Q3 2021 1stdibs.Com Inc Earnings Call
Yeah.
Thank you for your patience today's conference will begin momentarily once again. Thank you for your patience today's conference will begin momentarily.
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Good day and thank you for standing by welcome to the first stage of Dot Com third quarter 2021 earnings conference call.
At this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone if you require any further assistance. Please press star zero I will now.
Turn the conference over to your Speaker today, Kevin My Buzz head of Investor Relations. Please go ahead.
Good evening and welcome to first Dibs earnings call for the quarter ended September 30th 2021.
I'm, Kevin Matthias <unk> head of Investor Relations.
Joining me today are CEO, David Rosenblatt, and CFO to Gwen.
David will provide an update on our business.
Including our strategy and growth opportunities.
<unk> will review, our third quarter financial results and fourth quarter outlook.
This call will be available via webcast on our Investor Relations website at investors got first dibs Dot com.
Before we begin.
Please keep in mind that our remarks include forward looking statements, including but not limited to statements regarding guidance and future financial performance.
<unk> demand.
Growth prospects and business plans.
Our actual results may differ materially.
Forward looking statements involve risks and uncertainties, which are described in our SEC filings.
Any forward looking statements that we make on this call are based on our beliefs and assumptions as of today and.
And we disclaim any obligation to update them.
Additionally, during the call, we will present, GAAP and non-GAAP financial measures.
A reconciliation of non-GAAP to GAAP measures is included in today's earnings press release, which you can find on our Investor Relations website, along with the replay of this call.
I'll now turn the call over to our CEO David Rosenblatt.
Thanks, Kevin Good evening, and thank you for joining us today.
Before we begin I'd like to take a moment to thank our wonderful sellers buyers and employees for making first dibs, a leading marketplace for the world's most beautiful design.
I'd also like to thank our investors for their support.
In the third quarter, we made progress on our strategic priorities and delivered strong financial results.
<unk> grew 25% year over year and revenue, 22%, our two year stacked GMB growth rate, which normalizes the impact of Covid was 57%.
We ended the quarter with nearly 72000 active buyers.
35% year over year.
Designers remain busier than ever and trade GMB hit a quarterly record.
In addition, consumer GMB growth picked up in the back half of the quarter relative to what we saw exiting June when consumer traffic growth moderated.
The supply chain disruptions roiling, many industries have not impacted us to date for a few key reasons first the majority of our listings are secondary market items and require no manufacturing.
Second vintage and antique furniture, which represents half of our GMB is by definition in stock and ready to ship.
As an example, vintage and antique furniture orders delivered in October 2021 had the same shipping speeds as orders fulfilled in October 2019.
Third our platform enables buyers to filter for local sellers and avoid shipping entirely we've.
We've heard from trade buyers in particular that these attributes are helping us win market share.
We see a large opportunity as luxury shopping shifts online our primary focus is on growing gmg and the liquidity of the first dibs marketplace.
As I mentioned last quarter, we have more growth initiatives in process and on the roadmap.
At any point in our history, each one represents a potentially meaningful <unk> opportunity.
Growing our marketplace creates financial value via increasing returns to scale and improves customer value.
And improved buyer and seller experience.
For example, this morning, we launched first dibs auctions, which provides a new way to discover and own the world's most beautiful things.
This new purchase format Leverages, our existing supply and demand and adds a common luxury purchase format to our marketplace.
We're kicking it off with the collection curated by the home goods designer, Jonathan Adler and Simon Doonan, former creative Ambassador at large for Barneys New York.
Auctions are an efficient means of price discovery, and therefore, an effective way to sell one of a kind items, whose value can be in determinant. We've.
We've learned from our consumer research that one of the main reasons why people don't buy from first dibs is that it's difficult for nonprofessionals to ascertain pricing for rare and unique items.
<unk> addresses this concern in.
In addition to eating price discovery, our approach to auctions includes consumer friendly differentiators like not charging a buyer's premium providing upfront shipping costs in many cases and covering all purchases with the first dibs buyer protection program.
We see several benefits to buyers sellers and first dibs overtime, we expect auctions will create urgency increased sell through a price discovery generate new marketing hubs and as a result help convert more of our $3 5 million registered users into buyers.
We entered the auction market, where the key advantage the buyer the seller and the item are already on the first dibs marketplace.
For our initial launch we have thousands of listings spanning our marketplace, including broken bags state jewelry iconic mid century, modern furniture rare art prints and many other items with starting bids under $1000.
Because this is a new feature our near term focus is on raising awareness of the format among existing customers.
