Chit Chat Stocks - Poshmark (POSH) | Deep Dive

Episode Date: April 22, 2021

Poshmark operates a social marketplace for new and secondhand style products. At the end of 2020, Poshmark had 6.5 million active buyers on its platform. Pay close attention as Ian, Brett, and Ryan dive into the company's history and what growth opportunities may lie ahead. Enjoy the show! Subscribe to 7 Investing with the code "CCM": https://7investing.com/subscribe/ Follow Ian and check out his work on Twitter: https://twitter.com/IanGrayLive Follow us on Twitter: https://twitter.com/chitchatmoney Subscribe to our Youtube Channel: https://www.youtube.com/channel/UCG5Ni-SI-jyrEsoNUhqftNQ Email us: [e-mail] Timestamps Company Background | (2:11) Industry | (8:47) Management & Ownership | (11:21) Valuation | (13:28) Earnings | (15:31) Balance Sheet | (16:37) Our Analysis | (18:18) Disclosure: Chit Chat Money hosts and guests are not financial advisors, and nothing they say on this show is formal advice or a recommendation. Brett Schafer and Ryan Henderson are general partners and portfolio managers at Arch Capital. Arch Capital and its partners may hold securities discussed on this show. Learn more about your ad choices. Visit megaphone.fm/adchoices Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Chit Chat Money. On this show, host Ryan Henderson and Brett Schaefer interview industry experts and riff on the world of investing. As a quick reminder, Chit Chat Money is a CCM Media Group podcast. Ryan and Brett are also general partners at Arch Capital, and Arch Capital may have positions in the securities discussed in this podcast. Anything discussed on Chit Chat Money by Ryan or Brett or any other podcast guests is not formal advice or recommendation. Now, please enjoy this episode. Welcome in. This is the Thursday Deep Dive episode. We have Ian Gray on the show, and we're talking Poshmark. I want to confirm, we got told, I think some people may have been

laughing at us. We called it Poshmark. And if you're laughing at us again for thinking it would be called that, because isn't that a term? Posh, right? Isn't that a fashion term? It shows how I have no idea, but it shows how cool we are. Either way, Ian, how are we doing today? Doing well, you know, trying to live a more posh life. So, you know, always striving for the top. There we go. So, we're going to be talking, that was a great dad joke there. We're going to be talking posh, Mark, today. But first, Ryan, why don't you talk about our friends at 7investing? Yeah. So, we're getting close to the new Rex, if I'm not mistaken. And if you were paying any attention to the markets today. There's been some big sell-offs. So, I've got a feeling this next

batch of recommendations might be some enticing ones. And you can use our code CCM for $10 off. So, it's only $7 for your first month and you can access all their old recs as well. I don't know. There's no reason not to do it. I mean, it's a great addition to your research process. I love seeing it each month. You know, I usually write down three or four where I'm like, all right, I'm going to do a deeper dive on this and research them it's fantastic and it's at a reasonable price so do you want else to say a starbucks coffee or do you want life-changing returns well thank you susan yeah but uh yeah use code ccm uh i think we can get to the show now yeah go ahead and introduce poshmark

yep poshmark is a consumer to consumer fashion focused social marketplace so it's primarily used for reselling clothing um and so people sign up and you give them a bit of data so stuff like clothing size brands you like area code um just because you can get some closer stuff closer to you and then based on that info they recommend uh basically clothes that you might like i mean it's almost like ebay with a better recommendation algorithm and it seems like they focus on the the recommendation algorithm for each individual user right they do and it's like it's the social part is that it's other people selling this stuff to you so i today i went on signed up made an account to kind of check it out and i could look up lululemon shirts and there's people reselling

them for cheaper than you get them at the lululemon store for um so it's like if you like it why not buy it through there if you're comfortable buying resale or resold clothing um but it's two-sided obviously. So buyers can also be sellers. You can go on there with more of a focus for selling, but you can do both. That's where I say it's a little bit like eBay. And then Poshmark takes a 20% fee on the final price if the item is over $15. And if it's less than $15, it's a flat fee of $2.95. And so when you think about it in comparison to some of its possible competitors, the benefits are that it really provides more when we call when we say social commerce it's more focused on the commerce less on the social um now it's trying to make some sort of inroads

