Description

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At current levels, we think DIBS offers an optionality rich risk-reward. DIBS isn’t a high-quality stalwart. But we think downside is limited and the stock could be worth multiples of current.

DIBS was last written up in December 2021, after the stock had fallen 40% since its June 2021 IPO. The stock has fallen an additional 60% since then. With $111M of net cash on the balance sheet, DIBS has an EV of $70M.

DIBS is a straightforward business: it’s a marketplace (comparable to ETSY, EBAY, etc.) geared towards high-end furniture, art, jewelry, etc. They make money by charging sellers a subscription fee + a cut on every sale. In the world of high-end interior design and adjacent markets, DIBS has a very strong position and widespread name recognition / brand awareness.

We’d reference the 2021 VIC write-up, Investor Presentation, 10K, and the company’s website and app for further background.

DIBS has not fulfilled its IPO promises. The business has sucked – a combination of business specific and macro headwinds. Presented below are key metrics – you really got to squint to see what to like here:

So, what’s to like?

• 2-sided scaled marketplaces are good and valuable businesses. Of course, DIBS isn’t yet scaled.
• The CEO, David Rosenblatt, has an excellent track record (at previous gigs) and owns a lot of stock. He’s bought stock at much higher prices. Based on our conversations with David, he’s super sharp and cares a lot about the outcome.
• Most importantly: we think DIBS’ topline can be much bigger and DIBS possesses substantial operating leverage.
  • DIBS’s topline can be much bigger:
    • Disintermediation: in some sense, DIBS is already much larger than it appears. Disintermediation is a huge issue for DIBS – much more so than other marketplaces given the nature of products transacted and the dynamics between sellers and buyers. Based on conversations with sellers, buyers, and management, we think more than 50% (and possibly far more) of transactions initiated/enabled by DIBS are disintermediated. The company is highly focused on reducing disintermediation.
    • Conversion: DIBS has >6.3M registered users and >100M annual sessions (i.e. a website or app visit). However, DIBS has just 61K active buyers and 135K orders over LTM, implying conversion rates of 10 bps to 100 bps. The company believes there is ample room to improve conversion, and recent initiatives have yielded progress.
    • Longer term (once the core mouse trap is in better shape), we believe DIBS can attack any super high-end niche (e.g., custom made, architectural materials, curated real estate, etc.).
  • DIBS possesses substantial operating leverage:
    • Gross profit less performance marketing = 50%-55% of revenue. While we don’t believe incremental margins will be that high, we expect 35%+.
    • Organically, a combination of company specific initiatives plus macro tailwinds could yield meaningful topline growth, translating into massive bottom-line improvement.
    • Inorganically, DIBS could acquire a competitor – e.g., Chairish ($100M GMV), Artsy, or others – and eliminate tons of redundant costs.
• Other items worth noting:
  • Various strategic and financial acquirers may be interested in DIBS.
  • DIBS returned to revenue growth in 2Q24, after 8 quarters of declines.
  • DIBS repurchased 5M shares (12% of DSO) in June (https://investors.1stdibs.com/news/news-details/2024/1stDibs-Announces-Completion-of-25.2-million-Share-Repurchase-Program/default.aspx).
  • DIBS has an enviable database of more than 6M affluent consumers. A lot can be done with that.
  • The company has undeniable brand equity – in its niche, DIBS is a premier brand, highly valued, respected, and trusted by both sellers and buyers.

For all the reasons above, we think downside protection is strong, especially in the context of a $70M EV and a cash rich balance sheet.

Presented below is a snapshot of how we could see DIBS working out over a few years. To repeat what we said at the outset: DIBS offers an optionality rich risk-reward. DIBS isn’t a high-quality stalwart. But we think downside is limited and the stock could be worth multiples of current. We just want to be directionally right.

Catalyst

See above