Fiverr International Ltd. (NYSE:FVRR) Q4 2020 Earnings Conference Call February 18, 2021 8:30 AM ET
Maya Tracey - IR
Micha Kaufman - Founder and CEO
Ofer Katz - CFO
Conference Call Participants
Michael Ng - Goldman Sachs
Doug Anmuth - JP Morgan
Ron Josey - JMP Securities
Nick Jones - Citi
Eric Sheridan - UBS
Jason Helfstein - Oppenheimer
Good day and welcome to the Fiverr Q4 ’20 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions]. After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions]. Please note this event is being recorded.
I would now like to turn the conference over to Maya Tracey. Please go ahead.
Thank you, operator, and good morning everyone. Thank you for joining us on Fiverr’s earnings conference call for the fourth quarter ended December 31, 2020. Please note that this call is being webcast on the investor relations section of the company’s website. Full details of our results and additional management commentary are available in our shareholder letter which can be found on the Investor Relations section of our website at investors.fiverr.com.
Joining me on the call today are Micha Kaufman, Founder and CEO, and Ofer Katz, CFO. Before we start, I would like to remind you that certain matters discussed today are forward-looking statements that are subject to risks and uncertainties relating to future events and/or the future financial performance of Fiverr. Actual results could differ materially from those anticipated in these forward-looking statements.
A discussion of some of the risk factors that could cause actual results to differ materially from any forward-looking statements can be found on Fiverr’s periodic public filings with the U.S. Securities and Exchange Commission, including the important factors discussed under the Risk Factors section in Fiverr’s 20-F filed with the SEC.
The forward-looking statements in this conference call are based on the current expectations as of today, and Fiverr assumes no obligation to update or revise them, whether as a result of new developments or otherwise. During this call, we will be referring to some non-GAAP financial measures. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures are provided in the earnings release we issued today and our shareholder letter, each of which is available on our website at investors.fiverr.com.
And now, I will turn the call over to Micha.
Good morning everyone and thank you for joining us on the call today. Before I start, I am extremely pleased to be able to announce that Ofer Katz, has been promoted to President and CFO of Fiverr. I am especially delighted as he has not only been with Fiverr since the early days, but he is an exceptional CFO, an admired leader and one of my closest and most trusted friends.
We had an unbelievable year of strong execution and growth at Fiverr, and Q4 capped off the year with a strong finish. Q4 revenue was $55.9 million, representing a year-over-year growth of 89% and further acceleration from Q3. Looking back, we have now delivered seven straight quarters of accelerating revenue growth, since Fiverr went public in June 2019. This speaks to the resilience of our business model, the consistent execution of our team, as well as the tremendous opportunity in the freelancing space we operate in.
Active buyers surpassed 3.4 million, representing accelerating growth of 45% year-over-year. Businesses around the world, and across all industries, continue to turn to Fiverr as they transform their business online and navigate through the remote work environment. At the time when their traditional way of sourcing work and engaging with clients has been disrupted by the pandemic, more and more freelancers see Fiverr as their platform of choice.
During 2020, our relationship with our community deepened and flourished. Revenue retention from buyers across all of our mature cohorts from 2018 and earlier increased significantly in 2020 as compared to 2019. They contributed more than just consistent streams of revenue as they have done previously.
Instead, spend level from these cohorts increased on average 15% in 2020 compared to 2019. In 2020, we saw more buyers from these existing cohorts coming back to Fiverr, ordering more frequently and purchasing more expensive gigs, as their need to strengthen their online presence intensified during the pandemic.
The 2019 cohort also showed strong revenue retention of over 70%, higher than typical cohort from year one to year two. A study by Qualtrics shows that the impact of COVID-19 has driven small and medium businesses to increase their freelancer hiring budget by 56%, and Fiverr was able to capture a meaningful share of that spend.
Looking ahead, the impact of COVID-19 should drive a long-term and sustainable tailwind for our business that lasts far beyond the pandemic itself. Businesses of all sizes, across all industries, are undergoing a paradigm shift as they adopt remote work and optimize workforce distribution.
