Attending the East Coast Ideas Conference.
Up next, we have 1stdibs.com on.
Nasdaq under symbol DIBS.
On behalf of the company, we have David Rosenblatt, Chief Executive Officer.
Thanks very much and good morning, everyone. This is made for someone taller than me. 1stdibs is the world's leading curated marketplace for luxury design. For those of you who are not in the design world, it's kind of difficult to convey the place that we occupy in that world and how important we are to those people. The story that I always tell that kind of captures it the best is not long after I started, I got a cold email from Diane von Furstenberg, the famous designer, asking me to lunch. I said I thought it was a typo or missent email because I'm a tech guy. I wasn't sure why she wanted to get together.
When I showed up, she explained it by saying, other than my own website, there are only two in the world that I truly love. One is Amazon and one is yours. I've met the guy who does Amazon and I just wanted to meet the person doing 1stdibs as well. That is for those kinds of people. That's who we are. We're something special, we're something unique, much like the items that we sell. Let me. Okay, let me cut to the business model. We're a classic two-sided marketplace, asset light. The supply side is comprised of items, 1.84 million items as of the end of last quarter from 6,000 curated and vetted, meaning we hand select each of them, professional sellers. The verticals we operate in are furniture, jewelry, fashion, and art.
Almost all one of a kind items, mostly vintage or secondary market. The important point there is all of our sellers are professional sellers. The demand side is about 70% consumer, 30% interior designer. If you think about some of the fancy apartment buildings a stone's throw from where we are today, like on 57th Street and so on, or the Hamptons, you know, most of the luxury furniture there, or much of that luxury furniture is sourced from 1stdibs. All of the interior designers who are working for those clients are heavy users of our product. We are in the middle. Of course, as I mentioned, we're asset light. Our revenue model is mostly commission based. 75% of our revenue is derived from commissions on items that we sell. The balance is advertising. We have aggregated a unique and kind of uniquely valuable audience.
We sell advertising today only to our sellers. However, we believe we have an opportunity to monetize that audience to so-called non-endemic, or advertisers who are not sellers of ours as well. I think sort of given what we sell and the high AOV that we have, which is about $2,600-$2,700, our audience really is unique and indexes uniquely highly to the high net worth market. We're a little bit older in terms of our demo, we're about 50 plus, we skew female, and you know, all of our customers are sort of design conscious and value and are willing to spend money on luxury design. Okay, let's see. Our history. Has anyone ever heard of the Paris flea market? There are American interior designers. And you know, he sort of light bulb went off and he thought, why isn't this online?
It should be, right? All the supply is here, most of the buyers are American. He created a website, he put it online. Not a lot happened immediately. After 9/11, American consumers and interior designers were not able to get on a plane and fly to Paris. This website, which had just launched a few months previous to that, had gotten an article written about it in The New York Times. That created the initial spark which then led to the growth that ultimately culminated in what it is today. The founder moved the business back to New York, which is where he was from, pretty soon after launching it. The business really for the next 10 years grew organically, meaning he took no outside financing. He added sellers slowly and very carefully. That in turn attracted very qualified buyers.
As a result, 10 years later, by 2011, he had created a small but very valuable property. The two assets that he almost sort of accidentally created were a very strong network effect. So qualified sellers had to be there by virtue of his having aggregated a qualified audience and vice versa, number one. Number two is he created a very, very strong brand that stood for luxury and trust. Hence the Diane von Furstenberg story that I started with. In almost every other respect the company was lacking any of the or most of the attributes of kind of modern digital companies. There was no real engineering team, the marketing team was only Primari and so on. What happened is at the end of 2011, he raised his first outside capital from Benchmark Capital, one of the leading Silicon Valley Sand Hill Road VCs.
I came in as part of that. What attracted me again to the story was, as I mentioned before, what I felt was 1stdibs had the two assets that were the hardest to acquire in any business, internet or not. One is a very strong brand that I felt had the capability of extending into new geographies and new verticals and so on. Second is a very strong network effect. Both of those have been really helpful in us developing the assets that kind of really define our company today. Since I joined end of 2011, end of 2012, it was in a way kind of the second founding of the company. From that, to expand into other categories where trust is the most important predicate to selling online, number one.