Auctions is the second new growth initiative that we've launched as a public company. Our first was expanding the first dibs marketplace. In August to include an ft non fungible token vertical.
Our goal was to prioritize speed to market and then to iterate and enhanced the platform as we gather data and feedback.
We accomplished our primary launch objectives, bringing a blockchain native product to market quickly securing differentiated and high quality content from recognized crypto creators.
Holding six exhibitions and building community by launching an NFC dedicated presence on discord and Twitter.
Our top end FTE sale was for 19 <unk> about $60000 at the time from the digital artist <unk> World.
Whereas most sales have been in the one to two <unk> range or roughly 4500 to 9000 at current rates.
Additionally, we've adopted features from the <unk> platform to other parts of our marketplace like adding auto playing video to our search and browse tab.
We see the blockchain is a game changing technology for our industry and believe the digital art will grow into a significant market.
Our unique ability to sell rare and one of a kind items online places and FTE squarely within our right to win.
Our priority over the next several quarters is to continue enhancing our platform and building marketplace liquidity.
<unk> are an example of a potentially large market that we entered with modest incremental investment.
International expansion is another priority for US we plan to have our initial local language product in market in the first half of 2022.
But see building an international business as a multi year process.
Our initial international focus will be on Western Europe, where we see the largest opportunity.
He will be stepping up our localization investments in the fourth quarter and into 2022.
Today without local language sites, nearly 40% of our sellers and 20% of our buyers are located outside the United States.
We believe that launching localized products will improve conversion for non U S. Buyers over time. It also allows us to invest in paid and organic marketing to grow local audiences.
Turning to the third quarter cross functional investments in SCO continued to pay off average rank improved and SCO traffic growth accelerated from approximately 20% year on year in the second quarter to over 30% in the third.
We had prioritized SCO investment in 2019, and this is now paying dividends.
Progress in SCO is the sum of many incremental improvements for example, this quarter, we launched new creator pages, giving us the opportunity to improve rank for clarity is like Hans Wegner.
Looking ahead, we will keep scaling our page and content creation, while ensuring that our site health and speed is highly performance.
Enhancing the buyer and seller experience is another focus for us and we made progress here to this quarter, we refreshed our items sort order to emphasize items more likely to drive buyer engagement and are testing additional personalization features.
Art relaunched filters for size and orientation and in jewelry, we added the option for buyers to design and customize pieces.
Additionally, we launched a mobile version of item upload, allowing our over 4300 sellers to create and publish listings and to and from their phone.
These are a few examples of the incremental enhancements that our product and engineering teams work on day in and day out.
Continually improving the buyer and seller experience has earned us the trust of consumers and designers. This trust is our greatest asset.
In the third quarter, we delivered solid CMV growth and made progress on our strategic initiatives in the face of lingering macro uncertainties.
As we look forward, we are well positioned to benefit from the continued shift to digital and the extensibility of our platform, which allows us to efficiently enter adjacent markets launched new features and unlock large <unk> opportunities like auctions in ftes with modest startup investments.
In 2021, we've stepped up our cadence of bringing new products to market as we look to the fourth quarter and beyond I am excited about our roadmap and our pace of execution.
I'll now turn it over to two who will discuss our third quarter financial results and outlook.
Thanks, David and good evening everyone.
We delivered strong results in the third quarter, which I will review along with providing a fourth quarter outlook.
<unk> with 109 million up 25%.
<unk> average order value and conversion all growing year on year.
On a two year stack GMP growth with 57% compared to 48% in the second quarter.
Our third quarter guidance assumes strong trade demand and consumer demand consistent with Alex you exit velocity.
<unk> had a record quarter in consumer demand exceeded our expectation driving GNP upside versus guidance.
Relative to June consumer <unk> increased and consumer traffic growth held steady.
Turning to trade designers need it <unk> unusual over the summer months when clients are historically less engaged.
As David mentioned, the vast majority of our lifting our in stock and ready to ship, making allo marketplace less susceptible to supply chain disruptions.
Further our buyers Sally shipping routes and carriers are well diversified and we haven't been subject to the same delays at nights produced items traveling <unk> point.
As we cycle through more difficult year over year growth comparing things.
<unk> slowed relative to the second quarter, but improved from where we exited June.
On a two year stack consumers Bnb grew 65% <unk> grew 53%.
While our near term consumer GNP growth will be impacted by the combination of tough comps.
During macro uncertainties and the impact of the economy reopening we continue to believe that consumers will drive our growth long term.
As a reminder, when we referenced <unk> consumer <unk>. We are speaking of a subset of on platform GMT attributable to each of these groups.
Additionally, all comparisons on a year over year basis, unless otherwise noted.
