1stdibs.Com, Inc. Q3 FY2025 earnings call

• The third quarter was a breakthrough period for efficiency and execution, with adjusted EBITDA margins improving to negative 1%, a 13 percentage point year-over-year improvement. Board authorized a new $12 million share repurchase program. - Realized net head count reduction, new performance marketing efficiencies and other cost savings totaling $7 million annually while growing product development capacity. Bradford Shellhammer joined as Chief Product Officer and Chief Marketing Officer. - Product-led strategy continued to produce results with eighth consecutive quarter of conversion growth and AOV strength. - Launched price parity initiative to enforce fair pricing, with nearly 90% of identified violations remedied by sellers. - Incorporating AI into product development process, with over 25% of new code written by AI. - Seller sentiment survey showed 1stDibs is primary sales channel for sellers, surpassing their own showrooms.

Net revenue was $22 million, up 4%. Transaction revenue, tied directly to GMV, was approximately 75% of total revenue with subscriptions making up most of the remainder. Gross profit was $16.3 million, up 9%. Gross profit margins were 74%, up 3 percentage points year-over-year. GMV was up 5% in the third quarter versus down 2% in the second quarter. On-platform average order value of nearly $2,700 and median order value of approximately $1,300 were both up 10%. We ended the quarter with approximately 5,800 unique sellers, down 17%, and nearly 1.9 million listings, up 1%.

• Forecast fourth quarter GMV of $90 million to $96 million, down 5% to up 2%. - Net revenue forecast of $22.3 million to $23.5 million, down 2% to up 3%. - Adjusted EBITDA margin forecast of positive 2% to positive 5%. Guidance reflects continued conversion and AOV growth but slowdown in traffic due to higher efficiency thresholds in performance marketing, accepting lower traffic and near-term order volume for higher margins and better unit economics.

• Actual results may differ materially from forward-looking statements due to risks and uncertainties described in SEC filings, including those related to market demand growth prospects, business plans, strategic initiatives, business and economic trends, and competitive position.

Q: Can you provide a bit more color on the rationale and the benefits you expect from your September strategic realignment?

A: Ralph, sure. So this September realignment was really the most recent stage of a process that began 3 years ago in order for us to get to breakeven. And I think it's worth noting that in total, this process has reduced our GMV breakeven by almost $250 million. Throughout the process, we've really been focused on all parts of our cost structure. Headcount, performance marketing, which you mentioned, as well as external vendor relationships. The goal for this 1 was really twofold. First, to achieve adjusted EBITDA profitability in the fourth quarter of this year and then also to maintain that profitability and also reach positive free cash flow for the full year '26. And then second, importantly, to reallocate head count and non-headcount investment from sales and marketing to higher ROI engineering and product development. And so we're now at a point, where roughly 50% of our head count is in product engineering, which I think is a good place to be.

Q: Can you give us a sense of the order of magnitude there and how the platform has performed, since you push through the price increase?

A: Yes. So I mean, in general, we try to make sure that our prices to sellers align with the value that we create. We've obviously made a lot of improvements and investments into the platform. Since 2019, yes, we really haven't meaningfully changed rates over that time. And so this was a very targeted combined subscription increase and also in -- at certain price points, commission increase. The subscription part of it only impacted about 20% of our sellers and amounted to roughly a 10% increase on those 20%, and we saw no meaningful increase in churn. As a result, I think because of the sort of proportionality between value creation and the costs that we charge our sellers.