Good morning, everyone, and welcome to the First Annual Needham Consumer Tech and E-Com Conference. My name is Anna Andreeva. I'm a Senior Equity Analyst here at Needham, focusing on consumer e-commerce space, and we're very excited next up to have 1stDibs. From the company, we have CEO David Rosenblatt, CFO Tu Nguyen, and IR Kevin LaBuz. For those who don't know 1stDibs, this is a leading online marketplace for design, and we really love the tagline the company uses, "The most beautiful things on Earth." 1stDibs just reported their Q3, and to kick it off, we're asking our companies three questions. First off, what was the biggest surprise in the third quarter, either on the positive or on the negative side? Secondly, how are you approaching the fourth quarter? The third, what are the most things you're bullish for 2022, and conversely, cautious on? Okay, great. Should I just tick through them or how should- Sounds great. Yeah, okay. Great. First question is, what was the biggest surprise in the third quarter? The biggest surprise for us was that our consumer business was stronger than we had expected, especially relative to our exit run rate in Q2. So, you know, we actually lowered our Q3 overall GMV forecast relative to our IPO model, although we ended up hitting that IPO modeL. You know, perhaps we were a little bit too cautious. You know, why did it happen? I mean, I think as with many things, you know, it wasn't just one reason. We had stronger than expected organic traffic growth that in part was a result of, you know, a specific product focus that we placed on it. There was a Google algorithm change that helped us quite a bit. Secondly, I think from a macro point of view, again, it's hard to attribute numbers to this, but certainly the fact that our products are all secondary market, meaning they're in stock and ready to ship, helped us given the overall environment. I think overall, you know, it validated our belief that the long-term opportunity for this company is much bigger on the consumer side than our other customer type interior designers. That said, the entire interior design business is probably the second pleasant surprise, though it came in a little bit ahead of what we expected it to. Again, in the long run, in terms of the thesis and what we kinda optimize our investment in favor of, you know, it is the consumer business, and that consumer business performed better than we had anticipated. How are we approaching the fourth quarter? I think again, it's worth noting that as we all know, the macros are more volatile than normal this year. You know, historically... Again, like, I think that's where, you know, we're sort of cautious in terms of what we expect from Q4 relative to historical performance. Historically, we've seen roughly 15%-20% kind of sequential quarterly growth in the fourth quarter. You know, versus that, the midpoint of our guidance represents growth of 9% quarter-over-quarter. Again, I think that reflects both the sort of lack of predictability and the volatility of the external market, and also the fact that we are comping a pretty strong fourth quarter last year. That said, you know, the quarter has been healthy so far. We've also executed well on our second area of focus, which is new product development. In the third quarter, we launched NFTs. This quarter, on November 12, I think it was, we launched auctions, which so far has met our expectations and which we think in the long run could be a significant lever of growth. Third question: What are some of the things you're most kind of excited about and also things that you're cautious about in 2022? On the optimistic side, I mean, it's something I mentioned before, which is, you know, we've been very focused since we went public on increasing our pace of new product introduction. We've executed very well against that. You know, again, we launched our NFT marketplace in August. We launched auctions, as I mentioned, in November. We will be launching... We are investing quite a bit right now, and we'll be launching international demand side expansion in the first half of next year, and I'm particularly pleased that we're, again, executing kind of on time and on budget in each of those. I believe that we'll start reaping the benefit of them next year. You know, what are we cautious about for 2022? I think we sort of recognize the obvious, which is our comps are tougher. Q1 in particular last year was, you know, an unusually strong quarter for us. We grew 64% year-over-year, and that just raises the bar for this year. Again, I think where all this comes together and why I'm especially optimistic about 2022 is that I think as we get past those comps, that's also the time where we begin to receive the benefit of some of these new initiatives, as well as continued execution in the core on things like SEO and so on. Again, on balance, I'm very optimistic about 2022, especially for the period once we get past these comps. Okay, that's great. Super helpful. Appreciate that. Just picking up on the auction opportunity. Congrats there. Just sounds really exciting. Can you talk about how meaningful do you think that will be to your GMV, if the launch is successful, specifically, what metrics are you looking at to gauge that? Maybe talk about the value prop for both buyers and sellers. I guess this one is to Tu, if I'm not mistaken, you didn't include any of the upside from the auctions in your fourth quarter guide. Maybe talk about the rationale for that. Yeah. Why don't I start with the economic opportunity and the