Poshmark, Inc.
Q1 2021 Earnings Call Transcript

Published: 12 May 2021

[Operator:]

Ladies and gentlemen, thank you for standing by. And welcome to the Poshmark First Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Ms. Christine Chen, Head of Investor Relations. Thank you. Please go ahead.

[Christine Chen:]

Welcome to Poshmark’s first quarter 2021 conference call. Joining me today are Manish Chandra, our Founder, Chairman and CEO; and Anan Kashyap, our Chief Financial Officer.

[Manish Chandra:]

Thanks, Christine. Hello, and welcome, everyone. Thank you for joining us for our second earnings call as a public company. Before I get into my main remarks, I want to take a moment to acknowledge the crisis in India as the second wave of COVID-19 continues to devastate communities across the country. Our hearts go heart to everyone in India, especially our own Poshmark team who’s thankfully staying safe, and whose health and safety remains our top priority. Now I will transition to my main remarks. Our mission is to put people at the heart of commerce, empowering everyone to thrive. By pairing technology with people’s inherent desires to socialize, we have built a widened social marketplace that makes the buying and selling experience incredibly seamless, easy and social. We remain focused on supporting our community, innovating for a fantastic use of experience and expanding the reach and offerings of our social marketplace. Because our community of millions of sellers are constantly adding new products to the marketplace, our model is incredibly responsive to demand and we are generally not impacted by supply chain disruptions. Our asset light model affords no inventory, leading to consistent high gross margins, resulting in a scalable and profitable about business. We are the leader at the intersection of three key trends shaping the future of shopping, the shift to online, the shift to social and the shift to second hand. We are unique from other marketplaces as we focus on growing the overall community of users to create hybrid engagement and loyalty. These users activate as buyers and sellers creating a virtual flywheel of growth, monetization and strong cohort retention.

[Anan Kashyap:]

Thank you, everyone, for joining us. Our first quarter was another great quarter as we delivered strong GMV revenue and our fourth consecutive quarter of operating profitability. Our business model is built on the long-term retention of our cohorts, which we demonstrated in 2020 during an extraordinary year due to COVID. During the first quarter of 2021, even when faced with near-term disruptions, our cohorts have remained resilient, as growth rates began to normalize the second half of March as economic conditions and weather improved. Our robust cohorts helped us generate $441 million in GMV in the first quarter of 2021, which was 43% growth from $309 million in the first quarter of 2020. Commensurately, net revenues were $81 million in the first quarter of 2021, which was 42% growth from $57 million in the first quarter of 2020. This was driven by an increase in GMV in the first quarter of 2021 and overall growth of our community including 18% growth in active buyers to 6.7 million from 5.7 million in the first quarter of 2020. Our take rate was 18.4%, which is down slightly from last year’s 18.5%, a result of higher than expected delayed or canceled orders, resulting partially from severe weather conditions in February. Cost of revenues was $13 million in the first quarter of 2021, an increase of 31% from the first quarter of 2020 and decreased to 16.1% of revenues due to some leverage and hosting expenses. Therefore, adjusted gross margin, which is net revenue less cost of net revenue improved 1.2% to 83.9% of revenues in the current period as compared to the first quarter of 2020. Marketing expenditure excluding stock-based compensation was $32 million in the first quarter of 2021, a decrease of 6% from the first quarter of 2020. Marketing was 40% of net revenue in the first part of 2021, down significantly from 60% of net revenue in the first quarter of 2020 due to rationalizing our marketing spend focused on strong ROI user acquisition channels. We invested in upper funnel strategy, such as more targeted TV, as well as influencer marketing. In March, we launched a unique partnership with tidying master, Marie Kondo with two new TV ad to drive more listing activity and build brand visibility.

[Operator:]

Thank you. And your first question comes from the line of Ross Sandler from Barclays. Your line is open.

