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Fool’s Microcap pitched as “Like buying Amazon in 1997” — Thinkolator says it’s…

What's the Microcap being teased by the Fool's Everlasting Firecrackers service as they're "hunting the No. 1 stock of 2022?"

By Travis Johnson, Stock Gumshoe, February 28, 2022

I’ve gotten a bunch of questions in the past couple days about the Motley Fool’s latest pitch for their “Microcap Mission” — they’re selling a service called Everlasting Firecrackers, which is microcap portfolio service, under Fool co-founder Tom Gardner’s “Everlasting” umbrella of services, that has an active list of 48 recommendations (subscription is nonrefundable — right now they’re selling a six-month sub for $699, it renews at probably $1,999/yr). The basic strategy of the service is to recommend high-growth stocks that aren’t very widely followed, and that have market caps below $1 billion.

And one of those stocks in particular is being teased this week — a “next Amazon” idea:

“What would you do if you had the chance to go all the way back to 1997 and buy Amazon at its IPO price?

“Before it turned every $10,000 invested into over $34 million?”

That’s what we call investing pornography, distracting yourself from the real world by daydreaming about the unattainable. Of course everyone would go back in time and buy Amazon (or bet on the 1997 Super Bowl, or whatever else). We would also, of course, be wise enough to avoid using our time machine to go back to 1997 or 1998 and buy Pets.com or Webvan or one of the dot-com darlings that failed to survive the bust.

I should note, however, that unless you’re willing to sit through massive, massive drops in value you have no business daydreaming about buying Amazon at the IPO in 1997. Following the dot-com bust in 2001, Amazon was no market darling — the shares fell by more than 90% from their 2000 highs to the lows of 2001 and 2002. The stock never did fall back below its IPO price, but it got pretty close in 2001, and those 7,000% gains during the dot-com mania evaporated very, very quickly. The shares recovered very nicely, as we all know now, but it took a long time — AMZN didn’t get back above those 2000 highs until 2009, and taking a 90% loss and waiting for a decade for your stock to turn “green” again is much harder in real life than it is for those time travelers who already know the eventual outcome.

But what is this stock the Fools are teasing? More hints from the email:

“The bad news – there’s no time machine. The opportunity to get into Amazon when its market cap was just $438 million is gone forever.

“The good news – there’s a recently-IPO’d e-commerce microcap eerily similar to Amazon in 1997.

“Like Amazon in 1997, it’s an online e-commerce marketplace that’s ambitious…yet incredibly small.

“In fact, it’s even smaller than Amazon was at its IPO – just a $368 million market cap!”

OK, so… e-commerce marketplace, $368 million market cap… any other clues? They say the business is better than Amazon’s in some ways…

“This stock already has gross margins more than 70% better than Amazon’s ever were throughout its whole time as a public company.”

Amazon has never had particularly brilliant gross margins, they started out being mostly a direct retailer and the margins in that business are tight (just ask Walmart), and their margins have improved dramatically over the past decade as they’ve transitioned to become more of a marketplace provider than a direct retailer, and as they’ve grown their Prime subscription list and their higher-margin Amazon Web Services business. I’m going to go out on a limb and guess that we’re missing a comma here, that this company has gross margins of higher than 70%… not “70% better than Amazon’s.”

So what’s the stock they’re teasing as a “mini Amazon”? Well, I can’t be 100% certain, given the relatively paltry clues… but the Thinkolator’s best match is 1stdibs.com (DIBS), which is an online marketplace. Here’s how they describe themselves:

“1stDibs is a leading online marketplace for extraordinary design. Since 2000, we have captured the magic of the Paris flea market, connecting those seeking the most beautiful things on earth with highly coveted sellers and makers in vintage, antique and contemporary furniture, home décor, art, fine jewelry, watches and fashion.”

So this is one of the companies that has sprung up to find e-commerce niches outside of the mass market — whether that’s Etsy (ETSY) for handcrafted items, StockX for sneakers, or Farfetch (FTCH) for used luxury goods (and yes, there are many competitors in all of those businesses, that’s just a few examples). One substantial difference is the level of trust and authentication — all of the luxury goods marketplaces have some kind of authentication and verification to reassure buyers, but DIBS does not do peer-to-peer selling, all of their sellers are professionals, mostly gallery-type businesses.

