On Monday, Evercore ISI raised its rating on shares of 1stdibs.com (NASDAQ:DIBS), an online marketplace for luxury goods, moving from In Line to Outperform and increasing the price target to $8.00 from the previous $6.00. The firm cited several reasons for the positive outlook, including signs of improvement in the macro environment for home furnishings, a key category for 1stdibs.com.
The upgrade is based on the expectation of the company's revenue growth, with the new price target reflecting a 2X enterprise value to sales (EV/Sales) multiple on projected 2025 revenue. Despite acknowledging the speculative nature of the stock due to its current lack of profitability and relatively small revenue base, Evercore ISI believes that 1stdibs.com is starting to see benefits from favorable trends in the market.
One of the key factors contributing to the optimistic view is the company's initiatives to improve conversion rates. For the first time in two years, conversion rates have shown a year-over-year increase in the fourth quarter of 2023. Additionally, 1stdibs.com has been actively working on improving its cost structure, reducing its operating expenses (Opex) run rate from $100 million to $80 million over the past year.
The valuation perspective is supported by the trading range of comparable home furnishing and online marketplace companies, which typically trade at an EV/Sales multiple between 1X and 3X. This comparison has led to the decision to adjust the target multiple for 1stdibs.com to 2X from the prior 0.5X EV/Sales.
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