value props to buyers and sellers, and then, Tu, you can talk about metrics and GMV impact. The economic opportunity is very straightforward. We have roughly $11 billion worth in terms of face value of product that's listed on our marketplace. Against that, we'll do, you know, a little bit south of $500 million in gross sales this year. That is a result of the fact that this industry has longer sales cycles than most others. But it also creates an opportunity, right? Anything we can do to increase our monetization of the difference between those two things is, you know, obviously an enormous opportunity. The second thing, you know, that's more on the supply side. I mean, in terms of the buyer focus, one of the things that's notable about this company is that when you look at conversion rates of returning buyers versus first time buyers, there's a much larger gap than in most other companies than I've ever been around. In other words, once people buy for the first time, they tend to come back, and they buy at very healthy rates. However, getting that first order can be, you know, can take a while and can be a challenge. Where you see that in numbers is also in the difference between the 3.5 million registered users we have versus the 72,000, you know, active buyer trailing twelve-month count, right? So again, the difference between those two is pretty big. We do a lot of surveys to understand why people are sometimes, you know, why they can take some time to make that first purchase. Not surprisingly, it has nothing to do with the quality of the inventory. It has only to do with the price. The top two reasons are either, I don't know what the price should be because these are one of a kind items, or it seems a little bit expensive, and I have no basis really to judge. Auctions, of course, address both of those head on. It removes, again, the two biggest obstacles that are in the way of us, you know, kind of activating more of those 3.5 million registered users. In terms of the value prop, you know, I think we have a better auction product actually, than anyone else. I mean, first of all, in terms of our speed of commercialization, you know, if you think about it, we already have the buyer, we have the seller, and we have the item, right? Mm-hmm. It's not like we need to go and get those three, which is the case with many other auction platforms. The second thing is that, you know, again, it's sort of a natural complement to everything else, to our other preexisting purchase formats. We support fixed price. We support negotiated price. It's a pretty logical extension of what we do. Lastly, in terms of the product itself, when you compare it to other auction products, it's better in many ways. We don't charge a buyer's premium, so it's less expensive in most cases for buyers. We support messaging between buyer and seller. In a normal auction anywhere else, you can't talk to the seller as a bidder while the auction is in process. In many cases, shipping is already known in advance, so there are no costs afterwards. Then lastly, we have a pretty healthy buyer protection policy, which again, is not the case in most local auction houses where auctions are buyer beware. For all those reasons, you know, again, I think it's the right product for the right time, and I'm optimistic about its impact. Tu, do you wanna talk about metrics and GMV impact? We assume no material GMV impact in Q4. Instead, we are using Q4 to collect data to inform a few metrics that would help future guidance as well as product optimization. Those metrics include seller adoption, right? Of our seller base, how many sellers opt into auctions and how much supply do they elect to move into auction? Mm-hmm. Sell-through rate. Of all of the items that are listed for auctions, how many of them are sold within seven days? That's currently the timeline of each of our auctions today. Then thirdly, which is the composition of those GMV. Back to David's point, one thesis is that using auctions as a way for price discovery and hence helping first-time buyer conversion rate, we will continue to watch whether that's the case. I would expect that in the more immediate terms, actually, that auctions might have more traction with our existing buyers, our returning buyers, because they are used to the site. They're used to using 1stDibs as a platform. Really the goal for us is to use auctions as a way to acquire new buyers. How do we get all of this data to really not just help informing guidance in the future, but really introducing, you know, different optimizations on the auctions product in order to continue to grow first time buyer conversion rate? Okay. Got it. No, that's great. Very helpful. I should have mentioned this earlier. If anybody has a question, please enter the question in the dashboard or email me at aandreeva@needhamco.com and we'll be happy to go through those questions. Competitively, so interesting what's happening in this space. You have the two incumbents, right, Sotheby's and Christie's, together do, I think, over $10 billion in GMV per year. These are pretty much non-digital, you know, entities. Digital adoption in this space is still very early on. How do you see that evolving? And do you see any other disruptive online competitors to 1stDibs? Yeah. You know, there's really no company that looks like us, in general, right? We're the only multi-category, fully digital, luxury marketplace. You know, our competition, I think for the most part, are substitutes, right? You could buy jewelry from us or you could go to