Welcome everybody. I am Aaron Kessler, Senior Internet Analyst at Raymond James. Pleased to have with us for our next presentation this morning, 1stDibs, and presenting for 1stDibs today are David Rosenblatt, CEO, and Tu Nguyen, CFO. I will be doing some Q&A for about 30 minutes. We'll leave 10 minutes at the end for Q&A as well. If you do have questions, feel free to enter it in the Zoom box or feel free to email me if you can't figure that out to aaron.kessler@raymondjames.com. Welcome, guys. Maybe to start off, just if you wanna talk a little bit about just the overview of 1stDibs and maybe kind of how the business has evolved from its original founding, and then maybe some of the initiatives you've taken, David, since you've joined the company to kind of transform the model even more. Sure. 1stDibs. First of all, thank you for having us and me, Aaron. Quick background on 1stDibs. 1stDibs is a classic two-sided marketplace. The supply side are vetted professional sellers, so we don't source from consumers, and it requires approval on the part of the business to be allowed to sell. The supply side is over 4,000 vetted professional sellers across luxury design, jewelry, art, and fashion. The demand side is a combination of consumers, and about 1/3 of our business is selling to interior designers. The company was formed quite some time ago, it's about 20 years old, in the Paris flea market, which is a neighborhood in Paris dedicated to luxury design. The original idea was to create a listings business for the purpose of those two buyer constituencies I mentioned, primarily in the U.S. The key change in our history was in 2016, five years ago, when we switched the business model from what it had been, a listings/advertising business to an e-commerce business. In the e-commerce model, I guess probably the easiest way to think about it is think about switching from being a sort of fancy version of Craigslist to eBay. In the e-commerce model, all contact between buyer and seller happens on the platform up to and including the order itself. That has been the primary focus of our strategy up until now, along with two other strategies. One has been geographical diversification. When we started, despite the fact that we were started in Paris, we very quickly became basically a U.S.-only business. Then secondly, vertical diversification. When I joined the business, which is now about 10 years ago, and for much of our history, you know, almost all of our supply was in the original vintage and antique furniture market. That industry is relatively small, and so the strategy has been to take the brand equity that we gained as a result of our first mover advantage in that category and diversify into other categories. We've done that such that vintage and antique furniture is now diluted down to roughly 50% of our total GMV. Business model change in favor of e-commerce, geographic diversification, and vertical diversification has brought us to where we are today. Got it. Great. Just for those investors, maybe, who don't know just kind of the size of the TAMs that you're addressing, can you just address the TAMs for your core market as well as the personal luxury goods market, and where maybe which areas do you think you're taking share from the most? Yeah. I mean, the core market that we're in today is roughly, you know, depending on how you measure, something like a $80 billion or so market, so it's a large one. I think, you know, easier to conceptualize actually than the market size itself or some of the other participants in this market. Sotheby's and Christie's, for example, together do roughly $10 billion worth of GMV a year. Another data point in the market recently, there's a company called LiveAuctioneers, which is, owned by ATG, which is a public company in the U.K., which is a, an online marketplace whose sellers are local auction houses. So they'll do over $600 million of GMV this year. Again, I think, you know... We've got the many, many substitutes who represent competition to us in specific verticals and geographies. Got it. I think it's pretty obvious, but maybe you can provide an overview of some of the disruption that you're doing versus some of the legacy models. Obviously a much better user experience, probably better seller experience. Maybe just detail some of the ways you think you're really disruptive to these legacy models. Yeah. I think the easiest way to think about it is how this industry worked before 1stDibs existed. The business in almost all of our verticals was primarily local, and importantly local to those who happened to live in one of, you know, five or six major cities in the country or the world, right? Like New York, L.A., Miami, London, and so on. Starting on the supply side, you know, the real change that 1stDibs created for our suppliers is the ability to reach a global market, number one, which they couldn't before, and then number two, for them to be able to sell online at all, which really wasn't possible and didn't happen before 1stDibs existed. You know, we do a lot of other things for them, but those are probably the two biggest disruptive components of our value prop to suppliers. On the demand side, similarly, it starts with access to product, which again, before 1stDibs, you know, was only local. Then secondly, I would say, you know, we've disrupted the actual purchase process itself at every step of the funnel. Everything from discovery, which