1stdibs.com, Inc.

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the FirstDibs.com Incorporated fourth quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star, then 1 on your telephone keypad. If you require any further assistance, please press star, then 0. At this time, I would like to turn the conference over to Mr. Kevin LaButz. Sir, please begin.

Good evening, and welcome to First Dibs Earnings Call for the quarter and full year ended December 31, 2021. I'm Kevin LaButz, Head of Investor Relations. Joining me today are CEO David Rosenblatt and CFO Tu Nguyen. David will provide an update on our business, including our strategy and growth opportunities. And Tu will review our fourth quarter and full year 2021 financial results and first quarter 2022 outlook. This call will be available via webcast on our investor relations website at investors.firstdibs.com. Before we begin, please keep in mind that our remarks include forward-looking statements, including, but not limited to, statements regarding guidance and future financial performance, market demand, growth prospects, and business plans. Our actual results may differ materially. Forward-looking statements involve risk and uncertainties, which are described in our SEC filings. Any forward-looking statements that we make on this call are based on our beliefs and assumptions as of today, and we disclaim any obligation to update them. Additionally, during the call, we'll present GAAP and non-GAAP financial measures. A reconciliation of non-GAAP to GAAP measures is included in today's earnings press release, which you can find on our investor relations website, along with the replay of this call. Lastly, Please note that all growth comparisons are on a year-over-year basis unless otherwise noted. I'll now turn the call over to our CEO, David Rosenblatt.