towards that social component but it's really just an end-to-end solution for reselling your clothing yeah and they try to make that pitch that social aspect is going to make them differentiated you know make them better than their competitors but we'll kind of see and maybe we'll talk about that Ian do you have anything yeah I'll just add one thing um and you sort of mentioned it Ryan but they have this functionality because I signed up for an account as well to kind of see how it worked and this what they call the feed right where you see the people that you're following or things that you might be interested in and that did feel at least to me like a social media feed that you're really scrolling through and seeing some of those types of things so um you know to their credit

there's there's it's a little different but um definitely definitely probably more focused on the commerce yes it seems like the features a lot of them have been copied you know from instagram and pinterest is that fair to say the social features yeah i'd say they would um i i think the what like facebook marketplace and pinterest maybe lack is like all the uh logistics side for the sellers right um it's less that that stuff's more focused on social and less on giving the like all the fulfillment or all the backend stuff of the actual commerce. You have something there? Yeah. And I'd just say,

I think there's also more functionality in terms of like searching for consumers, like on Facebook marketplace, you can kind of search for like Nike clothing, but it won't necessarily be curated in a very intuitive manner. Whereas like the search functionality on Poshmark seemed to be much, you know, you could click on the category, right? I want to see Nike shirts or I want to see Under Armour shoes or whatever it So it kind of it seems to have a little better, a little better display, a little better user interface for for users who are trying to, you know, search for a specific type of clothing.

And in the use case, I was just going to say a little bit less like Craigslist, right? A little more like Poshmark versus Craigslist. Yeah, the use cases are all different, too. So, I mean, some people maybe treat it more like a social feed where you're following Serena Williams' closet or whatever. I know that she's like a partner. Yeah, she's on the board. So, some people maybe use it like that. Like, oh, I want to get that type of clothing.

Or some people might use it where I'm looking for Nike shirts that are being resold and they care less about the social feature. So, it really just depends on each user. But I'll get into the history. They were founded in 2011 by a group of people. Bear with me. I suck with names. Everyone knows that. Chetan, Pungalya, Guatam, Golwala, Manish, Chandra, and Tracy Sun. How'd I do?

The C plus. I don't know. South Asia is kind of, you know, it's a tough test for you. All right. Well, the first three initially worked at Caboodle. And Caboodle was a company that Manish Chandra created prior to founding Poshmark. And then Tracy Sun was actually a fashion industry executive, but they all sort of came together to build Poshmark. And Posh, I guess, Posh is sort of a fashion term and Mark stands for marketplace. I think I'm not an expert on that. So do not take my word for that. But I've heard the term before. Anyway, Chandra sold Caboodle for $30 million prior to founding Poshmark. And so raising funds was pretty easy for them. They used a lot of the same venture capitalists when they

started Poshmark. They started just mobile only, but they slowly evolved into other areas. So I think it was just iOS, and then they pivoted to Android also, and now they're obviously on desktop. And at one point, they actually had sort of a debacle with the US Postal Service that almost led to Chandra going to jail, apparently. That might be an over-exaggeration, but it eventually turned into a partnership that Poshmark now calls PoshPost. Poshmark is where the buyers pay a flat fee to ship any item with the U.S. Postal Service up to five pounds, which is 99% of the sales. And sellers get a prepaid, pre-populated shipping label when an item is sold. And so they kind of have this good partnership going with the Postal

Service. And then I guess other notable items, they had a data leak in 2019, but it ended up being pretty inconsequential it sounds like nothing was really no passwords were hacked no financial information or addresses um and then they ended up going public in january of 2021 so they've almost one quarter now yeah three months three months they did their full year results you don't we don't have q1 results yet they're kind of they're one of those elite but they have filed a 10k they have filed a 10k so we got to see that and the s1 as well yeah i'll hit the industry and landscape competition here, pretty simple social commerce, which is defined as the, you know, it's easy. It's in the name. It's e-commerce and social combined into one. We

talked about that with Pinterest last week. That industry is supposed to grow to a $600 billion industry within seven years. As the one that's tasked with researching these industry things each time, I've come to realize that these numbers a lot of the time are wild guesses. So don't get bogged down on that $600 billion number. Just know that it is one, a massive industry, and it's going to be a massive industry and it is growing like gangbusters. So giant tailwind behind them, but they have a large list of competitors on their 10K they list. But there's other ones as well. Amazon, eBay, Etsy, Facebook, Mercari. Mercari is a very close competitor. And then there's also Shopify, TJ Maxx, and Walmart. TJ Maxx and Walmart,