Tiffany's. You could buy Mm-hmm. You know, fashion from us or you could go to a local reseller. You know, in many cases that reseller is already on 1stDibs. So I think and again, you know, these are large markets. There are lots of people that sell these things. So that to me is the primary source of competition. The auction houses, I view more as a kind of indicator of the market opportunity in the way that you describe. You know, they're marketplaces like us. They tend to do it differently and they have a different value prop and so on. They're very, very low volume, high AOV. So I think. Mm-hmm. Again, that 10 billion of GMV is quite consciously, you know, what I think of as the opportunity for us. To some degree, you know, there is some area of overlap, but for the most part it's not. We don't compete directly for either supply or demand. That will likely change over time, but today it's not that. You know, what is our approach? It really is to exploit the competitive advantages and differentiators that digital marketplaces offer, right? Breadth of selection. Mm-hmm. You know, the lowest possible purchase friction, the ability to connect buyers and sellers across geographies, being multi-vertical, you know, building data and profiles and so on of our buyers so we can better personalize and deliver them the best possible service. You know, those are all things that are not able to be provided by our, again, mostly substitute competitors. Okay. Okay, that's great. You had such a broad international opportunity and pivoting into that starting next year. I think you had said as much as 40% of all the items are outside of the U.S. and the market overall is approaching 1/2 of the market globally being international. Yet I think only 20% of your buyers are in fact international currently. Maybe talk about which markets do you plan to focus on initially, the timeline for that and the investments that are needed, any of the marketing that you need to do. I think historically my understanding is 1stDibs has not done any marketing outside of the U.S. Yeah, that's. You state the business opportunity case better than I can. You're right that historically we haven't done any non-English language marketing. That is a pretty good summary of the opportunity. How are we addressing it? You know, a couple ways, right? I mean, one big part of this of course obviously is translation. We have to translate. Mm-hmm. Customer experience in terms of the persistent user experience features of the site and so on. Secondly, we've got 1.3 million items on the site, each of which has its own item description and so on. That needs to not just be translated, but we need to figure out a kind of scalable way to translate newly listed items as well. That's a big area of focus. Some of those costs, you know, are gonna show up this quarter for us in advance of the launch of the business. Beyond that, there are a bunch of other things we need to do too, right? We need to customize logistics and fulfillments kind of capabilities by market. You know, some of that actually comes ahead of the launch. For example, this week we're launching pre-quotes on the majority of parcel items based in Europe, for shipment both within Europe and to the U.S. Most of the capabilities are things that we wanna add post-launch. Then the last thing I would say on that is, you know, the other point you alluded to which is, you know, probably over time where we get the most kind of leverage and growth from demand side localization is by developing and scaling both an SEO, meaning organic traffic capability and also a paid capability. That does take time. Google requires us to, you know, do all sorts of things to build authority, and that includes things like edited local language editorial and so on. you know, we're gonna kick that off likely second half, sort of after we launch the product. you know, that's the kind of thing that I think can grow forever, but we'll start with a relatively low impact, next year. I don't know if you've looked at this, but what is the unaided or aided brand awareness for the brand here in the U.S. and internationally? Yeah. It's been a while actually since we've done it in the U.S., and you know, we haven't done it outside the U.S. 'cause we know that it's gonna be pretty close to zero. Again, that's the opportunity. You know, people who are active in this market will, you know, seek us out, right? I mean, the 20% of demand that we do get from outside the U.S. are highly motivated people who are educated on this market. The opportunity, of course, is everyone else, and those people are a very small percentage. Honestly, we don't really need to do a lot of research. It's low. Okay. Got it. You mentioned 3.5 million registered users compared to, I think, 72,000 active buyers. How has the conversion been from user to buyer historically? What are you doing specifically to drive that? I think you said that initial first purchase, you know, may be difficult, maybe it's the price and understanding the value that you're getting, but then the repeat purchase is, you know, pretty substantial. Maybe talk about that and again, some of the initiatives in place to drive that further. Yeah. We've actually made great strides on that. It's still low in absolute terms, although in percentage terms we've grown it quite a bit. I would say it's you know, a whole slew of things, right? I mean, Bill Gurley, the Investor from Benchmark, is our investor, said that growing conversion is a ground war. You know, that's sort of the way we approach it. I