They have a video investor presentation on their website that they made for their IPO last year, if you want an overview of how they see the business and their growth potential.

And they report tomorrow, so the story could change pretty quickly. The stock went public at $20 in June of last year, got briefly over $30 on some initial excitement, and this year has mostly traded around $10. They are not profitable, and aren’t very likely to be profitable in the near future, but the marketplace business is indeed very high margin because they are only the middleman, they do not ever take possession of the products or have any inventory. That means the business is inherently scalable if they’re able to grow, with more merchants and more buyers, and they do have a brand in the luxury space, particularly for interior design.

Will it work out? I don’t know. But they are small enough to make daydreams possible. They currently have a market cap of about $420 million (and yes, it did hit the teased $368 million over the past week or so), and that means they are valued at about 3X sales. That’s less than Farfetch (4X) or Etsy (10X), and more similar to the high end interiors/furniture retailer RH (RH), formerly known as Restoration Hardware (though RH is profitable, and is in many ways a traditional retailer).

They seem to have built up a nice network effect, by signing on so many local furniture and design galleries to provide access to a vast marketplace of curated goods, and also developing a brand that design-focused consumers trust over the past decade or so… but they’re also still quite small, and they’re still spending heavily. Those 70% gross margins are impressive, but they also have been spending more on marketing and admin costs in the past year or so, so they haven’t turned that into actual profits yet. There’s not much analyst coverage for the company, but the three analysts who do cover the shares don’t expect that to change in the next year or two, they see revenue growth slowing markedly to about 15% in 2022, with the margins staying roughly flat and the company again losing about 60 cents per share, and they expect the cash burn to continue until at least 2024.

The earnings report last quarter had revenue higher than expected, but losses also higher. This quarter, the average estimate is for $27 million in revenue and a loss of 17 cents per share… that’s essentially exactly what DIBS guided for last quarter, which seems fairly conservative given the possibility of a little seasonal bump for holiday shopping (that’s 5% revenue growth from the third to the fourth quarter — less than the nearly 10% they had in 2020, but 2020 was an odd year and we don’t have any history beyond that). We’ll find out after the close tomorrow afternoon whether or not they were being overly cautious with that guidance.

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So… interesting idea, very small marketplace with the potential to build a strong network effect. Their fees are fairly high (Gross Merchandise Volume on the marketplace last quarter was $109 million, and that generated $25.6 million in revenue for DIBS, which means their selling fees must be in the 20% neighborhood), which probably means there’s room for competition to try to pressure them lower, particularly if they stray from their niche in high-end furnishings and art… but if they can keep their brand strong and continue to attract design-focused shoppers, then it may well work out.

I’m not rushing out to buy this one, personally,I’d want to know the space a bit better and I’m (sadly) not out shopping for Eames Chairs, but marketplaces can certainly be very good businesses. And no, it’s almost certainly not going to be the next Amazon, and we should be way more skeptical than that before putting money at risk… but it’s also true that Amazon in 1997 was just an online bookstore, so I guess you never know exactly how things will unfold.

But it’s your money that matters, dear friend, and that’s where you get to make the call — ready to buy DIBS for the potential growth of their marketplace? Think it will be a luxury leader in a decade, or long-forgotten? Let us know with a comment below.

Disclosure: of the companies mentioned above, I own shares of Amazon. I will not trade in any covered stock for at least three days after publication, per Stock Gumshoe’s trading rules.

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Hopalong12
Member
February 28, 2022 1:26 pm

Travis, this is off topic, but I’ve wondered for quite awhile
about your procedure for your usually quite long analyses.
Do you actually do all that typing, or do you have a voice-
to-text system? Thanks.

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buffetsopposite
February 28, 2022 5:22 pm

Decades ago in college I had a writing professor who noted that you have to write for people who don’t like to read. People who like to read will read anything. Sitting at breakfast and don’t have a book? Grab the cereal box and read the back.