Nah, probably not. But since this is kind of similar to Pinterest, I'll ask again, who do you guys think Poshmark's true competitors are? Ian, we'll start with you. I think, I don't know. It's a tough one. I think eBay is probably a close one. And I also think that actually this is one of those businesses where a big competitor is the existing kind of more brick and mortar type stores and places. There's like some of this, it's not, this isn't focused on thrifting it doesn't seem like to me it's more focused on like some of these brands like nike or lululemon but um i know that people do like with clothing sometimes to go out and uh kind of touch and feel it and find a good deal at you know a local place or something like that

so i i don't know this is a tough one to find a true competitor for okay ryan what do you thought what do you think as far as like resale for clothing i think yes there are alternatives to what Poshmark offers, but I think Etsy, eBay, and then ThredUp is another one. They're a platform that's very similar. It actually went public recently, but I think it's like a quarter of the size or maybe less. Do you think Pinterest will be one soon?

They could possibly overlap in the future. They may even overlap a little bit now, but I just don't think they're – it feels very different. Okay, so different value proposition. yeah, from the customer's point of view, like if I'm going onto Pinterest, I'm kind of going there for inspiration. If I'm going to Poshmark, I'm going there because I want to buy clothing. Okay. So you see people having both. All right. That makes sense. Ian, any thoughts on that? And then not just kick off management and ownership. Yeah, I'll go ahead and dive into management.

So as Ryan mentioned, Manish Chandra is the CEO, who's also a founder. I watched a couple of interviews he did, and I liked the way he engages interviews. He seems to be long-term focused focused and really trying to create value. He said when he started the company, he wasn't really a fashionable guy. He wasn't focused on that piece of it. He was more focused on the community aspect and the social aspect was really what intrigued him. And so he said that's been a big part of developing this company is trying to find that right balance between community and commerce and not completely excluding one or the other and having to find that right optimal point where um they really benefit each other he owns about seven percent of the company so a fairly

healthy stake uh there's also some venture capital ownership a lot of the major owners right now are venture capital um firms who backed them in the uh you know series a bc whatever um so there's probably going to be some sales once we hit the lockup period i was finding a little bit of conflicting information about when that would be one said like 93 days another one said which would be around now and another said uh july so sometime in the next few months um there's probably going to be some sales from especially those venture capital um firms and that's not a reason not to buy but you should be aware that there's probably going to be some price volatility especially it's you know it's a small company it's a um recent ipo but they've also got a lock

up period expiring sometime soon so it just there's likely to be some price volatility yeah and those usually are six months but they can be different for for each company so probably this summer yeah the i think the ipo was initially priced in like the 32 to 33 dollar yes a share range but it they it came out at 42 a share and then also those they re-upped it before it started trading in the 40s which is kind of where it's trading now and then it went up almost 150% on the first day of open trade. It reached $104 a share and it's down almost 70% since. Yep. And that kicks it off right into the valuation. Since it's down now, the market cap is about $3 billion. Tigger is P-O-S-H. Very easy one.

Less today. I think it's like 2.8. 2.8 now. Yeah. I was doing this research last night. So forgive me. Pretend like we recorded this two days before. Either way, there'll be two more days until this comes out. So you know, just look up your own information. I'm getting an enterprise value close to $2.5 billion. So they added a good amount of cash on their balance sheet before the IPO. And I'm adding on the $277 million that they raised. Ian might have some more on that on the balance sheet, but I'm thinking the enterprise value is a little bit lower than that market cap. So EV to sales would be at or under 10 on trailing basis, EV to gross profit of about 12.