I've talked about, to, you know, being able to communicate online between buyer and seller, to being able to buy anonymously, which is important in this market, to bundling payment and checkout, to offering trust and a buyer guarantee, which in most cases, individual sellers don't. To offering all sorts of technology, of course, that contribute to things like personalization and so on, email marketing, again, none of which existed before us. Got it. Great. You hit on it a little bit in terms of your vertical expansion in Q3. Vintage and antique, as you mentioned, was kind of roughly 50% of your GMV. Can you talk about how you've expanded the marketplace beyond vintage and antique into the newer categories, jewelry, new and custom, and art? How long does this generally take in terms of some of this vertical expansion, and is this strategy replicable going forward? Yeah. I mean, one of the questions I was asked pretty frequently during the IPO process is, "What is your most important differentiator or your most core asset?" I believe that our most important and valuable asset is the consumer trust that we have to be able to sell high average order value items online. If you compare our AOV, which is, you know, well over $2,000, you know, it's five to six times higher than the most recently published AOV of The RealReal, for example, and also Farfetch. You know, both businesses commonly associated with luxury. We have an ability via the trust that consumers have placed in us to be able to give them the comfort to make high average order value purchases online. The idea, as I mentioned earlier, behind our vertical diversification, has been to find other categories where that trust applies equally well to our original core vertical of vintage and antique furniture. That has worked well. Today, jewelry, art, new and custom design, meaning contemporary design, is another big leg of this, are all kind of important components of the company. What we look for is exactly what I described. It's a sale process that requires trust and that also works well with the technology platform we have that, again, something that we think is unique, in my experience, it is unique, that accommodates, you know, a pretty complex order path, along with the ability for the buyer and seller to communicate throughout the negotiation process. You know, I think it's super early days. I mean, jewelry is obviously, you know, fine jewelry is a very large market. We're in it both in terms of contemporary jewelry and also the secondary market, also called estate jewelry. Same thing with art, same thing with contemporary design. You know, again, the adoption still of the internet of these verticals is very, very low. The last thing I would say on it is the competitive intensity in these verticals is high to the extent that there are lots of substitutes. It's low in the sense that there's no company out there that looks like us in the sense of being a multi-vertical luxury digital marketplace, you know, with all of the reach and the assets that we have. Yeah. Specific to the art category, how much of the, like, art galleries, have you seen move online at this point? There's still a lot of local art galleries in a lot of the big cities out there. How much of that have you seen move online, thus far? Yeah, quite a bit. I mean, it's, you know, become a major category for us. Again, I still think it's early days, and the art market is complicated, and, you know, it segments into a kind of super high-end segment of the market, which has not yet moved online for the most part, and then a kind of lower price segment of the market which has. We're focused on the latter. You know, that's undergoing the same secular changes that most verticals are. Got it. Great. Either for you or for Tu, too, the long-term growth targets you've laid out is roughly 25% GMV growth. Although that would kind of imply an acceleration versus what we're seeing in the back half of the year and into Q4. Can you just walk us through some of the plans that you have to accelerate GMV growth going forward, and maybe what areas are you most optimistic about as we go into 2022? I can take that and feel free to chime in. Just on our existing growth rate, right? Like, I think it's helpful to note the two-year stack growth rate to normalize for 2020. On a two-year stack basis, we were growing at 57% in Q3, and at the midpoint of our guidance for Q4, that implies a 54% growth rate. That said, we have a number of initiatives that we're very excited about for next year, that, you know, we do expect the comps continuing to get tougher going into Q1 of next year. They'll get normalized into the second half of the year. Some of those initiatives are what David has mentioned, right? Auctions, something that we launched a few weeks ago. International, we decided to accelerate investment in international into Q4 of this year, and we hope to be in market in those markets in H1 of next year. That should have GMV impact towards the second half of the year. Continuing to expand on our core business, right? The new verticals that we are in today, for example, in Q3, we saw that 60% of the new buyers that we brought on in Q3 purchased in a vertical outside of vintage and antique. We see a ton of new opportunities to continue to grow our business outside of vintage and antique within our core business. Those are the three things that I'm very optimistic about going