Poshmark Q3 2021 Earnings Call Transcript

Quartr
Provided by Quartr
November 8, 2021

There are 10 speakers on the call.

Operator

Good afternoon. My name is Brent, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q3 2021 Poshmark Incorporated Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Operator

Thank you. I would now like to turn today's call over to Christine Chen, Head of Investor Relations. Please go ahead.

Speaker 1

Welcome to Poshmark's Q3 2021 conference call. Joining me today are Manish Chandra, our Founder, Chairman and CEO and Kapal Agarwal, Interim CFO. Please keep in mind that our remarks today include forward looking statements such as statements related to our financial guidance and key drivers, the impact of COVID-nineteen on our communities, business and strategy, the potential benefits of our marketing and product initiatives and the anticipated return on our investments and their ability to drive growth. Our actual results may differ materially than those expressed or implied in our forward looking statements. Forward looking statements involve substantial risks and uncertainties on 10 ks for the year ended December 31, 2020, and our 10 Qs for the quarter ended March 31 June 30, 2021, and our subsequent filings with the SEC, including our 10 Q for the quarter ended September 30, 2021.

Speaker 1

Any forward looking statements we make on this call are based on our beliefs and assumptions as of today, and we don't have any obligation to update them. Also during the call, we'll present GAAP and non GAAP financial measures. A reconciliation of non GAAP to GAAP measures is included in today's earnings release, which you can find on our IR website along with a replay of this call. And with that, I'll turn it over to Manish.

Speaker 2

Thanks, Christine. Hello, and welcome, everyone. Thank you for joining us for our Q3 earnings call. Our vision for Poshmark is to become the world's leading social marketplace and the number one destination for sellers around the world. We're laser focused on making strategic investments that drive the continued growth of our business, give the best overall experience for sellers and make our marketplace the number one most trusted destination for buyers.

Speaker 2

Our social marketplace was built to support sellers of all sizes, and we want to empower each and every one of them to be successful while fueling a more circular shopping engine. While we faced greater than expected headwinds during the Q3 due to IDFA and Apple privacy changes, We grew GMV and revenue year over year by 18% 16%, respectively, to $442,500,000 $79,700,000 despite difficult comparisons. On a 2 year basis, GMV and revenue grew 64% and 59% year over year, respectively. We delivered our 6th consecutive quarter of adjusted EBITDA stability with $300,000 in adjusted EBITDA and 0.3% in adjusted EBITDA margin. While increasing our marketing spend to counter the impact of Apple privacy changes.

Speaker 2

Investing in marketing and product innovation in the quarter help drive 17% growth in TTM active buyers, up from 16% in the 2nd quarter. Our asset light model holds no inventory, leading to consistent high gross margins of 85% in the 3rd quarter, resulting in a scalable business with a highly engaged community of loyal cohorts. 3rd quarter sales reflected Poshmark as a go to destination to source trends such as TikTok inspired styles. Searches for TikTok increased 1500% over the last 2 years, and we have seen a surge in demand for brands that are trending with TikTok influencers. We grow the GMV of our marketplace by growing our overall community of users.

Speaker 2

These users activate as buyers and sellers, creating a virtual flywheel of growth and monetization. When users join, they connect with each other through social interactions, which grew 37% year over year during TTM Q3 2021 to 38,900,000,000 Our marketplace makes shopping online fun and interactive, and we continue to add features to increase engagement. 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. We began adjusting our marketing spend in the middle of Q3 and have seen an early positive impact on October GMV growth. Product innovation, category expansion, international growth and new seller tools build the foundation for driving GMV revenue and active buyer growth.

Speaker 2

We remain confident in the opportunities for accelerating future growth, driven by continued progress of these 4 growth piece. First, we continue to focus on product innovation to drive user engagement, which is fundamental to the retention of our user cohorts and GMV growth. At the end of July, to enhance the buyer experience, we expanded our partnership with the firm to include their split pay products for items between $50 $200 As a result of this new pricing tier, we have seen an increase in AOV and number of orders at these price points. Since we completed the full rollout of buyer alerts at the end of Q2, we have seen an increase in listing views, engagement, order conversion and incremental daily GMV. This enhancement creates an urgency to buy for items with competing offers and creates a more personalized and curated shopping experience by merchandising similar or identical items to the buyer if the item they like has been sold.

