Disclaimer: Only my opinions, not a financial advisor, not a recommendation to buy, all information is accurate to the best of my limited knowledge.
**Overview of business:**
At its core, Poshmark is a platform that connects sellers of clothing with buyers. The founder, Manish Chandra often touts the “social commerce” element and continues to talk about social commerce as this is where he believes the moat of the business is. I wish he would stop, Poshmark isn’t about social commerce, the true moat is empowerment.
**My experience with Poshmark:**
During the Pandemic, I grew interested in vintage clothing and began buying stuff on resale platforms and reselling it to an audience I’ve built on Instagram. I sell on instagram because most of the things I sell are $200+ and I find my margins to be around 40% so if I were to make $100 gross profit on a $200 sale and net $80 after shipping and other expenses, selling on a platform like Poshmark wouldn’t makes sense as the fee to do so would be 20% of sale price: $40 on a $200 sale, AKA half my net profit. My resale activity is extremely niche and not a scaleable business. What I have found in doing it is that I need to source my inventory and I have bought items on Poshmark, Depop, Mercari, Ebay, Etsy, Grailed, and Facebook Marketplace. Ebay takes the cake, I find the most stuff on there and whenever I have tried to sell I move stuff quickest on Ebay. Poshmark is a close second. Over the winter I found the supply of stuff I could buy cheap on Poshmark and flip on Instagram outstanding. For the longest time, I couldn’t understand why all these people would sell things on Poshmark as the percentage of each sale they take is the highest compared to their online marketplace competitors. Poshmark takes 20% of every sale above $15 and a flat $2.95 for sales below $15. Ebay takes around 10-15% (they have recently cut PayPal out of the payment processing and are now charging more and I know a lot of sellers are not happy). Etsy also has a long and complicated breakdown of what they charge, but its less than 20%, Grailed & Depop take 10%, and Facebook marketplace takes 5%.
So why would anyone in their right mind sell something on Poshmark and pay a 20% fee when they could sell it on Facebook Marketplace and pay a 5% fee?
Isn’t this whole industry about to compete in a race to the bottom where one platform with resources (like Facebook) can undercut the others and then another platform does the same until there is no profit left in the industry?
When I heard Poshmark was going to IPO I was thinking about buying puts or avoiding the stock altogether as my answer to these questions was people will move from where the fees are highest to where they are lowest. Because of this straightforward incentive, platforms will undercut each other until there is no profit and eventually there will be consolidation. When conducting some light DD on this thesis I spoke to a number of Poshmark sellers and did some digging, I changed my mind and went long shares at $75, then again at $68, then again at $62, then again at $57, then again at $56, then again at $47. Now, I am holding a massive bag of shit. When the stock crashed after Q1 earnings I was feeling very discouraged and although I was not considering selling, the 40% loss on my position stung. But, after seeing the stock crater another 8% yesterday on news they are planning to expand into India, I felt that maybe I should take a look at call prices. Before we get into options plays, I want to try and articulate what caused me to feel bullish about the stock.
**Poshmark’s Competitive Advantage**
Poshmark’s CEO, Manish Chandra, touts social commerce and “posh parties” similar to Tupperware parties as one of their key differentiators. I get a notification on my phone everyday that one of these parties is going on but I haven’t been able to figure out what its about.
I see Poshmark’s competitive advantages differently. Three come to mind.
The first is how easy it is to list an item on Poshmark. Take a photo, check a few boxes, name a price, and post. Compared to Ebay which is incredibly labor intensive and involves so many categories and sub-categories, Poshmark streamlines the process through having an efficient and easy to use UI.
The second competitive advantage is how easy it is for Poshmark sellers to ship items. Buyers pay for shipping and it is a flat rate of $7.45. When an item is sold on poshmark the buyer has to pay instantly (ebay does not have this feature and as a result sellers say 10%+ of items sold have buyers that do not pay and they have to go through the process of canceling and re-listing). When the item is sold Poshmark E-mails a shipping label to you, all you have to do is print it out and tape it on ANY box or packaging and either drop it at USPS or have them pick it up. It is incredibly easy.