Fiverr’s mission to change how the world works together, and our business model that enables businesses to access global talent on demand, and to collaborate and deliver work through our platform, has never been more critical. 2021 got off to an excellent start. We saw record level of traffic and buyer registration in January as the strong momentum of 2020 continued into the New Year.
We hope you had a chance to see our first Super Bowl commercial a few weeks ago; the ad was viewed by nearly 100 million people on game day and has received extensive media coverage and continues to draw strong engagement on social media. We are extremely excited to bring the Fiverr brand to the forefront of the global stage and we will continue investing in our brand throughout the rest of this year.
The strong momentum that we’ve seen so far, and the continued strength of our cohorts gives us the confidence to provide strong full-year 2021 guidance amid continued uncertainty of COVID-19. Our business is resilient, and we believe we will continue to grow at a fast pace under a good but challenging macro environment.
We believe that the accelerated adoption of digital transformation and remote work will allow us to exit the pandemic stronger than before. And this is reflected in our 2021 revenue growth rate guidance of 46% to 50%, compared to our pre-pandemic 2019 revenue growth rate of 42%. I’m also extremely excited about our roadmap ahead of us. We have many new initiatives, new products and new opportunities heading into the New Year.
For the first time in the history of Fiverr, we expect to surpass $2 billion in freelance earnings delivered to our seller community. It is a great and fulfilling achievement for all of us at Fiverr. It is what continues to motivate us and drive us to do more, build better products and create more opportunities for our community.
We are also increasingly conscious of our social and corporate responsibilities as our company and our shareholder base grows. We have built out our Environmental, Social and Governance ESG processes and framework and will be releasing a comprehensive ESG report in accordance with the SASB standard later this year.
Regarding our priorities for 2021, we are focused on continuing to execute on our strategic initiative, that is going upmarket, international expansion, and building more value-added products and services as well as continuing to invest in our brands and marketing. You can expect us to continue to expand our upmarket coverage on both demand and supply fronts.
On the demand front, we will focus on Fiverr Business and our integration with Wordpress, continuing to roll-out milestones and our subscription feature. And on the supply front, we will focus on the continued improvement of our catalog infrastructure and the expansion of top creative talents through the acquisition of Working Not Working.
International expansion is another key priority for 2021. We will focus on deepening the penetration in existing markets by providing local buyers and sellers with a more culturally integrated experience, catalog, and content. And last but not least, Promoted Gigs continue to grow and expand nicely, and we will continue to grow additional value-added services for our sellers on the marketplace. We are incubating additional projects to unlock the synergies with the acquisitions we made with SLT Consulting and Working Not Working.
Leveraging Fiverr’s technology, we have the vision to build a platform that will allow Fiverr to be an indispensable resource for the marketing teams of large companies. To fulfill that vision, we recently assembled an advisory board that includes CMOs from some of the world’s most prominent brands to help us drive the strategy forward.
I would like to conclude by saying that 2020 was an unforgettable year on so many levels. At Fiverr, we celebrated 11 years of our existence and I could not be more proud for what we have achieved or more excited about what lies ahead for us. With that, I’m going to turn the call over to Ofer, who will share a few financial highlights. Ofer?
Thank you, Micha, and good morning everyone. To reiterate what Micha said, I’m very happy about how we ended 2020 with a strong Q4, on top of three amazing quarters. Revenue in the fourth quarter was $55.9 million, up 89% year-over-year, and an acceleration from 88% year-over-year growth in Q3.
Active buyers grew 45% year over year to 3.4 million, accelerating from 37% year-over-year growth in Q3. Spend per buyer continued to expand with strong cohort behavior up 20% year-over-year to $205. We ended the full year 2020 with revenues of $189.5 million and GMV of nearly $700 million, representing year-over-year growth of 77% and 74% respectively.