mean, it's everything from making it clear that it is possible to negotiate, which is, you know, it's not something that most other e-commerce platforms support. We need to educate our buyers both to its existence and also how to use it. Two things like, you know, I'll give you an example, actually. We just released a product about two weeks ago that was very successful, where for people who landed on not the homepage, but on category pages, you know, coming from Google. For example, if you search for, I don't know, like chokers, right, the necklace. You know, you would land on a category page. Instead of just showing a list of items, we then break that out into sort of different adjacent type of necklaces, right? And also show price points. In other words, we create lots of doors that then guide people into a path that corresponds to what interests them. We call it guided discovery. I don't have the numbers in front of me, but you know, the impact was meaningful, right? There are many things like that. Auctions is probably the biggest opportunity. I mean, you know, again, the biggest obstacle is price, and auctions are the most efficient form of price discovery in economics. But really there are literally hundreds of things like that, right? It's increasing the coverage of pre-quotes, meaning the percentage of items for which we have a competitive shipping quote in advance of somebody checking out. Just lots and lots of stuff. Another big one is mobile web, right? Like, now we have a third more traffic on mobile web than we do on the desktop, right? You know, we optimized our mobile web experience and conversion went up. It's just many, many things like that. How are you guys on the app, and what has been the app adoption for the business? Tu, I remember the absolute numbers. I think the app is about, I don't know, 5%-7% of our traffic. Is that right? 5%, yeah. Yeah, 5%. Yeah. The conversion rate, interestingly, is, you know, depending on the month, 3x-4x higher than all of our other channels. It's 3x-4x higher than desktop. It's even higher versus mobile web. Mm-hmm. you know, like a lot of companies, we have an effort to induce people to download the app. Yeah. On. Okay. Sure. By the way, we just released our first ever iPad app last quarter. iPad is lower, much lower than a phone, but still there's an opportunity there. Okay. Congrats. We'll check it out. Thanks. The category expansion, right, story is pretty meaningful as well. As you talk about getting new users and converting those users to buyers, I think historically, the vintage and antique was as much as half of your GMV, and I know you've been pivoting and expanding the marketplace into Jewelry, new and custom Furniture, as well as Art. Maybe talk about the mix of the business, how you see that progressing over the next couple of years, and what is the delta in the take rates across those categories. I'll start with the first question, and Tu, you can take the take rate question. In terms of you know, category diversification. When I joined this business, I had three priorities. One was to switch the model from what it was at the time, which was advertising based to e-commerce, done. The second was to globalize the business. Almost all of our supply was in the U.S. Today, half of our sellers are outside the U.S. The third was to take the brand equity that we had gained as a result of our first mover advantage in vintage and antique furniture and kind of amortize that or use that as a way to get into other bigger, higher velocity verticals, right? The reason I say that is, you know, while we have many great attributes as a marketplace business, purchase frequency is not one of them, right? There's only so often that people buy expensive vintage and antique furniture. Yet at the same time, we had a brand that could accommodate organic expansion into other verticals. We went from 100% of, you know, sales from vintage and antique Furniture down to, as you know, 50%. That effort has been successful. You know, the other categories, mostly Jewelry and Art, and new and custom Furniture, although what I'm about to say doesn't apply to that as much, are. They're much bigger than vintage and antique Furniture. All three of those are. Importantly, they're also more internet-friendly, right? It's a lot easier to ship Jewelry, it's a lot easier to do returns for Jewelry and so on, and Art as well than it is for Furniture. Again, that's been a big driver of that, you know, going from 100% vintage and antique Furniture down to 50%. When you look at those markets, you know, the competitive intensity is very low. I mean, there's really no major incumbent marketplace in any of them. They're more internet friendly. They work very well with our brand promise. They're, we're able to cross-sell all of those categories into our existing customer base. Now with auctions, we have another purchase format, another way to buy out of those categories. Again, you know, we're on the lookout for categories beyond that. However, we're incredibly early, and I think there's, you know, generally, our focus is much more on growing our share of these verticals than it is on continuing to find new ones. Opportunistically, if one were to present itself, we would go after it as we did with NFTs most recently. Mm-hmm. Okay. Yeah. On the questions in terms of take rate, it's worth noting that our take rate is made up of subscription revenue as well as e-commerce revenues, right? We take, you know, on average, like, 15% on the GMV that the sellers generate on the platform. Then