Both of these attributes remove the barriers to entry that new sellers face. When you get started you want it to be easy and straightforward. Incredibly, Ebay and other platforms have fee structures that are difficult to understand, platforms that are difficult to use, and most require a PayPal to be set up as well.
The third competitive advantage is by far the most important and hardest to create and sustain. Poshmark has a fiercely loyal and passionate user base of sellers who swear by the platform. Some become “[Poshmark ambassadors](https://support.poshmark.com/s/article/How-do-I-become-a-Posh-Ambassador?language=en_US)” and receive next to nothing for being ambassadors. They do it because they love the platform. I have tried in vain to convince sellers to go around the platform. Consider a $200 item, if they sell it on Poshmark, they will net $160. If I am willing to pay $175 through PayPal and try and convince them it’s a win win as I save $25 and they’ll make $15 more, I should stand ready to take the wrath of the Poshmark ambassador who will report me to Poshmark and decline my offer.
Let’s take a closer look at this third competitive advantage and see if it can help answer my question about why sellers would choose to sell on a platform that charges them a higher percentage of each sale. Why would they also loyally defend and promote this platform for few tangible benefits?
The answer is has to do more with psychology than with financial logic. The reason Poshmark was able to grow and compete is due to the first two competitive advantages I listed: it’s easy to list, it’s easy to ship, (and easy to get paid). Because it’s easy to use sellers tell other sellers and buyers become sellers. We live in a market economy and with the rise of social media, large internet companies, and superstar founder entrepreneurs, the lives of entrepreneurs and the value they bring to society has been glorified. I think most people want to participate in the market economy, they want to be an entrepreneur, be their own boss, or have a “side hustle”. Unfortunately, it’s not easy and the few that succeed stand on a pile of failed ventures and crushed dreams. Poshmark makes it easy. Poshmark enables people who have been excluded from the wealth generating aspects of the online internet economy into successful participants. Broadly, those who haven’t benefited from this new globalized economy have been: Women, racial minorities, geographic minorities (south, midwest). The demographics of Poshmark sellers and users closely align with those who have been excluded. The vast majority of Poshmark sellers are women, I was unable to find an exact number but in Poshmark’s [2020 social commerce report](https://www.report.poshmark.com/) a survey conducted by Zogby Analytics had a user response rate that was 97% female. In this same report, Poshmark states that “the south dominates” and that 35% of sellers live in the south and 37% of buyers live in the south. [Poshmark’s real product is empowerment.](https://www.youtube.com/watch?v=RRVNdxz_thk) Their platform empowers women and minorities (racial and geographic) by making it easy for them to feel successful and have a side hustle. Empowerment is an incredible feeling for those who haven’t felt it before and Poshmark makes it possible for millions to feel this way.
**Why Wall Street Misunderstands Poshmark**
In order to find an investment that can provide outsized returns, it’s important to have an information advantage over the consensus view. Wall Street does not understand this stock because broadly speaking Wall Street is an information laggard when it comes to valuing companies that provide products and services primarily to women. I’ve made similar investments in Lululemon and Revolve that have preformed extremely well as the consensus changed. As investors have seen this pattern play out over and over Wall Street investors have started to “ask their wife” or “pay attention to their daughter” in looking for innovative companies. The problem with Poshmark’s stock is that the types of people who work on Wall Street analyzing stocks and their wives don’t use poshmark, and neither do their daughters.