Our marketplace also continues to enjoy a healthy take rate of 27.1%, reflecting the excellent value we create on our platform and our ability to monetize our products and services. With the significant growth of the scale of our marketplace, we achieved a key milestone of reaching positive adjusted EBITDA on a full year basis.
Full year 2020 adjusted EBITDA was $9.1 million, up from negative $18 million last year, representing an adjusted EBITDA margin of 4.8%, an increase of 2160 basis points from 2019. The significant revenue growth in the past year, together with a continued efficiency in sales and marketing and discipline in operating expenses is what enabled us to reach this important milestone two years ahead of our expectations. We will continue to prioritize growth, and at the same time, we expect to make continued progress towards our long-term target model.
Now onto guidance. For the first quarter of 2021, revenue is expected to be $63 million to $65 million. This represents year-over-year growth of 84% to 90%. Adjusted EBITDA is expected to be negative $4 million to negative $3 million, which includes the impact of a one-time Super Bowl expense of $8 million. Excluding the Super Bowl expense, our guidance implies Q1 adjusted EBITDA margin to be 7% at the midpoint.
We are also introducing strong full year 2021 guidance. For full year 2021, revenue is expected to be in the range of $277 million and $284 million, representing a year-over-year growth of 46% to 50%. Adjusted EBITDA is expected to be in the range of $16 million to $21 million, representing an adjusted EBITDA margin of 9.6% at the midpoint, excluding the one-time Super Bowl expense.
As Micha mentioned, we are very encouraged by the strong trends we see so far this year both in terms of new buyer acquisition as well as strong cohort behavior for our existing cohort. Our cohort behavior gives us excellent visibility into 2021 and speaks to the underlying strength of our model. This is critical in a year with as much macro uncertainty as we are seeing.
As we lap the COVID-19 impact in the second quarter, we expect both active buyer and spend per buyer to become more normalized. We expect our take rate to continue to be strong and steady, with potential for modest upside as we continue to grow value-added services on the platform. The resilience and visibility of our business model forms a strong foundation that allows us to aggressively invest in many longer-term initiatives.
Going upmarket continues to be a top priority across Fiverr and Fiverr Business continues to evolve with additional product features and marketing investments. We are also deepening our efforts around international expansion, with an expanding product team as well as a new linguist team to bring our local offerings to the next level.
Lastly, Promoted Gigs are progressing really well. While still very small in terms of revenue contribution, it is growing at a strong pace. We are also exploring opportunities for additional advertising products on our marketplace.
With that, we’ll now turn the call over to the operator, for questions. Operator?
[Operator Instructions]. The first question comes from Michael Ng with Goldman Sachs. Please go ahead.
Hi, thank you very much for the question. I just have a couple on the active buyers. Can you talk a little bit about the drivers of that, really strong momentum that you saw in January and then, did you see that follow through after your receivable commercial in February?
And then as a follow-up, could you just talk a little bit more about how we should think about the security of net adds throughout the year, Ofer, you mentioned a normalization in the second quarter. I was just wondering if you might be able to expand on that a little bit. Thank you.
Hey, good morning, Michael. Thanks for the question. So as for active buyers, as we said, there’s two factors that are influencing this. One is the momentum that -- the strong momentum that we've had last year, which we've carried into this year in terms of new buyers. And this is, thanks to added awareness both because of the moving to online the digital transformation and also in the beginning of the year with the Super Bowl ad, as well as the increased activity and engagement of our existing customers.
Meaning, our existing customers throughout the year have been more active. We said about 15% more active, and that also includes newer cohorts that are joining us. So, if you combine those two, that explains why we're seeing elevated degrees of activity on our buyers.
In terms of net ad, prior to the COVID, we’re still between 100 to 200 net ads totally. Post-COVID in the last three quarters, this number grew to approximately 300. We expect that once the lapping period is over in Q2, we will see more normalized growth of active buyer comparing the period of the last few quarters.
Just to augment, in other words, in our words, if we -- up until Q2, we are comparing post-COVID to pre-COVID and in Q2 we're going to start lapping that effects we're going to compare a Q2 to Q2, which both are within COVID. And this is why we said that we believe that that would be starting to normalize those changes.
