Poshmark, Inc. (A035420) Earnings Call Transcript

Good morning. We will soon begin the Investor and Media Conference Call on NAVER acquisition of Poshmark. NAVER's management team will present first before we move on to the Q&A. For the benefit of participants, simultaneous interpretation will be provided for the presentation, while Q&A will be conducted through consecutive interpretation. With that, I invite NAVER.

Good morning. I'm [ Anna Spark ] from the Corporate Finance Department. Thank you to investors for joining the conference call of NAVER acquisition of Poshmark. With me today are our CEO, Soo-yeon Choi; and CFO, Nam-Sun Kim from NAVER; and Founder and CEO of Poshmark, Manish Chandra. Before we begin, I'd like to remind everyone that statements made during this call that are not historical facts are considered forward-looking statements under U.S. federal securities law. These forward-looking statements are based on the beliefs of the management team as well as assumptions made by and information currently available to us. A full declaration regarding forward-looking statements and additional important legal information are available at the beginning of the accompanying presentation and should be read in conjunction with the conference call. Following the presentation by the 2 NAVER executives, there will be a brief remark by CEO of Poshmark, which -- after which, we will have the Q&A session. We have also uploaded relevant documents on our website, so feel free to refer to them at your convenience. And please note that this conference call can also be replayed on our website. With that, I invite our CEO, Soo-yeon Choi.

Good morning. I am Soo-yeon Choi, the CEO. Based on BOD resolution dated October 3, NAVER has decided to acquire 100% stake in Poshmark, North America's biggest C2C fashion community platform. We've been thinking long and hard about NAVER's commerce strategy closely following the developments of the global commerce market. In light of the circular economy and NAVER's steadfast efforts and expanding the asset-light commerce strategy, we decided that C2C commerce will be an attractive driver for NAVER's new growth. In addition, within commerce, fashion specialized verticals are growing the fastest in Korea and abroad. And, in Korea, it already accounts for 15% of the commerce market. This acquisition is not only going to power NAVER, Korea's biggest e-commerce platform to gain a position at the forefront of fast-evolving vertical fashion and global C2C market in a short period of time, but will also be an important foothold in creating refashioning community, connecting commerce with social. Upon the strategic acquisition, NAVER will closely communicate with Poshmark across technology and business areas so as to maximize synergy creation. We are painting a big picture around building a new retail format called Community Commerce, which only NAVER can bring to light on the global market. We will make the leap as world's best fashion C2C platform while showcasing fun, new and innovative services to elevate team NAVER's global standing and recognition. I will now turn it over to CFO, Nam-Sun Kim, for further elaboration on the deal.

