Kinesic Capital Urges Poshmark to Initiate a Substantial Share Repurchase Program
The letter below was sent by Kinesic Capital LLC ("Kinesic Capital") to the Poshmark, Inc. ("Poshmark") executive team and Board of Directors on June 2, 2022.
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Dear Manish, Rodrigo, and the Poshmark Board of Directors,
You have been given a rare opportunity by the stock market to use the excess liquidity on your balance sheet to repurchase Poshmark common stock at highly attractive prices, and we as shareholders (hopefully for many years to come) encourage you to start doing so via open market purchases or a modified Dutch auction tender offer.
Poshmark common stock is down 90% from its high reached in early 2021, leaving the business with a fully diluted market capitalization of approximately $900 million while carrying nearly $450 million of net cash on the balance sheet. That means Poshmark trades at an Enterprise Value to Revenue multiple of 1.2x and an Enterprise Value to Gross Profit multiple of 1.5x. You have pointed to the 35% Adjusted EBITDA margin reported in the second quarter of 2020 as evidence of what the long-term margin could be for the business, and assuming that margin is someday achievable, then shares currently trade for 3.5x the "embedded" Adjusted EBITDA of Poshmark.1
Poshmark shares many of the characteristics of other high-margin consumer internet marketplaces: strong network effects, high revenue retention, and an asset-light business model. Considering profitable consumer internet marketplaces generally trade between 8x and 30x forward Adjusted EBITDA2, the return potential of retiring Poshmark stock at today's prices should be clear, assuming you are committed to gradually expanding margins over time. Given the magnitude of the potential returns, we believe there is no better use of capital as long as there are sellers at these levels.
In addition to the attractive returns this should generate over time for remaining shareholders, we believe repurchasing stock will also prove beneficial to Poshmark employees, who would like to see their equity valued more appropriately, and Poshmark sellers, who need to believe they are building on a successful platform that will be around for the next 5 to 10 years.
Manish, we greatly admire what you and your team have built Poshmark into today and respect your decision to continue investing in the business as opposed to optimizing for near-term profitability. We also believe that if Poshmark margins will one day be as high as you have alluded to, then repurchasing shares today should be too attractive an opportunity to pass up, and is the only true way to signal your confidence in the long-term margin potential of the business. As you know, actions speak louder than words.
Sincerely,
Spencer Walsh
Managing Member, Kinesic Capital LLC
1Market data as of close on June 1, 2022. Net cash calculation excludes "Funds Payable to Customers". Revenue and gross profit represent the average of 2022 sell-side consensus estimates. "Embedded" Adjusted EBITDA applies Poshmark's Q2 2020 Adjusted EBITDA margin to 2022 sell-side consensus revenue.
2Based on Kinesic Capital analysis of global consumer internet marketplace valuations over the past 10 years.
About Kinesic Capital
Founded in 2020 by Spencer Walsh, Kinesic Capital LLC is a boutique investment advisor managing a single, concentrated, public equity strategy. Kinesic searches globally for the best risk-adjusted return opportunities within the technology and consumer sectors.
Important Disclosure Information
This communication may contain Kinesic Capital's current views on the value of Poshmark's securities and certain actions that Poshmark's Board of Directors and executive team may take to enhance the value of its securities. Kinesic Capital's views are based on analysis of publicly available information and assumptions believed to be reasonable. There can be no assurance that the information Kinesic Capital considered and analyzed is accurate or complete. Similarly, there can be no assurance that Kinesic Capital's assumptions are correct. Poshmark's performance and results may differ materially from Kinesic Capital's assumptions and analysis. Views expressed in this communication constitute the current opinion of Kinesic Capital and are subject to change without notice.
Kinesic Capital has not sought, nor received, permission from any third-party to include their information in this communication. Any such information should not be viewed as indicating the support of such third party for the views expressed herein. Kinesic Capital has no obligation to update, modify, or amend this communication, or to otherwise notify a reader in the event that any matter stated herein changes or subsequently becomes inaccurate. Nothing herein is or should be construed as investment, legal, or tax advice, or an offer to sell or a solicitation of an offer to buy any securities.
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