Fiverr Files For $100 Million U.S. IPO

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About: Fiverr International (FVRR), Includes: UPWK
by: Donovan Jones
Summary

Fiverr has begun the process for an IPO of its common stock.

The firm operates an online marketplace connecting service workers and buyers.

FVRR has grown quickly but so have sales & marketing costs and cash burn.

Quick Take

Fiverr International (FVRR) has filed to raise gross proceeds of $100 million from a U.S. IPO, according to an F-1 registration statement.

The firm operates an online platform for hiring freelance workers.

FVRR has grown quickly but so has sales & marketing spend and cash burn.

Company & Technology

Tel Aviv, Israel-based Fiverr was founded in 2010 to connect freelance workers with people and organizations looking for them through an online marketplace.

Management is headed by Co-Founder, CEO and Director Micha Kaufman, who is also a contributor at WIRED and Forbes.

Fiverr’s platform was developed with the goal of making the purchase of services from individuals as simple as an e-commerce transaction, something the company refers to as Service-as-a-Products [SaaP] model.

Using machine learning and its database of over 830,000 workers, the company helps reduce the inefficiencies associated with the search for, contracting and collaborating with freelancers, such as the reliance on intermediaries.

On the Fiverr platform, buyers can browse over 200 categories of productized service listings, which Fiverr refers to as Gigs.

For the 12 months ended March 31, 2019, the company served about 2.1 million active users looking to hire freelance workers and about 255,000 active freelancers, or sellers, offering their services through the Fiverr platform.

Investors in Fiverr included Bessemer Venture Partners, Square Peg Capital, Qumra Capital, Accel, GC Capital, Lightbank, and Cubit Investments among others. Source: Crunchbase

Customer/User Acquisition

Using organic growth, performance marketing and brand-building campaigns that drive awareness, Fiverr works to acquire new buyers.

Sales and marketing expenses as a percentage of revenue have been relatively stable, per the table below:

Sales & Marketing

Expenses vs. Revenue

Period

Percentage

To March 31, 2019

64.7%

2018

65.9%

2017

64.8%

Sources: Company registration statement andIPO Edge

The sales efficiency rate, defined as how many dollars of additional new revenue are generated by each dollar of sales & marketing spend, was stable at 0.5x in the most recent year, as shown in the table below:

Sales & Marketing

Efficiency Rate

Period

Multiple

To March 31, 2019

0.5

2018

0.5

Sources: Company registration statement and IPO Edge

Average Spend per Buyer has been increasing, although at a decelerating rate, per the table below:

Average Spend Per

Active Buyer

Period

ASPB

Variance

To March 31, 2019

$150.00

3.4%

2018

$145.00

21.8%

2017

$119.00

Sources: Company registration statement andIPO Edge

Market & Competition

According to a 2017 market research report by Ask Wonder, the total number of freelancers available in 2017 was about 154 million people worldwide.

The main factors driving market growth are the need to escape corporate environment demands and the rise of digitization, such as smartphone apps that have made it easy for workers to find jobs, whether full-time or part-time.

North America accounted for 77 million freelancers in 2017, more than half of the workforce in the same year.

Major competitors that operate platforms for workforce recruitment:

Financial Performance

FVRR’s recent financial results can be summarized as follows:

  • Strong growth in topline revenue

  • Increasing gross profit and gross margin

  • Decreased operating losses and negative operating margin

  • Significant net losses

  • Reduced cash used in operations

Below are relevant financial metrics derived from the firm’s registration statement:

Total Revenue

Period

Total Revenue

% Variance vs. Prior

To March 31, 2019

$ 23,763,000

41.9%

2018

$ 75,503,000

44.9%

2017

$ 52,112,000

Gross Profit (Loss)

Period

Gross Profit (Loss)

% Variance vs. Prior

To March 31, 2019

$ 18,827,000

45.8%

2018

$ 59,882,000

54.5%

2017

$ 38,750,000

Gross Margin

Period

Gross Margin

To March 31, 2019

79.23%

2018

79.31%

2017

74.36%

Operating Profit (Loss)

Period

Operating Profit (Loss)

Operating Margin

To March 31, 2019

$ (8,521,000)

-35.9%

2018

$ (36,469,000)

-48.3%

2017

$ (19,253,000)

-36.9%

Net Income (Loss)

Period

Net Income (Loss)

To March 31, 2019

$ (8,945,000)

2018

$ (36,061,000)

2017

$ (19,030,000)

Cash Flow From Operations

Period

Cash Flow From Operations

To March 31, 2019

$ (4,997,000)

2018

$ (51,676,000)

2017

$ (5,263,000)

Sources: Company registration statement and IPO Edge

As of March 31, 2019, the company had $34.6 million in cash and $73.7 million in total liabilities. (Unaudited, interim)

Free cash flow during the twelve months ended March 31, 2019, was a negative ($58.1 million).

IPO Details

FVRR intends to raise $100 million in gross proceeds from an IPO of its common stock, not including customary underwriter options.

Per the firm’s latest filing, it plans to use the net proceeds from the IPO as follows:

The principal purposes of this offering are to obtain additional working capital and to create a public market for our ordinary shares. We intend to use the net proceeds from this offering for working capital, to fund growth and for other general corporate purposes.

Management’s presentation of the company roadshow isn’t available yet.

Listed underwriters of the IPO are J.P. Morgan, Citigroup, BofA Merrill Lynch, UBS Investment Bank, JMP Securities, Needham & Company, and Oppenheimer & Co.

Expected IPO Pricing Date: To be announced.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.