This is CFO, Nam-Sun Kim. Let me first run through the deal structure. NAVER is planning to acquire 100% of Poshmark for $17.9 per share or an enterprise value of $1.2 billion. When taking into consideration Poshmark's cash balance of around $500 million, the acquisition represents around $1.6 billion. We expect closing to take place in Q1 of next year and foresee no particular issues in gaining the required approval from KFTC. The deal is not a tender offer, but a merger between NAVER's newly established SBC and Poshmark, and we gained voting support from major shareholders representing close to 80% of voting power, which is above the required quorum for the merger. This deal is 100% cash transaction where NAVER will use its cash balance and available debt, and we also plan to do securitization of a portion of several trillion dollars worth of invested assets that has not yet brought much of strategic value or supported rise in share prices. Also pursuant to U.S. Commercial Code, Poshmark's $500 million cash can also be used as part of the fund for acquisition. Upon completion of the acquisition, Poshmark will become NAVER's subsidiary, while the same management team, including the CEO, who have led the growth so far, and the same brand and business identity will be retained as it expands its business reach. NAVER encourages Poshmark's current structure, while both companies will closely communicate on major decision items as we seek to find ways to maximize synergies. Underpinned by the world's top-notch search technology, NAVER is the only global company that successfully advanced into and drove rapid growth from commerce. Poshmark, on the other hand, is a strong social community-based platform, where we see continuous influx of users who communicate and create mutual lock-ins where repetitive buying and consumption takes place, and it enjoys #1 position in the world's biggest market, which is North America. This acquisition will bring to Poshmark NAVER's technology called prowess, including AI, machine learning, live commerce and smart lense, powering the next phase of growth for Poshmark. Both companies have shared set of values and vision, which are content, community and empowerment. In terms of content, NAVER created blogs, signaling the beginning of online communities in Korea. And over the past 2 decades, we have gained strategic operational know-how as a builder of large communities as we amassed our know-how in building different solutions. In digital content also, we created the world's biggest Webtoons platform and acquired the largest storytelling platform in North America Whattpad, in 2021, gaining the basis for global exposure. Poshmark is not only K fashion, but other unique styles and fashion-related contents are continuously created, and with the trendy social feature enough to accelerate the millennials and Gen Zs was a true pioneer in creating a business model that power organic expansion of the ecosystem between users and sellers. Secondly, both companies have a lot in common as community builders. NAVER is by far the Korea's biggest online community with 36 million DAUs, not just the blogs, cafe -- not just the blogs, which I mentioned, we successfully expanded into NAVER cafe brand and other large communities, including Zipato, second largest metaverse app globally, and KPophandom community, K-pop fandom Weverse, which is jointly owned by BTS' management company high entertainment. These are all community-based services born within NAVER entity. Poshmark is a platform where around 40 million users across North America spend more than 25 minutes of their day having fun. And like SNS' through sharing likes and posting of 1 on items, user stickiness is very high. User activity metrics in terms of interactions within micro communities and sharing of taste and interest is also rising. Lastly, on empowerment. In Korea, NAVER provides smart source solutions that helps more merchants start up their e-commerce businesses, and NAVER Webtoon was a pioneer in democratizing creation, allowing anyone to become a creator. To nurture the ecosystem of smart store entrepreneurs, we maintain industry's reasonable fee structure and offer a variety of technology solutions for live commerce, membership management and marketing tools and solutions that enable fastest payment cycle globally. Through Canvas platform, NAVER Webtoon fosters and mature creators, offering tools that creators can use most easily and efficiently within the NAVER ecosystem. Poshmark is also empowering users, including any individuals, influencers and brands, enabling them to easily and safely list and sell what's in their closet, thereby making a social impact. This is well aligned with their company's philosophy and vision of socially responsible and sustainable commerce. Next, I will introduce Poshmark and NAVER in more detail. Poshmark, based on its strong social function, is the largest C2C platform in North America, with the potential to grow into a differentiated and mega-size community. As the #1 fashion C2C platform in the U.S., 80% of the approximately 40 million annual users are Gen Z and millennials. And these millennials and Gen Z enjoy discovery influences and individual posts and engaged through micro communities with others with similar tastes and interest. As a result, Poshmark enjoys high user stickiness and a significantly higher purchase conversion rate than other e-commerce platforms. Half of buyers become sellers, while half of the sellers become a buyer, thus creating an interactive virtuous cycle. Moreover, more and more individual sellers are going into professional sellers. The ticket price per customer is growing and categories continue to expand, which is also encouraging. Now let me briefly touch upon some of Poshmark's key majors. Across North America, Poshmark has roughly around 40 million, a dominant active user base led by Gen Z and millennials. Poshmark's active buyer and seller stood at 8 million and 4.5 million, respectively, and 52% of buyers became a seller in 5 years, while 48% of sellers use earnings to buy, thus creating an interactive virtuous cycle. As of 2021, gross merchant volume was $1.8 billion, up 27% Y-o-Y, and revenue was $326 million, an increase of 24% Y-o-Y. In terms of both GMV and revenue, the company has posted a high CAGR of 25% during the past 3 years. Based on its asset-light business model, even during COVID, the company was a profitable platform that was able to maintain a positive EBITDA margin. Poshmark's take rate is around 20% with no additional listing, payment or authentication fees required, which is a simple and intuitive business model. In addition, shipping is fast and provided at a flat rate regardless of weight, resulting in a competitive delivery system against its competitors. With this acquisition, NAVER will be able to enjoy the #1 position in the fashion category for the North American e-commerce market, which is expected to grow at a CAGR of 20%. In addition, the deal is also an important step on the path to achieving a sustainable economy and implementing NAVER's ESG management philosophy. By following sellers with a similar taste or engaging in community activity, users accumulate social experiences, which creates a path to discovering personal taste, much stronger than any personalized algorithm. And based on these social graphs, we believe new retail formats can be created. Moreover, NAVER's leading AI research and also live commerce technology will enable Poshmark buyers and sellers to enjoy a more simplified, yet rich shopping experience. In particular, live commerce will not just be a simple sales tool, but a new format that can further enhance the social nature of Poshmark. It can evolve into a wide variety of formats. So that not only will sellers be able to sell close in their own closet, but more experienced influencer sellers will be able to sell items on behalf of other users, or multiple sellers would be able to co-host live shows. Through this deal, NAVER's commerce business will grow in dimension and scope from NAVER's search-based shopping, driven by users, which have specific purchase intention, and it will include discovery or browsing based activities that can be led by the millennials and Gen Z, which will motivate shop being further. In addition, we also believe that by adding more segmented apparel and lifestyle categories to this platform, we hope the platform will go into a micro community-based social ecosystem supported by casual and immediate interaction on recent trends. Lastly, let me go over the financial synergies and cost efficiencies that we expect from this deal. Based on Poshmark's asset-light business model that can enable it to generate high margins for the next few years, the target would be to achieve a revenue CAGR of 20%. And also record a positive EBITDA on an adjusted basis margins in 2024. Recently changes in the iOS privacy policy and normalization of the new buyer cohort, that was exceptionally high during COVID, has led to a slow down slightly in the top line growth. But the business strategy focused on user retention and reactivation, live commerce synergies and new profit sources such as high-margin advertisements, are expected to not only improve the top line, but also contribute to better profitability. In terms of operational efficiencies, absence of U.S. listing maintenance expenses, rationalization of overlapping R&D resources and headcount and savings on IT such as by using live commerce and search functions are expected to result in cost savings of around $30 million. Finally, the combination of NAVER and Poshmark marks the creation of a re-commerce platform with the widest reach around the globe. With Poshmark, NAVER will become the #1 player in the fashion e-commerce market in the U.S., which is the largest market in the world. We will fully support Poshmark in [ defers ] into Europe, including the U.K. And with NAVER, Poshmark will gain a foothold to make inland in the advanced Asian markets, including Korea and Japan. With this, I would like to end my presentation on NAVER's acquisition of Poshmark.