Speaker 2

We recognize the importance of premium priced products in the resale market and have seen strong growth in this category with $200 plus items now representing in the low 20s as a percentage of GMV, up from 17% in 2019. Last month, we completed our milestone first acquisition of SuedeOne, a New York City based sneaker authentication platform that combines machine learning technologies, computer vision and human expertise to conduct virtual authentication. This will build more trust and loyalty with our shoppers, create a more efficient and sustainable approach to authentication and help accelerate growth in sneaker and luxury categories. Expanding our international footprint is our 2nd key strategic focus and we continue to invest ahead of revenue. In mid September, we launched Poshmark India as our first marketplace in Asia.

Speaker 2

The Indian market has over 622 1000000 active Internet users and a rapidly growing base of sustainability and value conscious consumers who seek a more socially connected experience, particularly Gen Z and Millennials. India is an ideal fit for our unique social commerce model, both from a cultural and business perspective. Though still very early, India is off to a strong start with higher than expected user growth as we begin building the community. Growing GMV through category expansion is our 3rd strategy. With the launch of our Brand Closets program, we're opening our social marketplace to large scale brands and retailers, allowing brands to directly connect, converse with and sell to Poshmark's community of over 80,000,000 users with a suite of social merchandising tools.

Speaker 2

Our social commerce platform allows us to bring rich insights about fashion trends and real time data about consumer interest to our brand closet partners, helping them reach new audiences, including millennials and Gen Z. Some brands have a larger following on Poshmark than their own social media channels and 79% of our buyers have purchased a brand for the first time Poshmark. We already have 140 plus community brands using Brand Closets to reach our 80,000,000 registered users. Some have built their entire brand using Poshmark. We have piloted brand closets with a few large scale brands since 2020, developing a full scale program that offers the features a large brand needs to thrive on Poshmark.

Speaker 2

We're excited about this new program as more brands see the value of social commerce in circular bottles. And we see brand closets as an important inflection point as we work together to shape the future of shopping. Delivering innovative, easy to use and effective seller services to help sellers market, merchandise and sell their listings is core to our strategy. Our co founder, Tracy Sun, is now officially leading a new organization at Bauschmark that is exclusively dedicated to empowering our sellers, anticipating their needs and innovating to bring fresh ideas, solutions and tools that will help them grow and scale their businesses. Sellers are the heart of Poshmark community, keeping our marketplace constantly refreshed with curated merchandise that reflects current and emerging trends and lifestyle preferences.

Speaker 2

The 4 powerful bulk listing tools that we launched at the end of June have helped sellers improve their sales productivity. During the Q3, we saw a strong adoption of these tools with professional sellers having the highest adoption rate of 30%. Professional sellers who adopted bulk action show a higher increase in sales driven by an increase in orders than did listeners who did not use bulk actions. We see continued opportunity for increased adoption of this feature to drive GMV growth. We also introduced a new slate of tools to help sellers replicate the best part of client service when shopping in a physical boutique.

Speaker 2

This includes MyShoppers, a social selling and clienteling tool that is unique to Poshmark, Closet Insights providing sellers with real time data of their sales and inventory, direct messaging allowing sellers to communicate directly with their buyers and a new gold badge in the Posh Ambassador program to recognize and reward outstanding members of our seller community. We announced these new product enhancements in October at our 9th annual PoshFest, our conference with our vibrant and passionate community members connect, network and learn how to grow and succeed by selling on Poshmark. Attendees of the virtual event came from all 50 states, Guam, Puerto Rico, Canada, Australia, India, the Netherlands, U. K, Mexico, Spain and Colombia, evidence of the global appeal and reach of our community. Our highly engaged community gives us the confidence that we will be able to navigate near term headwinds and we will continue to adjust our marketing to accelerate growth.

Speaker 2

As we celebrate Poshmark's 10th anniversary next month, we believe that our business model is tailor made to thrive in the current environment because our millions of sellers are constantly listing new products. Our marketplace is highly adaptable and incredibly responsive to buyers changing demands and we're not impacted by supply chain disruptions. We're optimistic that this holiday season, consumers will once again attend events and see friends and family, all reasons that drive demand for apparel and accessory purchases with the potential for more self gifting and gift giving. Our resale marketplace enables shoppers to rotate styles, mix trends and give a second life to items, contributing to a more sustainable fashion ethos for consumers. And with that, I will turn it over to Kapil.