Okay, great. Thanks very much, Micha and Ofer, really appreciate the time.
Thank you, Michael.
The next question comes from Doug Anmuth with JP Morgan. Please go ahead.
Great. Thanks for taking the questions. Congratulations guys on a great year during a difficult time. First, just hoping Micha, you can talk more about some things internally. So, your pace of product innovation just seems to be really accelerating when we think about category rollout and Promoted Gigs expanding very quickly, your efforts in the marketing industry as well. Can you just talk about some of the things that you're doing internally, to really drive that innovation on the product side?
And then perhaps, Ofer, just on Promoted Gigs, just curious if there's any more color you can give us on the number of sellers or revenue contribution or just any more kind of data on how that's going so far? Thank you.
Hey, Doug, good morning. Thanks for the question. So as to the first question, you are correct. I think that as a company we are accelerating the pace of releasing new products, so it is due to the fact that the team is growing and we’re able to execute more. So, we’re contributing to the fact that we’re seeing some elevated efficiency as we were moving actually to remote work. People were spending less time commuting more or just wasting time on their way to and back from the office.
And given that, I think that the sense of mission that we had during this crisis understanding that there is a community that relies on us as a company has invigorated the team with added energy. And lastly, I would say that, I think that we put together processes that allows us to just work more efficiently and do more knowing that beyond the basic fundamentals of the core business, we need to continue innovating moving very, very fast to ensure our position as a market leader. So, I think all of this contributed to the fact that we’re able to show more innovation push out of Fiverr.
Then in terms of Promoted Gigs, we actually just opened Promoted Gigs for more than 500 categories to-date. So up until recently, it is opened to a certain number of categories, I think it was 60 categories till recently. Then we expand the exposure into the entire set of categories.
Yet, to be fair, it’s only on the first fall so there is a lot of expansion ahead. We are very excited about the products. We do put a lot of attention into the buyer experience, adjusting the buyer stimulus as we expand the categories and expand to more relevant and more gig listings. I think that, there is an amazing growth ahead of us. A number of new grades, but still small comparing the entire revenues that we see on the marketplace so that we look forward to say how this will impact our net revenue and take rates in the coming few quarters.
Okay, great thank you both.
The next question comes from Ron Josey with JMP Securities. Please go ahead.
Thanks for taking the question and Ofer, congrats on the promotion to the President here. I wanted to maybe follow-up on Promoted Gigs to Doug’s question and asset question on guidance. So, first on Promoted Gigs, Ofer you talked about 500 categories and more ad slots and Micha, in the order, in the letter you talked about $1900 of work for one seller and $200 in spend.
I'm just wondering if that sort of ROI is what you’re seeing across the platform. Any insight on maybe what you’re seeing just around demand and demand side where ad load can go and particularly, I think you talked about increasing seller tools in the letter. So, any insights around that so just expanding on Promoted Gigs?
And then over on guidance, if you could help us understand a little bit more about the drivers here that would helpful. So, obviously, a good amount of new incremental products this year with Promoted Gigs, Fiverr Business, Working Not Working, new platforms. But then I'm also wondering if guidance assumes the same rate of spend growth from call it the pre-2018 and call it the post-2019 cohort. So, any more details on guidance would be helpful? Thanks guys.
Thanks so much, Ron. Good morning. So, as for Promoted Gigs, to compliment to what Ofer said, the rate of opening up Promoted Gigs to all categories today has been faster than we anticipated. And that was same through the fact that what we’re seeing is we’re seeing high level of adoption, high level of retention of those who are using it, and high level of satisfaction from the customers that are actually buying through these ad placements.
So, all of that, I think are just to open up basically Promoted Gigs to all of our categories. Now as far from being exhausted in some of the potential, because as Ofer said, it’s just the first four rows and this is just on missing pages, so we haven’t used a lot of our different assets to put Promoted Gigs on.