Nonreaders? Keep it tight and easy.

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fed cat bounce
Member
fed cat bounce
March 1, 2022 12:00 pm

I have determined Google is taking quantum-subtle snipes against those who really know the typing – for those who don’t. They know what they’re doing is the sad part – way down deep. But they don’t tell you.

So subtle, to date, that yet even all the “elitists” who can type well, still sleep on with the unknowing, unable to express what they cannot yet detect.

IF (IF) that’s so, “one of their actual sighted objectives,” you call that scum, that saw fit to this, a fix of this world, some blueprint or combination to be?

Doesn’t SOLVE a d.thing. The world’s darkness further.

Bush II was PRECISELY a Putin-into-Ukraine when he (Bush) went into Iraq.

Hell_o world.

It’s discovered, discovering of its, ways.

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Last edited 2 years ago by efrm73
teddyb
Member
teddyb
March 3, 2022 11:36 pm

Better that it be too much information than not enough.

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clemdane
Irregular
February 28, 2022 1:28 pm

Ugh, 1stDibs is truly for the .1%. I tried to find items in multiple categories when I was furnishing a house where I had a fairly decent budget for decor and furniture. It’s a short term rental that needs to be a bit luxurious. The prices on 1stDibs were absurd to me. Not one item on there is affordable to a normal human who is not a multi-millionaire.

I was looking for a pair of a particular kind of lamp that would have perfectly complemented the living room decor. I found quite a few on Etsy and eBay that were pricy for me, but within reach. ($200 to $800 for the pair.) On 1sstDibs the floor for these was around $3600 Ion sale), but most of them were %10,000 and up. Numerous pairs were $40,000 or more.

This same pattern held with every item I looked for. These are museum quality items with prices to match. The growth will have to be among the top .1% of people by net worth.

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robb321
March 2, 2022 5:53 am
Reply to  clemdane

It’s interesting as the first thing I thought was exactly what you wrote. It is a microcosm of the Macro climate. It will boom in boom times where people over pay often on credit, of course the super rich are usually unaffected but lately the Russian segment are probably not going to count. I’ve only ever encountered one super rich (multi billion ) person and you would not ever want to sell them something as their attitude was appalling and expected something for nothing or get something and just return it free of charge, their view being customer retention will see them through

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elton
Member
elton
February 28, 2022 1:36 pm

No one will be the next Amazon, particularly this. They might do well, but they will be a consumer of AWS, not the creator of the next dominant cloud platform. That’s a big chunk of Amazon’s profits and market value. Rather than the seller of everything A-Z, they’ve picked out a niche.

tcicoria
February 28, 2022 1:39 pm

Travis I was wondering your thoughts about GOGY which I bought as a penny stock and I can’t remember why, but it is up 2554% since December. No one covers the stock for ratings. Wondering what you think about it’s long term prospects. Thanks, Tony

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Simon Sapsford
February 28, 2022 3:10 pm
Reply to  tcicoria

Sell a minimum of one half…

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zellis
zellis
February 28, 2022 1:42 pm

New topic
Are you following universal ibogain
Ibo canada.
I bought 20000 @.12 I spoke with a addictions specialist she says it looks like their product looks promising.
Please let me know your thoughts.

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Dave
Member
Dave
March 7, 2022 8:46 am
Reply to  zellis

This sounds interesting for a speculation pick. Looked them up and they are doing a joint venture with the Osoyoos Indian band in BC who are very smart business wise.

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joseph Artone
Guest
joseph Artone
February 28, 2022 2:17 pm

The reviews of First dibs on consumer review sites speak of the abysmal satisfaction of customers and I think the fools are definitely foolish on this buy

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tevanj
Member
tevanj
February 28, 2022 3:17 pm

Only article from Motley Fool was the earnings transcript back in September and it didn’t own or recommend DIBS at that time. It seems to me the Motley Fool is becoming more and more tricky. Don’t go changing Travis.

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sandal339
February 28, 2022 3:31 pm

I can confirm that DIBS is a stock that is in MF’s Firecracker portfolio.