Number two is expand geographically from the U.S., which 2011, 2012 was the large majority of the business on both the supply and the demand sides. Last and certainly hardest, probably most important, was to switch the business model from the lead gen model that he had created into a full kind of end-to-end conventional e-commerce model where one can check out online. Just to pause for a second on that, the way the business looked in 2012 is it really was a bulletin board. Sellers would pay a fixed monthly fee in exchange for the right to list items. They would have their telephone number and contact information on the product page, and then all communication between buyer and seller thereafter would happen offline. Once we added e-commerce, we shifted kind of every part of the business.
The consumer experience obviously changed dramatically, the seller experience changed dramatically, and our economics changed dramatically. Before we introduced e-commerce, which really was not formalized until 2016, we had no commission revenue stream. The kind of important benefit of switching to an e-commerce model is that it aligned our incentives with those of our sellers. It supported paid advertising, which we really were not able to do before online. It allowed us to reduce the risk of these purchases by amortizing the risk of any individual purchase across the whole base of our business. Some of the sort of core components of our business since 2016, we have grown from zero in GMV to approaching $400 million this year. The curve, I think, followed that of many e-commerce companies in the sense that we grew quite rapidly from the introduction of e-commerce until Covid.
In Covid, we took a little bit of a dip. We then accelerated sort of in line with all home related businesses in particular. We exploited that to go public in June of 2021. June of 2021, in retrospect, was the absolute peak month of the luxury real estate market and of the sort of broader home market in general. Since then the market's been in a very challenged place. Our GMV and our revenue has tracked the market. We've actually outperformed the market, but kind of fundamental demand for what we do again has sort of been similar to that of most other home companies since then. The result today is we're a business. It's part of the reason why we're at this conference and we believe we're a compelling opportunity to investors.
The result is a company that has arguably the world's best brand in a very large market, a very strong network effect, a record of execution, a long growth path in front of it, but an enterprise value that's zero today. By the numbers I mentioned, some of these I'll just call out ones that I think are important for understanding our business model. As I mentioned before, we're a kind of classic two-sided network effect, but importantly asset light marketplace. You can see that in our 72% gross margin, that's mostly kind of tech expense and customer service and so on, we really are global. We have 75, our sellers are based in 75 countries. In terms of the kind of overall distribution of supply and demand, 50% of our sellers and 40% of our items are outside the U.S.
On the demand side, about 60% of our traffic and 70% of sales are to the U.S. or from the U.S. depending on how you define it. The reason why that's important is we are a marketplace of luxury, one-of-a-kind items. For the right buyer, it really doesn't matter where a piece, where an item is located, they want it wherever it is. There is no real benefit to being local. There is a huge advantage to being global. We also feel that that constitutes a very large barrier to entry. We've done $3 billion in cumulative GMV online since we launched e-commerce across over a million orders. I call that the owned inventory zero there. Our AOV, $2,600.
Just to put that into perspective, you know, if you look at others which is now used to be public, is now private, their AOV is around $600. Also a lux marketplace. Our understanding is that Net-a-Porter is not that far off from that. So we're four to five times that. And not only that, but we have 3-5% of our GMV in general that results from orders over $100,000. In the first quarter we had two orders for a million dollars. So one of the ways that I sort of think about that is that's a reflection of our brand. The reason why those orders happen on 1stdibs.com and do not anywhere else is because our brand represents trust, safety, security in a way that really no other brand on the Internet does.
Vertical expansion, as I mentioned, when we started, when the business started, it was 100% in vintage and antique furniture. That is actually the smallest of the markets that we're in. The significance of it is that that market is really important to designers. Again, as I mentioned, the strategy has been to amortize sort of more qualitatively the trust that we have and also in kind of financial terms, the cost of acquiring that customer across as many verticals where trust is relevant and as possible. The second most important of our verticals, and I think what's likely to be the biggest of our verticals in the long run, is jewelry. Jewelry is now about 20% of our GMV and has been very resilient through kind of economic cycles.
As I mentioned, you know, we have a kind of unique competitive position in that market as well. There is really no pure play incumbent luxury digital marketplace. eBay sells a lot of luxury jewelry, but beyond that, they sell a lot of other things as well. Beyond that, there is really no kind of go to place for jewelry in the same way that we are a go to place for furniture and other marketplaces are go to places for fashion. In 2024, vintage and antique furniture was 50% of our GMV, down from 100%. As I mentioned, if you sort of extrapolate forward based on market size and kind of compatibility with the Internet and competitive position, the competitive position that we have, you know, I would expect that jewelry would be the biggest, you know, in the near future. What makes us different?