David? Before we begin, I'd like to take a moment to thank our wonderful sellers, buyers, and employees for making First Dibs a leading marketplace for the world's most beautiful design. I'd also like to thank our investors for their support. 2021 was a strong year for First Dibs. We became a public company, launched two new offerings, which represent meaningful long-term growth opportunities, and delivered strong financial results. For the full year, GMV grew 31% and revenue grew 25%. We ended 2021 with nearly 72,500 active buyers, up 25%, and grew our registered user base from $3.5 million to $4.3 million, up over 20%. We regard buyer and seller trust as our most valuable asset. There is no other digital marketplace at our scale which has the buyer and seller trust to transact at our price points in multiple verticals. Average order value grew throughout 2021 in spite of higher volumes, reflecting the trust we've earned over the past 21 years. This was driven by broad strength at the heart of the marketplace. In the fourth quarter, GMV from listings priced between $2,000 and $20,000 outpaced overall GMV growth. However, luxury is available at a variety of price points. With a median order value of $1,300, we are able to deliver qualified buyers at price points ranging from $100 to $1 million. There are large opportunities ahead of us as luxury shopping migrates online. While the First Dibs brand is 21 years old, we didn't fully convert the business model to e-commerce until April 2016. Our primary focus since then has been to grow the liquidity of the First Dibs marketplace, which in turn fuels GMV growth. Scaling both sides of the marketplace, in addition to our great brand, strong network effects, unparalleled trust, and the secular shift of consumer and seller behavior online have driven our growth to date. Our strategy for 2022 and beyond is to enhance the growth rate of the marketplace by focusing on four new growth levers, auctions, product localization and international expansion, supply growth, and NFTs. Auctions, which launched on November 10th, provide buyers a new way to discover and purchase the world's most beautiful things on first dibs. Our development philosophy is to prioritize speed to market and then test and iterate as we gather data and feedback. Auctions are an example of this philosophy in action. We seamlessly brought a sophisticated product to market in 90 days. Since launch, we've added functionality and improved the buyer and seller experience through weekly product releases. Our thesis was that auctions would gain adoption because they're an effective form of price discovery for one-of-a-kind items and because we're already at scale in terms of the number of buyers, sellers, and items on the platform. Early results have validated our thesis, showing buyer and seller appetite as well as low barriers to adoption. Only three months in, over 15% of sellers have listed an item to auction. We achieved our first $1 million in auction GMV in under 10 weeks. Our primary lesson so far is the importance of proper pricing to successful auction outcomes. Items whose pricing has been optimized for the auction format have higher bidding activity and higher sell-through rates. These listings typically have a low starting bid price, a competitive reserve price, and a buy it now price, which is at a discount to the previous list price. While today only a small percentage of auction listings meet all three pricing criteria, sellers are very receptive to guidance on how to make auctions successful, and we have a number of efforts underway to help them. For example, our product and engineering teams are currently building pricing guidance tools for sellers directly into the product. Additionally, Our supply team and partner managers are driving adoption of optimal auction behavior by educating sellers on auction and pricing best practices. We're excited about both the early traction and the long-term auction opportunity. Over time, we expect that auctions will generate urgency, increase sell-through rates, aid price discovery, create new marketing hooks, and help convert more of our $4.3 million into registered users into buyers. The first step to accomplishing this is to optimize pricing, a major focus for the first half of 2022. Product localization is another 2022 priority. We plan to launch our first local language sites in the second quarter, starting with France and Germany. We're starting here because these are our largest non-English speaking markets in terms of order volume. Building localized products is a cross-functional effort. In addition to translation, our teams are working to integrate local payment methods, add local language support, build out local carrier networks, and create localized content and merchandising. Launching local language products will allow us to invest in paid and organic marketing. We'll start with SEO investment, followed by paid marketing as conversion improves. Product localization strengthens the first DIBS marketplace, bringing sellers more qualified demand and providing buyers with more unique inventory. We have a multi-year roadmap for international expansion, starting in Western Europe. In 2021, without any local language sites, over 40% of our sellers and one-third of our traffic were located outside the United States. However, international conversion rates are about half of U.S. conversion rates. Our expectation is that localization will improve conversion rates for non-U.S. traffic. Building our brand and our business in international markets will take time, but the opportunity is large and justifies the effort. Growing supply is another growth lever. We ended 2021 with more than 4,700 seller accounts, up over 20%. and over $14 billion worth of merchandise listed on the marketplace, up from $10.9 billion on March 31, 