Fiverr International Ltd. [NYSE: FVVR] offers a freelance services platform that allows people to buy and sell digital services in the same fashion as physical goods on an e-commerce platform.
Services offered on the site include, writing, digital marketing, translation, web analytics, graphic design, video editing, animation, lifestyle, music and audio, logo, poster, and brochure designing, technology, business, and programming, among others.
Fiverr’s services, each of which is called a “gig”, start at $5, and can go up to thousands of dollars. The name Fiverr, in essence, comes from the fact that, when they started, everything cost $5.
The online platform for freelancers to offer services to customers worldwide currently lists over 3 million gigs across the globe in more than 100 different categories. The company was founded by Micha Kaufman and Shai Wininger in 2009 and is headquartered in Tel Aviv, Israel.
The Bull Case for Fiverr [NYSE: FVRR]
Fiverr has been growing revenues by double-digit figures. Revenue for the year soared 77% year over year to $189.5 million, while active users’ base jumped 45% to touch 3.4 million as the company added 30 new categories of services in the fourth quarter.
Fiverr Business Model
Fiverr, in contrast to popular perception, is not a job site per se, but rather a platform where buyers can find services offered by sellers.
Fiverr operates on a Service-as-a-Product or SaaP model, where the service providers, and not the employers, publish the advertisements, and Fiverr charges commissions on every transaction.
This business model that facilitates access to global talent as per an individual’s specific requirement received a tremendous boost during the pandemic, with small and medium businesses increasing their freelancer hiring budgets by more than 55%.
Now, one of the problems often seen with these fast-growing disruptors is that their growth is keenly watched by the market. As such, they have to spend a lot of money on platform development, marketing and research, which proves to be a drag on gross margins and operating income, and ultimately hurts profitability.
However, in the case of Fiverr, it has been continuously improving gross margins (from the 70% range up to the 80% level), which attests to its profitability. In other words, the costs incurred on R&D, marketing, and software development, to name a few, is less than the revenue it is generating.
Also, Fiverr is moving upmarket by building more value-added products and services into the platform. The objective is to lure big organizations with deep pockets to try out its platform. To that end, it also acquired Working Not Working, a leading platform for high-end creative talent.
Fiverr Valuation & Key Takeaways
The world going digital, and changing work practices induced by Covid-19, are important tailwinds that could help Fiverr achieve long-term sustainable growth. Fiverr saw record levels of traffic and buyer registration in January 2021, with the strong momentum continuing into the new year. This is only expected to get better as it vigorously pursues international expansion to better penetrate the non-English speaking countries.
This said, there should be more of a “normalization” in revenue growth for the coming months as life returns to normal and the job market gathers steam. Also, there will be the launch of Microsoft’s new service called Marketplaces to let users find and book freelancers within its LinkedIn platform.
Microsoft’s (MSFT) career-focused networking site primarily connects white-collar professionals, but its launch is bound to impact competitors like Fiverr and Upwork.
Such short-term distractions need not be of much concern for an investor looking for a long-term growth story. Fiverr remains a long-term play due to its strong focus on efficiency and its highly profitable business model.
Fiverr now offers a service catalog spanning more than 500 categories, vastly unlocking new ways for businesses to get their work done, and expanding the choices for a new generation of self-employed contractors.
In short, the company’s ability to exploit the seller’s ecosystem in a unique way makes it a high-growth name worth keeping an eye on.
Will Fiverr Stock Go Up Or Down?
Fiverr is one of the leaders in helping businesses connect with freelancers. Given its unique operating model, the company boasts of a sky-high operating margin in the range of nearly 85%.
Fiverr became more relevant with the onset of the pandemic as it attracted unemployed individuals in droves looking for an alternative income. People put their profile on Fiverr either to boost their ordinary income or replace their day jobs entirely.
Investors sat up and took notice as Fiverr’s market position strengthened in 2020, with shares soaring over 800% in 52 weeks.
The company looks to be on a solid footing with the addition of more services under its platform, and plans for aggressive international expansion.
Experts believe the revenue growth could remain well above 30% for the next several years, but the company is likely to face some increased pressures from a host of factors.
Fiverr Competition Is Heating Up
First and foremost, the competition in this sector is all set to heat up with Microsoft’s LinkedIn reportedly set to enter the gig economy with its service called Marketplaces, which is reportedly set to launch as early as September 2021.
This platform is likely to have a very intuitive user interface and is expected to have an in-house payment service. Fiverr and Upwork are the biggest names in the industry right now, but both could face additional heat with a new significant competitor in the market.
