Fiverr International Ltd. (NYSE:FVRR) Q1 2021 Earnings Conference Call May 6, 2020 8:30 AM ET
Company Participants
Micha Kaufman - Chief Executive Officer
Ofer Katz - President, Chief Financial Officer
Maya Tracey - Investor Relations Manager
Conference Call Participants
Michael Ng - Goldman Sachs
Doug Anmuth - JP Morgan
Ron Josey - JMP Securities
Nick Jones - Citi
Jason Helfstein - Oppenheimer
Operator
Good morning. Welcome to the Fiverr first quarter 2021 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today’s presentation, there will be an opportunity to ask questions. Please note this event is being recorded.
I would now like to turn the conference over to Maya Tracey, Investor Relations Manager. Please go ahead.
Maya Tracey
Thank you Operator, and good morning everyone. Thank you for joining us on Fiverr’s earnings conference call for the first quarter ended March 31, 2021.
Joining me on the call today are Micha Kaufman, Founder and CEO, and Ofer Katz, President and CFO.
Before we start, I would like to remind you that during this call, we may make forward-looking statements and that these statements are based on our current expectations and assumptions as of today, and Fiverr assumes no obligation to update or revise them, whether as a result of new information or otherwise. A discussion of some of the important risk factors that could cause actual results to differ materially from any forward-looking statement can be found under the Risk Factors section in Fiverr’s most recent Form 20-F and other filings with the SEC.
During this call, we’ll be referring to some non-GAAP financial measures. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is provided in the earnings release we issued today and our shareholder letter, each of which is available on our website at investors.fiverr.com.
Now I will turn the call over to Micha.
Micha Kaufman
Good morning everyone and thank you for joining us on the call today. Today we reported an outstanding set of results after a landmark year of incredible growth and resilience.
We kick off the year with revenue growth accelerating to 100% year-over-year, doubling our revenue to $68.3 million. Underlining the growth is strength across our business matrix. Active buyers grew 56% year-over-year to over $3.8 million. Spend per buyer increased 22% year-over-year. We see consistent and increasing spend across our existing cohorts and continued growth in revenue from high value buyers in the midst of a massive digital transformation.
Companies across the globe are adopting remote working models and shifting to hybrid teams by integrating more freelancers into their businesses. This past year has been a whirlwind for small businesses, forcing many of them to quickly adopt and find new ways to serve their customers. For many, this meant the need to digitally transform, and they turned to Fiverr to rebuild, pivot and launch their businesses. For some, this meant adapting from brick and mortar to having a digital storefront as we saw massive spikes in searches around ecommerce, website design, and sales management tools. Others turned to Fiverr for tools to help enhance and rebuild their businesses, like building your own in-house food delivery app.
As the crisis reinforces and accelerates the trends towards adopting remote work and moving businesses online, we believe our market base is well positioned to address current needs and serve as a key resource when the economy re-accelerates. It’s critical to remember that the majority of market is still operating offline, presenting a massive and still largely untapped opportunity to bring that business online.
Businesses around the world and across all industries continued to invest and spend more of their budget on transformation. When they make the leap, there is no turning back. They will continue to spend and invest in their digital channels and our business model gives us visibility and confidence that this cohort behavior will continue far beyond the pandemic.
Our market-based model benefited from the compounding transaction volume by the effect of the pandemic driving outsized cohorts to the platform last year and increased spend across existing cohorts. As we mentioned earlier this year, on average existing cohorts from 2018 and older grew spend 15% in 2020 compared to 2019. We believe that there is a long growth run rate ahead of us and we are confident that with continued excellent execution, innovation and investment in the creation of valuable tools for our community, we will continue to grow.
We believe that our proven ability to successfully create revenue generating products that expand our total addressable market, backed by powerful macro industry tailwinds, is highly encouraging for our future. These factors lead to a strong new baseline for our guidance. To ensure this growth continues as the tailwind effect fades, we are continuing to focus and aggressively invest in our key initiatives and growth engines. After a year of significant growth and powerful Q1, I’m even more excited for what’s in store for the rest of the year and beyond.
We have continued to make exciting progress towards our key strategic markets, expanding internationally and developing and enhancing new capabilities for our products and tools while heavily investing in our brand and marketing. On the demand front, we’re deepening customer loyalty and engagement with our subscription and milestone products, increasing the lifetime value of our existing and new cohorts. Fiverr Business also continues to grow rapidly and we have implemented strategies to further build brand awareness and have an amazing pipeline of new products planned for the Fiverr Business community.
On the supply front, we are excited to have a new vertical centered around data services. This is our latest example of building on our successful playbook with vertical launches. By opening a vertical focused solely on data services, we create a path for elevated category expansion in the data analysis space and further capture and capitalize on the high demand for these services.