[Ross Sandler:]

Hey. One for Manish and one for Anan. I mean the first one just question about retention and frequency right now for these most recent cohorts compared to what you are seeing last year during COVID. And since you got is this kind of flattish Q-on-Q, I know there were some stimulus benefit in March and you have the Texas and New York issue that you flagged last quarter. So just how do we think about, if we strip all that noise out, the underlying kind of sequential cadence and how retention is trending? And then, on Australia, I know it’s early, but just any color on how we should think about the cadence of that region ramping up compared to maybe how Canada ramped up in the early quarters, like, any reason why that would be a little faster or a little slower? That’s it guys. Thanks a lot.

[Manish Chandra:]

Sure. So, in terms of the overall retention of our cohorts, it’s actually pretty stable and continues to be very stable when you measured it across the quarter even though there were some variations within the quarter and we see very, very stable retention across all of our cohorts, as well as growth on all of the cohorts. So I think the predictability and sort of the convergence as we pointed out in the call is back. So we expect to see pretty healthy sort of movement of the cohorts as we go into Q2 and beyond. And certainly remain optimistic as the economy opens up. It could provide a positive uplift as people go out and engage with fashion and engage with sort of the outdoor activities. Australia is early shaping up well despite sort of having to launch the country in a very remote way from here and we haven’t seen the theme or the community in the early days. It’s shaping up sort of in the normal healthy development of the buyer, sellers and the users.

[Anan Kashyap:]

Yeah. Just one additional point I want to make, Ross, is that we typically don’t see outsized quarter-over-quarter growth from Q1 to Q2. So and when we talk about the guiding towards a $79 million to $81 million, it’s a 59% to 62% growth on a two-year stack basis, which is an acceleration of 50% from the first quarter. So and we are so obviously extremely optimistic about how the quarter’s going to go, but it’s also important to remember we are remaining profitable throughout all these as well. So that dynamic is obviously great for us long-term.

[Operator:]

Your next question comes from the line of Lauren Schenk from Morgan Stanley. Your line is open.

[Nathan Feather:]

Hi. This is Nathan Feather on for Lauren. Just two questions from me. Can you talk about how average order value trends…

[Manish Chandra:]

Hi.

[Nathan Feather:]

… in the quarter given there are some early success of seller shipping discounts particularly on higher value items? And then, also your noted hiring came at a bit below your expectations in R&D. Can you just talk to why that was and I know you mentioned hiring was accelerated back up to your front? Thank you.

[Manish Chandra:]

Yeah. So, on average order value, we have actually seen -- it basically remained relatively stable throughout the last few months. The seller shipping, I think, has been a positive impact for conversion in general. And how we think about it is, sellers ultimately dictate their pricing both on the item, as well as the shipping. And so we think this is just another tool for them over the long-term. As far as R&D hiring, two things I think are sort of interesting. We actually started the quarter with very sort of positive momentum. But when it came down to actually the timing of when people were hired, it ended up being more back-end loaded towards the end of the quarter. And so, we started catching up towards the end, but as you can imagine, just the dynamics of the ramp from the beginning to the end of the quarter was what caused the numbers to be a little bit lower. But for us, R&D is a very critical investment especially in terms of product innovation. So as you can see from the pace of features that we are launching, it’s a major area of investment for us and it will continue remainder of the year.

[Operator:]

Your next question comes from the line of Ralph Schackart from William Blair. Your line is open.

[Ralph Schackart:]

Good afternoon. Thanks for taking the question. On the strong trend that you saw in GMV and Anan, you talked about kind of reacceleration in Q2 into your stack basis. Just curious how much of that was just on a strength of the business? I know there are some stimulus in there and maybe some tough compares or some comparability issues with COVID during last year. But just love your overall thoughts on that. That’s the first question. And if I could add on, as you think about your non-apparel vertical such as beauty, home and pet. Manish, I think you talked about pet bring buyers to the platform, but just love your thoughts in terms of, are these new categories also adding to GMV at this point? Thanks so much.