we typically look at but enterprise value to operating income is still over 100 they're still quite close to that break-even number and then ev2 operating cash flow was about 30 due to the working capital dynamics with accounts payable to customers so they have a bit of a delay in the payments process which allows them to you know expense some of that cash flow um but yeah uh certain sorry this expense some of the things they are going to owe to customers but they don't pay pay it out for another period. If that makes sense. Right. And operating cashflow and free cashflow, uh, we're very similar at the business. Um, uh, if I were, if I'm looking at this, I would pay most attention to free cashflow and just make sure that those working capital

impairments aren't temporary. Yeah. And it's not, it's yeah. I don't know if impairments the right word, just the adjustments it has versus the income, uh, versus the cashflow generated. And then the last thing I'll say with a valuation is a lot of times with new IPOs, some of these aggregator sites can get share count or market cap off. So make sure you're getting it correct. And the share count is going to change a bit. You know, right after the IPO, there can be some big adjustments there that you should be watching out for. But Ryan, you want to talk earnings? Yeah. In 2020, they had GMV or gross merchandise volume of 1.4 billion up 29% year over year. They're trailing 12 month active buyers reached six and a half a million.

up 20% year-over-year and had about $262 million in revenue, also growing around 28% year-over-year. They were net profitable on a gap basis, but just barely. That was a big improvement from last year. They had $84 million in operating cash flow and I think $82 million in free cash flow, so that puts them at an operating cash flow or free cash flow margin right around 30% to 32%. Stock-based compensation was only about 3% of revenue. Good to see that. But pre-IPO, there will be probably a big hit post-IPO, but that is nice. Even before, when they were private, they weren't issuing it like crazy. Right. I just feel like we see so many young companies just pour

all their expenses or their salaries into stock. Yeah. We'll typically see a 10% number for sure. But yeah, this one seemed relatively low. Those were pretty much all the points for earnings. Ian, you want to hit balance sheet? Yep. They have $262 million in cash on their most recent 10K. But as Brett was alluding to, they raised about 250, I think the number was $277 million in cash from the IPO. And so that number I would expect to be somewhere around $500 million, but you're going to want to take a look at that when the quarterly comes out. They've got on the balance sheet on the most recent one,

it says they have $55 million in debt. Those are all convertibles though. And they converted when the company IPO, they converted into shares, basically at a 15% discount, they were they paid 85 cents on the dollar for shares from that convertible debt. Pretty straightforward balance sheet. As Ryan was mentioning, they have a significant liability of what they call funds payable to customers, which has a lagging effect, you know, it hits earnings, but then doesn't hit cash. And so you see that difference accounted for on a balance sheet and in the cash flow statement and so their cash flow is um positively impacted by that and it seems like from looking at the last couple of years that that is fairly steady and a fairly steady proportion of revenue

and so it's not like they um you know significantly it didn't look to me like they significantly increased that to make cash flow look better right before the ipo um and then one final note they don't hold inventory and so there's no inventory on the balance sheet um which you know keeps the company fairly capital light yeah there's it's a platform you know they're not the one selling Yeah. Yeah. And we joke about that type of stuff, but it's true. It's a big advantage for them.

And the balance sheet is, I mean, super easy. Only what, like 10 light items on there. So, yeah. All right. Let's take a break. And then we're going to get back and talk head of advantages, future growth opportunities. And we've got a new segment that Ryan will introduce. Cox Panoramic Wi-Fi includes advanced security to help protect all your connected devices.

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Welcome back. Next up, we're going to toss in a new category. This one's going to be a quick one. one, but Ryan's going to talk about it. Yeah. So sometimes we have stuff that's sort of consumer facing platform. So I thought it might be a good idea to get maybe customer experience or some sort of experience that we have with the products. Not all of us have to answer this one, but if we have any kind of anecdotes or experiences, it might be useful information. And I'll start, if you guys have anything, feel free to include it. But

there was a postman or a mailman who had invested early in Amazon and Etsy. I think maybe on another one as well. But he just said like he would deliver packages and every time something got shipped, he would just kind of keep track in his head what he was seeing most of. And he said, he said, everyone should be looking out for Poshmark. Stock went down like 60%, but it's okay we'll kind of he said he was doing a lot of packages um so i guess a little uh evidence there if you want to take that mailman's edge uh it's uh i guess it's being used a lot they're shipping a lot of packages yeah i have no product experience i know you guys just downloaded today so you guys technically have just kind of investor product experience but did you have any