International expansion is a key component of our up-market strategy. We continue to aggressively invest on a global scale with a focus on deepening our penetration in existing markets and our local marketing efforts. We are encouraged by our localization efforts so far and we are investing prudently in building our infrastructure to support further expansion into new geographies. Finally, promoted [indiscernible] continue to enjoy healthy seller growth, contributing to our take rate expansion we saw this quarter.
Fiverr is becoming a household name. Investments in brand awareness are generating a continuous long term drive for organic traffic and growth in spend. Our Super Bowl ad was viewed by millions of potential buyers and sellers through our TV campaign, digital and social channels, significantly boosting our brand, and we look forward to expanding on our momentum.
The last year has shown us that Fiverr’s business is stronger and more resilient than ever. We have never been more proud of our talented and dedicated team. We have shown that in times of great uncertainty, our ability to execute on our strategy and mission has only grown more robust. We are operating at high efficiency, driving scale on our platform and investing in our product ecosystem to further fuel our business.
We took Fiverr public less than two years ago. This year, we are going to be about three times larger while growing approximately 50% faster. All of this is reflected in the significant upward revision of our 2021 revenue growth rate guidance of 59% to 63% compared to our previous guidance of 46% to 50%. We are confident and highly bullish on the ability to deliver and execute on our goals. We are just getting started.
With that, I will turn the call over to Ofer who will share a few Q1 highlights as well as some color for the rest of this year. Ofer?
Ofer Katz
Thank you Micha, and good morning everyone.
As Micha mentioned in his remarks, we are very excited to deliver another set of amazing results. In Q1, we achieved one of the strongest revenue growth rates in our history with an outstanding 100% [indiscernible] increase to $68.3 million, doubling our revenue from the same period last year. This was driven by a spike in active buyers, expanding 56% year-over-year to over 3.8 million. Additionally, we saw accelerating growth throughout the quarter with outsized trends in the back half of the quarter driven by a jump in traffic and registration in the U.S. shortly after our Super Bowl ad.
Spend per buyer was $216, up 22% year-over-year and up by $11 compared to 4Q20. This was driven by the compounding transaction volume of the outsized new cohort we acquired last year combined with increasing spend cross existing cohorts. As businesses accelerate their pace in digital transformation investments and start to integrate more freelancers into their work flows, we expect the spend to remain at this elevated level going forward. To continue capitalizing on these trends, we are investing aggressively to extend the lifetime value of our new cohorts by providing products such as milestone and subscriptions.
Fiverr Business remains a key contributor as we target buyers with larger budgets and larger businesses while rolling out new enhancements and capabilities on our [indiscernible]. In addition, we will continue to make significant investments in our brand building and our growth and momentum from our most recent brand investments.
Our platform continues to enjoy a market-leading take rate and a 10 basis point expansion to 27.2% compared to Q1 of last year. This trend of modestly increasing take rate is expected to continue in the coming quarters as we continue to grow value-added service offerings in our robust pipeline and recognize the 0.5% transaction increase introduced at the end of the quarter.
We reported adjusted EBITDA of negative $0.7 million or negative 1% margin, significantly above the high end of our Q1 guidance of negative $4 million to negative $3 million. The adjusted EBITDA of negative $0.7 million includes the long term investment of approximately $8 million on the Super Bowl ad. We will continue to prioritize growth and at the same time we expect to make continued progress toward our long term target model.
Now for our guidance.
For the second quarter 2021, revenue is expected to be $73 million to $75 million. This would represent year-over-year growth of 55% to 59%. Adjusted EBITDA is expected to be $5 million to $7 million. We are also upgrading our full year 2021 guidance. We now expect revenues to be in the range of $302 million to $308 million, representing year-over-year growth of 59% to 63%. Adjusted EBITDA is expected to be in the range of $19.5 million to $24.5 million, representing an adjusted EBITDA margin of 7% at the midpoint of the range. The compounding strength of our existing cohorts and confidence that they will sustain at an elevated level of spending, along with the addition of new cohorts sets a strong new baseline for our guidance.
As we begin to lap the COVID tailwinds, starting from Q2 2021, we expect our growth to become more normalized but stronger than when we entered the pandemic period. As we have said, we are at an intersection of a new generation of work force participants and the increasingly sophisticated will of businesses to have a digital strategy. We see this digital services shift via the freelancer market as a global secular trend that will continue to grow.
Fiverr has been and will continue to power this shift with our unique platform. We have robust pipeline plans for the rest of the year and I’m excited to share these updates with you throughout the rest of the year and beyond.
With that, we’ll now turn the call over to the Operator for questions. Operator?
Question-and-Answer Session
Operator
[Operator instructions]
Our first question is from Mike Ng from Goldman Sachs. Go ahead.
