Poshmark missed expectations in its third-quarter financial results, sending shares plunging more than 26 percent after the close.
The company pulled in net revenues of $79.7 million, which is a 16 percent increase from the same period last year, but below the range of $82.7 million that analysts projected.
The timing is awkward, at best. The earnings report comes one day after ThredUp and The RealReal clocked better-than-expected revenues, seemingly solidifying resale’s thriving position in the market.
It doesn’t help that the company’s fourth-quarter projection, including the holiday season, pegged a range of $80 million to $82 million, disappointing analysts who anticipated $85.2 million.
According to chief executive officer Manish Chandra, Apple’s iPhone privacy changes, which dogged Poshmark’s second-quarter results, continued to drag on the company and ballooned its marketing spend.
“I think the biggest force that played into it is the marketing cost increase that resulted from Apple privacy/IDFA changes,” Chandra explained to WWD.
Apple instituted changes to its iPhone software that require developers to explicitly ask permission before tracking users. The issue has hamstrung and frustrated marketers, brands and tech developers, including Facebook, now Meta, which has long criticized the move. It is now apparently continuing to affect social selling platform Poshmark, which relies on social media for much of its marketing.
“What we did at the beginning of the quarter, and going toward the end of Q2, was…continue to measure our marketing and scale our marketing to our strict ROI,” Chandra continued. “And what we found is that, because of the cost increases, the volume was dropping. So toward the middle of Q3, we started to scale up the marketing, and gave a little bit more leeway to our team on ROI and payback period. And we saw the acceleration in the second half of Q3.”
As for how long iPhone’s privacy changes will continue to complicate the business, he couldn’t predict, instead noting examples from the company’s history — including disruptions from algorithm changes deployed by Facebook and Google at different times. In those cases, it took one to two quarters to deal with the changes, but may take longer to “rebalance” in the face of Apple’s update.
On the earnings call, Chandra explained: “We were hoping that [it] would balance by the end of Q4. It’s taken a little bit longer, so once we sort of see that rebalancing…we should be able to take the foot off the pedal.”
To inject some optimism into the discourse, Chandra also pointed to a number of growth signals — including gross merchandise value growth of 18 percent year-over-year, from $375.4 million to $442.5 million, with quarterly growth moving upward year-over-year for the past 15 quarters.
Active buyers hit 7.3 million, a 17 percent jump over the 6.2 million from the third quarter of 2020 and an acceleration from the second quarter to the third. The company earned $8.13 million, or 44 cents a share, a far cry from this time last year, when it reported a loss of $7.2 million, or 9 cents a share. Analysts expected a loss of 8 cents a share.
Chandra pointed out that this period marked Poshmark’s sixth consecutive quarter of profitability, and he believes that he has a winning formula for the business.
During this quarter, Poshmark has expanded to India; released a slew of seller features and analytics tools; established a seller-focused team and a new vice president in charge of seller experience; opened the platform to larger brands with its Brand Closets program, and completed the acquisition of sneaker authentication company Suede One, in a deal that may lead to broader authentication services for the resale platform.
The moves appear foundational, which could strengthen the business. But from investors’ point of view, the company must get out from under the IDFA effect and make headway on the grand vision it has been talking about for the last few quarters, since it went public in January — which is that a data-driven, tech-based approach to social selling and resale, set within a nimble model that holds no inventory, can be the future of shopping. So far, even though the company has shown growth, each quarter has left investors disappointed.
“Look, it’s been definitely not a great sort of three, four quarters, from a stock performance perspective,” Chandra admitted on the call. “[But] I think the foundation of the business is very solid when you think of the community we have, the users we have, scale of the business and high gross margin. And for us, when we look into the future, we see a future that is all of the trends that we are investing in actually shaping the future of shopping.”
Since Poshmark isn’t bogged down with inventory, it can respond to trends quickly, he argued. The company’s tech investments are designed to connect sellers and shoppers together faster and for sellers to sell more quickly, while it works to “diversify” the size and type of sellers on its platform.
“Last two years for apparel, for accessories, for fashion, have not been linear in any way….We start and then have to stop again. So all of this volatility has not made for a great sort of apparel climate,” Chandra added. “But despite that, we’ve done pretty well in growing for the last few years. So as we look into the next year, as the world opens up and normal social activities resume, there should be a lot more excitement as we look into that.
“So that, I think, ultimately the foundation of an asset-light model, social model, secondhand, reuse and high gross margin should give investors a confidence that, over the long term, this is a great company to own.”