Shares in South Korea’s largest internet group Naver fell on Tuesday after it announced a $1.2 billion deal to buy Poshmark, a US clothing retailer that is moving into the booming second-hand fashion market.
The deal is Naver’s largest acquisition and its first foray into Silicon Valley as the South Korean company accelerates its global expansion.
But the size of the deal surprised investors, sending Naver shares down 8.8 percent to their lowest level in more than two years. Shares have fallen more than 50 percent this year as a result of a global tech routine.
Naver will buy all of Poshmark’s shares at $17.90 each, a 15 percent premium to Monday’s closing price. Trading in Poshmark shares halted on the news after rising 14 percent in after-hours trading on Monday.
With the deal, Naver will be able to expand its presence in the US online fashion re-commerce market by combining technological advances, including live streaming capabilities popular in Asia, with the social shopping platform and Poshmark’s loyal customer base.
“The merger will create the strongest platform to empower communities and reshape commerce,” said Choi Soo-yeon, Chief Executive of Naver. “Naver’s leading technology in search, AI recommendation and e-commerce tools will help fuel the next phase of Poshmark’s global growth.”
According to Activate Consulting, the US online recommerce market for fashion is valued at $80 billion and is projected to grow 20 percent annually to $130 billion by 2025.
Naver is South Korea’s largest online search engine, providing internet services such as games, webtoons, metaverse experiences and e-commerce. Poshmark has more than 80 million registered users in the US.
Poshmark would continue to be led by Chief Manish Chandra. The company’s shares have fallen over the past year and a half on concerns about slowing growth and weaker profitability. The company’s gross merchandise value is expected to grow about 10 percent this year, after an average growth of 25 percent over the past three years.
But Naver expects Poshmark to regain growth and profitability in the near future thanks to its robust user base and high retention rate.
“There’s a difficult trade-off between growth and margins,” Kim Nam-sun, Naver’s chief financial officer, told analysts during a conference call on Tuesday. “But it will be difficult to sustain the strategy of prioritizing profitability at the expense of growth.”
Naver said the timing of the transaction was “reasonable” and the price “attractive” despite the deteriorating global economic environment. The deal is expected to close by the first quarter of 2023.
However, analysts questioned the high price. “The deal looks expensive as Poshmark is expected to post losses of about 100 billion won ($70 million) this year,” said Oh Dong-hwan, an analyst at Samsung Securities.
“This is especially true as all e-commerce businesses grapple with slowing growth following the boom caused by the pandemic.”
Earlier Tuesday, analysts at Citi downgraded Naver stock to a sell rating, saying the price-to-earnings ratio was too high compared to its overseas peers.
https://www.ft.com/content/07c3f68d-b5a3-45c0-a8ad-c213b0acf335 Naver’s shares plummet after acquiring second-hand clothing platform Poshmark