Unpacking Poshmark’s IPO filing

So much for a year-end IPO slowdown.

On the heels of news that Expensify could direct list next year and Coinbase’s announcement that it has filed to go public (albeit privately), Poshmark dropped a public S-1 last night.

We’ll have more on the bloc of IPO news in coming posts, but as Poshmark has provided hard numbers and a fascinating business 2020 story, we’ll start here.

The Exchange explores startups, markets and money. Read it every morning on Extra Crunch, or get The Exchange newsletter every Saturday.

We’re going to range a little wider than usual in this IPO dig, including more notes on investor ownership and what the company does. That’s in case you, like myself, had forgotten.

So, we’ll start with product and talk finances before noodling over the surprising venture capital results that Poshmark is prepped to produce. Let’s get into the filing!

Poshmark

Poshmark is an e-commerce marketplace that allows users to sell new and used fashion-related goods to one another. It sits atop secular trends towards e-commerce over traditional retail, mobile commerce over static and what I would call a cultural rethinking of used goods in recent years.

And of course, Poshmark has braved the economic waves that COVID-19 brought to the global market.

The company’s model is simple: It holds no inventory, instead providing a marketplace where buyers and sellers connect, juiced with an algorithmically built feed of items and an emphasis on digital social interactions. At the end of 2019, the company’s audience was 83% female and 80% of its members were part of the Gen Z and millennial generations.

It’s not hard to understand how Poshmark makes money, with the company charging 20% of a sale price for goods over $15, or a capped rate for cheaper goods.

In theory, the company has a workable flywheel for growth. Attracting new users via marketing helps it build a deeper user base. Those users generate more social activity and purchases, which, in turn, could bring in more sellers.

That would help keep Poshmark’s goods selection fresh. Which, could attract even more buyers. More goods and more sales means more revenues for Poshmark… which can then spend some of the resulting margin back into marketing, kickstarting the process all over again.

But despite that winsome circular updraft, the company has posted regular losses, which means Poshmark has had to outspend its business model to keep its growth up. Until 2020, that is. This year, things turned around in profit-terms for the e-commerce marketplace, ending with the company turning in consecutive profitable quarters.

Poshmark’s cash generation also improved in 2020, putting it on strong footing heading into its public offering. As with other companies that wound up enjoying a strong 2020 based at least in part on COVID-19 and its resulting economic impacts, investors will have to math out what happens to the company in 2021.

Let’s talk about the company’s historical growth and how it wound up generating net income this year.

Results

From the first nine months of 2019 to the same period of 2020, Poshmark grew its revenues 28%, from $150.5 million to $192.8 million. Its profitability, however, swung sharply from a net loss of $33.9 million in the first three quarters of 2019 to net income of $8.1 million during the same period of 2020.

,The market will decide how valuable Poshmark is. But who will it enrich with its final pricing decision? Let’s find out.