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Is Poshmark Spending Too Much on Marketing?

In its final quarter as a public company, Poshmark reported net revenues reaching $88.4 million, an 11 percent increase from a year ago. But the peer-to-peer marketplace for secondhand fashion saw net losses of $23.5 million, illustrating that the company still has work to do to become a profitable business under new ownership.

In a Nutshell: South Korean search engine and internet conglomerate Naver acquired the platform for $1.2 billion less than two years after Poshmark went public.

Ahead of the initial public offering (IPO), Poshmark posted its first profitable quarter in the period ended June 30, 2020. Since going public in January 2021, however, the company has not posted a profit in any individual quarter.

Poshmark founding CEO Manish Chandra said the “strong” quarter exceeded the company’s initial expectations, despite a tough consumer environment. In a statement, he outlined some of the company’s consumer growth and engagement metrics.

“Poshmark continues to be a top destination for fashion, as demonstrated by 13 percent trailing-12-months active buyer growth to a record 8.2 million in the third quarter,” Chandra said. “The power of Poshmark’s community combined with its robust marketplace platform continues to drive user engagement which grew 61 percent year over year to a record 62.6 billion social interactions during the trailing-12-months ended September 30, 2022.”

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The gross merchandise value (GMV) of the items sold on the marketplace grew 7 percent year-over-year from the third quarter of 2021 to $475.6 million, up from $442.5 million in the same period last year. Quarterly GMV has increased year-over-year for the past 19 quarters.

Marketing spend has continued to restrict profitability as the resale company expanded into global markets including Canada, Australia and India. For the first nine months of fiscal 2022, Poshmark has spent $129.6 million on marketing, which accounts for 48 percent of total revenue. From year to year, marketing expenses jumped 5 percentage points from last year’s 43 percent of revenue.

To contextualize Poshmark’s spending, overall retail marketing budgets have increased to 9.1 percent of company revenue, up from 6.3 percent in 2021, according to a recent Gartner survey of retail CMOs.

The spending increase was primarily due to a $21.6 million bump earmarked for TV ad campaigns and digital marketing, and $4 million for personnel costs.

Poshmark is not offering guidance for the fourth quarter, as the acquisition is expected to close in the first quarter of 2023. The company did not host a conference call to discuss its third quarter results.

Naver has faith in Poshmark’s growth in the larger secondhand ecosystem. The online giant estimates the U.S. resale market’s value to be around $80 billion. Citing data from Activate Consulting, Naver said the market is expected to grow by 20 percent annually to $130 billion by 2025.

Cash and cash equivalents were $588.8 million as of Sept. 30, 2022, or $7.44 in cash per share. Free cash flow was $3.1 million compared to $32.4 million for the nine months ended Sept. 30, 2021.

Net Revenue: Net revenue at Poshmark was $88.4 million, an 11 percent increase year-over-year from $79.5 million in the third quarter of 2021. The resale player generates revenue from sellers for fees earned when they sell items they have listed on the marketplace—20 percent of the final price for sales $15 and over, or a flat rate of $2.95 for sales under $15.

Net Earnings: Net losses totaled $23.5 million, widening from last year’s $6.9 million net loss. GAAP net loss per share attributable to common stockholders was 30 cents, compared to 9 cents in the prior-year period.

Operating losses were $24.3 million, compared to $6.9 million in the year-ago quarter. This includes $13.5 million and $6.7 million in stock-based compensation, respectively.

Adjusting operating losses excluding stock-based compensation were $10.8 million, compared to last year’s $229,000 loss.

Adjusted EBITDA losses were $8 million, a decrease from the $598,000 gain in the third quarter of 2021. In the third quarter, adjusted EBITDA margin was -9 percent.

CEO’s Take: “In October, we announced our acquisition by Naver Corp. and are excited to partner with them as we take Poshmark into its next phase of growth as we expand our platform, elevate our product and user experiences, and enter new and larger markets,” said Chandra in a statement. “Our industry continues to evolve at a rapid pace, and we are excited to continue to lead the future of shopping by providing our community with an unparalleled experience that is simple, social, fun and sustainable.”