Secondhand clothing marketplace Poshmark posted a strong debut during its first day of trading Thursday, The Information reports.
Why It Matters: Poshmark shares doubled from their IPO price of $42 to open at $97.50. The stock soared as high as $104.98 and ended up finishing the day at $101.50, a 142% improvement. In December, DoorDash and Airbnb hit the public market and saw massive first-day gains. Poshmark is the latest to follow the trend, and its early success “is sure to add fuel to the debate over IPO pricing.”
- All of this comes on the heels of 2020, a “record year for the amount of capital raised in U.S. IPOs.”
Numbers To Consider:
- The first-day price gave Poshmark a market capitalization of $7.4 billion.
- That’s a 494% premium on its $1.25 billion private valuation from early 2019.
Meanwhile, ContextLogic (the parent company of Wish) and Affirm rode the wave of IPOs as well. ContextLogic and Affirm rose 17.6% and 18.2%, respectively, on Thursday.
Looking Ahead: For tech IPOs in 2021, this looks to be only the beginning. Poshmark’s success “indicates confidence” for other tech firms considering a similar path.
At today’s share price of $76, Poshmark ($POSH) carries an enterprise valuation of $5.1 billion.
Poshmark had $247 million in Revenue and $206 million in Gross Profit during the latest 12 month period.
- Revenues are growing at 28%, but we should also keep in mind that they are benefiting from the e-commerce boost during the pandemic.
At the current valuation and assuming they continue their 28% growth rate, $POSH is trading at 19.5x forward Gross Profit.
- This is not an outrageous valuation and we hold a couple stocks at similar valuation levels on the Big Board.
I do not believe that clothing marketplaces are not dominant and sticky businesses compared to other types of online platforms, so the valuation doesn’t look particularly attractive to me at this point.
- If the stock continues to fall, though, we might take a closer look.