Poshmark: Room For Higher Revenue Growth (NASDAQ:POSH)

Poshmark, Inc (NASDAQ:POSH) is an e-commerce marketplace that emphasizes social interactions between buyers and sellers. It has had robust revenue growth of 30.15% per year over the past 4 years. However, the company’s revenue growth had slowed down over the past 4 years from a growth rate of 38.23% (2019) to 24.62% (2021). Moreover, its analyst revenue growth consensus in 2022 is just 11%. This is despite double-digit growth for its active buyers, GMV and take rate. GMV per buyer also has increased by 8.5% in 2021 up from 7.6% in 2020. Thus, we analyzed the company to determine the cause of the company’s revenue growth inefficiency.

Buyer Growth

Poshmark Active Buyers (‘mln’)	2019	2020	2021
Active buyers	5.37	6.46	7.58
Growth %		20.17%	17.37%

Source: Poshmark, Khaveen Investments

Based on the table above, Poshmark’s active buyer growth had been slowing down since 2020. We believe that this is due to the company spending less on marketing, and the company’s management also mentioned that the lower marketing expenses were due to the pandemic in its earnings briefing.

Poshmark Revenue and SG&A ($ mln)	2018	2019	2020	2021
Revenue	148.3	205	261.6	326
Growth %		38.23%	27.61%	24.62%
SG&A	124.2	192.6	160	256.4
Growth		55.07%	-16.93%	60.25%
% of Revenue	83.75%	93.95%	61.16%	78.65%

Source: Poshmark, Seeking Alpha, Khaveen Investment

This is reflected in the lower SG&A as a percentage of revenue of 78.65% in 2021 as compared to the pre-pandemic (93.95% in 2019). Subsequently, an increase in SG&A led to an increase in active buyers, hence higher revenue growth.

SG&A Comparison	SG&A as % of revenue
ThredUp (TDUP)	96%
RealReal (REAL)	102%
Mercari (OTCPK:MCARY)	69%
Poshmark	79%

Source: Company Data, Khaveen Investment

After analyzing its competitors’ SG&A as a % of revenue, we arrived at an average of 89%. Hence, as Poshmark with a 79% SG&A as a % of revenue is lower compared to the industry average, we believe this indicates that Poshmark still has room to increase its SG&A while remaining competitive. As mentioned by the company, its growth depends on attracting new users and converting users into Active Buyers.

Hence, we believe that in the future, Poshmark would increase its marketing expenses post-lockdowns to capture new buyers and grow its number of active buyers. With this, we expect the company’s buyer growth to accelerate.

GMV

Poshmark Transaction Volumes	2019	2020	2021
GMV per Buyer ($)	205.99	221.74	240.63
Growth %		7.6%	8.5%
Gross Merchandise Volume (GMV) ($ bln)	1.107	1.432	1.824
Growth %	37.2%	29.4%	27.4%
Average Order Value ($)	33	35	40

Source: Poshmark, Khaveen Investment

As seen in the table above, the company’s increasing GMV per buyer growth indicates higher spending per buyer. Notwithstanding, its gross merchandise volume (GMV) growth still slowed down. As explained by the company’s management in its earnings briefing, the GMV per buyer growth accelerated slightly, but GMV growth still decelerated due to lower buyer growth.

As explained by the company, the increased Average Order Value (AOV) to $40 in 2021 was due to the “higher contribution from premium price products” and Poshmark would continue its current focus by expanding its authentication services. As Posh Authenticate is only offered to products priced $500 or higher, with an improved authentication service, we believe that this could increase the trust of buyers when purchasing a premium product from Poshmark, hence attracting more premium product buyers.

Ratings	Service	Value	Shipping	Returns	Quality	Ratings
Poshmark	1.5	1.5	2.0	1.0	1.5	1.59
RealReal	2.5	2.5	2.5	2.0	3.0	3.68
Mercari	1.0	1.5	1.5	1.0	1.5	1.37
ThredUp	3.0	3.0	3.0	2.5	3.5	3.2

Source: Site Jabber

However, despite the company’s claim to focus on premium products, we compared Poshmark and its competitors’ ratings obtained from Site Jabber. Based on the table, Poshmark’s ratings (1.59) are lower than RealReal and ThredUp, but higher than Mercari. Additionally, its value and quality rating from Site Jabber is the lowest among competitors (1.5). Moreover, based on the company website, Poshmark offers up to 70% savings off retail prices. Thus, we believe its AOV growth could be limited, despite its claim of focusing on premium products, as this highlights its cost leadership strategy instead.

Seller Fees

Poshmark Take Rate	2018	2019	2020	2021
Take Rate	18.4%	18.5%	18.3%	17.9%
Growth %		0.77%	-1.35%	-2.16%

Source: Poshmark, Khaveen Investments

Furthermore, another reason that the company’s revenue growth is decelerating is due to the decreasing take rate of Poshmark, which declined by 2.16% in 2021. Poshmark’s fee structure is fixed as compared to its competitors where its fee is 20% of the final price for sales $15 and over, or a flat rate of $2.95 for sales under $15 while ThredUp and RealReal have a tiered fee structure.

Company	Take rate
ThredUp	68%*
RealReal	32%
Mercari	16%
Poshmark	17.9%

*2020 Figure

Source: Company Data, Khaveen Investments

We compared Poshmark’s take rate, which is lower (17.9%) than the industry average (33%). We believe that due to the lower take rate, Poshmark still has room for increasing its fee to accelerate its revenue growth. However, we believe it could lower its attractiveness among sellers if it increases its take rate. According to TechCrunch, a lower take rate may help in seller retention thus a higher take rate could see sellers opting for competitors instead, which we believe may reduce the product depth and translate to higher product prices for buyers.

Risk: Loss Of Competitiveness

We believe that Poshmark may lose its competitiveness and cause its ratings in terms of value to decrease if Poshmark focuses on premium-priced products. Besides, we believe Poshmark’s fee structure is favourable for lower-priced goods. If Poshmark increases its take rate, it may lose its seller to competitors with lower take rates, such as Mercari.

Verdict

To conclude, we analyzed the factors for its declining revenue growth, which include a decelerating active buyer growth and declining take rate despite its increasing GMV per buyer. However, when compared to competitors, we believe that the company’s revenue growth could be driven by its below-average SG&A spending (79%) which indicates it has room to increase while remaining competitive as its take rate (17.9%) which is also below the average of 33%. Based on analyst consensus, it has a price target of $14.16 which represents a 24% upside from the current price.