Mike Ng
Thank you for the question. I just have two. First, I was just wondering if you could talk a little bit more about the characteristics of some of the newly acquired cohorts and how that compares to your historical cohorts. Then second, I was just wondering if you could give us a sense of how we should think about the pace of active buyer growth throughout the rest of the year, particularly as growth becomes more normalized. Thank you very much.
Micha Kaufman
Thanks for the question, Mike. Good morning.
I think that as we’ve noted in our remarks, the characteristics of the newly acquired cohorts are pretty similar to our historical cohorts but with more focus on high value buyers, and this is being shown--demonstrated in the percentage of high value buyers that is increasing, including the addition of customers that are joining Fiverr Business and are spending, as we said, about three times more than regular customers.
What we’ve seen so far, and this is true, by the way, for all countries including those who are actually starting to come out of the COVID situation, among those are areas in the U.S., U.K., Israel and other countries where the percentage of vaccinated population is about 50%. We haven’t seen any change in that trend, and this is very encouraging. What we’re seeing is that the momentum that we have demonstrated throughout the pandemic is not dying. It is continuing, and continuing very, very strong.
Ofer Katz
Hey Mike, this is Ofer. For the second part of the question, as we look forward into Q2 and the rest of the year guidance, we anticipate that the lapping of the last four quarters is starting and we anticipate some level of normalization, or normalized growth get to [indiscernible] much faster than what we experienced pre COVID-19. If you recall at the beginning of last year, we were always mentioning that we anticipate balanced growth in terms of spend per buyer and active buyers, so that we anticipate that this kind of momentum will continue into the future, and [indiscernible] is that we’ll start to see some level of normalized growth of active buyers but still much faster than what we have seen and used to before the pandemic.
Mike Ng
Great, thank you Micha, thank you Ofer.
Operator
Our next question is from Doug Anmuth from JP Morgan. Go ahead.
Doug Anmuth
Great, thanks for taking the question. First, Micha, I was hoping to get your view on supply and demand on the marketplace and just where you are in terms of balance going forward. Just wondering, is there any potential of sellers just going back into primary or previous types of jobs with reopening as hiring picks up more, or do you just think that the pandemic has forever changed the operating environment?
Then second, [indiscernible] a little bit more on Fiverr Business in terms of that higher frequency buyer and more expensive gigs, just how you’re thinking about progress there. I know it’s still early as well. Thanks.
Micha Kaufman
Good morning Doug, and thanks for the question. First, when you look at the active buyer in relation to sellers, you see that the ratio has been pretty constant, and we know that there is differences between sellers and their goals and motivations. For some, it’s a full time thing and they would like to get as many customers as possible. For some, it’s a side job and they limit their participation to only a few hours a day. Having a system that actually understands that and sends or manages liquidity in the right way has been essential for our market base for many, many years, and that has been kept very tightly.
What we’ve seen during the pandemic is newer cohorts of more sophisticated and more experienced sellers that were joining us, and some of which have been showcased on the media recently. There were two big stories in CNBC about sellers from the U.S. that have joined Fiverr just recently, mid last year, and are already making hundreds of thousands of dollars on a yearly basis. We think that the pandemic has changed the way freelancers are viewing this opportunity. I think that being a freelancer is much more of a valid career path, and it enables a new type of lifestyle.
We haven’t seen--in the activity of sellers, we haven’t seen any of those cohorts retracting or leaving the market base in favor of going back to their jobs, in many cases just because they’re making so much more money on Fiverr than they were doing in their 9 to 5 jobs before that, or by spending a lot of their time trying to chase customers and freelancing offline. That will be the first part of the question.
For Fiverr Business, I think you rightly noted that it’s very early at this point, but what we’re seeing is, and this is really interesting, is that Fiverr Business has a lot of capabilities that are very suitable for individual roles with an organization or for an entire team. We have within Fiverr Business, you may have a manager within a company running an account, and over time that account grows, and we have accounts where we have close to 100 people on the team. Again, this is very encouraging.
It’s very early days, but what we’re seeing is we’re seeing that the cross-category activity there, the ability of the organization to use Fiverr more as a way to augment on the team activity allows the team to find the type of talent that they don’t have within the organization, either having a hard time hiring or not needing that on a full time basis is a clear case. Again, our view for this entire decade is that Fiverr Business is going to be the place where companies and businesses come in to integrate freelancers into their work flows, and what we’re seeing from Fiverr Business is this exact use case is what’s happening.
Doug Anmuth
Great, thank you for the color. Appreciate it.
Operator
Our next question is from Ron Josey from JMP Securities.
Ron Josey
Great, thanks for taking the questions. I have two, please.
If you could talk a little bit more, Micha, just about brand awareness. You mentioned in the letter building Fiverr into a household name and the growth and awareness around SMBs and also for medium sized businesses, which talks about going upstream and NPS scores accelerating. But post Super Bowl and all the different benefits that came from that, can you just talk a little bit more about the marketing strategy as brand awareness continues to grow, and I think you’re doing that in multiple different countries?