2021. Our goal is to aggregate the world's best items, regardless of where they're located. Our current merchandise value is just scratching the surface of potential qualified items. Given the heterogeneous and long-tail nature of our listings, growing supply increases discoverability and, hence, traffic. expands engagement, and improves conversion by providing buyers more options. To accelerate supply growth, in January 2022, we began testing new pricing tiers for prospective sellers. Our goal is to significantly increase supply while maintaining take rates long-term. These test plans expand seller choice, offering different combinations of subscription fees commission rates and service levels, including a subscription-free tier with a higher commission rate. This test allows sellers to select the plan that best supports their business. We know from seller surveys and cohort data that sellers add more listings and generate more GMV over time. This pricing test offers options to reduce the fixed costs of joining the marketplace. Early results have been encouraging. The number of new sellers signed so far in January and February 2022 is double the average monthly number from 2021. We've also seen an uptick in new European sellers, an encouraging sign that revised pricing supports international expansion. Scaling supply is the primary objective for our NFT platform as well. While we have a long wait list of highly qualified artists, to date, there's been a bottleneck in onboarding them. Our development team is shortly releasing the functionality to enable self-minting along with other artist-facing features, which will allow approved artists to create and sell NFTs themselves. We anticipate that the addition of unique digital art supply will drive buyer engagement. Our confidence in these initiatives is driven by the strength of our marketplace where the fundamentals remain healthy. In the fourth quarter, seller churn decreased compared to last year. The percentage of sellers with a sale increased, and we ended the year with over 4,700 seller accounts. On the buyer side, AOV and returning buyer conversion rates grew. On a two-year stack basis, GMV grew 52%. The holiday shopping season got off to a fast start with October and November GMV ahead of plan. However, We saw a slowdown in December, likely due to consumers pulling forward holiday shopping. Our marketing team ran another great holiday campaign, which, like many others, was brought up in anticipation of customers looking to avoid shipping delays. Consistent with recent quarters, interior designer, or what we call trade GMV growth, outpaced consumer GMV growth. Digging into trade, our team had another outstanding quarter, capping off an outstanding year. Design is a very hands-on process. Lockdowns and pandemic-related restrictions hamstrung designers in 2020, but they rebounded in 2021. In the fourth quarter, we grew both the number of spending trade firms and the average spend per firm. The business has great momentum entering 2022. Turning to supply, we're proud to announce that Matt Rubinger joined First Dibs as Chief Commercial Officer in November. Matt will oversee seller and supply acquisition, management, and growth. He has deep expertise in luxury, a tenured background at Christie's, and firsthand experience selling through digital marketplaces. We are in an excellent position to welcome more sellers and increase the number of beautiful, one-of-a-kind listings in 2022. Lastly, SEO had another strong quarter, with average rank improving and organic traffic growth accelerating. We prioritized cross-functional SEO investment in 2019, and this is now paying dividends. SEO is a good case study for our 2022 growth initiatives. The right mental model for how we think about our growth opportunities is building the critical mass rather than turning on a light switch. Building awareness and commercializing products takes time. Throughout this process, we closely monitor progress, updating our hypothesis, iterating on products as we gather feedback, and improving where needed. I'm proud of how the team executed in 2021. We increased product velocity, delivered strong GMV growth, became a public company, and continued building a diverse and inclusive workforce. Strong marketplace fundamentals and progress with past initiatives like SEO have give us the confidence to invest in auctions, product localization, supply growth, and NFTs. There is no other online marketplace with our breadth of unique, one-of-a-kind luxury design. Looking forward, we're well-positioned to benefit from the continued shift to digital, the extensibility of our platform, and the buyer and seller trust we've built over the past two decades. As we announced earlier today, our CFO to win is has decided to leave the company to pursue a new opportunity. Before I conclude, I want to take a moment to thank Tu for her counsel, dedication, and leadership over the past nine years. Tu has been instrumental in helping First Dibs raise capital, scale our business, hone our strategy, and go public. She will be missed, but I'm confident in the strong finance team that she has built, and truly appreciate the role she has played in setting up First Dibs for long-term success. On behalf of the entire board, management team, and company, a heartfelt thank you. Two will be succeeded by Thomas Etergino. Tom has extensive experience as a CFO of public companies. His proven track record in leading organizations through rapid business expansion makes him a perfect person to help us with our next stage of growth. On a personal note, I had the pleasure of working with him at DoubleClick, and I'm thrilled that we will be working together again. He will join the company at the end of March when Tu leaves. I'll now turn it over to Tu, who will discuss our financial results and outlook.