Speaker 3

Thank you, Manish. As Manish mentioned, despite difficult comparisons and the headwinds of Apple privacy changes. We delivered solid GMV and revenue growth year over year and our 6th consecutive quarter of adjusted EBITDA profitability. During the Q3 of 2021, our cohorts have remained resilient and helped us generate $42,500,000 in GMV, which was 18% growth from $375,400,000 in the Q3 of 2020, a 64% growth on a 2 year basis. Net revenues were CAD79,700,000 in the Q3 of 2021, which was 15% growth from CAD68,800,000 Q3 of 2020 or 59% growth on a 2 year basis.

Speaker 3

This was driven by 17% growth in TDM active buyers to CAD7,300,000 from CAD6,200,000 in the Q3 of 2020, up from 16% in the 2nd quarter. Our take rate was 18%, which is down slightly from last year's 18.3% due to continued mix shift to more orders greater than $15 as orders less than $15 have higher take rate due to the flat fee of $2.95 Cost of revenues was $12,100,000 in the Q3 of 2021, an increase of 6% from the Q3 of 2020, but a decrease to 15.2% of revenues from 16.5% last year due to a non recurring credit in payment processing fees. Therefore, adjusted gross margin improved by 1.3% to 84.8 percent of revenues in the current period as compared to the Q3 of 2020. Marketing, Excluding stock based compensation or SBC was $35,400,000 in the Q3 of 2021, an 89% increase from CAD18,800,000 in the Q3 of 2020 when we dramatically reduced marketing spend in response to the COVID crisis. On a 2 year basis, marketing only grew 6% from Q3 2019 to Q3 2021.

Speaker 3

During the Q3, similar to others who use digital marketing, we continue to see the impact of Apple's IT changes. Since our marketing mix is highly diversified and nimble, we adjusted by focusing on strong ROI user equation channel as well as investing in upper funnel strategies such as TV and creative partnerships to counter the effect of IDFA. Marketing was 44.5 percent of net revenue in the Q3 of 2021 as we increased spending during the latter part of the quarter to navigate the impact of Apple price changes. The increased investment in marketing also accelerated the growth rate of TDM active buyers to 17% in the 3rd quarter, up from 16% in the 2nd quarter. Moving to other operating expenses, ops and support excluding SBC was $12,400,000 in the Q3 of 2021 similar to the 2nd quarter.

Speaker 3

Ops and support was slightly lower than expected and was 15.6 percent of revenues, up from 14.5% in the Q3 last year. R and D excluding SBC was $9,200,000 in the 3rd quarter, similar to the 2nd quarter. R and D was 11.5% of revenues, up from 10.4% of revenue in the Q3 of 2020. This was due to the planned increase in hiring we have previously discussed as we continue to invest in additional resources across a number of key strategic initiatives. G and A excluding SBC of $10,300,000 in the Q3 was similar to the Q2 and was slightly lower than expected due to fewer in person events and lower traffic costs.

Speaker 3

G and A was 12.9 percent of revenues, up from 9.5% in the Q3 last year due to the ongoing costs of being a public company. Stock based compensation was $6,700,000 in the Q3 of 2021, an increase from $2,600,000 last year, mainly due to performance based vesting of outstanding RSUs upon completion of our IPO in January 2021. We generated adjusted EBITDA, which excludes SBC of $300,000 with adjusted EBITDA margins of 0.3% as compared to CAD15 1,000,000 21.9 percent margin in the Q3 of 2020. The decrease in profitability was driven by an increase in marketing investment as compared to the last year, where we significantly lowered our marketing spend during the initial onset of COVID-nineteen. As we have discussed before, for the remainder of 2021, we will continue to invest in marketing to accelerate GMV growth.