thoughts on the app without actually using it for me it wasn't the type of thing that i'd want to uh use i don't think generally i try and spend as little time as possible buying clothing and so i don't really want to incorporate a social aspect into um buying clothing uh much more you know i'd be much more interested in something like stitch fix that just sends me clothing and i don't have to spend any time working on it so um it's like yeah right exactly but um i thought it was kind of interesting um like i could see that some people would definitely use it yeah and i did i did not actually make any purchases but i did see stuff that i would have bought if i were looking for new clothing at the time and it was cheaper than what you get in store obviously

okay okay that makes sense all right let's hit competitive advantages right sorry ian we always start with you what do you have yep i'll start with kind of what i was just mentioning there actually the social component a lot of the companies we've been talking about recently talk about social commerce that's like a buzzword now um i'm somewhat impressed with them that they've actually done it right. They're like arguably the only company that's really doing social commerce completely. And I'm sure people will fact check me on that and come up with other things that I'm not thinking of at the moment, but it seems like everyone else is like trying to get into it and that's what they are. So I think that gives them a little bit of a competitive

advantage and just a first movers advantage to kind of understand the balance between social and commerce, because I think that's actually a pretty hard line to walk. And just the experience they've had so far, I think provides some tacit knowledge for them to kind of, you know, develop that, just that good model and knowing how to walk that line. Yeah. It's interesting to see how they're going to be able to defend themselves. Cause there's a lot of people announcing whether they're just kind of trying to get some buzz in the news. There's a lot of people announcing that they intend to do stuff similar to Poshmark. So it'll be interesting to see if they can defend their or keep their users on the platform. But Ryan, Ryan, what do you have? I guess two. So

they kind of have a niche um they're expanding out of this but fashion resale is pretty niche and i mean the if you're if i'm just like clearing out my closet the it's either poshmark or i'm throwing it away uh it's not and so that allows them to take a bit of a higher take rate because people want to be getting money for it anyways that's sort of there's people that have built brands on Poshmark as well. But for like the closet clearing people, they don't really care what the take rate is. And then scale to a point. So if you are a seller on Poshmark and you've built up this big follower base, you have guaranteed demand. And so you take a big risk leaving if you want to do something in-house or if you have built this brand on Poshmark and you're

like, all right, I'm going to build my own website, you might lose a whole bunch of demand that way. And so it kind of keeps the sellers on the platform. Yeah, that kind of moves right into mine. I'm going to sound like a broken record because I think I've chosen this a lot in the recent shows, but the flywheel dynamics with the online marketplace, I think are pretty enticing here. I think they're legit. You know, a lot of times people talk about the flywheel and we're kind of like, eh, maybe, but Poshmark, I think it's cool. The sellers come to Poshmark, like Ryan said, because there are 6.5 million buyers and growing and the buyers will come because they have the most inventory to look at. This will hopefully feed on itself. And if they

execute, you know, you could see themselves establishing a moat. You know, I don't know. It's pretty simple in that regard. Yeah. All right. Highlights and lowlights. I'm way off base today. Future growth opportunities. What did you have, Ian? my future growth opportunity is posh parties and then other features that they might develop like that so a posh party is basically um well first i'll notice actually this is one of those companies that everything you look at is posh something right it's always posh parties posh pay posh post and so it gets a little confusing um i don't know if that's a competitive advantage or not and i did i'll mention this too just so that we're clear set the record straight posh the

official dictionary definition posh elegant or stylishly luxurious all right well i think that perfectly this is a pretty posh podcast i would say yeah you can you can see why we didn't uh we weren't aware of that term but but anyways posh parties um basically it allows sellers to say like we're gonna set up a party like selling jeans today or like skinny jeans and then that seller can like place something on like post-its this party and then other people can also post things to the party and so it becomes kind of a hub of this like of all these items that center around some sort of theme and then people are like reposting the party and so it's a little bit of i'll uh it's like the linkedin thing right if you give me like a a like on my

you know that i'm good at financial modeling then i'll come back and say that you're good at financial modeling too or something like that you know it's like if you if you post my party then i'll post your party and we'll all you know kind of make money off of each other's audiences and so i don't know exactly like i wouldn't want to buy anything off of a posh party probably but um i think i like the direction they're going and trying to experiment with different types of social features i don't know of any other thing that's really similar to a posh party and so i think it's a unique idea and i think if they continue to try and test out unique ideas like that i think they're going to hit some good ones yeah the the community aspect of it could they

