We came across a bearish thesis on 1stdibs.Com, Inc. (DIBS) on The Chop Wood, Carry Water Newsletter’s Substack by Alexandru Dragut. In this article, we will summarize the bears’ thesis on DIBS. 1stdibs.Com, Inc. (DIBS)’s share was trading at $3.83 as of Nov 18th.
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The global market for antiques and vintage items saw resilient growth in 2023, expanding by 7%, with online transactions in the art and antiques space reaching $11.8 billion. Amid this growth, 1stDibs stands out by modernizing the antiques business through its curated digital platform that connects buyers and sellers of high-end vintage furniture, art, fine jewellery, and fashion. With an asset-light model, 1stDibs acts as a marketplace facilitator, leveraging its network of sellers to offer a range of luxury items. The platform has the potential for further expansion, particularly in emerging luxury markets, thanks to its online nature and global reach.
However, despite its promising business model, 1stDibs has struggled to maintain the momentum seen during the pandemic boom. Revenue has declined, even with the addition of new verticals, and the company faces challenges such as a 5% drop in Gross Merchandise Value (GMV) and an 11% fall in Average Order Value (AOV). These declines indicate difficulties in sustaining high-value transactions, a crucial metric for profitability. Although the number of orders grew by 7% in Q3 2024, the number of active buyers decreased by 1%, suggesting mixed customer engagement. The company has taken steps to streamline operations, cutting non-core programs like Auctions and the Essential Seller Program, but these efforts may not be enough to offset the broader economic pressures.
1stDibs operates at a net loss, which would be even wider without stock-based compensation expenses. This loss situation is worsened by increased operational costs, particularly in technology and marketing, which have outpaced revenue growth. The company is also vulnerable to the economic climate, where rising inflation, higher interest rates, and global uncertainties are pressing on discretionary spending. Seller churn has increased, and the number of unique sellers fell by 13%, signaling potential issues with platform supply.
Despite these challenges, 1stDibs has a solid cash position with $109.4 million in liquid assets, which provides some financial stability. However, its narrowing gross margins and growing operational costs highlight the difficulty of balancing profitability with expansion. The company’s strategy of cutting underperforming features and focusing on high-margin offerings may improve its operating leverage over time. While revenue grew 3% in Q3 2024, the decline in GMV and shrinking margins raise doubts about the company’s ability to sustain long-term growth without further operational improvements.
Given these dynamics, 1stDibs faces a tough road ahead. While the platform remains an attractive option for luxury buyers, the broader economic pressures, ongoing losses, and the challenge of maintaining seller and buyer engagement make it a difficult investment at current valuations.
1stdibs.Com, Inc. (DIBS) is not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 13 hedge fund portfolios held DIBS at the end of the second quarter which was 20 in the previous quarter. While we acknowledge the risk and potential of DIBS as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than DIBS but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.