Poshmark (NASDAQ:POSH) is an online marketplace for second-hand fashion. POSH stock rose 13% in pre-market trading on Oct. 4 after agreeing to sell itself to Korean search engine company Naver (OTCMKTS:NHNCF).
The price is $1.2 billion in cash or $17.90/share. Poshmark opened on Oct. 4 at about $17.66.
Poshmark came public at the start of 2021. POSH’s initial public offering (IPO) price was $42 per share. When Poshmark’s $580 million in cash is added, the transaction is worth $1.6 billion.
Why, Poshmark, Why?
Given that this was a $7.3 billion company when it first came public, and still had cash in the bank, investors are asking why the sudden sale.
One answer is in the numbers. While Poshmark grew during the pandemic, growth stopped in the last few quarters. Poshmark is also losing money, the June quarter loss being its biggest at $23 million or 29 cents/share. Analysts recently gave Poshmark stock a consensus rating of “hold.” Insiders have also been selling at prices as low as $11.36/share.
As to why Naver is buying. The Korean company is more a Yahoo than a Google, offering payments, shopping, and digital comics. It’s best known in the U.S. for Line, a messaging app. The company has recently had weakening margins and higher marketing costs.
Naver’s announcement caused the stock’s biggest one-day drop since the middle of 2015. Naver’s U.S. market capitalization is now a little under $19 billion.
In their press release announcing the deal, both sides described the others’ strengths as complementary. Naver called Poshmark “the definitive brand for fashion in the United States” and a social network. Poshmark CEO Manish Chandra said Naver has financial resources, technology, and a leading presence across Asia.
POSH Stock: What Happens Next?
This deal benefits managers on both sides of the Pacific.
Poshmark’s managers get to keep their jobs, important in a global recession. Naver has a chance to grow by expanding Poshmark’s footprint across Asia. It’s also buying U.S. assets, a great value given the 17% fall in the won over the last year.
On the date of publication, Dana Blankenhorn held no positions in any companies mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.