IPO Report: Poshmark IPO: 5 things to know about the online marketplace before it goes public

Poshmark says it will have Class A and Class B shares, and has set a target of raising $100 million, typically a placeholder amount used in a filing with the Securities and Exchange Commission that is later amended.

Poshmark has filed at a time when e-commerce is booming, due to factors including in-store shopping restrictions related to the COVID-19 pandemic and an accelerated consumer migration to digital retail.

Poshmark launched in 2011 and is based in Redwood City, Calif. Manish Chandra is a co-founder of the company and serves as its chief executive and board chairman.

Among those on the company’s board is Grand Slam tennis champion Serena Williams.

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As of Sept. 30, Poshmark had 31.7 million active users, defined as those who have logged on to the marketplace in the past 12 months; 6.2 million active buyers, defined as those who have purchased at least one item over the past year; and 4.5 million active sellers, people who have listed an item in the last 12 months.

Poshmark’s customers skew young, with 80% falling into the millennial or Gen Z demographic as of Dec. 31, 2019. Users spend an average of 27 minutes per day on the marketplace, and active buyers placed an average of 6.3 orders in 2019.

Poshmark calls itself a “social marketplace,” one that uses features found on social media sites including “likes” and “comments” to foster engagement. The company said there were more than 56 million social interactions on the marketplace each day in 2019, with social interactions per active user up 34% compared with 2018. Proprietary technology facilitates these social interactions.

Poshmark’s marketplace includes both new and secondhand merchandise, with more than 201 million items on sale as of Sept. 30.

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A recent Cowen & Company report, which also relies on data from the ThredUp 2020 Resale Report, forecasts that shoppers will spend 52% more on secondhand items over the next five years, with online resale expected to grow from $7 billion in 2019 to $37 billion by 2025.

Besides ThredUp, eBay Inc. EBAY, +0.31%, Farfetch Ltd. FTCH, -1.23% and RealReal Inc. REAL, -4.17% are among the growing list of online retailers selling secondhand goods.

Poshmark includes Amazon.com Inc. AMZN, -0.12%, Walmart Inc. WMT, -0.56%, eBay, Etsy Inc. ETSY, -3.23%, Shopify Inc. SHOP, -4.05% and Facebook Inc. FB, +1.44% among its competitors.

Poshmark sellers are charged a flat 20% fee on items sold for $15 or more, or a flat rate of $2.95 for items sold for less than $15.

“We win when our sellers win; we earn our revenue based on a simple fee from each successful transaction that is conducted on our marketplace,” the prospectus said.

In 2019, Poshmark had $205.2 million in revenue, up from $148.3 million the previous year. Losses for the year were $48.7 million, up from $14.5 million in 2018.

“We achieved our first quarter of profitability for the three months ended June 30, 2020,” the prospectus said. “We cannot assure you that we will maintain our profitability in future periods, and we may incur significant losses in future periods.”

Also: Retail bankruptcies in 2020 hit the highest levels in more than a decade, and experts say there are more to come

Here are five more things to know about Poshmark:

The company doesn’t plan to pay a dividend. Poshmark intends to hold on to all available funds and future earnings and not pay a dividend for the foreseeable future.

COVID-19 could impact deliveries, which will impact revenue. “If delivery services are delayed or shut down, or if they are perceived as unreliable, our GMV [gross merchandise value] and revenue could be negatively impacted in the future,” the prospectus said.

Even after the pandemic has passed, experts expect customers to continue to order many goods digitally. The Cowen report forecasts that U.S. e-commerce will grow from $586 million in sales in 2019 to nearly $1.40 billion by 2025.

Poshmark uses the U.S. Postal Service to ship items in the U.S.

COVID-19 could also continue to hamper apparel sales.

“Responses to the COVID-19 pandemic such as prolonged work-from-home policies, quarantines, closures, and travel restrictions could continue to depress demand for the products sold on our platform,” the prospectus said.

Watch: How to pick winners in the retail sector amid the pandemic

“Even if a virus or other disease does not spread significantly and such measures are not implemented, the perceived risk of infection or significant health risk may adversely affect our business, results of operations, and financial condition.”

Fraud has been a problem. “We have in the past incurred and may in the future incur losses from various types of fraud, including stolen credit card numbers, account takeovers, claims that a user did not authorize a purchase, merchant fraud, and users who have closed bank accounts or have insufficient funds in open bank accounts to satisfy payments,” the prospectus said.

Poshmark is also dependent on its sellers to provide a positive customer experience, and offer items that are on-trend and good quality. Poshmark says it has received complaints from “a small portion of users” about issues like failure to receive items purchased or misrepresented items.

Poshmark may have to lower its fees. “In the future, we may be unable to attract new sellers or retain current sellers at these fee levels, as they may choose to sell their merchandise on other platforms with lower fees,” the prospectus said.

“Furthermore, pricing pressures and increased competition generally could result in having to decrease fees, which could cause reduced revenues, reduced margins, or losses, any of which would harm our business, results of operations, and financial condition.”

Poshmark is an emerging growth company, which has fewer disclosure requirements. Poshmark has reduced regulatory mandates due to its status as an “emerging growth company.” Rules for businesses in this category were established by the JOBS Act, enacted in April 2012.

“[T]he reduced disclosure requirements applicable to emerging growth companies may make our Class A common stock less attractive to investors,” the prospectus said.

Poshmark will remain an emerging growth company until it reaches certain criteria, including the last day of the fiscal year in which it has reached $1.07 billion in annual revenue. Under the JOBS Act, emerging growth companies can delay the adoption or revision of accounting standards.