Again, I mentioned a bunch of these things. One is, you know, the luxury collectibles market is a very big market. You know, every company goes through, you know, can come up with very large numbers to represent end user demand. I think there's sort of two other ways to think about our market opportunity that are perhaps, you know, a little closer at hand than that. One is we have over $10 billion worth of inventory value on our marketplace. You know, we did roughly $365 million in GMV last year. If we are only able to monetize a higher percentage, not that much higher, a percentage of the inventory that is currently for sale on 1stdibs.com today, that has, given our cost structure and our high operating leverage, a really significant impact on our profitability.
The other way to think about it is probably the companies that are, in an abstract or conceptual sense, the most similar to us are the auction houses. Sotheby's, Christie's, Phillips and so on. They're two-sided marketplaces, right? They operate, but at the same time, in aggregate, the three of them do roughly $15 billion a year of GMV order online. There's really no one else who has the ability to consistently put points on the board at those price points. That gives us an ability not just to grow within our existing verticals, but also over time to expand into new verticals. We are a classic two-sided network effect company. You know, when we introduced the E-commerce that was not very popular among our sellers. In fact, many of them hated it.
A whole bunch of smaller bad is that, you know, however our sellers felt about that new commission model, they really couldn't leave because we had aggregated so much demand. Conversely, if you sit down with an interior designer and ask them sort of free associate in terms of 1stdibs, the first thing you'll hear is I couldn't do my job if these guys didn't exist. It is really that dynamic that gives us leverage over both sides to be able to continue to sort of tinker with our economic model and extract what is a pretty high take rate. In total, our take rate is I think 24.6%, about 25%. Again, that's derived 75% from commissions and the balance from sub fees and advertising.
That, you know, that's up from probably, I don't know, 1-2% before we introduced e-commerce in the first generation of 1stdibs.com. Lastly, our platform is highly scalable. We have spent a lot of money to build this platform, I think over, you know, easily over $100 million. It's a very sophisticated user experience and seller experience. I would invite all of you to check it out. Our order is much more complicated than ordering a book. Any item can be negotiated, can be cross-border shipping, can be known in advance or not. All of that needs to be accommodated within our platform. It is. Partly as a result of the amount that we've invested, we have very low additional technology and marketing costs that are needed to scale in the future.
Our OPEX this year will grow, I think only about 5% and kind of, we expect that that's sort of roughly absent an enormous strategic opportunity that's on an organic basis. That's kind of roughly what we'd expect to see going forward. The bar is relatively low for us to generate EBITDA from incremental revenue. It's really mostly around demand generation at this point. Speaking of our financials, I mentioned earlier that the slope roughly flat. GMV was up 2% last year, 9% in Q4. Revenue was up. Was it revenue or GMV? Revenue was up 9% Q4 last year, 2% Q1 this year. I think what's interesting about those numbers is that the market that we're in, which is the market for luxury furniture, shrank each of those quarters by low mid single digits.
While the overall numbers, growth numbers aren't yet where we expect they'll be in the future, they are at a point that's substantially higher than the market itself. Which means of course we're taking share when that market comes back. That'll of course add the most important tailwind to our top line performance. The last thing I'll just say on the revenue side is one area that I think could grow even outside of market growth is advertising. That was my background before 1stdibs. Part of the reason why I think it's attractive is we really have aggregated an audience that's very difficult to find, particularly in a brand environment that is safe for luxury advertisers. That's kind of another revenue lever that we'll be exploring over the next couple of quarters.
What is, was the market not to understand or what are you not getting credit for? Why do you think that it's priced the way it is?
Yeah, so it's not the first time that, you know, that I think we've been in a market like this. I've operated through, you know, two of them, one in the kind of early 2000s and then again after 2008. You know, I mean, I think it mostly has to do with EBITDA line over there, which is, you know, we're still not yet breakeven and, you know, we're not, we don't have a high growth. I think it's pretty clear how we'll be able to scale and also when we do, our ability, given our high operating leverage, to convert that growth into profit at scale.
What revenue number would you consider like at scale in marketplaces? So how would you think about.
Yeah, I mean, look, the way I think about it is more in terms of what's required for us to break even, which again is not, it's not a number that we are able to publicly disclose. You can kind of do the math. I mean, you know, given our operating leverage, you can see what the nut is that we have to cover to get to break even and then back into the revenue number that's required to get there. It's just not a heroic number. The price would be a very direct beneficiary of that. Even in the absence of growth in the market, we've been able to grow our revenue. I feel, you know, absolutely confident that that will happen. Again, we're in a market where companies do not get credit for that until it does happen.
What is insider ownership actually? Do you know? Yeah.