[Anan Kashyap:]

Yeah. Just maybe we will talk about the overarching dynamics of stimulus last year and this year. As you can imagine, last year the first quarter was weak for us right around when COVID hit around the end of sort of the end of February, beginning of March. And if you look at the second quarter, we actually had a great quarter of reacceleration of the business to 40% growth and so that was -- part of the reason why the comp is actually a little bit higher for us this year. As far as stimulus and how we think about it, look at the positive uplift for consumers, the economy and numerous businesses, we think it’s really a true testament to the strength of our cohorts, which overcame some mid-quarter challenges due to weather and COVID, and remained resilient. And we actually saw, the states actually begun to -- begin to normalize and converge once again in the second half of March. Now, it’s impossible to determine or to separate the exact impact of stimulus, the timing also coincided with arrival of spring and optimism about re-openings. The second is also we can choose a number of great seller tools in March, the video listings, some of discounted shipping which have also positively impact the business. So we think that innovation is one of the key drivers of growth is why we continue to invest there. So we think long-term the consumer’s desire to socialize and resume normal activities to drive demand for apparel going forward which should benefit the marketplace. And I will let talk Manish talk about it.

[Manish Chandra:]

Sure. Yeah. I think all of the categories are already starting to drive GMV growth, as well as listing growth. The expansion in categories both in direct apparel and beyond apparel for us brings in growth from two different perspectives. One is it activates new buyers and sellers on the platform. And second is it gives existing buyers and those who wish to sell and shop on the platform. So it’s sort of drivers on both dimensions and we have seen positive impacts of these categories on both of those of fronts in terms of driving growth and ultimately GMV per buyer.

[Ralph Schackart:]

Okay. Thanks Manish. Thanks, Anan.

[Operator:]

Your next question comes from the line of Aaron Kessler from Raymond James. Your line is open.

[Aaron Kessler:]

Great. Thanks, guys. Anan, could you talk maybe on the advertising side, any expected impact from IDFA? Another retailer mentioned that recently? And secondly, are you seeing kind of increased interest from brands or vendors as well? Thank you?

[Anan Kashyap:]

Sure. So IDFA is of course going to have a shift in spending and channel mix for the short-term, over the long-term, it’s a little bit unknown how it sort of shifts the overall mix. For us because we have focused on a very diverse set of marketing channels it allows us to rebalance the spend and continue to focus on growth despite the short-term shift in the advertising landscape overall.

[Operator:]

[Manish Chandra:]

Can you repeat the second part. Anan, can you repeat the second question again.

[Operator:]

If you can please press star one again to re-queue up. And he has not re-queued. I am sorry. He just re-queued up now. Your line is open.

[Aaron Kessler:]

Okay. Thank you. Sorry. The second question is on brands and kind of vendors. Are you seeing kind of increased interest from them as well or just any update there? Thank you.

[Manish Chandra:]

Absolutely. So, yeah, we continue to experiment pretty aggressively with brands. We believe that the size and scale of our community, the interest for brand on both resell and social commerce makes a partnership with them inevitable for Poshmark and we continue to do pretty aggressive experiments -- experimentation there. Nothing specific to announce right now but a lot of good work going on there.

[Aaron Kessler:]

Okay. Thank you.

[Operator:]

Your next question comes from the line of Oliver Chen from Cowen. Your line is open.

[Oliver Chen:]

Hi. Thank you. As we look ahead to the active buyer growth, should we expect it to be in the high-teens or maybe accelerate as some of the growth comparisons ease? And as you think about the marketing spend for the balance of the year, how are you thinking about the composition, as you referred, the upper funnel and also the global opportunities that you are addressing as well?

[Anan Kashyap:]

Yeah. So I will start with kind of the upper funnel dynamics and sort of marketing in general for the year. The main thing, I would say is, as Manish mentioned, one of the important strategies for us is to actually be very diversified both from a -- both from an upper funnel, as well as kind of purely transactional basis. And what we found is that by allowing that flexibility we can shift betting on what we see with IDFA or any other sort of disruption in the marketing ecosystem. So how we think about it is we have got a tremendous ROI based approach which is focused on a payback of about two years and that continues to be our modus operandi. And the only time that that shift as you think about kind of international expansion opportunities around Canada and we have launched Australia, obviously, where those payback periods are usually extended as we are essentially investing in those markets. Hopefully that answers your question.

[Oliver Chen:]

That’s very helpful. On active buyers, what are your thoughts on how that may proceed through the year?

