What happened
Shares of social clothing marketplace Poshmark (POSH) fell on Friday after the company's profitability in the second quarter of 2022 fell short of expectations. As of 1:45 p.m. ET, Poshmark stock was down 8% but had been down as much as 16.5% earlier in the session.
So what
In Q2, Poshmark generated net revenue of $89.1 million, up 9% from the same quarter last year. Management had only guided for revenue of $88 million at best and analysts only expected about $87 million on average, so the top line beat expectations on both counts.
The bottom line was a slightly different story. Poshmark's management had guided for negative adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $9 million to $11 million. And its Q2 adjusted EBITDA loss of $9.8 million was within that range. However, analysts had expected a loss of only $0.27 per share according to generally accepted accounting principles (GAAP), whereas Poshmark reported a GAAP loss of $0.29 per share.
Falling short of GAAP profit expectations appears to be why Poshmark stock is down today.
Now what
For the upcoming third quarter, Poshmark guided for revenue of $85 million to $87 million, which would be 8% year-over-year growth at the midpoint. Admittedly, many other companies have better growth numbers. But few stocks appear as discarded as Poshmark. As of this writing, it trades for $11.82 per share. Yet it has $7.41 per share in cash on the balance sheet with no long-term debt.
Poshmark had negative free cash flow (FCF) of $3.5 million in Q2, which means it's burning relatively little of its $581 million stash. How management chooses to use that cash -- whether in attracting more users, acquiring other companies, or rewarding shareholders -- will likely be the difference maker for how this stock performs over the next year and beyond.
It's worth noting that Poshmark hasn't really done anything meaningful with its cash position since going public -- its cash is down less than 1/10 of 1% over the past year. On one hand, it's good that cash isn't being squandered recklessly. But on the other hand, shareholders likely hope management effectively puts this resource to good use.