into the second half of 2022. Got it. Great. Just maybe quickly onto auctions as well as the opportunity that you've recently launched in November. How should we think about the key benefits to buyers and sellers of the auctions model versus maybe your more current fixed price model? A question I had is, I guess, can you just maybe walk through the logistics of the auction model, how that'll work? Is this gonna be like a one week auction, two weeks? Do you think you have enough bid density to for this to really be successful? Yeah. It's currently they're week-long timed auctions. Very straightforward. Yeah. The seller sets a starting price, sets a reserve price, and then, you know, we see what happens. You know, listen, I think auctions fit very naturally into the business. I mean, let's just start very quickly with the kind of economic rationale or logic, which is we have roughly, I don't know, somewhere between, in terms of face value, $10 billion-$11 billion worth of product on the marketplace. Because of the longer than average sales cycles associated with this industry, you know, we'll sell roughly 5% or so of it this year. That leaves a lot of product. You know, we've done a ton of research, and you know, we ask our registered buyer or our registered users who have not yet become buyers, "Why is it that you haven't bought?" In almost all cases, you know, the primary reason is the inability to do price discovery, which kind of makes sense given that, you know, we're a marketplace of one-of-a-kind items with a relatively high AOV. Etsy has a similar issue, but it doesn't really matter when you have a sub-30 AOV or, you know, whatever they have, right? When you've got an AOV that's at our number, it does matter. We have a bunch of initiatives pointed at that, but I think auctions is the biggest and the most important of those. You know, the fit is obvious, right? I mean, auctions solve that because they are in fact the most efficient vehicle for price discovery, in the market. You know, the product itself is differentiated from others in a couple of senses. One is that we have a message center, so in most cases, all cases actually that I know of, it's impossible for buyer and seller to communicate through the auction. We're also bundling the shipping price, in most cases, with the price of the item. We offer our typical 1stDibs buyer guarantee, and so on. So all the things that people expect from and receive from core 1stDibs are included in the auction product, which makes it, in addition to that sort of economic logic that I described, makes it a product that we think is genuinely differentiated. I think it's, you know. Look, sellers wanna sell, and buyers wanna make sure that they have good prices. Again, and then I guess the last thing I would say is that, you know, this isn't like introducing auctions into an industry that's never seen it before, right? It's a fairly commonplace mechanism. It exists because of the price discovery need that I talked about earlier. Then, you know, in terms of how we're gonna commercialize it, the advantage we have here is we already have the seller on our platform, we already have the item itself on our platform, and in many cases, we have the buyer on our platform with the buyer's payment information. Again, the sort of step to commercialize this thing is not quite as high, not nearly as high as it would be if we were coming at it from scratch. Yep. Got it. That's helpful. Great. Just maybe, quickly on international as well, which seems like a fairly large opportunity for 1stDibs, and already you have a lot of your traffic there. If you can just maybe provide us an update on kind of percentage of traffic, supply that comes internationally, as well as revenues. How should investors think about the opportunity both in 2022 as maybe you launch some new markets, maybe local language markets, as well as the longer term, opportunity in some of the international, areas? Okay. Let me just sort of start with what international is for us. Then, Tu, you can talk about how that translates into investment requirements and GMV impact. Today, sorry, 40% of our items are from outside the U.S., 50% of our sellers. However, the experience itself is English language only, so nothing is localized. We don't do any local language marketing to grow audience. The experience itself, all the way through payment methods and so on, is not optimized at all for non-English language, non-U.S. buyers. The goal is to change all of those things and to be in market in the first half of next year with, in Western Europe at least, our first couple of markets with local language item descriptions supported by local language marketing, payment methods, all those things that I described. Tu, do you wanna talk about how we think about it in terms of the economic model? Yeah, sure. Just to build on what David mentioned, right? The last time that we disclosed international metrics, and much of the trend hasn't really substantially deviated from that, is 30% of our traffic comes from outside of the U.S. But in terms of demand, only about 20% of our demand are from those countries. You know, by that math, the conversion rate from international buyers is much lower than the conversion rate of our U.S. buyers. We'll very much focus on what can we do in order to improve that conversion rate from international buyers, right? A few things in terms of translation, making it locally available in local language, and localizing the experience, so either through payment method as well as expanding the fulfillment carriers that network that we have today to better support these local markets. That's on the platform side. We never really invested in international demand outside of English language countries. The two benefits of translation is, one, we are able to come up when you search for 1stDibs in your local language, right? SEO was never possible with you know, you don't speak or search in English. 