Thanks, David, for your kind words. It has been a privilege to be part of such an exceptional team over the past nine years, and I am incredibly thankful for the opportunity. I couldn't be prouder of what we have achieved together, and I look forward to following the company's continued success. Turning to the quarter, we delivered strong results in the fourth quarter, which I will review, along with providing an outlook for the first quarter. Fourth quarter GMV was $117 million, up 11%, driven by AOV and traffic growth, on a two-year stack basis. GMV growth was 52% compared to 57% in the third quarter. Similar to the last two quarters, trade GMV growth outpaced consumer GMV growth. Many of the trade firms we work with are running near 100% capacity and are looking to hire more designers. As we cycle through more difficult year-over-year growth comparisons, consumer GMV growth slowed relative to the third quarter, as expected, On a two-year stack, consumer GMV grew 61% and trade GMV grew 41%. As a reminder, when we reference trade GMV and consumer GMV, we are speaking of the subset of on-platform GMV attributable to each of these buyer groups. Once again, fashion and new and custom furniture were our fastest-growing verticals. In the fourth quarter, we typically see a slight shift from furniture towards gifting categories like jewelry and art. Vintage and antique furniture accounted for less than 50% of GMV in the quarter, and the majority of our first-time orders came from newer categories like art, jewelry, and new and custom furniture. While we expect to grow all of our verticals, vintage and antique furniture GMV mix should gradually decline over time. Marketplace trends remain healthy. We ended the year with nearly 72,500 active buyers, up 25%. In the fourth quarter, average order value increased 8% and orders grew 3%. Similar to the third quarter, AOV gains were driven by new and custom furniture growth. AOV growth demonstrates the trust that our buyers and sellers have in our platform to transact high-value items online. On the supply side, we ended the year with over 4,700 sellers accounts, up from 4,200 a year ago, and over $14 billion of seller stock value on the marketplace, up from $10.9 billion as of March 31, 2021. Net revenue of $26.9 million grew 13%, driven by GMV growth and improvement to transactional take rate. Transactional revenue, which is tied directly to GMV growth, was approximately 70% of revenue in the quarter, with subscriptions making up the bulk of the remainder. Gross profit was $16.6 million, down 3%. Gross profit margin was 61.7%, down from 72% a year ago. This decline was driven by an unexpected increase in shipping expenses related to First Dips facilitated shipping, which had an approximately $2.6 million impact in the quarter. Our advanced quotes rely on historical shipping costs, which were off-market in the fourth quarter due to shipping inflation and supply chain disruptions. This means we collected less upfront from buyers than we were ultimately charged by shipping providers. In particular, the biggest losses were due to international front door freight and white glove services. To mitigate this, we've adjusted our pricing and stopped offering advance quotes on certain large, bulky international orders. We believe this is a one-time issue and expect to see gross margin to normalize in the first quarter of 2022. Sales and marketing expenses were $11.8 million, up 12%, driven by headcount-related expenses. Sequentially, sales and marketing dropped by about a million as we pulled back on performance marketing in part due to IDFA headwinds. Sales and marketing as a percentage of revenue was 44%, flat versus a year ago, and down for 50% quarter-over-quarter. due to more efficient performance marketing spend. Similar to last quarter, IDFA impacted our retargeting ability. We estimate this was an approximately 3 to 6 million drag to GMV in the quarter, up sequentially, due to higher traffic volumes in Q4. In the first half of 2022, we will focus on rebuilding capabilities through new partners and leveraging first-party data. Technology development expenses were $5.8 million, up 42%, driven by approximately $1 million in translation expenses for international product launches. This includes the expense of translating all of our content and listings. Every new market we localize will require an upfront, one-time investment. After that, the expense will taper off significantly, as only new listings and new content need to be translated. As a percentage of revenue, technology development was 22%, up from 17%. G&A expenses were $6.1 million, up 75%, and 23% of revenue, up from 14% a year ago. The increase was mainly driven by expenses related to public company costs, including D&O insurance and increased headcount. Lastly, Provision for transaction losses were $1.4 million, up 21%, driven primarily by GMV growth and increased chargeback claims. Provision for transaction losses were 5% of revenue flat year-over-year. Adjusted EBITDA loss was $6.8 million compared to $2.9 million a year ago. Adjusted EBITDA margin loss was 25% versus 4% last year. This year-over-year change was driven by shipping losses, higher G&A expenses, primarily due to public company cost and investment in product localization. Because two-sided marketplaces get better as they get bigger, growing GNV in a disciplined manner remains our priority. Given the opportunity ahead of us, we are focused on four strategic priorities, auction, international expansion, supply growth, and NFTs. As we scale, our asset-like business model and highly variable cost structure should generate operating leverage and free cash flow. Moving on to the balance sheet, we ended the year with a strong position of $168 million in cash and cash equivalents. Now, turning to our outlook, we forecast first quarter GMV of $113.5 million to $117.5 million equating to a year-over-year growth between flat and 3%, and a two-year stack of approximately 64% to 67%. Net revenue of $26.4 million to $27 million, equating to a year-over-year growth between 3% and 6%, and a two-year stack of approximately 43% to 49%. Adjusted EBITDA margin loss of 23% to 21%. While macroeconomic conditions remain uncertain and we are not providing full-year guidance, we'd like to share some additional context on the assumptions underlying our GMV guidance. Year-over-year GMV growth will be the lowest in the first quarter of 2022 as we lap the 64% GMV growth in the first quarter of 2021. Coms is progressively moving throughout 2022. Additionally, We expect GMV from strategic initiatives to gain momentum in the second half of 2022. Lastly, we assume continued IDFA headwinds in the first half of the year. Turning to revenue guidance, our new seller pricing test is designed to be take rate neutral long-term, but could impact our mix of subscription versus transactional revenue near-term. Turning to adjusted EBITDA margins, guidance reflects sequential gross margin improvement, continued investment in translation and international expansion, we expect the bulk of the upfront translation required for our French and German product launches to be completed in the first quarter, and ongoing investments in the growth levers detailed above. In closing, in 2021, we grew the marketplace, became a public company, and delivered strong financial results. We enter 2022 on solid footing and with a strong roadmap. Given the opportunity ahead of us, we prioritize thoughtful investments in growth, including auctions, product localization, supply growth, and NFTs, while enhancing our core bio and solar experience. Thank you for your time. I'll now turn the call over to the operator to take your questions.