give them some sort of positive it's tough though building those social you know things online especially with the shopping i don't know because you know someone like us we're not just going to be like all right let's join this thing it's kind of you got to be the right demographic yeah i think i kind of like the idea of it's almost like virtual events like almost virtual conferences like they have their poshmark like actual event it's kind of like smaller scale ones but i'll get to my future growth opportunity it's not super exciting um and it's obviously kind of just the logical next step but uh international expansion so they just launched into australia which is the first new market outside of north america um feels like a model model that's

probably applicable to most places um and australia is given that it's such a social experience they want it to be english-speaking countries for the time being or that that's where it's easiest to grow into and so it seems like a good uh country or continent i guess uh to be entering yeah makes sense for sure mine were pets and toys i wanted to talk about this one because it seems a bit strange um and it's kind of weird you know they're diverging a bit from the fashion part but the pets is just items for pets so i guess fashion for pets you know there's some diehard you know people that have pets that like to dress them up, stuff like that. And then toys, e-schools, kids' toys, but secondhand. You know, you think if maybe they get the personalized fee correct,

it could be good. And it might make sense building out that for the secondhand market, because it seems like there's an opportunity there. But does it make sense for them to do this? Does it dilute the fashion and apparel part of the platform if you have all these other items on there? Yeah, for me, I think the first thing that comes to mind is Ryan's competitive advantage, that it's a niche for them, right? And that that seems like the way that they could kind of insulate from things like, you know, social commerce on Instagram, right? Or is that would just be kind of an uncurated mess to some extent, and not focused on clothing, that Poshmark could really gain market share and just the clothing and really capitalize on that there should be

plenty of room within clothing to you know there's plenty of market opportunity um and it it would scare me if that feed started becoming less useful um and a little bit harder to navigate the site that it just seems like that's kind of it might they might be losing some of their competitive advantage and the last thing i'll say on that too is if they feel the need to expand into that type of stuff the the clothing market seems plenty big enough to me um and i'd rather see them trying to gain a larger market share of that than trying to pivot to something else and so it's it indicates to me that they might be um slowing that revenue growth might be slowing down in the clothing market and so they're trying to pivot to something else to kind of sustain some short-term revenue

growth but i don't know that's that's the cynical side of me no i agree that's the same thing thoughts i had that you know it seems a bit strange ryan do you have any thoughts on that though that well they launched the pets and toys category uh alongside the beauty and wellness category and the beauty and wellness category makes sense to me but the pets and toys it feels if they see that it's not working or that it's diluting the experience i would like to see them shut it down fast uh companies that are able to figure out when something isn't working that's usually a positive sign it feels like this was maybe a dangerous move um well the yeah so the thing that would make it possibly work is if they can make the feeds personalized enough

and they're actually good at that so if someone is uh say you have a kid and you you want to see the and you have a family maybe you have a you know a pet and a kid and you want to see the toys and the pet stuff maybe they know that and they can be good enough like a facebook or something like that to personalize the feed enough but if you have your core customer that's a diehard you know shopaholic i guess and wants to get a look at all these secondhand clothing and you're diluting that that would be the red flag but it seems like they'd be able to personalize that as good you know well right i'm just not sure that people want another general social media app right i think that's one of the things here yeah is that it's actually like you can get and i think people will

see more and more of these but these specialized social media apps where i am looking for a community of people who love secondhand clothing right and then this has the commerce piece of it and um i don't know i i could be proven wrong but you know it seems like they're going after a short-term revenue opportunity it might hurt their long-term their long-term opportunity but yeah i guess we'll hit highlights and lowlights to wrap things up ian what do you have so highlights for me uh unique idea i think the social commerce thing is interesting and that they're actually they seem to be moving in the right direction and doing that um steady revenue growth a couple of the lowlights um when i was searching some stuff on google i typed in does poshmark and like a

couple of the couple of the top results was does poshmark or autofill results were like stuff like does poshmark sell fakes um so i don't think like i think that's probably people trying to see if it's legitimate or not and so it's not necessarily a low light because i probably they probably go there and they've what if they meant does poshmark sell fake ids that could be it that could be it maybe that's a new market they're expanding into yeah and the thing is they can't control that you're right because it's like right they can't the consumers might be selling fakes but i don't know so what right and it's and it's part of the thing um like and this gets into my other low light is they talk a lot about building brands i'm not sure how much you really build