1stDibs would now come up when you search for a chair in that local language. Two, be able to start testing into paid media in these local markets as well. Those are going to be kind of the levers that we're going to watch as we move into initially in this Western Europe markets, where we do at the moment already have the supply existing in those markets. Got it. Great. Tu, a couple questions on advertising. Obviously still a long runway to go in terms of further buyer penetration. Kinda what's the current strategy in terms of increasing the buyer base on 1stDibs? I think you may have mentioned IDFA in the last conference call, just any updates there and how you're dealing with maybe some of the IDFA headwinds at this point. Yeah. Tu, do you wanna take that? Yeah. In terms of IDFA, just taking a step back, right? Like, IDFA really impacts our app traffic. App traffic accounts for about 5% of our total traffic, but is much higher converting. We did estimate that IDFA had, you know, some impact on our GMV, but not a material impact in Q3. We do expect that Q4, because generally, seasonally is a higher traffic quarter for us, that we might see more impact from IDFA. That said, you know, our strategy in terms of go-to-market for buyer acquisition has been a few things. One, focusing on improving, conversion, right? It's all of the platform optimization that you see on the site. Then two, continuing to test into new channels. You know, we don't want to be reliant on any one channel. Part of the reason why we weren't materially impacted by IDFA is because throughout this year we have been more aggressive into testing new channels. I say that, you know, that is the same playbook as we think about international. We'll test into new channels and using the data that we have, figure out which channels work and which don't, and then we'll continue to optimize the program, as appropriately as we can. Again, you know, very similar playbook with what we have done in the U.S. so far. Got it. Great. Maybe just for those who, investors who are not aware, can you just talk a little bit about the buyer demographics, buyer user, maybe how that's changing. Maybe just also if you can discuss maybe the cohort behavior of recently acquired customers as well. Sure. Why don't I start with the first question and then, Tu, you can take on the cohort question. In terms of demographics, you know, we do skew, I would say sort of mass affluent. You know, our average order value is, you know, it's around $2,600. But the median order value is closer to $1,100. Obviously that implies that half of what we sell is below, you know, roughly below $1,000, you know, well within the reach of the mass affluent buyer. The way we think about merchandising and kind of supply, you know, aggregation and so on, is that we're searching for high quality product. That doesn't necessarily always translate into the most expensive product, right? Like if this coffee mug is, you know, the best coffee mug ever made, maybe it'll cost $50-$60. That's not the same price as, you know, a $30,000, you know, vintage Rolex or something like that. That is. You know, I'd say beyond that, our audience definitely skews female, and today skews U.S. as well because of the fact that we haven't localized beyond English-speaking countries. Tu, do you wanna talk about cohort performance? Yeah. We've been very pleased with the cohort performance of the recently acquired cohorts that we have so far. Again, you know, we do have a longer product purchase cycle, right? We normally look at retention within a year. Outside of that, we also look at engagement metrics, which is an indicator of repeat purchases. On both fronts, we've seen that, you know, what I would call the post sort of the during COVID cohort that we brought on, we did bring on a very large number of new buyers. Both in terms of engagement metrics as well as return metrics, they have been consistent with our prior cohort. The other data that we look at is also that we've seen AOV increases on the platform as well as on new buyers as well. AOV is obviously, you know, not something that we as a company optimize for, right? If, you know, we have a buyer that wants to come on and buy something for $50 versus $5,000, like we are happy to have both segments of buyers. With that said, you know, we've proven the ability to continue to grow AOV, which again is an indication of the trust that buyers have on the platform. Also speaking about in terms of the LTV and the quality of cohorts, we have seen that metric continue to strengthen this year versus last. Got it. Great. Maybe if you can just talk for a minute about the trade business as well. Which I think you talked about a lot of interior designers. Probably, I assume 90% + are aware of 1stDibs. You know, can you just give us an update on trends you're seeing within the trade business this year and maybe kind of how penetrated is