Ladies and gentlemen, if you have a question or comment at this time, please press star then 1 on your telephone keypad. If your question has been answered or you wish to remove yourself from the queue, simply press the pound key. Again, to ask a question at this time, please press star then 1 on your telephone keypad. Our first question or comment comes from the line of Justin Post from Bank of America. Your line is open.

Thank you for taking my question. I guess just on the quarter, you mentioned December slowed down. So maybe you could talk a little bit about more what you saw in the quarter and any reason to think that could pick up. you know, is it COVID-related or any other reasons for that December and what you saw in January? And then second, auctions, sounds like you're happy with the start. Maybe give us a framework of do you think it's actually incremental to your volumes at this point and how big that could be as a percentage of revenues? And then I have one housekeeping question later.

Thanks, Justin. I'll take the first question, and then David can provide some more color on auctions. So the quarter started strong with October and November ahead of plan on a year-over-year basis. And December remained strong for trade, but we saw a drop-off in consumer demand. Conversions rate for returning buyers remained healthy, and the softness in consumer was attributable to new buyers' GMVs. which was partly impacted by IDFA and partly due to some pull forward of consumer demand as well, where we saw that buyers were starting to start their holiday shopping earlier. And then in terms of Q1, the midpoint of our guidance still assumes growth on top of a very strong Q1 of last year. Just a reminder, Q1 of last year grew at 64% year-over-year, and so on a two-year stack basis, the midpoint of our guidance assumes 66%. And then lastly, I will just mention that the fundamentals of the marketplace remain very healthy. We are seeing conversion rate growth for returning buyers, and the quality of our recent buyer cohorts are consistent with the buyer cohorts in prior year. And we very much focus on growing new bioconversion and mitigating the impact of IDFA through partnering with different vendors and continuing to focus on capturing and targeting with first-party data. I'll pass that on to David for his comments on auctions.

Sure. Hey, Justin. So I would say just quickly, as an overview on our perspective on auctions in general, we are happy with the early results, which we feel have validated our launch thesis that both buyers and sellers have an appetite for this product and that there are low barriers to adoption of the product. I mentioned in the script, we've already generated, or it took us about 10 weeks to generate the first million dollars in auction GMV. And also importantly, 15% of our sellers have listed at least one item for sale in auction. The key thing that we've learned so far is that pricing is really important for the success of auctions. What we've seen is that sell-through rates on auctions that have pricing that's optimized for the format are roughly three times higher than items for which the item, the pricing has not been optimized. So our, you know, primary focus right now is on educating our seller base, primarily through our people and our relationship managers, but we're also building features into the product to provide sellers pricing guidance to help them. In terms of your specific questions, it's difficult to know scientifically what the incrementality is. Our estimate is that the majority of auction GMV is incremental, primarily because sell-through rates on our inventory are fairly low to begin with, and the velocity should be higher on auctions. In terms of size, you know, again, I would sort of point you to the fundamentals and, again, our kind of original thesis for the product in the first place, which is we have, in terms of face value, roughly $14 billion worth of product on the market place. of which we're likely to sell roughly $500 million, just to use very round numbers, this year. So when we look at the reasons why the balance between those two don't sell, partly it's due to the fact that this industry just generally has longer sales cycles than others, but more specifically it has to do with pricing, and that either consumers believe that the pricing is too high or that they don't have the ability to interpret that pricing. Auctions, of course, are the best vehicle for price discovery and address that head-on. So our expectations for auctions are high because, again, they address the primary reason why items don't sell on the marketplace.