a brand of selling used goods um now one thing that might happen or go ahead all used goods i know people sometimes are like trading it like etsy like they've bought maybe clothing or they got clothing or maybe they make clothing and they're using it to sell it on poshmark so i know some but then some people are just clearing their closet yeah yeah no that's a good point and i was just gonna say when it's when it's talking about you know when people are wondering if poshmark sells fakes if people can build brands on it and gain some credibility and you get some reviews and all that type of stuff like i'm sure that satisfies the consumers um to some extent but i think that's that's definitely a big headwind here is just gaining that consumer confidence i assume they

have to spend some decent um decent money acquiring customers and convincing them that this is a legitimate site yeah it seems like and again we're just introduced to this company so we don't want to tell them what to do and this analogy gets used a lot but it seems like they can learn a ton from airbnb that as you know you know just in like the philosophy of how you treat your sellers yeah yeah and i did see some low lights in that regard where sellers weren't necessarily necessarily happy i think you got to keep the sellers happy um that's been the biggest success of airbnb is to a fault that they keep the host which is the sellers happy yeah i mean sellers are the main part of the platform. If they can provide content, buyers will come.

Yeah. All right, Ryan, what about your highlights? Highlights for me, I actually think even though it's a 20% fee, I think the sellers appreciate transparent pricing. Even if it's higher than others, you know what you're getting. I think that actually, and eBay's made a point of this, it hurt eBay because no one really knew exactly with the fees they were getting. Also, I think resale is really overlooked. And Poshmark really provides a good end-to-end solution that Facebook and Pinterest can't or don't.

Lowlights for me, guidance wasn't great. Revenue guidance was fine. EBITDA guidance was pretty bad, at least for the first quarter, I thought. But they also talk a lot about the social component and they have a lot of sort of ventures or bets into the social component, I don't think they need to focus as much on the social component as they do making sure the infrastructure and the logistics for sellers and buyers is really easy, making sure returns is easy, and making sure that

they're able to diagnose when a return is. So one of the scenarios that I saw was a seller sent something to a buyer and the buyer said the zipper doesn't work and returned it. well the the zipper worked fine according to the seller but the buyer probably tried it on and just didn't want it and uh in that specific case poshmark just didn't respond and they just said no you have to keep it that's the problem with these things that's where you know making sure focusing less on the social and focusing more on keeping your stakeholders happy is probably important there yeah and what do you guys think about the the value problem or sorry the take rate i uh i feel like to me that 20 seems solid you know for the value the value they're providing

yeah i think i think lowering it for the sellers that have sold uh like a number of times or been there for four years or something yeah let's say you have a you know a hundred thousand followers and you sold uh whatever 500 items or something like that lowering the stake lowering the uh take rate as they hit certain sort of thresholds would probably be a good idea to keep them on the platform because those are the ones that probably could build a Shopify or whatever and do it outside of Poshmark. And they've said that it, I think one of the things in their S1 or 10K said it could come down over time. Okay. Ian, what do you, or sorry, anything else, Ryan? I would just add, like if I were clearing out my closet and it's the one place I would go, like if I wanted

to, if I was like, oh, this is good, but I'm not going to wear it anymore. I guess I could sell it poshmark because if you're going to try to sell on facebook marketplace or something like that i don't know there's like a distrust i guess like buying clothes i think poshmark's built a little bit of trust in reselling clothes uh craigslist i don't think i think it'd be tough i don't know hard to decide what about you and what are your thoughts on that yeah i think 20 is it's reasonable for for the sellers and and i think it's a good indication of the value that the posh market is providing and like ryan though i think the stepping it down for people who are doing a lot of sales is the smart thing to do kind of builds that seller seller loyalty and then also

you know prevent some from jumping ship to like you're mentioning shopify or instagram or um wherever i think it you want to make sure you're keeping your sellers happy so okay okay i'll have my highlights um yeah i think the moat they could they could develop the mode if they execute well It's not there yet because it's still a young company. And, you know, the moat talk is always overrated, but we try to hit it every time. I do think in this case, they could develop one over time. I love the unit economics and margins and balance sheet. Really, everything checked out in the financials.

