Poshmark ($POSH) Summary

Poshmark is the latest social e-commerce to IPO, which was back in January 15th, 2021. Since that initial offering, the stock has dropped ~48% to low $40. There was immense attractive on the IPO which was unsustainable. The company wanted to sell shares between $35 - $39 but listed at $42 per share. It opened at $97.50 and closed at $101.50 on the first day. Given that we are hovering around IPO levels, the stock might have found support and become a great long-term investment.

Growth Thesis

In March 2021, POSH reported strong earnings, which saw them beating both revenue and earnings figures. Reported revenues were $69.3MM (+27% YOY) and Gross Merchandise Volume was $387.2MM (28% YOY), while Income from Operations settled at $1.6MM.

During these unprecendented times, we are proud to provide an easy and accessible way for anyone to sell and everyone to thrive on our social marketplace. We will continue to make investments in products, technology, and marketing to grow our business, support our community, and stregthen our scoail marketplace over the long term" - Manish Chandra, Founder & CEO

The company has a large platform of 32MM actuve users with more than 6MM active buyers and 4MM active sellers. There are +200MM products listed on its marketplace. POSH's goal is not to list items, but to offer a seamless listing and further process as well. A social e-commerce website that engages users.

When POSH was trading at all time highs back after the IPO, it was ~30 EV to Sales, which has dropped significantly. The fact that shares are down ~48%, the company is now trailing at a moderate 11x sales. When adjusting for growth, we come to 7x forward sales, which is a little more reasonable. The adjusted 7x forward sales is cheaper than competitors: Shopify, ETSY, and Wix. POSH also has the highest gross margin at 83% when compared to eBay (76%), Wix (68%), Shopify (51%) and even Amazon (40%). To further press the point of profitability and growth, the company is trading at 36x FCF, which is comparable to Apple, Google and Microsoft.

Squeeze Machine

POSH's short interest has continued to grow since it's IPO. According to Fintel, Short Volume Ratio is 18%. This is quite a bit of short interest, nowhere near GameStop, but notably to Tesla back in 2020 (20%). Tesla shares were up over 700% in 2020 because of short interest covering positions. While it's unclear if Poshmark short interest will continue to grow, the long term outlook seems to benefit from share appreciation. Even if demand remains lower than expected, management could approve a share buyback to increase the price and take away any high short interest.

Bear Thesis

The primary bear analysis comes down to high seller fees and very concentrated competition that would affect long term margin growth. As mentioned above, there is Shopify, ETSY, Wix, Amazon, Facebook Marketplace, and eBay. For a quick comparison, eBay has 185MM active buyers and 19MM active sellers, while Facebook Marketplace has more than 800MM active users. POSH is continuting to grow it's userbase but it is much less at 32MM active users. There are also newer competitors who are putting on addition pressures; Mercari, ThredUp and StockX. COVID has accelerated e-commerce shopping and fulfillment to another level.

The main risk is that high competition rates will drive down long term margin growth. While POSH mark has the highest margin at 83%, these are maintained by charging seller fees at a much higher rate than others. POSH takes a flat fee of $2.95 for anything under $15 and charges 20% of sales for anything over $15. It's much too expensive considering eBay only charges 10% of sales and Facebook is even lower at 5%. While POSH mark offers an experience and high end materials, they might run out of runway once brick and mortar becomes more popular with the economy reopening and people looking to buy cheaper.

Conclusion

Poshmark presents an attractive investment opportunity after falling almost 50% from it's all time highs to previous IPO levels. At low $40s, it becomes a good buy in with the chance to buy in lower than most. Despite the heavy competition from well established and newer incumbents, the platform is continuing to grow, and adding monthly active users. It is reflected super well in the sales growth and revenue data. Furthermore, COVID has caused capitalization on second-hand markets and digitalization. POSH is well positioned in this space to continue it's growth story. Finally, and while not too important in the long-term, there is a potential setup for a possible short squeeze which would qujickly lead to share appreciation.

I would look to buy in below $42 and continue to add if it falls below. There might be a gap down to $35 if it breaks below $40s but that presents an even better outlook. I think we can get back to $60-65 levels by EOD and become an easy $100+ stock by EOY2022.