Next, we'd like to invite Manish Chandra, CEO and Founder of Poshmark, for his brief remarks. Please go ahead, Manish.

Thank you. It's an honor to be here today and to share this milestone with all of you. We started the company in 2011 with my co-founders, Tracy Chetan and Gautam. And our mission from day 1 was to put people at the heart of commerce. We looked at the future where really we wanted to empower anybody with a closet to turn their closet into a store, into a shop and buy and sell, connecting and empowering everyday people and take the journey to entrepreneurship. Today, we have over 80 million registered users in Poshmark that span U.S., Canada, Australia and India. We really have built a very engaging community, and what is exciting for us is in partnership with NAVER, we can not to see how we make this community even more global and grow it even further and faster as we combine our forces. What got us really excited about the partnership is the depth of NAVER's technology presence, particularly around live selling, search and machine learning/AI. But ultimately, what solidified our decision to move forward was our shared vision, shared values and shared mission. We all prioritize people and focus on people, combined with empowering them with technology and really a focus on community. And it's ultimately who we serve is our community and that sort of shared mission brought us together. It's a very exciting day for all of us, and we think of it as just the beginning of a new phase of growth for Poshmark and NAVER together. Thank you.

[Foreign Language] [Operator Instructions] [Foreign Language] Since we received questions beforehand after the disclosure, why don't we first go through some of the questions that we have previously received. The first question is, out of all of the other Fashion and C2C companies around the world, including China, what was the reason behind NAVER's decision to acquire Poshmark?

Well, over the past 20 years, NAVER has made a challenge to go global, and we have been expanding our presence, including Japan as well as other Asian countries. And in North America and Europe, we have made acquisitions of Whattpad in order for us to gain the user base and also to gain understanding of the market. And we've made investments into other global companies and expanded investments as well as collaboration, including many different fields, which also include companies like [indiscernible] and [indiscernible]. [Foreign Language] There could be many areas where we could actually lay the basis for making further entrance into the market by utilizing our IT technology in terms of areas of cutting-edge technological trend and use of the human network. And also, there will be many opportunities that NAVER could bring its global business capabilities. And we, after scouring the market, believe that C2C will be an area that is most optimal for fueling future growth of NAVER going forward. [Foreign Language] So once we decided on the vertical segments that we wanted to invest in, Poshmark really stood out. More than 80% of its Poshmark user base are Millennials and Gen Z in North America, and they are, by far, the #1 secondhand C2C fashion and global platform. And also, the secondhand market in the U.S., especially the online market is growing very fast. And Poshmark, if you look at their business model, it is by far unrivaled. And the fact that it is a model that brings together very strongly, commerce, community and social features. And we believe that to be the key strength. [Foreign Language] Because already there is a significant base of users who spend more than 20 minutes in enjoying the Poshmark services, we feel that this was the most flexible way for us to attract and go closer to -- and target younger generation. In terms of fashion commerce, we also believe that this is a vertical that we could quite expeditiously monetize and turn to profits.

[Foreign Language] Second question is, in light of the current macro environment, do you think that this is the right timing for you to make the acquisition?

[Foreign Language] We at NAVER believe that despite the macro headwinds, we believe that this was an appropriate timing for us to challenge ourselves in making this acquisition. If you look at Poshmark, the impact that it is feeling are from the actions with the outside factors rather than the internal -- internally attributable factors. And hence, because of these outside factors, their valuation in terms of capital or in terms of their -- the corporate value, the valuation itself had been adjusted downwards. And hence, we believe that it is a very good opportunity for us to acquire this company, which is a very good company at a very good price.

[Foreign Language] Just to elaborate a little more on the pricing side. If you consider the current pricing level, with the other similar transactions and also in terms of the premium that was put on, I believe that it is within an appropriate range. Despite comparison, if you look at it a year ago, a competitor called Depop was acquired at a price of $1.6 billion by a very famous North American-based C2C company called Etsy. And that price, if you look at Depop's revenue, it is 1/5 the size of Poshmark. And the fact that, that was acquired at $1.6 billion does speak quite a bit about our transaction. So even with that comparison, our pricing or the enterprise value was calculated at $1.2 billion. So in light of all of that, I believe that the acquisition pricing was quite favorable or positive.

[Foreign Language] From now on, we will take questions that come through the conference call. Please, operator, could you proceed?