Unpacked   //   October 7, 2022

Unpacked: What to know about Poshmark’s new owner, South Korean search giant Naver

Naver, occasionally referred to as the Google of South Korea, announced its largest acquisition this week as it seeks to gain traction in the U.S. The search engine giant agreed to buy Poshmark, a secondhand marketplace based in the United States, for $1.2 billion. 

The deal comes at a time when the market for used goods continues to grow, and Naver wants to compete with the likes of eBay and ThredUp while establishing a foothold in American retail. According to data from research firm Gartner, 37% of retailers surveyed currently offer resale programs or are thinking about launching them in the next two years.

“Recommerce or recycling of goods is something that’s a growing trend within the US e-commerce space,” said Kassi Socha, director analyst at Gartner.

Founded in June 1999, Naver is an internet service provider that started out as a search engine before branching out into email, messaging, payments, news aggregation and online shopping. It owns some of South Korea’s most widely used websites and mobile apps including Wattpad and Webtoons. It also operates Japan’s largest messaging app Line, through a joint holding company operated by SoftBank and Naver. Last year, Naver generated roughly $4.8 billion in revenue and employs 4,595 workers, according to its website. The company is listed on the Korean stock exchange and has overseas operations in Japan, France, China, Indonesia, Taiwan and Thailand.

At its most recent quarter, Naver’s revenue from its commerce business grew nearly 20% to $339 million. Naver’s commerce division includes ventures like Storefront, an e-commerce platform on which small businesses sell products using Naver’s payment system and customer data analysis, and Shopping Live, which allows retailers and customers to communicate in real-time.

Commerce is the second largest contributor to the firm’s overall revenue after search, the tech giant’s second-quarter earnings report noted. The rise in revenue was driven by a 20.8% jump in its gross merchandise value to $7.8 billion in the second quarter.

“Naver is perfectly positioned globally to succeed in e-commerce by making additional acquisitions within this category and expanding their footprint beyond where they currently are in South Korea and Japan,” said Socha. “They’ve taken a customer-centric approach, understanding how the customer shops digitally online and providing them services and experiences that match those consumer expectations. They’re not just focused on the DTC experience, but they’re focused on how to get the customer into that experience and guide them through the customer journey appropriately.”

As an example, Naver has setup social commerce operations Line, given its popularity as a messaging app in Japan. Users can send gifts to their friends via Line with features like ‘Social gift’ among others.

Although Naver has expanded into other continent, much of its reach is still highly concentrated in Asia. “They want to go global and everyone knows that the global core tech market is the U.S. and North America,” said Philip Lee, who researches the South Korean tech world for his website Pickool.

Naver’s first two attempts to enter the Japanese search market in 2005 and 2013 did not succeed, according to a report in Korea Herald. In 2019, Naver formed a joint venture with Softbank called Z Holdings to explore business integrations between its subsidiaries and affiliates. Under the new agreement, Softbank-owned Yahoo Japan and the Line app from Naver merged to become one entity.

Over the years, Naver has become one of the largest search engines in Japan and many of the established markets within Asia. Naver has also made investments in AI, it bought French-based Xerox Research Center Europe in July 2017, which focused on making improvements in artificial intelligence.

“They’re continuing to think about, ‘how do we become the leader for the internet as a whole, not just specific pieces of the internet, like search or commerce?’ By differentiating their assets, but also their footprint, they’re well positioned to continue to lead in this area globally,” said Socha.

Why resale?

Experts noted that the companies that are currently prospering in the resale market are those that invest in both e-commerce and the technology that supports it. “Naver is one of many examples, that when you invest in technology, and the [business-to-commerce] experience online, the combination of the two is what leads to success,” said Socha.

Naver will pay $17.90 a share in cash for Poshmark, the two companies said. Poshmark went public in January 2021, and had a market cap of over $7 billion in its first day of trading. However, on the public markets, Poshmark has consistently struggled to turn a profit. The company reported a net loss of $22.9 million during its second-quarter earnings in August. Poshmark has over 80 million registered users and clocked a GMV of $2 billion last year.

Socha lauded Naver’s deal for Poshmark based on the success of its inventory-light model of e-commerce in the U.S. “They [Poshmark] don’t own inventory so they’re not acquiring a retailer that’s holding an excess of inventory,” Socha said. “They’re relying on the consumer base to supply the inventory. So when you think about leading retailers like Amazon, who have created a great 3PL marketplace, to expand their e-commerce presence Poshmark is doing the same and doing it well in the U.S.”

Upon completion of the transaction, Poshmark will become a standalone U.S. subsidiary of Naver and will continue to be led by CEO Manish Chandra and Poshmark’s current management team.

“That’s a strategic position to retain the existing strong, loyal customer base that they [Poshmark] have on the marketplace,” Socha said. But she cautioned, “that could also be a potential challenge. If they’re not able to retain Poshmark’s customer base, they lose their access to inventory.”

Ultimately, there is a lot of competition within this space which could prove to be challenging for Naver. Retailers like Levi’s, North Face and Patagonia have all introduced resale programs over the last few years, in response to consumers who have been increasing their digital shopping behavior to cope with high inflation. “I also think there’s a lot of competitiveness in this space, with traditional retailers responding and expanding their offerings to supply an Amazon or a Poshmark-like experience,” said Socha.