Speaker 3

Operating loss, excluding SBC, was negative $600,000 in the Q3 of 2021 with operating margins of negative 0.7 percent compared to $14,300,000 with margins of 20.8 percent in the Q3 of 2020. Q3 2021 net loss to common was negative $7,200,000 compared to $8,100,000 in income last year. Cash, cash equivalents and marketable securities were $589,000,000 at the end of the Q3 2021. As we think about capital allocation, our number one priority is using our strong balance sheet to make strategic investments to drive long term growth. Moving to the cash flow statement for the 9 months ended September 30, 2021, free cash flow was $31,300,000 compared to $57,100,000 for the 1st 9 months ended in 2020.

Speaker 3

Our strong cash flow generation significantly strengthened our balance sheet and liquidity. We expect 4th quarter revenues of $80,000,000 to $82,000,000 resulting in a growth rate of 15% to 18%. We have seen early signs of the positive impact of increased marketing investment that we started in the Q3 with accelerated JV growth in October. Similar to Q3, we expect to see a pressure on our 4th quarter take rate from last year as we expect continuous mix shift to orders greater than $15 In addition, we anticipate that USPS will once again experience logistics disruption during the holidays as the shift to e commerce outpaces capacity. We expect negative EBITDA of $7,000,000 to $8,000,000 in the 4th quarter as we continue to invest in marketing to accelerate top line growth, while navigating the impact of Apple privacy changes.

Speaker 3

Adjusted gross margin during the Q3 of 2021 was ahead of our initial expectations. And for the remainder of 2021, we expect adjusted gross margin to be similar to 2020 levels due to the absence of non recurring credits in payment processing fees. We expect ops and support excluding SBC in the 4th quarter as a percentage of revenue to be slightly higher than last year due to anticipated logistical challenges faced by USPS during the holiday season. R and D excluding SBC in the 4th quarter is expected to increase as a percentage of revenues from last year as we continue to increase our investment in product innovation to accelerate growth. For the remainder of the year, G and A excluding SBC as a percentage of revenue should be higher than last year due to the ongoing cost of being a public company.

Speaker 3

We expect marketing, excluding SVC, as a percentage of revenues to be in the high 40s due to higher cost in digital advertising as a result of Apple privacy changes. Our asset light, high gross margin business and consistent behavior of our cohorts gives us the confidence that we will be able to adapt to the changes in the digital advertising landscape by investing in marketing now to accelerate growth. We will be disciplined in our marketing investments and our diversified marketing mix will enable us to build our user base to proactive buyers, which will put us in a stronger position in the long term. We expect that uncertainty due to COVID and its effect on reopening timelines across international markets launched in 2021 will result in a slower ramp up than what we had initially expected for next year, impacting growth rate. But we would expect growth next year to accelerate from the current quarter as we begin to benefit from our investments in marketing, category expansion and the launch of Grand Closets.

Speaker 3

Our social marketplace is nimble as evidenced by the resilience of our cohort. Our asset light model holds no inventory, so supply is highly responsive to buyer's changing demand, positioning us well to thrive in the current environment. We have a long runway of growth ahead, fueled by the execution of our growth strategy and our relentless focus on building a more seamless, more social and more circular way to shop. Thank you. And I will now turn the call over to the operator we can take your questions.

Operator

Of time. Your first question comes from the line of Lauren Shank with Morgan Stanley. Your line is open.

Speaker 4

Hi. I've got Nathan Feather on for Lauren. Just want to remind, I guess trying to figure out a little bit more on the impact of IDFA to So can you just talk about how IDFA was impacting kind of GMV and revenue growth? And was it really more kind of a new user getting in the door impact. Thank you.

Speaker 2

Thanks. The thing with IDFA is it has really increased the cost of digital advertising and decrease the efficacy when running targeted marketing programs. And so for us being a data driven organization, we spent June July really measuring the ROI and figuring out what the right level of spend is. And in fact, if you recall in the last call, we actually decreased our marketing Once we sort of realized where the right level of spend was, we increased our marketing spend starting in the second half of the third quarter. And that's when we saw an acceleration in TTM active buy growth to 17%, and we've seen an early positive impact of October GMV and because of this increased marketing expense.

Speaker 2

So really the dynamic started on the positive side a little bit later in the quarter.

Speaker 4

Okay, great. That's helpful. And then, can you just give an update on how things are progressing with the Poshmark Mini App integration Snapchat.