Got it. Maybe two follow-ups. One for you, David. Are you seeing good interest from buyers when things go on auction? And then maybe for two, could you give us a percent of transaction revenue in the quarter? Thank you.

Yeah, so we do see good engagement. First of all, I mentioned the relative sell-through rates between when an item is priced effectively and when it's not. We also have a fair number of auctions where there's a lot of activity, but which don't clear, where ultimately the highest bid doesn't clear the reserve. And we're working on tools to help kind of keep those alive and convert those into orders. I think broadly, though, it's also the case that we have a job in front of us to grow awareness, even among existing buyers, that we do have this format. This business has been around for 20 years. We've been transactional officially for six years in terms of the business model. And so it's not surprising that many of our buyers still aren't aware that we support it. We've only been in market since November 10th. So I think the sort of secondary focus beyond educating sellers on how to price effectively is to grow awareness that we have this format among existing buyers and then ultimately to promote that to new buyers as well.

And, yes, just into the second part of your question, transaction revenue made up 70% of our total revenue in Q4.

Great. Thank you. Thanks for your help.

Thank you. Our next question or comment comes from the line of Ross Sandler from Barclays. Your line is open.

Hey, guys. Question on the – the testing of the dropping the seller subscription fees and going to transaction only. Do you think that just getting rid of subscription fees entirely is a better long-term strategy for first dibs? I mean, you still have that $14 billion to $500 million gap that you mentioned, so there's a lot of supply up there. You know, what would doubling of that supply do if you kind of have more of a funnel problem? So maybe just talk about that kind of long-term strategy. as an opportunity. And then you also mentioned there's faster growth in that 2000 to 20,000 price range. Was that auction or was that something else? And then, yeah, maybe I'll ask one more follow-up.

Okay. Hey, Ross. So I'll start with that first question and then kick it over to two for the second question. So just as a reminder, you know, our objective as a company is to offer buyers as wide a range as possible of all qualified supply in all of our categories. And we believe that we have a minority of that supply in the world. We also think that the biggest obstacle to adding more supply is our relatively high subscription price. That's not exactly what you're asking. What you're asking is, you know, why does it make sense, how does it make sense to increase supply when, you know, only a relatively small percent of that converts to orders? So the answer is that we think actually that adding more supply will increase not just orders but potentially conversion rates, somewhat counterintuitively. And the reason is, you know, first of all, we think it will grow traffic because we get a lot of traffic from SEO. We get a fair amount of traffic from paid. A lot of that is driven by Google. So the more consumer queries that we correspond, that we have items that correspond to, the more traffic we're going to get. And then secondly, once those consumers come to First Dibs, the more items we have, the more different ways we have to engage with them and vice versa. They can favorite items, they can save items, they can put items in the cart, and so on. Each of those creates a kind of potentially triggered marketing event. And then lastly, again, we think somewhat counterintuitively that having more supply can have the impact of increasing conversion. The reason for that is has to do with the fact that we are a marketplace of one-of-a-kind items, and we have lots of so-called long-tail queries where people are looking for very specific things. For many of those queries, we have, again, to use a kind of industry term of art, we have thin search results, meaning not that many listings show up that correspond to what the user is searching for. So the more items we have, the more likely we are to have something that corresponds to what that buyer is interested in, and therefore, the more likely it is that that buyer will convert.