in addition to that, sellers also pay us a subscription fee as well. All in, you know, there is not a substantial difference right now in terms of the take rate across different verticals. Obviously, you know, if we look at vintage and antique furniture businesses in the U.S. pay us the highest subscription rate. This, you know, the take rate overall for furniture is slightly higher than what we would take on the fashion. I think there is opportunity for us to simplify our, you know, take rate and overall rate card even more. Watches, as an example, has a much lower take rate in the market than what we're charging right now. That might be a deterrence to our ability to continue to exponentially grow our supply. You know, something that we're actively looking at on how we can continue to remove the barrier, which is take rate, to sellers joining the platform. Okay. Great. That's very helpful. Just as a follow-up on NFT, and congrats on the launch, that's right, one of the more recent initiatives. How do you think about the roadmap to scaling that? Yeah, I mean, that is the roadmap. It is to gain scale, you know, mostly on. Well, let me take a step back. For everything we do, there are three parts, right? Three components, supply, demand, and platform. On the platform side, there are still some kind of fundamental areas of functionality that we need to build. For example, one of the unique advantages of the crypto art category is the ability for creators to benefit from secondary sales, right? In other words, they sell it once, gets sold again, they can make some money from that second sale. We need to build support for that, which isn't in the product today. There are probably four or five other examples of things like that. But, you know, that'll happen. We'll get that in the market sometime in the first quarter. Our focus is really on adding more supply and adding more demand. Supply is in part a function of product functionality. Today, artists don't have the ability to self-publish onto our marketplace. We're gonna give them that ability. On the demand side, you know, we launched Twitter and Discord presences, which are the main marketing channels for this market and which are channels we didn't have before. Now it's a matter of, again, exactly, as you say, of gaining scale. Look, we believe that crypto art is a category that's here to stay. We believe it falls within our right to win. We've had some early success in terms of high average order value sales. Again, you put it well, which is, you know, it's all about getting to scale right now, and that's our focus. Maybe this is a two-part question. As you guys think about your longer-term opportunity to grow GMV in a 25% range, that's not what you guided for the fourth quarter. I understand all of the headwinds and uncertainty out there as well as the tough compare. Looking out, as you think about some of the building blocks toward that longer-term growth, lots of different initiatives at the company as we just discussed, lots of very exciting ones. How do you think about some of the building blocks to get there? Just to note, at the midpoint of our guidance for Q4, GMV growth is still in excess of 50% on a two-year stack basis. You know, on a normalized basis, again, we had such an unusual comp in 2020. On that normalized one-year basis, we're still growing in excess of 25%. The comps do get harder for us, you know, Q1 and Q2 of next year. In terms of, you know, the building blocks is everything that we discussed today. We're very excited about auctions. I think we're going to get more data very soon with this launch in Q4. International is a huge opportunity for us, right? 20% of our GMV today comes from outside of the U.S. That is despite any marketing and investment that we have done so far. We do believe that there is a great market outside of the U.S. We do believe that we have the supply. We are prioritizing markets that we already have a supply advantage. International investment is likely to take longer than something like auctions, because there's a lot more to build out there. There's you know, marketing awareness, there's product localization. So we're you know, we're very focused on growing that market. Again, you know, in terms of 2022. You know, in terms of the compositions of where the GMV is coming from, we're still very much focused on our core business today, which is growing the U.S. market. Later on, international, which again, I think that we would expect more material impact coming into 2023. Auctions again, I think that will, you know, post Q4, we're going to have a much better read in terms of the contribution of auctions into our overall GMV in 2022. Okay. Okay, makes sense. We'll stay tuned. I guess since we have you, just a question on the IDFA impact for the business. You called out, I think it was a $2 million-$4 million hit to GMV in the third quarter as a result of some of the changes. You also said efficiency in marketing actually built as the quarter progressed. Can you discuss specifically what was done to offset that negative impact? How do you think about potential changes from the privacy pressures going forward? Yeah. A few things that we're focusing on for IDFA in particular. One is to test working with new vendors to target the same iOS users. Two, focusing on collecting first-party data through registration and engagement of the platform. Those are the two things that we'll focus right now in order to overcome the impact of IDFA. On a broader, you know, perspective in terms of sales and