LinkedIn has 740 million users spanning across a wide range of companies and industries, and Marketplaces would be hoping to take advantage of that network to grab a nice piece of the online freelancing marketplace pie.
Also, as the vaccination drive gathers pace, and states start to implement more relaxed social distancing requirements, the US job market is returning encouraging numbers with more individuals finding work, thus lowering demand for additional freelance work. The number of active buyers grew 45% and reached 3.4 million.
However, Fiverr would be hard-pressed to grow its user base with the domestic US economy already showing signs of getting back on track. It is generally seen that people are more motivated towards freelance work to supplement their income when they do not have a full-time job.
Fiverr Risk Factors Include Slowing Revenue Forecast
Fiverr’s management is well-aware of all these risk factors and the same is reflected in its revenue forecast for 2021. Fiverr expects revenue growth of 46-50%, which is considerably lower than their historically high revenue growth witnessed in 2020.
It is natural for revenue growth to slow down over time owing to the law of large numbers, though the optics of seeing revenue growth deceleration is bound to generate some negative sentiments.
Over the past year, Fiverr has managed to steal a march over Upwork owing to its stronger growth and larger market share. However, both stocks have pulled back in recent weeks as fear of increasing competition and deaccelerating revenue growth negatively affected investors’ sentiments.
Also, while Fiverr remains the clear leader, there’s no guarantee that Upwork, in near future, will not cut into Fiverr’s market share, as freelancers register on multiple platforms to find more lucrative working opportunities.
Also, the company’s stock valuation is a cause of concern. The stock has pulled back in price recently, but the company will still need to significantly beat expectations for the next several quarters in order to justify the expensive valuation.
Another point to note here is that the company, over a period of time, may need to further tap the equity market to raise capital. And with the share price continuing to face downward pressure, this could lead to further dilution at some point.
Moreover, once the economy fully opens to pre-pandemic levels, we will see organizations accelerating their hiring efforts. A falling unemployment rate could further lower demand for additional freelance work.
All in all, the company’s revenue growth trajectory, no doubt, remains very strong, but given the high valuation and ever-increasing competition, it may be wiser to watch from the sidelines, waiting for a better entry point, which could be closer to $150.
Fiverr Stock Price Forecast
Analysts that have issued twelve-month price targets for Fiverr International’s shares expect it to rise as high as $350.00.
On average, they anticipate Fiverr International’s stock price to reach $222.17 in the next twelve months. The average Fiverr stock price prediction forecasts a potential upside of 6.5% from the stock’s current price.
Is Fiverr Stock A Buy?
Fiverr’s management is highly optimistic about the company’s prospects and future growth opportunities, estimating the company’s addressable freelancer market to be worth more than $100 billion per year.
The optimism does not seem to be misplaced as the market is in a rapid expansion mode, in large part, owing to the pandemic.
The company reported $0.12 EPS for the quarter, in comparison to a net loss of $0.08 per share in the fourth quarter of 2019. Revenue in the fourth quarter of 2020 was $55.9 million, an increase of 89% year over year.
Management expects revenue to grow in the range of 45-50% in 2021 and, while this remains strong, it is quite a bit less than the over 75% revenue growth witnessed in 2020.
The company currently has 3.4 million active buyers on their platform, a jump of 45% year over year. It should not come as a surprise as the pandemic shut down businesses and left a large number of people unemployed. A lot of individuals looking for income then turned towards online freelance platform like Fiverr, in the process making gig economy one of the bigger trends of the global pandemic.
Also, not to discount is the fact that Fiverr has the unique advantage of being one of the more well-known freelance platforms in the market as it has been witnessed by many other technology companies. And, being a pioneer carries with it a significant amount of advantage, as it draws more people to the platform. Also, Fiverr, with highly impressive gross margins of nearly 85%, enjoys a lot of flexibility to invest back into its business.
The stock, no doubt, is expensive and the company itself may seem small with a market cap of around 8 billion, but it is moving in the right direction. It recently acquired freelance creative network Working Not Working, a leading platform for high-end creative talent (it sources freelance creatives for the likes of Google, Netflix [NFLX], Spotify [SPOT]) to ‘expand its solutions to meet the needs of today’s big brands and agencies’.