Yeah, and to the second part of your question, Ross, the growth in the $2,000 to $4,000 bucket was not related to auction. That's the consistent growth that we've seen in the base business. And we actually have seen AOV for our new buyers have been increasing as well. So that's related to the overall growth in AOV that we have seen in the quarter.

Got it. Okay. Um, and then the last one, just on the gross margin. So can you remind us, I think the way this works, but remind me if this is correct, um, you quote a shipping rate and then if the quoted rate ends up being different than the actual rate, that's the 3 million that you ended up having to pay incremental in the fourth quarter. That's not going to repeat. Is that basically what happened here? And we feel comfortable that that's not going to happen again.

Yeah, so that's a great question. And just to provide some additional context on our shipping rate. So to reiterate, we do not take ownership of inventory or directly fulfill any of our orders. However, to reduce friction and improve buyer conversion, we do provide advanced shipping quotes on about 85% of our listings on the site. And we do that based on historical shipping prices. So when the actual shipping cost exceeds that advance quote, we incur the loss of that's exactly consistent with your understanding. And historically, that shipping loss has been very small, relatively about 50 basis point of GMV. In the fourth quarter, we saw an unexpected increase in shipping costs due to supply chain disruptions and shipping cost inflation. That was mostly attributable to cross-border shipments for bulky items, which accounted for about 10% of our total orders. After identifying the issue, We immediately adjusted our pricing and stopped offering advance quotes on certain large, bulky international orders and have also put a process in place to review shipping losses on a regular cadence so that we can identify unexpected losses in a timely manner. And since taking these actions, our shipping losses have come down and we expect gross margins to normalize in the first quarter of 2022.

Thank you. Our next question or comment comes from the line of Spencer Tan from Evercore. Your line is open.

Thanks for taking my question. Just wanted to follow up on the gross margins for the quarter and your outlook for Q1. It seems like gross margins have fluctuated between kind of 67% to 72% over the last three Q1s. Could you just provide a little bit more color on what the expectation is in terms of normalizing gross margins in Q1? And then to follow on to Ross's question, I just wanted to see if you've tested kind of the price elasticity from some of your buyers if you are charging them a higher shipping cost associated with with covering some of these shipping inflation costs that you've been seeing. Thank you so much.

Thanks, Spencer. So let me take both of that question. So first on gross margin, We do expect that the shipping losses that we've taken in Q4 is a one-time basis, and we do expect that gross margin to normalize in Q1 to the level that we have seen historically in prior quarters as well. So if you think about the average between what we did in Q1 to Q3 of last year, we do expect to come in in line with that level. And then second, in terms of the price elasticity of shipping cost, our goal is to provide the best shipping quote available in the market. And that is dependent on, again, you know, supply chain and, you know, the rates to which our carriers are able to provide right now. Again, we do extensive analytics at the back end to understand the trade-off between conversion improvement as well as the shipping loss that we potentially would incur and use that information to pre-quote the shipping prices on the site. And again, that's consistent with what we have done historically. And then the issue that we had in Q4 was 100%, you know, not expected because there was a lot of volatility in terms of the shipping prices. So our goal going forward in the meantime is to make sure that we stabilize that loss until we see more stability in terms of the shipping quotes that our carriers are able to provide us in the meantime.

Thank you. You're very helpful.

Thank you. Our next question or comment comes from the line of Routt. Shackert from William Blair, your line is open.

Hi, everyone. Thank you. This is Mary on for Ralph. I know back in November when we had originally asked about the NFT opportunity, we recognized it was still early days but wanted to see if there was potentially any additional color that you could provide given what seems to be kind of increased competition and interest in this space. by the consumer. And then as a kind of short follow-up, I was wondering if there was any interesting kind of conversion metrics you're seeing from potentially new customers coming in and purchasing an NFT and then flipping and purchasing an item from more of the traditional first gift segments or vice versa. Thank you.