Similar to the second quarter, new inconstant furniture and fashion.
Fastest growing verticals G&A makes with that 50 50 between sanitation antique furniture.
Verticals.
We need to grow our marketplace and solidify our position as one of the leading online destination for luxury be fine.
In the third quarter, nearly 60% of new buyer orders well outside of sanitation antique furniture.
I will now place had nearly 72000 active buyers up 35%, while it grew 16% and average order value increased 9% we.
We saw growth across both of our buyer groups.
It is greater than $10000 increased 38% in the third quarter.
<unk> growth was driven by growth in new and custom furniture, which has above average.
Hey, ubiquitous demonstrates the trust that our sellers and buyers have in our platform.
Zach high value items online.
Net revenue of $25 6 million grew 22% driven by GNP growth transaction revenue, which is directly tied to CND growth with approximately 70% of revenue in the quarter with subscription making up the bulk of the remainder.
Gross profit was $18 1 million up 23% gross profit margin was 76% up 70 basis points from a year ago gross margin expansion was driven by improved efficiency from automation and lower amortization.
Sales and marketing expenses were $12 9 million, a 51% driven primarily by growth in demand generation expenses in the third quarter. We continue scaling our core performance marketing program as well as testing new channels like connected video and direct mail prospecting.
Our focus is acquiring new buyers.
The vast majority of our performance marketing spend is on platforms like Google and Facebook, where we have strict efficiency targets.
If testing, where we experiment with new channels when it meets our ili threshold, we graduated to our coal program.
Sales and marketing as a percentage of revenue was 50% compared to 41% to a year ago as we scaled our demand generation efforts.
And note on marketing channels as more users have upgraded to <unk> 14, we saw some headwinds on re targeting.
We estimate this had an approximately $2 million to $4 million impact <unk> in the third quarter.
To the third quarter <unk> accounted for roughly 5% of our total sessions with our highest converting channel. In response, we are targeting new tactics to engage iOS users and increasing our focus on registrations and engagement you've got their first party data.
Technology development expenses were $4 8 million up 17% due to higher head count as David mentioned investment here is directed at both incremental investments as well as our portfolio of growth initiatives like auctions and international expansion.
In the fourth quarter will be focused on testing personalization and beginning product localization work. In addition to commercializing auctions and enhancing the functionality of our <unk> T platform.
As a percentage of revenue technology development with 19% this quarter flat year over year.
G&A expenses were $6 1 million up 108% and 24% of revenue up from 14% a year ago.
The increase was primarily driven by expenses related to operating as a public company, including D&O insurance and increased head count.
Lastly, provision for transaction losses were $1 3 million up 39% driven primarily by GNP growth and increased chargeback claims COVID-19.
First transaction losses were 5% of revenue flat year over year.
Adjusted EBITDA loss was $5 4 million compared to half a million last year, adjusted EBITDA margin loss with 21% versus 2% last year. This.
This year over year change was driven by higher G&A expenses due to a full quarter of public company cost and continue investments in sales and marketing for <unk>.
Untaxed.
Covid uncertainty, we pull back on investments starting in the second quarter of 2020 and resumed investing for growth in 2021.
We see many opportunities to grow our marketplace and cement our leadership position in online luxury design.
As such growing <unk> in a disciplined manner remains our priority.
Asset light business model highly variable cost structure and stable buyer cohort behavior gave us the confidence to invest.
We expect to generate operating leverage and free cash flow and expand adjusted EBITDA margins over time, as we grow <unk> and revenue.
Moving onto the balance sheet, we ended the third quarter with a strong position of 167 million in cash and cash equivalents.
Now turning to our outlook, we forecast fourth quarter GNP of 117 million to 121 million equating to a year over year growth between 10% and 14% and a two year stack of approximately 52% to 56%.
Net revenue of $26 5 million to $27 2 million.
Equating to a year over year growth between 11% and 14% and a two year stack of approximately 41% to 44%.
Adjusted EBITDA margin loss of 21% to 18%.
Given near term uncertainties, we would like to share some additional context on the assumptions underlying our fourth quarter guidance.
Given our gang NAMIC and uncertain macro environment, we are assuming more muted seasonality this year.
Directly we've seen approximately 15% to 20% quarter over quarter growth in the fourth quarter.
The midpoint of our guidance represents growth of 9% quarter over quarter.
We assume continue Ibs, a headwinds and no material <unk> contribution from options.
Tony to address that EBITDA margin guidance fourth quarter guidance reflects our decision to accelerate investments in international expansion.