Now, on average the ROI is extremely positive. In some cases, it's not, so when you look at average, you get everything, but essentially by the fact that a very, very high the vast majority of those who are actually using it are continuing to use it because the ROI is positive. In some cases, it's extremely positive, in some cases it's marginally positive. But that’s difference between category. So, it's a very hard question to ask in specific terms, because, again, it's operating in 500 categories and the amount of assessments in each category differs.
But all-in-all, we're very happy with it. It is generating money. It is increasing its contribution. But as Ofer said, in comparison to the overall activity on Fiverr, it's still small, but we're happy to see it grow and grow very, very well.
And then Ron, for the second part of the question. We always guide based on what we know. We do not factor without thinking our new business model that we don't feel comfortable and have enough data to support guidance. Having said that, new features or recently initiated features are not included in the guidance. Based on -- we base guidance based on cohort behavior over long-term. We do factor the uplift that we've seen during the Corona period.
The thing that, as we mentioned before, all cohort spend grow by approximately 15%. And if you go through the shareholders letter, you can see the revenue cohort diagram that specifically demonstrates, how this cohort behaves. We think that this type of behavior is not temporarily rather than permanent. We also feel that the new cohort that we were able to acquire into 2021 even further in terms of our standard, in terms of the frequency and ASPs.
So, this all goes into the guidance of 2021. Now, the guidance for the coming year is higher than what we've seen as a growth rate for the year 2019 pre-Corona. We grew by 42% in 2019, we're focusing 48% of midpoint, between 46% to 50%. So, we do feel enough confidence based on the, as said, existing cohort and our ability to maintain a very efficient unit economy as we acquire more buyer.
And lastly, the organic channel performed very well as well. So, all-in-all, I think that we feel that there will be some normalization in terms of growth as we left for COVID-19. But yet, to be said, the growth rate is anticipated to be higher than pre-COVID levels.
Thank you, very helpful.
The next question comes from Nick Jones with Citi. Please go ahead.
Great, thanks. Micha, maybe on Fiverr Business seems to be off to a strong start with thousands of buyers registering. How many of your buyers today do you think that fit them all for Fiverr Business and kind of what’s the opportunity from here on that solution? And then Ofer, maybe on the spend per buyer that continues to grow nicely. And I know there's a bunch of factors in there, but on average, is frequency contributing to the growth or is that you're seeing kind of an uptick in kind of price when people are spending on a per project basis? Thanks.
Good morning, Nick. Thanks for the question. As to Fiverr Business, Fiverr Business really has -- when we look at the customer base of it, it's really a combination of both existing customers are moving from Fiverr into the Fiverr Business to enjoy the theme features and the collaboration, but also new customers that are joining Fiverr through Fiverr business.
We do think that the potential of shifting some of our more established larger sets of customer to Fiverr Business is still untapped. There's a lot of potential there. But we definitely also spend time figuring out how to effectively acquire and onboard businesses directly to Fiverr business.
We've seen a combination, if you look at the -- you're correct to say that the growth seems to be going very well. It is a combination of both existing and new. We haven't seen any concentration in one of these comps in particular.
In terms of contributing to growth, spend per buyer is based on frequency and ASP. And I'm happy to say that, both are contributing. We’ve seen tremendous improvement in those which I think is the balanced approach that we've been always pitching to.
And as we look forward, we believe there’s tremendous opportunity to impact growth in terms of product and quality and target audience. As we go up market, and we have spoken about Fiverr Business earlier, we see that business buyer that use the product are using it more frequently. And we also see that the average ASP is higher. So that said, as we go up market, the growth which is based on spend per buyer model, actually return to improvement in both frequency and ASP.
Great, thanks for taking the questions.
The next question comes from Eric Sheridan with UBS. Please go ahead.
Thanks so much for taking the question and hope everyone on the team is well. I think following up on the success you mentioned with the Super Bowl ad, and it seems like you're continuing to sort of invest in brand initiatives and TV advertising. Can you talk a little bit about the halo effect you might have gotten from that effort? What it might mean for marketing efficiency over the medium to long term?