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sandal339
February 28, 2022 3:41 pm

And the recommendation price in December was 13.06. Sits today at 10.91.

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swappy
Member
swappy
March 1, 2022 11:25 am
Reply to  sandal339

Can you share the recommendations?

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tjboston
Guest
tjboston
February 28, 2022 5:03 pm

Wow, they usually are pumping JMIA with this type of promo material. I mean, only for the last… how many years?

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tawolford
tawolford
February 28, 2022 7:00 pm

What Small West Texas oil company sitting on large oil find ?

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tripleflashlight
tripleflashlight
February 28, 2022 9:56 pm

I pity the Fool !

I pity myself for listening to the Fool.

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robb321
March 2, 2022 6:01 am

In the UK, Motley Fool have my details but I haven’t subscribed for at least a year, the pitches are getting more outlandish, the possible upsides are getting bigger and the names more fancy. In line with all that the charges are getting mad, three various services all slightly different at £700 each. I think the growth of the internet has made it harder for their brand as this tip service is now a really tough market even before you get the tips right

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roozie
March 2, 2022 6:18 am
Reply to  robb321

I’m subscribed to Share advisor (UK) and Fool premium svces. I’m finding however that they use so many different writers to contribute to the service that the plethora of different opinions on a particular stock makes it almost impossible to get any kind of consensus or true conviction about a company. You may as well stick a dart in a board and hope for the best. I have a load of investments sitting down 50-80% that they still have as active recc’s. Seriously losing faith and questioning what value their service adds? So far has cost me a fortune in drawdowns!

robb321
March 2, 2022 11:27 am
Reply to  roozie

I couldn’t have said it better myself !, their default is buy and hold and the long term and that is brilliant if the thesis remains and your stomach can handle the drawdowns. In 2020 and into 2021 they definitely rode a bull market wave, off the top of my head, I can’t that I acted upon any of the tips for no other reason than most were recycled from seeking Alpha. I’m sure Square is a great company but they were tipping it at the top of the tech bull market, they were tipping Zoom yet my kids were doing everything on Teams, Xbox, Outlook, it made Microsoft a no brainer. They tipped Zoom at over $400, it’s 80% down. This site is great and cheap and get on Seeking Alpha Premium, the paid for marketplace services are seriously hit and miss. For UK stocks, I just watch ADVFN and the premium bulletin board and open an account at AJ Bell to get shares mag free. Also Investors Chronicle on line is ok and cheap. Motley Fool is really for fools now.

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timbo20
timbo20
March 5, 2022 7:36 pm
Reply to  robb321

It is not only buy and hold. I subscribed to the Fool for one year and found that there are so many recommendations that you may as well buy an off the shelf mutual fund. They really do not offer any particular insights.
It makes sense though for them. They run a business and if among the 100s of recommendations one has a spectacular return they can lay claim to picking that one; never mind one may have lost their shirt on the rest of the picks.

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floridahouse
March 6, 2022 7:40 pm
Reply to  roozie

I’m done fooling around. Been with them 3 years now and I believe their ship is sinking. The amount of e-mails with a sales pitch you get from them is rediculous. The premium services are highly suspect and overpriced.

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bigorangedave
bigorangedave
March 2, 2022 10:20 am

Not a good day today for D IBS. Down 23% so far after earnings release.

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robb321
March 2, 2022 11:29 am
Reply to  bigorangedave

IBS is probably what the holders are feeling today

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mstrobin
mstrobin
March 2, 2022 11:23 am

Looks like your holding off was a good choice for now. Dibs dropped 20% after their earnings report on March 1. Travis…still going to hold off after your three day period (not saying hold off on buying art! Lol)?

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aldosov
March 5, 2022 11:35 am

Dot-Com….”Déjà Vu All Over Again”

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dassa
Guest
dassa
March 5, 2022 6:44 pm

How about instead, Canadian Tire, the Amazon of Canada?

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Paul Voorend
Member
Paul Voorend
March 6, 2022 1:05 am

I gave up on MF and all their sales pitches months ago. I now follow InvestorPlace and have made some great investments based on their recs. I’ll continue to follow them and get into Crypto as well!

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