the trade business for you at this point as well? Yeah. I mean, the trade business has been very healthy for us this year, I think primarily for two reasons. One, you know, they were disproportionately and negatively affected by COVID. You know, we're still comping softer numbers than, you know, obviously is typical for the interior designer industry. Then secondly, as we all know, you know, the real estate market in general, but the luxury market in particular, has come roaring back. So we benefited from that. You know, going forward, though, we expect the growth rates to kind of regress to more normal historical averages. All of our energy as a company is really on the consumer side, primarily because the size of those markets is just so much bigger in general. Specifically with the markets that we're focused on, like jewelry and art, you know, those are almost exclusively consumer markets. You know, going forward, we expect trade to decline as a percentage of GMV for a long time. Got it. Great. I think you discussed a little bit on the last earnings call in terms of supply chain, saying you hadn't seen much, disruption thus far. Any updates you can provide us on the supply chain as we go into Q4 here, what you're seeing currently? Yeah. So far we have not. I mean, I think, you know, for a couple reasons, the most important of which is that, you know, we're in the secondary market, not the primary market, so we don't have to deal with things like, you know, the things that manufacturers have to worry about. Second is, you know, we're not as exposed to the, specifically the transpacific trade routes. Lastly, you know, there always is, for most buyers, a local option, right, even if the thing they really want is not local. Again, it hasn't been nearly as much of an issue for us as it has been for others. Got it. Yeah. Have you disclosed what percentage of your sales are from the Transpacific route? Is that a smaller percentage than maybe Europe to U.S.? We haven't, but it is, yeah. I mean, again, primarily because most of our international supply is in Europe, not in Asia. Got it. Great. Just maybe for Tu, just on when we think about the longer-term EBITDA margins, you've guided to roughly 30%+ long-term EBITDA margin. How should we think about maybe the path to profitability, in terms of where the biggest areas of leverage are, and is there a right way to think about it in terms of scale of the platform to achieve that? Yeah. There's three questions, and I just wanna mention that we, in certain months in 2020, we were adjusted EBITDA profitable. You know, unlike, you know, potentially other marketplace where they need to get to a certain GMV in order to get to EBITDA profitability, we have the ability to do that today if we choose to. The margin that we have right now is more a reflection of our deliberate decision to invest in growth. You know, longer term, where do we see the path to getting to that profitability level? I would say that it was across all of our major cost line items, right? G&A, we do have a step-up function in terms of cost this year because the public company expenses. We're going to see that leverage towards the second half of next year, where we comp the full- year of public company cost. Sales and marketing, I'd say half of that right now on headcount, right? These are teams that work what I call, like, platform teams. SEO, email, paid, you know, it takes the same amount of team and people to reach one million users versus reaching 10 million users. We do expect those teams to scale with revenue and GMV. The remainder of that cost is on variable sales and marketing, right? That's what I call, like, paid and promotion. For that, we do have strict ROI on the core programs. You know, the decision on whether we want to be more aggressive on sales and marketing is really around whether we want to invest more into testing, which allows us the ability to scale our acquisition effort even more. I think barring any kind of one-off, upfront investment like international as an example, right? Like, will incur translation costs, upfront in Q4 of this year and Q1 of next year. After that, the incremental cost of translation is minimal relative to that upfront cost, initially. Got it. Great. Maybe just finally, any areas that you would highlight, maybe, that are areas maybe are underappreciated by investors today or areas where there might be areas of confusion for investors at this point as well? I mean, I think we've hit on most of them, which are, you know, market size. Yeah. The only thing I would say is that I think, you know, when you look at conversion rates in this business, conversion rates from returning buyers are quite high. So once we get somebody to buy, actually, both return rates, visit rates, and conversion rates are fairly high. You know, I think the opportunity is more around sort of those that phenomenon I mentioned earlier, right? The fact that we have 3.5 million registered buyers or registered users versus the trailing 12 months number of 72,000. You know, we've got a bunch of stuff pointed at that, the most important of which is auctions and localization. Again, I think, you know, what we have is a track record that once people become a buyer, they exhibit extremely healthy return and repeat purchase rates. Got it. Great. With that, I think we'll wrap up. Wanna thank David and Tu for participating today. Great. Everyone, have a great day.