Global Expansion Offers Big Growth Lever
Fiverr is expanding internationally as well, and this presents a significant opportunity for the company. With many countries across Europe and Asia still in a lock-down mode, individuals there will be looking for jobs within the gig economy. With continuous expansion and increasing familiarity with the local market, Fiverr can deliver content and catalogs that are more in sync with local culture and requirements. This automatically enhances its popularity and helps draw more people to its platform.
Bringing together more buyers and suppliers also creates a network effect. As more individuals and businesses become accustomed to this platform, the desire or need to try out a different platform generally diminishes.
The world was going digital at a brisk pace, and the pandemic further accelerated that transformation. A digital world and preference for remote working is only going to prompt more and more organizations to use freelancers and contractors for gigs.
Fiverr is a crucial component of connecting freelancers to people or companies in need of their services, and this is the reason its business is booming.
The company is also in the midst of expanding the number of freelancing services it offers through its cloud-based marketplace. With a minuscule $190 million of annual sales in a domestic market worth $100 billion a year, and a much larger global opportunity, it seems Fiverr’s growth story has only just begun.
Fiverr Stock Forecast: Conclusion
The pandemic-induced recession of the last year is the one we would like to erase from our memory in a hurry. However, surprising as it may sound, there were some silver linings to it as well amidst all the doom and gloom. It is rightly said that, for successful people, adversity is not a stumbling block but a stepping stone to success.
Large-scale business closures and ensuing unemployment prompted new business applications in the US to surge to record highs. Several million businesses, majority of them single owner-operator outfits, have fired up since Covid-19 struck.
And these small businesses have technology to thank for providing them with a glimmer of hope when everything seemed lost. With easy-to-use software management tools and flexible e-commerce options available, such as Shopify [SHOP] like never before, the path to self-employment or entrepreneurship has never been easier.
And Fiverr has been one company that has helped a lot of people successfully travel down the path to self-employment. The company witnessed revenue growth of almost 90% in its latest quarter as it provided a platform to people to monetize their unique talents in new ways.
All sorts of services and individual skill sets, ranging from writing, designing, programming and marketing to even modeling and acting, can be marketed and sold on a part-time basis via the platform provided by Fiverr.
The top platform for freelancing work is shattering the traditional way of making money by providing self-employment to millions of people. Small businesses turned towards Fiverr in a big way too, as it enabled them to save costs by hiring a freelancer to get smaller jobs done.
The freelancing platform is off from its year high of $323 but is still up around single digit percentage points year-to-date. Fiverr suffered a setback in March when it attempted to raise additional funds by selling $700 million worth of stock in early March. However, a sell-off in technology stocks and turbulence in the stock market compelled the company to abandon its plan, resulting in further erosion of its stock value.
This, though, was a minor setback as the company closed off 2020 on a high with revenue swelling 77% year over year to $189.5 million. Fiverr’s base, i.e. its freelancer community, has grown significantly as well, up 45% year over year to 3.4 million in 2020, as it helped trailblaze a new path to solopreneurship.
Also, spend per buyer witnessed a jump of 20% year over year from $170 to $205. And, for its fiscal year 2021, the company anticipates revenue growth of over 45%, driven by a strong market demand for freelance services.
Micro Transactions A Boon For Fiverr?
The company has launched a slew of initiatives to further cement its position in the market. For example, it recently introduced a brand-new vertical focusing on data services, to help business derive meaningful insights from data to make more informed business decisions.
Additionally, it has been focusing on moving from micro transactions to facilitating longer-term gigs with higher dollar value. For this purpose, it recently acquired creative-talent platform Working Not Working, which boasts of big names such as Google, Netflix, and Spotify among its users. Furthermore, the company has launched new tools for buyers, like subscriptions for longer-term hires.
Also, it would be wrong to restrict gig economy to the US alone. Fiverr recently launched TV marketing campaigns in Europe and Australia and, to that end, it supports six languages, apart from English, to better gel with the local culture and language.
The company believes that there is still a large addressable US market of more than 100 billion for freelancing services, and perhaps some $300 billion worldwide.
Expanding its availability in other countries is a key part of its growth and expansion strategy. Management expects its revenue to be $277 million to $284 million in 2021, which is still a very miniscule percentage in the context of the global gig economy.
High valuation could be a concern, as with a market cap of $7.8 billion, shares are an expensive 38 times trailing-12-month sales. But let’s not forget the fact that this is a profitable business, which means it has the money to expand without a need for dipping into cash on its balance sheet.
To wrap it up, with life returning to normal and competition heating up, experts believe it is more sensible to take up a small position in the company right now and wait for inevitable dips to buy more shares.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.