Evaluating POSH's future after key changes

POSH is the leading second-hand fashion marketplace in the US, and has built a highly-engaged, sticky user base by offering a social marketplace for buyers and sellers.

Although POSH (a Titan Opportunities portfolio holding) has had strong revenue growth to date, forward guidance from the company’s Q1 2021 earnings release has come in slightly below buy-side expectations.

Additionally, there have been increased concerns from investors regarding the longevity of POSH’s revenue growth, as a result of:

• The company’s recent announcement that its CFO Anan Kashyap would be leaving; and

• Increased competition, as illustrated by ETSY’s foray into the secondhand goods market through its acquisition of Depop.

Given the recent developments at POSH, we spoke with the company’s Head of Investor Relations on behalf of Titan clients, to better understand the company’s CFO transition, POSH’s perspective on its competitors, and its future engagement and revenue drivers.

Here are our key takeaways from our conversations with POSH.

On the CFO's departure

When a CFO departs a company, it’s not necessarily a negative development. All the same, Kashyap’s exit is concerning to investors, as it may signal future operational difficulties at the company.

Our conversations with POSH’s Investor Relations team indicate that the CFO departure stemmed from personal reasons. POSH told us that Kashyap was brought in to take the company public, and he has spent a lot of the past five years doing exactly that. With the task now complete, he has decided to take time off to spend time with his kids.

Although the IR team’s statement is reassuring for shareholders and in line with Kashyap’s prior actions at Kayak and Grubhub, we are further reviewing our assessment of the business to ensure that our long-term POSH thesis remains on track.

On ETSY’s acquisition of Depop

With the growth of the second-hand goods market, competitive dynamics have increased for POSH, as illustrated by ETSY’s acquisition of Depop, a second-hand fashion app popular among Gen Z.

POSH’s IR team stated that CEO Manish Chandra has a lot of respect for ETSY and that the Depop acquisition further validates the future growth of the resale category.

This view is in line with our prior thesis, and we agree with management on the long run way of growth for the resale market (e.g., survey data indicating that shoppers are planning to shift more spend towards secondhand goods vs. any other category).

But we believe that bringing on additional Gen-Z users is imperative for POSH to succeed long-term. The Gen-Z demographic is set to be a major driver of revenue growth for reseller marketplaces over the next decade, and ETSY’s acquisition of Depop may lead to future difficulties for POSH in capturing Gen-Z market share.

As a result of ETSY’s acquisition, we are currently analyzing the competitive dynamics of the reseller market and are projecting and assessing possible scenarios for POSH.

On product innovation

Although it’s still early innings, POSH’s management team is very excited about its newly-released product upgrades, including seller tags, video commerce, and discounted shipping.

More broadly, we believe that recent product innovations will further empower sellers on POSH, allowing them to sell more items on the platform, which in turn should lead to an increase in listings and GMV per active buyer on the platform.

The big picture

Taking a step back, we continue to believe that the online reseller market industry has a long runway for growth, driven by:

• The digitalization of resellers;
• Incremental spend from maturing, sustainability-driven Gen-Z consumers; and
• Retailers' adoption of resale in the coming years.

Although POSH will likely grow alongside the second-hand goods market, we are currently reassessing the name from a valuation perspective as a result of the CFO transition and increased competition from social media and reseller platforms (e.g., Facebook Marketplace, Depop, Mercari).

More specifically, our investment team is currently assessing whether POSH can maintain high levels of active buyers growth in an increasingly competitive landscape. We are analyzing possible event paths for the company going forward.

We’ll be sharing an update on our assessment of the stock soon. Stay tuned for more.