Speaker 2

Sure. Yes. So Snap and Bauschmark partnership continues to be a really great partnership, which allows our sellers inventory to be distributed inside Snapchat and brings Snapchat users to Poshmark inventory natively in Snapchat. As you know, Snapchat has a predominant community of Gen Zers. So this is obviously a very relevant and very fast growing part of our community.

Speaker 2

Gen Z makes up 77% of daily active players using Bauschmark Mini. And our goal is to really make Poshmark ubiquitously available. You see that on all the platforms, you see that in the browsers and certainly Snap is an important platform for reaching young consumers who seek a more social and sustainable way to shop. So we continue to make good progress there in terms of just penetrating that and scaling that.

Speaker 4

Okay. Thank you.

Operator

Your next question comes from the line of Ross Sandler with Barclays. Your line is open.

Speaker 5

Hi, this is Tom Zahn for us. Any high level comments on retention given the uptick in marketing as a percent of GMV? Is this going to remarketing previous cohorts or new customers? Any color here is pretty helpful. Thanks.

Speaker 2

Yes. When we think of marketing, we really think of it in 2 buckets. New user acquisition to drive growth and really that comes to organic growth, word-of-mouth sellers and then direct response advertising. Direct response is both Google and Facebook and certainly other channels out there, but those are the most dominant ones. And then the third is brand awareness, which is TV and creators and influencer out there.

Speaker 2

Now if you think of these channels, some of these channels drive both new growth as well as retained growth. When we think of purely marketing to retention, it comes predominantly through our own channels, email notification, blog, social events, Fosh Parties that weathered our social network. So when we think of our overall growth strategy, we think of that mix, that sort of impacts that healthy mix between focusing on new user growth and the older user growth. The cost per user on the new user side was definitely the most impacted in terms of Apple privacy changes and IDFA.

Operator

Your next question comes from Ralph Schirchard with William Blair. Your line is open.

Speaker 6

Good afternoon. Thanks for taking the question. There's been a lot sort of talked about on DFA and industry wide, CACs have gone up pretty significantly. So just curious how your CAC has trended relative to what's going on in the industry with these recent changes? And then sort of your current thoughts on LTV to CAC as you look forward.

Speaker 6

Do you think you'll be able to sort of get back to where you were historically? Or do

Speaker 2

you think this will take

Speaker 6

some time to sort of grind through? And I have a follow-up question.

Speaker 2

Yes. Look, I think as it's no surprise, our costs have gone up. And when we think of how we invest in it. Ultimately, we rely on our long term behavior of cohorts and high gross margin business, which allows us to recoup these costs. Certainly, we've represented and we've talked about how we have talked in terms of payback period, which has been in that 2 year timeframe.

Speaker 2

In order to accelerate the spend and growth, have to give a little bit of leeway to our marketing team to do that, and it will impact our payback periods temporarily. But when we think of the long term, we have successfully navigated several different digital advertising landscape changes over the last few years. Going all the way back to 2018. Facebook had changed its algorithm, if you remember, in Q2 of 2018. And it took us about a year, year and a half to digest that cost and normalize it and get back to normal pay period.

Speaker 2

Last year, Google went through a search changes and that was also a pretty fast re vectoring. IDF is taking a little bit more time to digest both on our re vectoring and our partners' re vectoring, but we expect over time it will get normalized and we'll be able to rebalance to our normal payback periods.

Speaker 6

Great. And just a follow-up if I could please. Just in terms of the guide that calls for negative EBITDA, is that a reflection of what you're seeing in the current market environment with IDFA? And if so, How should we think about that sort of investment period going forward into 2022? And I guess a bolt on to that question is there's some commentary about slower growth in 2022.

Speaker 6

I apologize, I missed it. If you could just sort of repeat some of that commentary, I really appreciate it.

Speaker 2

Thank you.

Speaker 3

Thanks, Raj. So there are 2 key assumptions which are driving our EBITDA guidance for the Q4. First is, we are increasing our marketing investment from mid-40s in the Q3 to high-40s to counter the impact of IDSA and to accelerate GMV growth. And second, similar to what we saw last year, we expect potential disruptions at USPS due to the influx of online shopping over the holidays and that could result in higher office support costs as we want to maintain our high level of customer service during the peak holiday season. And as far as 2022 is considered, Raj, it's too early for us to give an outlook on 2022 as we are in the middle of our planning cycle.