From a modeling perspective, we expect to see technology and development expenses as a percentage of revenue increased in the fourth quarter relative to the third quarter.
Local ization requires an upfront investment for translating all of our listings and content.
While we're not providing specific guidance beyond the fourth quarter. We note tougher year over year GNP growth comparisons continue into the first half of 2022.
As a reminder, in the first quarter of 2021, GMB grew 64% year over year.
And Additionally, we will begin to lap the 2021 trade recovery in the first quarter of 2022.
Well in evolving and unpredictable macro landscape impacts the near term outlook. We are confident in our strategy and roadmap. We are proud of the progress that the first this team made in the third quarter and are excited about our future opportunities. These include growing our newer verticals into <unk>.
No expansion and adding new purchase formats like auctions. We are in the initial phase of many of our growth initiatives and will continue to prioritize investments in sustainable growth over near term profitability.
Thank you for your time, David and I will now take your questions.
Yeah.
At this time to ask a question. Please press Star then one you touched on phone.
And to remove yourself from the queue just press the pound key.
And once again Thats star one for questions and please limit yourself to one question and one follow up.
Our first question will come from the line of Justin Post from Bank of America, you may begin.
Great. Thanks for taking my question, David maybe we'll start with you and then I'll follow up on marketing could you talk about.
The inventory on the site and its auctions go well how would that evolve over the next couple of years kind of help sell and move that inventory and then how do you get the liquidity to make sure sellers get good prices. Thank you.
Sure.
Alright, Thank you Justin so in terms of in terms of inventory.
Way, we regard auctions as an additional way to monetize the existing listings on the site. So we've got this is a pretty good summary of the opportunity. We've got $1 2 million products listed on the site.
We will do less than $500 million in <unk>, this year, which leaves over $10 billion in face value terms of products, which now are able to be bought through and additional format.
And when we look at the reasons why people don't buy the predominant reason has to do with price either a difficulty in doing price discovery or belief that the price is too high auctions, obviously addressed both so we feel like we don't need a lot of new inventory for auctions have been meaningful GMB impact.
That said, how sellers use auctions as a tool.
Remains to be seen and it very well could pull in additional inventory, but it is not needed in.
In terms of generating demand.
Again, one of the commercialization advantages we have in this product is that we already have the supply side. We have the item we have the buyer. The only thing that we're lacking is the format.
So again I don't view demand is a bottleneck I think the biggest challenge we have in terms of commercialization is more about raising awareness among our buyers that we have this format, particularly since many of them have worked with us for over 20 years and they are a bitch weighted to an environment that obviously doesn't have.
Auctions.
Got it and then maybe one follow up on marketing for too.
Marketing came in a little higher than our estimates and just wondering I know appreciate IBSA challenges for everyone, but what are you seeing with your return on marketing spend and any changes there.
And how do you think about bringing that down over the next few years as a percentage of revenue.
Yeah, and thanks for the question and Justin So.
I want to stay with the marketing spend is made up of two components. One is head count and the other is performance marketing and our head count investment is on platform teams like SCO email lifecycle, which hasnt been scaling with revenue N. G. N V and we expect that to continue into the new year.
And then our performance marketing is made up of core program and testing and within our core program. We habitat ili and relative to 2020, we have increased testing as a way to find new acquisition channels to scale. It.
Test channel Miss out on ROI, We will then graduate it to our core program.
The year over year growth rate and you see in Q3 is partly a reflection of our low investment year in 2020, which is when we pulled back on acquisition due to Covid uncertainty.
And also a function of increased testing in 2021.
Looking at two year Hager for sales and marketing that is growing at a slower rate than <unk> and revenue growth.
And note on Q3, we started Q3 slightly less efficient than way, we want it to be and as a result quickly made improvements and increased in frequency throughout Q3 and that efficiency improvement will continue into Q4. So again looking into Q4, we would expect that sales and marketing activities.
On page of revenue will come down versus the level that you saw in Q in Q3.
And then when do what I would say that you know as we scale marketing we saw that our cohort quality remained stable and when she says give us confidence to continue to invest.
And we will intentional about diversifying I wish I know is that the way to think scale acquisition, but also to reduce exposure to any one channel.
As we have seen could have a significant impact on the business like an example of IBSA.
And overall, we are pleased with the <unk> that we've been seeing we're going to see more leverage in Q4, and we will continue to focus on increasing my LTV to further increase that efficiency.
Great. Thank you.
Our next question, Brian Ross Sandler from Barclays You may begin.
Hey, everybody.
On the auction format do trade buyers participate in this or is it just the DTC consumer side of the business and then I think you guys said consumer might have accelerated late in the third quarter. So I'm just trying to reconcile that comment.