And the nicest fact I saw was a 20 user spend 27 minutes a day on average on the platform. I think that's a good indicator that people like spending time on that. unlike something maybe like Stitch Fix and the value proposition might be a bit different or other places where people are buying things, where they're not just spending time on there to spend time on there. I think that could be a plus. Not sure if it's a deal breaker at all with them. Lowlights, a lot of competitors emerging or will likely emerge. It's a highly dynamic market, which is tough. It's hard to predict what's going to end up within the used fashion space. But besides that, I had trouble finding lowlights, a lot to like here.

Anything else from you guys before we wrap up with the final question? No, no, no. OK, more or less interested in. I'd say I'm less interested, which is largely to do just because I'm worried about competition, which I think oftentimes we put too much emphasis on competition and it keeps us out of making potentially good investments because we're worried about these competitors. but this is a space where I just think there's, there's going to be a lot of competition and I'm not convinced that they have

developed the volume that they need to really compete with that competition. Okay. Ryan. I think that is contributing a lot to the sell-off I'd imagine. Apparently the overvaluation probably. Yeah. Apparently wall street had pretty high guidance estimates for the first quarter, which, you know, that, if I had it too, but yeah, that's probably, that's probably some of it too. I'm definitely more interested. This feels a little bit like Pinterest a year ago. There were some doubts, and people kept saying competition, competition, competition, and then they just went ahead and kept producing great results. I think Poshmark can do that. I thought the financials were really good. I thought the price was fair.

Valuations, yeah. A little under 30 times free cash flow for a company that is growing at about 30% a year. That's pretty good. And it might be a little bit inflated over the long term once their growth slows, but still pretty solid. Yeah, I think if this is a very successful social commerce business, this could be much bigger than $2.5 billion or whatever it's at. Management was good. I liked Manish. And yeah, it checked a lot of the boxes for me.

Yeah, that's one thing I'd have to check out as the management. Didn't really get much on that, but I'm more interested. Only concerns I have is the same ones as Ian, where it's just the dynamic industry. I think it reminds me a bit of Coursera. It's probably just because it's at the top of my mind, just because we recorded something on them. But when there's so many questions about how the end state of the market will be or what it'll be, it's just tough. And they have well-capitalized competitors, but also reasonable valuation and the great concept. I mean, that's going to keep me watching it for sure.

That take rate invites competitors, too. Yeah, it does. It does. Ian, anything else? I was just going to say, do you guys think that there might be a little bit of a floor here somewhere that this that this company would be an acquisition target, particularly if the valuation got even further? it seems like with the that there might be some of these with so many companies focused on social commerce there may be like i don't think we're at that floor right now but there may be a floor if they weren't to quite hit the estimates that they're wanting to here's some fake m&a we just get revolve group stitch fix and poshmark to merge all of them merge you just make it you know revolve keeps the brand poshmark keeps the social stitch fix keeps the data we all just go home

happy and all the all the competitors just merge my only thing is it's just very different it like it's just a lot of it is still resale fashion like it's ebay done right yeah um maybe ebay's i don't know how big ebay is maybe they're an acquirer or something like that but yeah yeah i think there is a floor in this business it's cash flow generative has a lot of cash on hand it feels like an acquisition that would fail though not i mean poshmark shareholders would end up being fine because they get acquired but it feels like one of those microsoft or uh something like those acquisitions where they're like man could also be like an instagram it could it could it could i guess there's a there's a big range on acquisition so i don't know but i think you're

right ian there is a floor there is a floor as long as they keep executing the business doesn't go backwards yeah all right stock for next week ryan squarespace oh okay website hoster they i I don't think they've gone public yet. You didn't want to choose Oatly? They have Oat technology, guys. They filed their S1. They are sort of a Wix competitor. We're big fans of Wix here.

We are shareholders, so we're going to take a look at them. All right. That sounds like a fun one. That does sound like a fun one. All right. That's going to wrap things up. Thank you guys for listening. As always, remember, we are not financial advisors.

Anything we say on this show is not formal advice or a recommendation. Ryan and I are general partners at Arch Capital. Clients at Arch Capital may hold securities discussed in this podcast. Thank you all again. We'll see you next week.