1stdibs.com Stock: Luxury Platform For Sale (NASDAQ: DIBS)
When 1stdibs.com (DIBS) went public over the past summer, I described the business as a niche market and a niche stock. Dibs is essentially trying to create a distinguished marketplace, with the original vision including the goal of bringing the Paris flea markets online, creating a global marketplace for collectors and designers to shop across the globe.
That promise sounded good, but some IPO momentum quickly reversed for good reason, as the valuation was demanding from the start, and as the company continues to grow sales at a decent pace, margin improvements are discontinued and reversed in a smaller fashion.
Although the assessment looks a lot more compelling here, I can’t seem to get really excited because I don’t see that quality of candor here.
The platform – IPO
Dibs is a premium platform, not only in terms of products offered and sold, but also through superior customer service. Given the premium nature of the products and categories being sold, buyers should find reassurance from approved sellers, price match guarantees, buyer protection, global delivery, easy cancellations and customer support. superior.
The platform trades items such as artwork, jewelry, furniture, and antiques, with a focus on the highest price points. Founded in 2000, the marketplace connects some 4,000 sellers with more than 3 million potential users. Of these users, there are only 58,000 active buyers, but with an average of 2.2 orders placed each year and an average order value of $2,500, they are valuable customers.
The platform’s distinct focus has potential, as the pandemic has certainly proven, as it was the definitive breakthrough for other niche players like Etsy (ETSY), well, of course.
The company went public at $20 per share, resulting in an equity valuation of $732 million, or an operating asset valuation of approximately $570 million if we factor in the cash position. net pro forma. This assessment should be seen in light of a business that generated $70 million in sales in 2019 and reported a strong operating loss of $31 million.
Revenue rose a modest 16% to $82 million in 2020, although a reduction in operating losses to $14 million was very promising. These revenues were reported on a GMV (gross merchandise value) of $343 million that year, resulting in a 24% “cut” as this take rate is fairly in line with other platforms. Despite the modest growth for the whole of 2020, growth rates were observed to be stronger in the second half of the year, a trend that continued through 2021.
First-quarter 2021 sales of $25.5 million have already passed the $100 million mark, with growth accelerating to 42% as losses narrow at a rate of $10 million per year. With stocks trading at $24 after the first few days of trading, I wasn’t necessarily under much pressure to hit a 7x multiple in combination with 40% growth and loss-making trades.
This valuation in relation to a name like Farfetch (FTCH) which was trading at 8x sales while showing similar sales growth. Mytheresa was valued at nearly 4x annualized sales, possibly explained by the foreign discount applied to the stocks, as I was holding back.
After the shares traded in the mid-20s in the days following the offering, they temporarily hit a high of $35 in the weeks that followed, but since then have gradually fallen to a new higher low at $10 per share at the time of writing.
This significant and painful reversal was driven by the company’s operational trends. In August, Dibs reported second quarter results with revenue growth slowing to 29% as revenue of $24.7 million fell slightly on a sequential basis. This revenue was generated on a gross of $107 million, but the business still lost $4.6 million on an operational basis, in part due to higher expected losses for trading losses. The outlook was ominous, with third-quarter sales estimated at a midpoint of $24 million.
In November, third quarter results were a bit stronger than expected as gross merchandise value of $109 million was higher than expected as revenue rose 22% to $25.6 million, above the $100 million rate. Operating losses rose a little more to $6.9 million, but $167 million of net cash appearing on the balance sheet provided a buffer.
The company guided fourth-quarter gross merchandise value around $119 million with estimated revenue of nearly $27 million. With 38 million shares trading at $10, the market value plunged to $380 million, or just $213 million if we strip out net cash by the end of the third quarter, which will now be somewhat reduced, but nothing too worrying.
Despite the losses, the platform is still showing sales growth rates >20%, with the valuation standing at just over 2x revenue, which marks a huge reversal in valuation and, frankly, could be attractive under the right circumstances.
Despite some insider buying in November, the market has not regained confidence. The truth is, I’m not so convinced, but 20% growth and a multiple of 2x sales seems reasonable here, as the losses are manageable. Nevertheless, I have concerns about the platform as the nature of the commodities makes transactions expensive, prone to above average fraud risks, as I wonder if the underlying platform can achieve the same strength than businesses like Etsy for example, or other marketplaces.
Therefore, the business might become attractive for a takeaway, as the risk-reward ratio will also become more attractive given the growth and sales multiples, but the truth is that I’m not convinced of the quality and of the inherent strength of the platform. A small speculative position seems justified, but I have no conviction on the name to indicate a size position here.