Speaker 3

But given our strong balance sheet, we'll continue to invest in marketing next year to accelerate our top line growth.

Speaker 2

The only thing I think which we did talk a little bit about, Ralph, which I want to just reemphasize is the fact that We are counting on these non U. S. And Canada markets to have a slower ramp to sort of becoming critical to our business. So That's the one thing we are asking you not to sort of include in your 2022 assumptions because of COVID. These markets have taken time.

Speaker 2

They're seeing early signs of good engagement, etcetera, but we want to be just much more cautious about factoring them too much into 2022 growth. Okay.

Speaker 6

Thanks, Manish. Was that relative to the commentary about slower 2022 growth as I think I understood during the prepared remarks?

Speaker 2

Yes. It is mostly around that. Yes, Yes. On the core side, we actually expect it to grow to accelerate from Q3 numbers.

Speaker 6

Okay. So it's just the COVID impacts from some international markets then?

Speaker 2

Yes. In terms of I mean, you're seeing different countries sort of behave differently. I mean, I was just reading and sadly about Germany's condition right now. So each market is just sort of in a different trajectory overall. Understood.

Speaker 2

Thank you.

Operator

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

Speaker 7

Hi, there. This is Katie Hawberg on for Oliver Ken, would just love a little bit more details on the learnings from your launch in India now that it's been several months? And then I have a follow-up after that.

Speaker 2

Sure, absolutely. We launched India in mid September and we have been thrilled by the vibrancy of the market. Tremendous potential there, 622,000,000 active users in a rapidly growing base of sustainable and value conscious consumer. We're seeing strong user engagement and actually user growth is ahead of plan there. And we are seeing good listings growth, good sort of engagement overall.

Speaker 2

So For us, when we see a country which is slightly different than say Canada and Australia has some very specific local dynamics and see the market sort of thrive, It's very encouraging about the universal appeal of our model. And I think India is still readjusting from COVID, so that sort of that impact is still there. But overall, the core social flywheel is very well in progress and showing very good traction in India.

Speaker 7

That's great. Thank you so much. And then, we'd just love to know a little bit more about the trends across categories. If you could just speak to Home and Pet or non apparel versus apparel? And then specifically, just a little bit more on women's apparel would be much appreciated.

Speaker 7

Thank you.

Speaker 2

Could you repeat the last question again?

Speaker 7

Just a little bit more detail on the trends across the categories, so non apparel versus apparel and specifically, how did women's apparel look in Q3? Thank you.

Speaker 5

Did you have the data?

Speaker 2

Let me try to see what we can share on that front. But broadly, when we think of sort of the newer categories, they continue to take hold very well, particularly pets, which we launched in Q2. We've seen an acceleration in non apparel categories for sure, including sneakers and handbags. But on the apparel side, can we get that data? So just to give you a sense that non apparel categories were 6% of GMV in 2020 and have sort of scaled to 6% in the Q3 of 2021.

Speaker 2

So they're sort of at that same level.

Speaker 7

Okay, great. Thank you so much.

Operator

Your next question comes from Aaron Kessler with Raymond James. Your line is open. Great.

Speaker 5

Thank you. A couple of questions. Maybe just first on the Brand The Closets program. Can you just talk a little bit about the rollout of this kind of the go to market strategy and maybe with how brands will do us logistics there as well. Thank you.

Speaker 2

Yes, thanks. Super excited about the growth opportunity with Brand Closets as brands can interact and sell to our community of over 80,000,000 registered users, helping them reach new customers. One of the great things about brands selling new items on Poshmark are that they are participating in a very different shopping ecosystem. It's an ecosystem where items can have multiple lives, exchange hands spending time over through features like reposh and continue to get resold. Many brands have a larger following in Poshmark than their own social media channels and that's sort of one of the interesting factors that they look at.

Speaker 2

The other thing is we bring brands to new buyers. 79% of our buyers have purchased a brand for the first time on Poshmark. We currently have a handful of large brands who are active on our platform, 3 people, Lucky Brand, Doses of Color and Hue. We've seen interest in Brand Closet rise significantly since our announcements and we are in active discussion with several other large brands. We have about 140 plus smaller brands using our Brand Closet program.