Sure. So in the NFT market, as with every marketplace, the key is having unique and valuable supply that's unique to our platform. What we've been really encouraged by is we've had very strong interest among high-quality crypto artists to sell through First Dibs. The gating factor so far has been our ability to onboard them. The reason for that is that we have lacked, until now, self-minting tools, which allow artists to basically post tokens, works of digital art, themselves onto the First Dibs marketplace, rather than rely on our folks to do that work for them. once we have that, that will unlock what is a very healthy wait list of artists who have committed to sell through us. Those tools are in beta right now and should be released very soon, and we're optimistic that once that happens, the amount of supply should increase significantly, and that in turn will result in higher consumer engagement, both in terms of actual demand, but also in terms of our social channels and other ways in which crypto buyers tend to interact with the product.

Great. Thank you.

Thank you. Again, ladies and gentlemen, if you have a question or comment at this time, please press star then one on your telephone keypad. Our next question or comment comes from the line of Andrew Boone from JMP Securities. Your line is open.

I wanted to ask two. So it seems like there's a pretty significant potential to double conversion with localization. Can you just help us size the opportunity of localizing Germany and France? And given the multiple products that you talked about, I think you talked about language as well as payments and customer service. Is that a 2022 opportunity or is that a multi-year, kind of two, three-year opportunity? And then secondly on IDFA, understood the headwinds, can you just talk about some of the first-party data initiatives that you're undertaking, as well as anything else that we should be thinking about for the back half of the year as it relates to digital marketing? Thanks so much.

Yeah, let me take the questions on international, and then maybe David can provide some additional colors in terms of the tactics we are taking on IDFA. So we view international as... long-term opportunity for the company, and that would require dedicated investment over multi-year. And so, you know, in terms of the plan that we have in place, we will start with French and Germany, and that would start with localizing the site, which is done. We'll also start with the translation cost of all of the contents and listings on our site as well in these two languages. we did incur the initial translation cost in Q4 of 2021. And we do expect to incur a similar amount of translation expenses in Q1 of 2022. After the launch in the first half, we will then start to layer on paid marketing. And so the way that we think about paid marketing is very similar to when we launched paid marketing in the U.S. A similar playbook will start to watch what conversion rate gains we get from launching localized sites. as well as expectations in terms of SEO gains once our sites are searchable in local languages. I would say that very similar to our US launch, when we think about the efficiency level for paid marketing for these two new markets, we do expect that initially our paid marketing will be less efficient than the base business that we have today. As we get more data, we will be able to get smarter about bidding and the campaigns that we have in the market, and that efficiency should start to improve, just very similar to all of the campaigns that we have ongoing in the U.S. market. And in terms of sizing the opportunity, I would say that just in terms of some framework as to how we think about the opportunity, right now, a lot of our supply comes from outside of the U.S. And so we are not focused on exponentially growing international supply as part of this plan. What we'll very much focus on is growing traffic and conversion. And then traffic will be in the form of SEO and paid. And then in terms of conversions, it's just some additional data point. The conversion rate for our non-English sites, our non-English traffic, is about half of the conversion rate of our English-speaking traffic. And so we do feel confident about our ability to grow conversion over time. And again, we'll be able to get more data once we are in market, and that will incorporate those information in future guidance as we will continue to give more update on how the initiative progresses, just like all of the other initiatives that we have in the market as well.

Yeah, and on IDFA, our approach on mitigating the impact of the IDFA headwinds is pretty similar to most other consumer companies. You know, we're testing new remarketing tactics, looking at programmatic retargeting, you know, finding incremental sources of ad inventory. And I think, you know, probably more important than any of those is increasing the volume of first-party data that we have. So an example of that would be we're very focused on growing the volume of registered users, and we've been quite successful in that. So, again, not dramatically dissimilar from other companies, but it's a big focus of ours.

Thank you.

Thank you. I'm sure no additional questions in the queue at this time. I'd like to turn the conference back over to management for any closing remarks.

Sure. So I'd just like to thank everyone once again for joining the call, our buyers, sellers, employees, and investors for all of your continuing support. Thank you, and have a good night.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day.