Looking to crest on the "Korean wave," browser operator Naver has struck a deal to buy the U.S. second-hand clothing site Poshmark (POSH) . Naver, which runs the leading Korean-language Web portal, similar to Yahoo, intends to use the acquisition as a way to break into the U.S. market.
Naver (KR:035420) shares descended 7.1% on Wednesday trading in Seoul, on a day the benchmark Kospi edged up 0.3%, after the company agreed to pay US$1.2 billion for Poshmark. It has been a horrible year for Naver, which has seen its stock slump 56.4%. That's double the 25.9% decline for the broader Korean market.
POSH shares closed up 13.1% on Nasdaq, taking the close to US$17.61, just south of the US$17.90 purchase price. The deal was priced at a 15% premium to the price, and is 34% above the 30-day volume-weighted average.
Let's not forget, though, that POSH went public in January 2021 at US$42 per share, valuing the company at US$3 billion. Naver is buying the company for less than half its IPO price, in other words. The first trade in POSH shares on IPO day? At a whopping US$97.50.
If you want a clear mental picture of Naver's stock chart, picture the Rockies, or the Alps. After a pandemic-induced plunge to 135,000 won in March 2020, they soared to a record-high close of 460,000 Korean won on July 26, 2021. And they now stand at just 164,000 won, taking them back close to where they were when Covid-19 hit.
However, Naver has been a tech-stock darling in the past, on multiple occasions. It doubled in the back end of 2013, and almost pulled off the same trick again from Q2 2015 through Q3 2016. From the Covid low to the 2021 peak, the best possible trade would have seen you triple your money for a 236.7% gain. Then it reversed those gains.
Never say Naver again?! Could the company pull off another great ascent?
Naver is the top Web portal and browser in South Korea, behind only the Samsung corporate site in total visits, according to Similarweb. Its traffic ranks it 30th globally, nestled between livestream service Twitch and messaging site Discord. Besides the search engine that's also called Naver, the corporation also operates the messaging service Line.
Naver, which gasp was founded last century in 1999 by Samsung engineers Lee Hae-jin and Kim Jung-ho, is also a very elder statesman as a Korean tech company. It first listed in 2002 on the Nasdaq-style Kosdaq, but subsequently transferred to the broader-market Kospi section of the Korea Exchange.
With a little-known brand outside Korea, the company is expanding internationally under new management. It appointed a new CEO in November 2021 in the form of Harvard Law School graduate and mergers & acquisitions lawyer Choi Soo-yeon, once an entry-level worker at Naver. She had been leading its global businesses before she took the helm.
Naver hopes to use the Poshmark deal to internationalize the company. It is also attracted to Poshmark's youthful customer base, with 80% of them Gen Z or Millennials.
CFO Kim Nam-sun noted that K-Fashion does well on Poshmark, and the company likes the way younger users use the site to chat and like posts of each other's fashion. Naver hopes to improve Poshmark's use of Artificial Intelligence, machine learning and live sales.
Seongnam-based Naver has a limited international presence, but moved the headquarters of its online-comics and manga business Webtoon Entertainment to Los Angeles. It then added the Toronto-based short-story and fan-fiction site Wattpad, which it agreed to buy in May 2021 for US$600 million.
Naver owns the K-Pop fandom site Weverse in conjunction with Hybe (KR:352820), the record label and management company of the boyband BTS. I wrote about Hybe under its previous name, Big Hit Entertainment, when it went public in October 2020.
The Poshmark team clearly feel now is the time to sell out. Three of the four founders including Manish Chandra, CEO of Poshmark and prior to that Kaboodle, came together through the founding of social-shopping site Kaboodle, which they sold to Hearst in 2007. Terms weren't disclosed but TechCrunch pegged the whole Kaboodle at US$30 million to US$40 million. Chandra will stay on with Poshmark, but he did after the Kaboodle deal closed too -- for a year.
Poshmark, then, is a little bit like Kaboodle. And eBay (EBAY) . And Etsy (ETSY) . And Shopify (SHOP) . It connects buyers with sellers, with Poshmark taking a small cut of every transaction.
Youth-fashion-focused Poshmark benefitted from stay-at-home purchasing at the height of the pandemic, which helped it turn a profit in 2020, although it went back to losses for full-year 2021 on merchandise sales of US$1.8 billion that were up 27%.
Poshmark, which besides the United States also operates in Canada, Australia and India, had 80 million registered users at the end of last year, with 7.6 million active buyers after the holidays. POSH bought the sneaker specialist site Suede One in October last year, which helps authenticate collectible sneakers using Artificial Intelligence. Naver notes that Poshmark users often spend 25 minutes or more on the site, chatting and sharing photos of their clothing.
Second-hand-sales and resales boomed during the pandemic, creating fertile conditions for Poshmark as well as rival ThredUp (TDUP) to go public. Sneaker-and-collectible-clothing market leader StockX was thought to be looking to list earlier this year at a valuation of around US$3.8 billion, reportedly recruiting Goldman Sachs and Morgan Stanley to work on an IPO. But profitability is proving hard to achieve, and ThredUp shares have cratered 89.9%. There's no word on the StockX listing, which was expected by year-end.
Naver believes that the Poshmark deal will immediately give it a top spot in the fashion category for North America. The buyer says it is aiming for a compound annual growth rate of 20% for Poshmark, in line with growth in the U.S. fashion category, with record margins and pretax profits in 2024. Naver also intends to take Poshmark into South Korea and Japan.
As any follower of fashion will know, brands come and go -- particularly in the Internet space. It will be a test case for Naver and its global ambitions if it can boost the momentum behind Poshmark through improved tech and a dose of K-style.