Speaker 2

And ultimately, the Brand Closet program brings all of the social tools that we have, but adds to it enterprise integration as well as giving them extra traffic with the brand closet, a button official brand closet button on the brand pages and allows them to leverage the fan base that they have on Poshmark for their brands to get new distribution, new buyers, but also reconnect with buyers that they have.

Speaker 5

That's great. Thank you.

Operator

Your next question is from the line of Roxanne Meyer with M Partners. Your line is open.

Speaker 7

Great. Thanks for taking my question. My question was on your other big initiative, Suede. 1, I was wondering if you could elaborate on your strategy to go after a more luxury market, how you see the ramp there and any what kind of time and further investment you might need to communicate the authentication and to gain the trust of your customer base. Thanks a lot.

Speaker 2

We're excited about the SuedeOne acquisition, which really gives us an extra tool to sort of expand our authentication from where it is, which is at the $500 plus price point to lower price points, but also bring special expertise to authenticating sneakers. We recognize the importance of these premium priced products, particularly in the resale market, and we've seen strong growth in this category of these $200 plus items. They now represent in low 20s as a percent of GMV, up from 17% in 2019. When we think of this milestone acquisition and its integration into our platform. It ultimately allows us to broaden that trust and safety to a much wider price point than we could do with physical authentication.

Speaker 2

We've just closed the acquisition in Q4 of 2021. We expect it to go live in 2022 in our platform. It's preliminary to give sort of the full impact, but we should have some more progress on it in 2022.

Speaker 7

Great. Thank you.

Operator

Your next question is from the line of Tom Nikic with Wedbush Securities.

Speaker 8

Hey, good afternoon. Thanks for taking my question. I want to ask about the marketing cost ratio. So, it was mid-40s in Q3, high-40s Q4. Is that do you think that high 40s rate for Q4 represents a high watermark?

Speaker 8

And as you start maybe

Speaker 2

reap some of

Speaker 8

the benefits of the accelerated

Speaker 2

investment in

Speaker 8

the back half of twenty twenty one. Maybe you could step off the gas pedal a little bit next year or do you think you're going to have to keep accelerating the marketing investment beyond Q4?

Speaker 2

I think the honest answer to that is simply that there's a little bit of uncertainty. We were hoping that It would balance by end of Q4. It's taken a little bit longer. So once we sort of see that rebalancing, yes, we should be able to take the foot off the pedal. But for now, Just given our strong balance sheet, our asset light model, strength of our cohort, we don't want to slow down on growth as we sort of navigate through this idea of a challenge.

Speaker 2

So that's sort of the answer. It's not something that we want to do. It's something we are doing to counteract the impact of just higher user cost in the short term. Understood. Thank you.

Operator

Your next question comes from the line of Brian McNamara with Berenberg Capital. Your line is open.

Speaker 5

Thank you for taking the question. I guess just a follow-up on the last question. I guess can you just talk in layman's terms of how you spec the IDFA to balance, as you said? And what gives you confidence that growth will reaccelerate after you work through the marketing efficacy issues? Thanks.

Speaker 2

Sure. Couple of things. I think whenever we have sort of looked at rebalancing out of marketing resistance. It boils down to what you're doing to the customers of how you're marketing to it, using the strength of our community word-of-mouth and sort of leveraging the organic impact of all the paid marketing that we do. And third is rebalancing cross channel, but it's top of the funnel channels like awareness channel or creator channels out there.

Speaker 2

So those are the ways in which we have traditionally sort of rebalanced out whenever one specific channel becomes exceptionally effective. The second thing is the platforms Whether you look at sort of any of the social platforms or mobile platforms are also actively rebalancing that and we expect that to also have a benefit on our side. We're not counting on it. We're counting more on the work that we are doing on our side to contract the impact of this change.

Speaker 5

Thanks. So just a quick follow-up. I mean, the stock hasn't performed well on your kind of first 3 or 4 earnings reports out of the gate. I'm just curious, What should you leave long term investors with in terms of something that you should be confident with in the business moving forward? Thank you.

Speaker 2

Great question. I think, look, it's been definitely not a great sort of 3, 4 quarters from a stock performance perspective. I think the foundation of the business is very solid when you think of the community we have, the users we have, the scale of the business and high gross margin. And for us, when we look into the future, we see a future that is All of the trends that we are investing in are actually shaping the future of shopping. Certainly, as a marketplace, we are asset light, so we can respond to trends in apparel and all these things changes happening.

