Poshmark Stock: Is the Risk Worth the Reward?

Social marketplace Poshmark (NASDAQ: POSH) delivered better-than-expected Q4 financials. However, the focus ahead of the earnings was on the marketing issues that persisted in Q4, which explains the decline in its stock.  

It’s worth noting that Poshmark’s social aspect drives user engagement and provides a competitive advantage over peers. However, its dependence on marketing to drive revenue is a concern.

Notably, Apple (NASDAQ: AAPL) announced IDFA (Identifier for Advertisers) policy changes last year, creating mobile marketing issues for Poshmark that, in turn, took a toll on its financials. 

Apple’s privacy changes are driving mobile advertising costs higher due to the lower efficiency of targeted marketing programs. Notably, mobile represents a significant portion of Poshmark’s advertising spend.

During the Q4 conference call, Poshmark’s CFO, Rodrigo Brumana, stated that “we continue to see the impact of Apple privacy changes during the fourth quarter.” The company is taking steps to minimize the impact of IDFA.

POSH is diversifying its ad spending across other social medial platforms like TikTok and Snapchat and focusing on higher ROI and customer acquisition channels. 

While Poshmark is working on mitigating the impact of Apple’s privacy changes, it provided lower-than-expected Q1 guidance. It expects tough year-over-year comparisons and macro headwinds to impact its Q1 revenues. 

In response to Poshmark’s Q4 results, Stifel Nicolaus analyst Scott Devitt stated that the company is mitigating IDFA headwinds through higher marketing spend and diversification of advertising channels. However, “the efficiency is not yet recovered to the pre-IDFA environment.”

Devitt expects Poshmark’s marketing spend to remain elevated in 2022 and lowered his price target to $19. However, the analyst maintained a Buy recommendation on POSH stock. He believes that the company’s social features position it well to capitalize on the higher penetration of e-commerce and growing user base. 

Overall, Wall Street is cautiously optimistic about POSH stock. Its Moderate Buy consensus rating is based on four Buys and five Hold recommendations. Meanwhile, the average Poshmark price target of $16.75 implies 29.7% upside potential from current levels.

The Bottom Line

Poshmark stock has trended lower ever since it IPO’d in early 2021 and eroded a considerable portion of its shareholders’ value. The slowdown in growth rate and marketing issues negatively impacted its business and stock performance.

While Poshmark’s growing active buyers, social aspect, and diversification of advertising channels bode well for growth, increased ad spending could continue to hurt its profitability. Further, difficult comparisons and macro headwinds could remain a drag in the near term. 

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