When I was looking into the management at Poshmark I noticed Serena Williams is a board member. I am an avid tennis fan and as such I have a favorite player: Roger Federer. Everyone loves Federer, he is a class act and attracts sponsorships from the likes of Rolex, Mercedes, Netjets, Rimowa, Swiss coffee machine makers, and has an ownership stake in On Running. These are brands Wall Streeters love! Serena Williams has a different public perception. On court she in an incredible competitor with a lot of passion which sometimes translates into dramatic meltdowns and aggressive behavior towards [umpires](https://www.youtube.com/watch?v=nx9iT1OQMl0) and [linesmen](https://www.youtube.com/watch?v=gNwc7o_0Sgg). She has sponsorships from Nike, Gatorade, PUMA, Wilson, Pepsi etc. The respective brand deals the players have represent their public image and who they will be most effective in marketing towards. Serena Williams’s image is used to target a demographic of consumers that is antithetical to the types of people Roger Federer’s image is used for. Think about who evaluates and writes research on stocks. Its Federer fans, it’s Rolex wearing, Swiss latte sipping 25-50 year olds who love the class and sophistication of Federer. Now think about the users of Poshmark, its young women, women of color, and women living in geographic areas that have taken a lot of the brunt of globalization. Serena Williams is the perfect match for Poshmark as she represents their user demographics much better than Federer ever could. But, Wall Street loves Federer and therefore has overlooked this stock.
**Financials and Valuation**
Etsy recently bought Depop for 1.6B when Depop had 70M in revenue in the previous year. This equates to a Price to Sales ratio of 22.85. Poshmark’s market cap at its current share price of $36.25 is 2.72 Billion. Last year they did 262M in revenue For a P/S ratio of 10.3. Remember, Depop is an inferior platform for sellers and barely has a useable website. Why did it sell for double to P/S ratio Poshmark is selling for now?
**Potential Catalysts / The Set Up**
Poshmark is expanding across the globe entering multiple new markets each year. Yesterday, 8/2, [Poshmark announced they will be expanding into India](https://investors.poshmark.com/news/news-details/2021/Poshmark-Inc.-Announces-India-Expansion-as-Part-of-a-Continued-Focus-on-New-Market-Opportunities/default.aspx) and the stock tanked 7.5%.
A few months ago Poshmark announced a [partnership with Snapchat](https://investors.poshmark.com/news/news-details/2021/Poshmark-Inc.-and-Snap-Inc.-Partner-to-Bring-Social-Shopping-to-Snapchat/default.aspx). I am very excited about this partnership as I am bullish on Facebook and Snapchat and see commerce as an important new opportunity for both of these platforms.
Poshmark is also expanding horizontally into different categories such as pets and home and because of their asset light model they can throw shit at the wall and see what sticks.
Set up wise, this is more of a reopening play than a covid play but it is being looked at and valued as if it should’ve benefited from the lockdowns. Because Poshmark is an E-commerce company, Wall Street has been harsh on them for not growing as fast as some of their “peers”. Except their “peers” aren’t true peers as sites like Etsy are more diversified in the products sold on their platform with a heavier weight on arts and crafts and other activities that thrive when people have more time at home. Clothing is not something people look to buy when stuck at home. As the economy continues to reopen and people start working and going out again sales will pick up. This very well may be reflected in Q2 earnings.
Short interest is 30% (4.75M/15M outstanding as of 7/15). I am not looking at this trade as a short squeeze but if shorts do decide to cover the stock could begin to run and run fast.
Shares are the safest play. There are limited options available on Poshmark with spreads I could drive a truck through. The furthest out are Feb 18, 2022. $65 is the highest strike available. Because of the spreads, uncertainty of when an upside move will occur, and lack of long dated options, I only own shares. Second Quarter earnings are coming up on 8/10 with guidance of $79.0 million – $81.0 million in Revenue and $1.5 million – $2.5 million in Adjusted EBITDA. I am fairly confidant they will beat the guidance they set for themselves but unsure if this will result in a massive move to the upside. I think it could take more time.
I have a fairly high conviction in this trade and am posting to get feedback and thoughts from others, that said Poshmark is only 10%+ of my portfolio and I want to crowdsource my ideas a bit more before I buy options or decide to sell other investments to buy more.
Poshmark empowers women. This is their competitive advantage. Wall Street doesn’t get this.O