Is now the right time to sort of lean into marketing because you have a lot of momentum in the business, and you want to maintain or maybe even accelerate that momentum, or could you see some of the brand awareness that building around the company leads to greater levels of marketing efficiency over the medium to long term? Thanks, guys.
Morning, Eric, thanks for the question. So, on the Super Bowl, I think that, as a company that said that we're trying to build a household brand. The Super Bowl is a very important event. It's definitely a -- we have a live event in terms of brand marketing. And I think that that definitely influenced the brand awareness mostly in the U.S., but it has some halo effect outside of the U.S. as well.
Now, we've invested last year pretty extensively in brand marketing, including TV campaigns, and work on social. And this was a peak in that investment, but also an event that propels on the organic side and a lot of brand is attributed to organic because it creates -- it just creates market awareness is extremely important.
And to your question, if you're able to be in front of your customers on several [Technical Difficulty] weekly or a monthly basis, performance marketing more efficiently also increases. And so, we think that the [Technical Difficulty] combination of doing performance marketing and brand marketing together creates that efficiency. And I think that, if you look at even at the quality of our marketing, you see that efficiency well built into everything -- every dollar that we spend.
We are leaning in, proving over quarters [Technical Difficulty] despite the fact that we've been investing more in marketing every quarter and we don't plan to stop economy justify, continue the investment, we will continue to invest more. We are definitely seeing that and we think that the Super Bowl is just another important milestone in establishing a household brand.
Thanks so much.
The last question comes from Jason Helfstein with Oppenheimer. Please go ahead.
Hey, everybody. So, I'm going to ask maybe two questions. First, on the subscription side. So, when you think about the Gig you have been doing, is their way to kind of quantify like, what percent of those Gigs or percent of GMV actually kind of it belongs in a subscription type model? And then, kind of what the benefit would be? But then in addition, kind of what new Gigs would come on that you'd be able to add, because really, they do lend themselves really only to subscription?
And then the second, Ofer, I think you talked about in your prepared remarks that you saw take rate going up, kind of looking forward. I mean, historically, when companies move up market, there's downward pressure on take rates, maybe talk about what you think the offsets are that are actually going to drive up the take rate over the next medium-term? Thank you.
Morning, Jason thanks for the question. Starting with your first one. Subscriptions, we haven't published the exact percentage of categories in which this is relevant for, although that number is sizable.
Subscriptions, when you think about that has to do with a combination of things, both the convenience of being able to rehire or repurchase the same service over and over again without any hassle. But also, it helps buyers and sellers establish a longer-term relationship. And in some cases, and this is open for sellers for their discretion, they can also combine that the long-term relationship with a discount, as well.
A lot of our categories have this in place, there are categories in which this is less relevant, if you need someone to help you do some grammar or editing work on your resume, this is probably not something that you have to subscribe to. But a lot of our services, you think about that, most of the creative services are relevant for some buyers on a repeat basis. So, we definitely see that this is -- we see this as an exciting opportunity for sellers to actually establish those longer-term relationships.
And then Jason, related to take rates, we've been going up market for some time now. And I think that we've been able to demonstrate that take rate is going up with us. And it doesn't grow because of the transaction services production related, it's because of added value services that we add on top whatever it says subscription on the federal side or capability on the buyer side, like the declarable subscription.
So, the plan to our expectation to increase take rates modestly overtime is based on the roadmap of product release that we believe are chargeable and will contribute an additional line of revenue. So, behind that assumption, there is a full stack of orders that we plan to launch overtime, both on the buyer and the seller side that we'll be able to monetize against and create or increase take rate modestly as said.
This concludes our Q&A session. I would like to turn the conference back over to Micha Kaufman for any closing remarks.
Thank you, operator. Thank you everyone for joining the call this morning. We are extremely excited with our performance and momentum heading into 2021 and we look forward to seeing you at the upcoming investor events. Have a great day.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.