Speaker 2

2nd is, we continue to invest in innovation, which allows our sellers and shoppers to connect faster and our sellers to sell faster. And third is continue to diversify the people who can sell on the platform. Last 2 years for apparel, for accessories, for fashion have not been linear in any way. We've stopped going out. We've sort of just starting to reintegrate with society.

Speaker 2

We start and then have to stop again. So all of this volatility has not made for a great sort of apparel climate. But despite that, we've done pretty well in growing for the last few years. So as you look into the next year as the world opens up and normal social activities resume, there should be a lot more excitement as we look into that. So that I think ultimately the foundation of an asset light model, social model, secondhand reuse and high gross margin should give investors the confidence that over the long term, this is a great company to own.

Speaker 2

Great.

Speaker 5

Thank you.

Operator

Your next question comes from Anna Andreeva with Needham. Your line is open.

Speaker 9

Hi, good afternoon. Thanks guys for taking my questions. We wanted to follow-up on the take rate, was a little bit lower than what you had expected. And you talked about the mix shift to the higher priced items. Could you maybe talk about how we should think about the take rates as we look out for the next couple of quarters.

Speaker 9

And on that, maybe remind us what's the percentage of a professional as opposed to more casual seller, percent of your seller community. Just trying to think about the potential to monetize some of the seller services that you guys have been pivoting into. Thank you so much.

Speaker 3

Yes. Our take rate came in at 18% in the 3rd quarter and that was Q2 an increase in orders greater than $15 which shifted order mix away from orders below $15 And as a result, Our blended take rate decreased slightly because of flat commission of $2.95 for orders below $15 generates the hard take rate. We do continue to see strong momentum in premium price items going at a faster rate than non luxury items, and that was for Q3. Now if you talk about Q4, There are two factors which will die out take rate in Q4. 1 is continued mix shift to high priced items, but also expected disruptions to USPS during the holiday as the shift to e commerce outpace the shipping capacity and that will potentially increase cancellations similar to the Q4 last year.

Speaker 3

While disruptions to USPS are more seasonal and specific to Q4, it's hard to predict mix shift in 2022. And just to go to your question, Anna, about professional sellers, we haven't broken down the split there, but there is definitely, As time has gone on over the last 8

Speaker 2

to 9 years, a very significant presence of people who are using Poshmark for selling in high volumes. And Some of the initiatives we've launched over the last year really recognize that. So when you think of tools like MyShoppers, when you start to think of Closet Insights, etcetera, And certainly, they've been asking for more and more tools and many of them pay for 3rd party services. So there's definitely an opportunity there. We haven't announced anything concrete, but that's definitely an area that people have been asking us for more and more tooling and more and more services as they scale their business on Poshmark.

Speaker 2

So the whole professional reseller community has become a pretty mighty force in the retail universe.

Speaker 9

That's great. Thank you so much guys. And just as a quick follow-up, you mentioned the October GMV inflected And you're doing something differently with the marketing upper funnel type of initiatives. Can you just maybe dive into that a little more and are there specific categories that are also driving that inflection? Thank you so much.

Speaker 2

Yes. On the marketing side, I think we continue to balance out the various channels. One of the channels that obviously is very, very active at the minute because trends are shifting constantly is the creator channel and the influencer channel. Just to give you a couple of sense of specific trends that are happening, we saw, for example, retailer Loungefly as sort of having a huge momentum and just that brand had a 99% growth in Y o Y sales on Poshmark and a lot of it is driven by their focus on collectible backpacks, wallets and purses driven by partnership entertainment franchises like Marvel, Harry Potter and Star Wars. So that's sort of some of the trends you're seeing on Poshmark in terms of what's driving the growth and that's sort of part of that creator channel.

Speaker 2

If you look at the categories, we haven't seen any

Speaker 9

Okay. All right. Got it. Well, thank you so much and best of luck for the holiday.

Speaker 2

Thank you.

Operator

There are no further questions at this time. I will turn the call back over to Mr. Manish Chandra for closing remarks.

Speaker 2

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

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Earnings Conference Call
Poshmark Q3 2021
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