In the essence of current growth, you're spending quite a bit of money on sales and marketing and R&D. I think you call it technology development. I mean, how can you be confident that you're getting a good ROI on spending given where the market is? Like at what point would you say, okay, like this isn't working, we just need to, like, cut back, cut back on costs and generate profitability and just assume we're just going to kind of grow to mid single digit rate.
Yeah. So we have cut back pretty substantially on expenses. We've cut I think about a third of our headcount over the last three years. So we're not afraid to cut costs. You know, the reason we're at the cost level we're at right now in terms of R&D specifically is that I think the return on R&D is extraordinarily high because there's really no real marginal cost for any benefit they can add. To sort of double click one level a little deeper than we have, the biggest opportunity that we have to grow top line is by growing our conversion rate. Traffic is stable, our AOV has been stable over many years, checkout process. There are lots of opportunities for us to grow conversion. We've done so I think, what, six, seven, eight quarters in a row?
Eight quarters in a row, I think. We have a track record, our engineering team has a track record of being able to grow conversion, which as I mentioned is the highest leverage thing that we can do. We have no plans to grow the team beyond what it is today in terms of paid. You know, we have a very strict return threshold. Our.
One of the earlier questions following through what the market doesn't understand or perceive about your valuation. You have plenty of cash on the balance sheet, right? Is there a concern, what are your plans with that cash return?
Yeah, so historically over the last couple of years, you know, we've allocated, murderers are smaller, less well capitalized and not private and not public private. You know, the silver lining in a weak market is that it can create consolidation opportunities. Look, while it's not fun to have the valuation for us, not fun to have the valuation that we have right now, the silver lining of that is that our competitors have the same valuation and that does create a consolidation opportunity. That's something. It takes two to tango, right. It's not completely under our control, but that's something that we think is available to us. Having that cash is an important asset to enable that potentially. Yeah.
What percentage of your purchases are made by designers versus individuals? Any idea?
Yeah, a third of our demand comes from interior designers. What's appealing about interior designers is kind of they are to this market what ad agencies are to the advertising market. Right. They're repeat buyers and you acquire them once and then they have to buy for a living. That's how they get paid. We have a very, very close relationship with, we have a loyalty program that creates incentives for them to spend more. That's something that we're always looking at optimizing. They're a really important kind of source of stability for the business. No, just trade. Trade is what we call interior designers. Yeah. Because they're the high frequency buyers.
Yeah,
mentioned. I think it was a 25% all-in take rate between, I think he said, subscription fees.
Commissions are 75% of our revenue. Subscriptions are about 21-22% and then the balance is advertising.
Okay. What was that number like five years ago?
Which one? The take rate number. Yeah, you know, Tom.
What's the return rate?
The return rate and the fraud rate combined are less than 5%. By the way, you know, in fashion the return rate is close to a third.
What's the fraud rate?
Fraud is just, you know, I mean, we're a high, we're a luxury business. We sell high price items. So you know, people, I don't know, people selling product that isn't genuine, things related to that. Exactly. You buy a necklace for an anniversary present and you say, hey, wait a second, you said this is Cartier, it's not. So combined that's 5%. Less than 5%. Yeah.
You mentioned that you've been outgrowing furniture market, taking share the last few years. I think you referenced.
Sorry, GMV is what?
Your GMV has been outgrowing.
Yeah.
Your GMV is now only half luxury furniture. Are you, is that part of it?
Outgrowing?
Yeah.
Are you growing in line? Is your furniture growing in line with luxury furniture increase?
Right. So 50% of our GMV is vintage and antique furniture. 10% is contemporary furniture, which is a completely, it's a market that's more different than you might look in terms of the process of selling and the seller base and all of that, but it's driven by the same kind of macro factors. So that's 60%, which I think is directly tied to the luxury real estate market. The balance, the other 40%, is, I think, indirectly tied, and that's more driven by just sort of consumer sentiment and the market for discretionary luxury purchases in general. That market is also relatively tied to the luxury real estate market, even though it isn't, in fact, the same market.
Consumer.
Yeah, exactly. Exactly. When people are feeling good enough to buy expensive homes, they're also feeling good enough to buy expensive jewelry and so on.
What's the best way to track luxury real estate market?
Right. Kevin, what do you. What do you think? Got a minute and a half left. I think we're at the end. Since we went public, which was June of 2021. I mean, we've. Yeah. We have not been heavy conference attendees. Right. I mean. Yeah, a couple a year. All righty. Should we call it? Okay, thanks a lot.