It’s first in, first out for Poshmark.
Whether Poshmark will again prove to be ahead of the curve on the latest investment trend remains to be seen — but at the very least, the fast turn in the glare of the public markets shows just how much the industry’s investment calculus has changed over the past year.
There is a long list of yesterday’s darlings that went public last year, cashing out early investors and scoring huge valuations that are now caught in the maw of Wall Street bears.
Those companies — whether they jumped into the public market or were pushed by their backers — are all now operating against a very different backdrop.
Long gone are the go-go days when investors were in love with all things digital and all things consumer, betting that the world had changed during the pandemic and that consumers would be content to shop from home or on the run with a click.
“There were a lot of reasons for this frothiness in public markets,” said consultant Matthew Katz, managing partner at SSA & Company. “When the frothiness goes away, the downturn’s pretty dramatic, pretty quick. You’ve seen it for IPO markets. You’ve seen it in the activist market. You’ve seen it in the rejuvenation or restructuring markets.”
The SPAC market, which has investment shell companies going public in hopes of making an acquisition, has also fallen off sharply as regulators tamped down.
Last year’s IPOs generated so much excitement because investors had big expectations.
“These new players and new markets went public based on growth prospects,” Katz said. “You anticipate and need accelerated growth above and beyond market growth in order for the IPOs to fundamentally return value.”
Poshmark is selling for less than half its IPO price and a fraction of the $7.4 billion it was valued at on its first day of trading in January 2021.
The company is leaving the market under threat of a recession, ultra-high inflation and general consumer shakiness — although those factors don’t directly impact its business model, which is focused on providing a peer-to-peer platform for users to sell styles from their own closets.
Founder Manish Chandra, who will remain chief executive officer, might be leading his company into a stronger position for the next turn.
Morgan Stanley analysts Lauren Schenk and Nathan Feather wrote in a research note: “While we were expecting consolidation/M&A in the space, we are incrementally more bearish on the U.S. apparel and accessories resale market post this deal — particularly Depop, owned by Etsy — given the financial backing and more sophisticated technology Poshmark will now have access to. In particular, we are intrigued by Naver’s expertise in livestreaming, lenses and particular focus on growing ‘community commerce.’”
Poshmark is adding its $2 billion in gross merchandise value to the $25 billion in GMV Naver boasts and is set to get a boost in the still developing, but hot space of live shopping. Naver said its Shopping Live platform would help Poshmark “transform the shopping and selling experience” while “allowing for greater social networking and engagement.”
Even though Poshmark is stepping out of the spotlight, it doesn’t mean that others won’t be caught by the allure of the big stage.
Porsche went public last week and is valued at nearly 80 billion euros.
Brian Ehrig, a partner in Kearney’s consumer practice, said, “If you’re a truly great company that actually makes money, maybe it’s not such a bad time [to be in the market] because people are very concerned about where the market is right now and there’s still a lot of money that investors need to put out there.”
And that money — at least in dollar terms — goes farther than ever right now given the strength of the greenback, which could spark a run of cross-border deals.
Ehrig saw the boom and bust as part of “a natural cycle.”
“In 2008 it was real estate, in 2001 it was the dot-bomb,” he said. “This is just another version of that, where we just go through a normal cycle. We had a big round up, the market was really frothy, there was tons of capital that needed to be put to work out there — and too much money chasing things, in this case, results in companies that maybe shouldn’t have gone public choosing that route.”
But the fallout in fashion IPOs could tamp down the general deal market some, as the perception that Wall Street doesn’t like fashion could make it harder for big private equity companies to buy a brand with an eye toward an offering one day.
Even so, the dealmaking market hasn’t gone entirely quiet.
Oxford Industries bought Johnny Was for $270 million last month.
And Arash Farin, managing director of The Sage Group, one of fashion’s most prolific dealmakers, said “M&A is still humming along, although not as robustly as it was before 2022.”
The market could perk up again by the middle of next year, although apparel in particular still has a hole to dig out of.
“Fashion per se has been out of favor for quite some time, whether it’s denim or accessories, it’s been a very difficult sector to transact in for quite some time,” Farin said. “A lot of our deal flow in the apparel sector has gone away in favor of other sectors, like beauty and direct to consumer and so on.
“The fashion risk and the more hit-driven element of fashion, I think, has reduced that sector’s resilience in the eyes of investors,” he said.
And this is a world where much is in the eye of the investor.