Poshmark, The Clothing Marketplace

Poshmark is the leading marketplace for second-hand clothing in the US. It’s people selling to people and everyone wins – the buyer gets cheap clothing, the seller makes money from stuff they no longer want, and the planet doesn’t get skinned alive to make new clothes. I’ll admit I’m biased with this company because I love the environmental benefits, but it’s still an objectively great opportunity. It enjoys gross margins of 80+%, something only found amongst the top-tier software companies, but with a sales multiple of only 10x, you’re getting it for a fraction of the valuation usually demanded from such companies. It’s posting solid growth of 30+%, but still has a long way ahead of it. As secondhand clothing becomes increasingly adopted, buyers and sellers will be attracted to the market-leader in Poshmark. Every time an item is recycled – bought and sold again – Poshmark enjoys a 20% cut of the transaction. So the more people become attracted to the cheaper, more environmentally-friendly ways of recycled clothing, Poshmark benefits. They’re also already FCF positive, with current valuation giving it a FCF multiple of just 40x – similar to it’s a growth rate, which is always a bargain. The average US millenial spends US$2k per year on clothing. Poshmark has 6.5m active buyers – people who purchased an item in the last 12months. Last year, Poshmark had $1.4b in transactions on their platform – which means $215/buyer. So the current dedicated early-adopting user base has only 10% of their annual spend in secondhand. You can see how as adoption of secondhand grows, there’s a lot of room for growth even if the company adds no more buyers. Yet, there are still 60m people in the 15-24yo group in the US today – so they’ve also got potential growth in buyers. Additionally, there’s potential for adoption to expand to older age groups with another 40m in the 24-34yo group. Further, as more people buy, they’re also more likely to sell on the platform, and so the more times a piece of clothing is recycled and re-sold from user to user, Poshmark takes its 20% cut each time. So there’s a lot of network effects going on here, combined with the necessary social realisation that changes need to be made before we render ourselves extinct – and I believe that Poshmark provides an easy way for us to continue our love for shopping clothes, without the harm. The total market they’re going after is worth $385b in the US, and while they won’t even scratch the majority of this amount, there’s a lot of room to run. The stock has been slammed down 60% from its IPO in Jan, and justifiably so as it sat on a sales multiple of 25x, but is now getting very interesting. There are competitors – Farfetch, RealReal, ThredUp – but they’re all focused on high priced items, not the mass market casual-wear.