marketing, we're going to focus on continuing to test into new marketing channels, right? One of the reasons why we were not materially impacted by IDFA is because we do have a very diversified set of marketing channels to bring on users. We're not dependent on any one single point of failure. I think the learning for us is to continue to experiment into different channels and therefore, you know, having a diversified set of channels to bring on new users going forward. Okay. That's helpful. On the longer term profitability, and I know that's longer term, but you talked about reaching 30% EBITDA margins. Which levers do you think you have that you see as the most opportunity to show that operating leverage? Yeah. I think, you know, worth noting that we were adjusted EBITDA profitable in certain months in 2020. Again, you know, scale is not a deterrent for us to reaching profitability because of our high gross margin as well as, you know, virtually very low CapEx. We're very much focused on growth right now. That's reflected in all the investments that we made in sales and marketing as well as in product and development. In terms of where we expect to generate, you know, the most leverage, I would say that that's across all of our cost lines. Of course, we'll start with G&A. We had a step up cost this year due to public company costs. That should get delivery leverage next year, right? That's very much short-term and immediate. Our cost of revenue right now is 71%, so that's high, but there's still room for us to improve margin through more automation. That improvement will be more incremental and over time. I would say sales and marketing in terms of how we can get leverage there is through increasing our buyer LTV. That's through a lot of the things that we're doing today, right? Expanding into newer verticals, so that we can increase the frequency of purchase with our existing customers. You know, growing into international market where the conversion rate of international buyers right now is only a portion of what it is for U.S. buyers. Anything that we can do to improve the conversion rate of buyers on the platform, that should generate leverage on sales and marketing. Lastly, you know, we've been able to prove to get leverage in our product and development line. That's an area where we want to continue to invest. Again, you know, I think that is, you know, we're not expecting to grow headcount at the same rate as we're growing the business because a lot of the work that the team are working on scales, right, with the number of users we have on the platform. You know, across the board, I would say that we see a very clear path to reaching that 30% EBITDA margin more long term. In the very near term, we still have a very small percentage of the market and therefore we are very much focused on continuing to grow that market share. Okay, great. That makes sense. David, picking up on something you had mentioned earlier, in this supply chain environment, 1stDibs certainly should be a beneficiary. Right? Less than 1/2 of all items on the platform are outside of the U.S., plus I think the seller base should be very diversified. How are you communicating that, you know, relative advantage to the consumer? And is the consumer aware of your, you know, differentiated position from that standpoint, just even as we think about the holiday approaching? Yeah. I mean, I'd say, you know, any existing customer certainly is aware because they work with us and they know what we do. In terms of new customers, you know, we communicate through all of our normal channels, both advertising and also on-site and through emails and so on. Also when you navigate through the experience, you know, we have pop-ups and so on that kind of induce you or make you aware that it's possible to buy from local sellers. Yeah, that's what we do. Okay, great. We have only just a couple of more minutes. What would you say should be the biggest takeaway to investors? Maybe as you think about the stock, what's the one or two things that are most misunderstood about the company currently? Yeah, listen, I would say it's incredibly early, right? I mean, we'll do less than $500 million in GMV this year. The industries we operate in are, you know, close to $100 billion. Sotheby's and Christie's, which are the closest comp to us, as you pointed out, do $10 billion a year. It's early in the secular shift, and it's early in our development as a company. You know, I could not be a stronger believer personally in the opportunity. I mean, I make a very low cash comp. I own, you know, a meaningful percentage of this business. You know, I bought another $2 million worth of stock, basically, since our first public earnings report, also again last week. Again, I'm, you know, a really big believer. We have great fundamentals, strong network effect, customer retention, good product experience, lots of growth adjacencies, two of which we've launched in the last two quarters. Again, I think it's really early. You know, what's the one thing that's most misunderstood is that this is a product that is inaccessible to most customers. Our median order value is close to $1000, which means half the things we sell are under $1000, which is not, you know, it's not a company for billionaires or even centimillionaires. It's a company for the mass affluent and the sort of aspirational design lovers, and that is a very large market. That's terrific. Well, thank you so much to the 1stDibs team, and thank you to everyone listening in, and happy early Thanksgiving, everyone.