Pretty solid 25% GNP growth with the.
The low teens guidance for <unk>.
What are you seeing between consumer and trade in the fourth quarter. Thanks a lot.
Yeah.
Hi, Ross the auction format is available to all users of the marketplace to do you want to talk about consumer yes.
Relative to Q3 and again some context right we saw consumer traffic slow down in June.
And coming out of two and into Q3, we thought that traffic from consumer growth has.
Steady consumer <unk> has increased and you are right on a two year stack basis consumers NV growth with 65% relative to 55% in Q2 that we are seeing a two year growth acceleration in Q3 on the trade side, we reached a record quarter for trade.
So we're very pleased about that.
And another question is in terms of Q4.
As you know, we don't comment on intra quarter performance, but that said the midpoint of our guidance.
<unk> that we are growing sequentially by 9% quarter over quarter, we are assuming more muted seasonality this year than prior years.
You know me tend to see 15% to 20% growth sequentially in the first quarter versus the third quarter given the volatility that we've seen so far this year with consumer behavior and the information that we have to date, which is assuming that Q4 is going to be more muted seasonal quarter.
Then what we had seen in the past.
And but on a two year stack basis that still represents a healthy growth rate of 54% and last thing to note.
Even though we launched option today, we are assuming no material <unk> impact from auction.
We'll use Q4 as a way for us to collect more data and inform future future guidance on the G&P contribution from ocean auctions going forward.
Yeah.
Thank you.
Next question comes from the line of <unk>.
<unk> <unk> from Evercore ISI you may begin.
Hi, Thanks for taking the question.
I guess, one high level question from.
The cohort data that Youre seeing.
In regards to maybe pre COVID-19, well pre COVID-19 cohorts versus cohorts acquired during the pandemic.
Could you just provide us a little bit of color. How you are seeing retention and GMB growth fair within those cohorts. Thank you.
Yeah.
Thanks, Brad CFO for the question.
Just a reminder, we brought on a large volume of new buyers during the pandemic and we grew active buyers by over 60% versus Q3, 2019 and buyer cohort quality is something that we pay very close attention to.
Very pleased to see that the new buyer cohort quality has been consistent with our prior buyer cohorts.
We saw that our Aoc grew year over year, even though <unk> is not something that we optimize for is an indication of the health of the buyers that we continue to bring on the platform.
And we've seen <unk> growth this quarter for both the trade and the consumer so again very pleased with what we've seen so far in terms of the buyer quality and we're very much focused on continuing to increase that by frequency and therefore, increasing the overall LTV of the existing buyers that we have.
Got it thank you so much.
Thank you once again Thats star one for any questions or follow up.
Our next question will come from the line of Ralph <unk>.
Shankar from William Blair you may begin.
Hi, everyone. This is Mary on for Ralph Thanks for taking the question David.
David You had discussed the anarchy platform can you help us better understand how that has trended on a month over month basis compared to your expectations and if possible can you provide any additional color on how you view that longer term opportunity or potential Pam. Thank you.
Sure. Thank you. So we're optimistic about the long term <unk> opportunity, we believe that digital art. The blockchain is obviously real and digital art will emerge as a viable and growing long term category.
Our <unk> platform in early August the initial goals.
We're to a make sure that we had a.
Robust blockchain native technology that works.
The B our goal was to launch with supply that was consistent with the quality level of our overall inventory on the rest of the site.
And we were successful in that we launched with with a number of very well respected crypto creators and then launch lastly, our third goal was to launch two new marketing channels Twitter handle first dibs NFC.
And then also a discord presence, which was a first for us.
So all three of those goals were met the technology was stable the supply was high quality and the marketing channels were established and if you recall, we said at the time of launch that we were not expecting material <unk> in the near term that said we have enabled to put some points on the board we had a 60000 dollar sale.
Terms, obviously, it's all and eve.
And average pricing has been between 4090 590 $500.
That said, it's still super early for Us and our focus is on growing all three of those prongs. So.
We're still lacking some table stakes functionality like for example support for secondary sales and.
And we have a long way to go in terms of adding a critical mass of supply and also growing our demand channels. So that's what we're focused on.
But again in terms of the long term opportunity. We think it is big and we think it's real and we believe that we have a strong right to win in this market.
Okay, great. Thank you very much.
Thank you.
I'm not showing any further questions at this time I'd like to turn it back over to David for any closing remarks.
Thank you all for joining our conference call.
Happy holidays as well.
Yes.
Thank you.
And this will conclude our conference call for today. Thank you for participating you may now disconnect have a great day.
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