The Ratings Game: Poshmark shares plunge as analysts express optimism about resale but call quarterly results ‘disappointing’

The S&P 500 index
SPX,
-0.82%
has gained 4.7% for the three-month period.

Poshmark
POSH,
-28.98%
said it managed to grow revenue despite headwinds from Apple Inc.
AAPL,
-1.92%
privacy changes.

“Accelerating growth while navigating the impact of Apple privacy changes is our top priority, and we will continue to adjust our marketing strategy accordingly to grow GMV [gross merchandise value],” said Chief Executive Manish Chandra on the earnings call, according to a FactSet transcript.

“We began adjusting our marketing spend in the middle of Q3 and have seen an early positive impact on October GMV growth.”

But analysts called the third-quarter results “disappointing,” especially when taking broader trends into account.

“Despite maintaining a highly bullish view of the resale market longer-term, we are downgrading shares of Poshmark to neutral from buy given what has consistently been limited upside to fundamentals since going public earlier this year, which has driven poor stock performance to date, and now lower than expected 3Q revenue and EBITDA coupled with a downbeat outlook for 4Q and 2022,” wrote MKM Partners in a note.

MKM slashed its fair value estimate to $21 from $50.

RealReal Inc.
REAL,
-6.57%
and ThredUp Inc.
TDUP,
-4.50%
both recently reported upbeat quarterly earnings, touting the benefits of being in the secondhand category das consumer express heightened concern about the impact that fashion has on the environment and as supply chain bottlenecks continue.

Poshmark sells both used and new items.

See: RealReal says supply chain impact of COVID-19 is over as the company looks ahead to the holidays

“The results and outlook are disappointing for a high-growth company that will
rely mainly on sales upside for a re-rating, and is occurring at a time when there is exceptional consumer demand industry-wide, and while other retailers have delivered strong upside,” MKM said.

“While we had viewed 4Q as a unique opportunity for Poshmark to capitalize on the supply chain constraints faced by the majority of the retail industry, 4Q guidance doesn’t assume a bullish outcome, and is below our prior view of sales and EBITDA.”

Poshmark is guiding for fourth-quarter revenue in the range of $80 million to $82 million. The FactSet consensus is for sales of $81.5 million.

Also: ThredUp is lowering prices to attract customers who are paying more for other goods due to inflation

“We can’t mince words: Poshmark’s Q3 print was very disappointing,” wrote Wedbush analysts.

Still, the research group maintained its outperform stock rating. Analysts cut their price target to $23 from $32.

“We’re not throwing in the towel yet, as we’re still believers in the long-term structural growth story for online resale and we think the new ‘Brand Closet’ initiative is a positive (which was overshadowed by all the negatives on the call),” analysts wrote.

“But this print knocks our enthusiasm down several pegs, and we admit that that the stock will struggle to “work” in the near-term until it’s clear that the marketing-expense issue is alleviating.”

Poshmark announced the launch of the Brand Closet program in late October, which gives large companies a chance to use Poshmark’s social commerce capabilities to interact directly with customers.

Raymond James maintained its outperform stock rating but slashed its target price to $29 from $49.

And Stifel held on to its buy stock rating but lowered its price target to $28 from $48.

And: Supply-chain delays now could lead to discounts for shoppers down the line, analysts say

Both analyst groups expressed their ongoing confidence in Poshmark’s social commerce approach and long-term growth prospects.

“The company’s social features serve as a competitive moat and drive user engagement and conversion,” Stifel wrote in a note.

“With a highly engaged and growing user base, we believe Poshmark is well positioned to benefit from several global market trends, including (1) growing
e-commerce penetration in the apparel and resale categories, (2) the shift to secondhand and environmentally conscious consumption, and (3) rising consumer adoption of social e-commerce.”