[Anan Kashyap:]

Yeah. So I think we haven’t really guided towards active buyers in our commentary. I think what we would normally expect that to be relatively in line with overall growth of the business. There may be some differentiations when it comes to certain markets. But today that dynamic is very consistent as compared to overarching GMV and revenue growth.

[Oliver Chen:]

Thank you. And lastly a big bigger picture, as the competition does get more competitive in resell. Why would the customer choose to list on Poshmark versus others and could you speak to the defensibility of your pick rate? Thank you.

[Manish Chandra:]

Sure. First of all, I think, as the market for resell is growing. We are sort of seeing resell getting adopted in every single dimension, whether brands that are adopting it, marketplaces are adopting it, which is exciting. So we think resell as a massive expanding opportunity, which paves the way for our own sort of scaling and expansion. And for us from day one we have been the simplest and the most social and the most engaging way for people to buy and sell fashion and fashion-related, style-related products and that continues to be our core focus. Out take rate has also been consistent since we started the company. We partnered with our sellers since day one, haven’t taken it up and haven’t taken it down. It’s been a very consistent partnership and we continue to maintain that partnership as we build out the product. What we have done is in that same partnership added tremendous level of services for our sellers and buyers over that time, whether it is adding things like Posh Post, Posh Authenticate, all adding listing videos, seller discounts, power seller tools, et cetera. So we continue to serve our core community of buyers and sellers on all different dimensions bringing the best engaging online experience, the best social experience. And that we believe is ultimately the key to our growth, our long-term growth, but also key to a successful partnership with our seller community.

[Oliver Chen:]

Thank you. Very helpful. Best regards.

[Manish Chandra:]

Thank you.

[Operator:]

And your next question comes from the line of Ron Josey from JMP Securities. Your line is open.

[Ron Josey:]

Great. Thanks for taking the question. I had two. Manish, you talked about seller shipping discounts now live in the four shipping tiers. Can you give us some updates or talk to us about this conversion rates you are seeing across these four tiers. The use cases that a seller might use when they offer discounts from zero to, call it, fully discounted and what that means to conversion rates? And I ask this in reference to, I guess, the question just to ask now from all over around just the seller tools and newer services that you are offering. So conversion rate or asking about conversion rates on shipping? And then lastly, another question on just category expansion, it’s a key focus for Posh and great to hear pets is bringing new users and sellers to the platform. Just talk a little bit more about what we might look forward to for categories this year and next? Thank you.

[Anan Kashyap:]

Yeah. So seller shipping discounts when you think about the different players and tiers we offer, it’s really a tool for sellers to decide how they want to price their product. Do they want to build more of the margin in the core price and then offer shipping discount or sort of used those two knobs continuously. And sellers are still paying with it. We are seeing increased adoption. But I feel that there are significant potential for much more adoption in the marketplace. And typically you will see free shipping being added to place where the pricing can sustain a fee shipping margin and then lower shipping discounts available for a couple of different tiers. A lot of sellers are starting to experiment with at least the basic tier of discounting to offer value to their shoppers as shoppers are used to different kinds of shipping out there. So we see that happening. Really the place where shipping discounts ultimately have a positive impact for the sellers is the speed that which the clear that items, so it touchdown sort of their sell-through rate in the speed of timing and that’s been very positive to measure there. We will continue to build more and more seller tools to both help and promote and market that. So for example, one of the things we recently launched is the ability for shoppers to filters by different seller discounts over time. The second question that you asked about categories, if you think about focus for categories, it has been categories that are really pertinent to your style and your pace and categories that particularly foster discovery more than just about straight search. So you start to see us expanding from -- our original focus was women, then we expanded to men’s, kid’s, home, beauty, and most recently pets. So, you should see just in categories that express an individual style and ultimately lead to more discovery-oriented architecture. And that’s sort of going to be our core mantra in terms of helping build out a full category portfolio on Poshmark.

[Ron Josey:]

Great. Thank you.

[Operator:]

And there are no further questions at this time. Mr. Manish Chandra, I turn the call back over to you for some closing remarks.

[Manish Chandra:]

Thank you everyone for joining our call and for your questions. We look forward to speaking to you again next quarter. Thank you.

[Operator:]

This concludes today’s conference call. Thank you for participating. You may now disconnect.