to $2.25 trillion by 2025, and the U.S. is the largest single market, accounting for about $400 billion of that tally.
The industry weathered a 20-percent decline in revenues from 2019-2020, according to McKinsey’s 2022 State of Fashion Report.
It was a combination of two things:
- factories were shutdown worldwide, and
- people stuck working from home were less interested in wearing the latest fashions.
And each country’s luxury fashion segments grew differently, according to individual cultural differences. This meant fashion brands and clothing manufacturers had to remain nimble.
Meanwhile, the fashion resale market surged as people sold unused wardrobes to clear space in the house and earn extra cash. As government stimulus funds dry up, Poshmark is well placed to profit from the second hand fashion exchange trend.
How Poshmark Makes Money
The bulk of Poshmark’s revenue comes from commissions from sales on its platform. This includes for peer-to-peer secondhand sales, boutique, and wholesale, which means it serves a broad market that includes both consumers and brands.
By the end of 2021, the company generated over $320 million in revenue from this model, and its EBITDA is positive for the year, even if only barely.
The company still has over $500 million in cash on hand ($277.2 million of which was raised through the IPO).
Its partnership with Affirm (NASDAQ:AFRM) helps it to make higher priced items more affordable initially through financing.
As a social platform, established brands are encouraged to set up a “closet,” which acts like an online storefront. This is separate from boutiques, which can be run by established sellers. The setup is much like eBay (NASDAQ:EBAY), but with a more fashionable look.
Why Poshmark Stock Dropped
Although the company is continuing to grow revenues from its 80 million user base, it’s still operating at a loss. Poshmark had to spend heavily on marketing and R&D to offset losses stemming from the change in Apple’s (NASDAQ:AAPL) iOS data mining rules. The company depends heavily on social media marketing, and cross-app tracking changes caused problems.
It continued to miss analysts’ expectations throughout the year as it figured out ways to pivot its marketing spend, which cost well over $100 million heading into the holiday season.
This caused several prominent analysts to drop the stock from Buy to Neutral, as it continued failing to live up to expectations. Although performance suffered throughout 2021, there is still plenty of reason to believe Poshmark has the fundamentals to succeed over the coming decade.
Is Poshmark Stock a Buy?
The biggest differentiator between Poshmark and competing marketplaces like eBay or Amazon.com (NASDAQ:AMZN) is the ability to buy authentic goods.
Many clothing brands, like LVMH, Birkenstock, Rolex, Vans, Patagonia, and The North Face, refuse to sell on Amazon for a variety of reasons. A common complaint is the prevalence of knockoffs on the platform.
Poshmark is a reputable platform, but it still has its share of scams. The social aspects help to curb some of this abuse, and it’s working hard to authenticate legitimate goods, as seen by its Suede One buy. Suede One’s technology analyzes product images to authenticate real versus counterfeit sneakers like Yeezys or Jordans.
Once this technology is fully developed, this virtual authentication will complement Posh Protect and Posh Authenticate, which already aim to keep customers from being bamboozled by knockoffs. This trust factor should ensure the platform builds confidence among consumers while economic factors boost the fashion resale market through an economic recession.
Poshmark Vs Thredup
Although it has a solid user base, Poshmark isn’t alone in its market. Thredup (NASDAQ:TDUP) also went public in 2021, and it is one of a few apps looking to take a bite out of Poshmark’s market share. And it’s not just ecommerce competitors encroaching on its market share – the pandemic also forced brick-and-mortar retailers to get more virtual.
Poshmark has a lot of work on its plate juggling the needs of its buyers, sellers, and brands. This could limit its sales, which already disappointed investors over the past 12 months.
However, management’s decision to implement external payment options that bypass Apple’s high-commission default in the Epic vs Apple lawsuit could eventually extend to apps and help Poshmark boost its profit margins in the near future.
What Happened to Poshmark Stock: The Bottom Line
Poshmark stock pummeled investors with almost nonstop losses throughout its first year on the market. The company continued to miss analysts’ expectations and changes in mobile data tracking policies upended its tried-and-true marketing routes. Because of this, the stock is trading at a fraction of its IPO price.
This could be a value for investors looking to profit from future long-term prosperity, because the company is far from bankrupt. In fact, it has over $500 million in it coffers and a roadmap to continue expanding its marketplace across three revenue segments. It may have been a bit pricey at the IPO, but now could be a great time to buy in a Poshmark stock.
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