Then Ofer, you mentioned an increase in transaction fee, I think you said in the back half of the quarter. Just talk a little bit more about that increase and how you see that going forward. Great quarter, guys. Thank you.
Micha Kaufman
Thanks so much, Ron. Good morning.
We’ve been talking for a few quarters about brand awareness and about building household brand. Maybe the peak of that effort for this year has been definitely the Super Bowl ad, but definitely what we’re seeing is we’re seeing that brand awareness in general, both before the Super Bowl and after, is on the increase, which means that we’re gaining more organic traffic that is coming to us, and a lot of it contributes to the [indiscernible] efficiency of our brand which makes our performance marketing more efficient or cheaper. That is really important for us, so the idea is to continue pushing on that front because you become--we make Fiverr into a synonym for accessing talent, accessing freelancing talent in a very easy to use platform.
So it’s definitely something that we will continue investing in. Unfortunately, there is not an additional Super Bowl this year, but we’re definitely seeing a lot of opportunity to invest around that, and some of the stories that have been popping up there on the news have been happening organically. The story that I mentioned on CNBC is a story that was picked up by media with no intervention on our side, and this is exactly the cycle that we want to create.
We’re seeing also the contribution of organic and brand awareness through the positioning of our services online. Logo Maker is one of those examples, where you see the service that we launched a few quarters ago and have been increasing its placement on search engines, and because of its high placement at this point, it is generating organic traffic that we’re not paying for to the Logo Maker and to the entire site.
We’ve extended that strategy to more than just the U.S. We’ve done TV campaigns outside of the U.S. and obviously online campaigns, and all of them have shown tremendous efficiency. As long as this continues to be the case, we’ll continue to invest and continue to expand those efforts. They’re still a minority of our investments, but the combination of brand awareness with performance marketing is something that has proven itself to work really well.
Ofer Katz
Then Ron on the second part of the question, on the service fees, the take rate and the service fee, what triggered the change in the service fee is the fact that cross-border transactions cost us more. The structure of the fee with the [indiscernible] has been changed and it caused us to transfer this cost into the buyer. We did some tests throughout the quarter to confirm the fact that customers are absolutely agile and there is no effect in terms of that conversion, which leads us to add this 0.5% across the entire platform at the end of the quarter.
We see that as the start of the new structure. This will definitely impact the take rate throughout the year, but again to conversion and the active buyer, we don’t think there is an impact. It actually gives us a little bit more comfort on the value that we provide throughout the platform, where our ability to increase take rate even beyond the 27% has been well accepted and the buyer and the seller side.
Ron Josey
That’s great. Thank you, Micha and Ofer.
Operator
Our next question is from Nick Jones from Citi. Go ahead.
Nick Jones
Great, thanks for taking the questions. I guess two.
One, could you just provide an update on geographic expansion, the traction and progress you’re seeing, and just given COVID is having kind of varying impact by region, is there anything different there or is it kind of tracking similar to the U.S.? Just any color there, and then I have a follow-up. Thanks.
Micha Kaufman
Good morning Nick, and thanks for the question.
In terms of geo expansion, again another one of our growth vectors, we’ve been continuing our investment there. We’re currently localized in six languages - German, French, Dutch, Portuguese, Italian and Spanish. We entered Brazil and Mexico markets in November. We’ve run TV campaigns in the U.K., Germany, Australia, and what we’re seeing is we’re seeing great growth there. Our strategy is pretty straightforward, and we’ve talked about it before, and that is every country that we open, we want to see its baseline growth changing.
The first is changing that trend. The second phase is to make that country grow faster than the overall growth of the market base. What we’re seeing is we’re seeing more countries out of the countries that we’ve opened, well over half of them that are hyper growing - triple digit and more percentages in growth, and this is a very encouraging signal for us. What we’ve created is we’ve created a playbook, a blueprint that allows us to launch more countries in the near future contributing to growth through that vector.
The second part--? As to COVID, I think the second part was COVID impact by region. I’ve alluded to that in the beginning of the Q&A by saying that we’re tracking very closely the impact that we’re seeing through countries that are either experiencing newer waves of COVID outbreaks, or countries that are moving into normalization. What we’ve seen is we’ve seen that performance is actually not being affected. If anything, we’re seeing performance continue to increase in those regions that have been starting to go out of the pandemic, and Israel is maybe an extreme case because the vast majority of the population is vaccinated, and just to share with you guys, things in Israel are looking as if COVID almost never existed.
We haven’t seen any change. If anything, the upward trend is continuing very nicely. The same goes in the U.S. and the U.K. We have seen obviously in areas like India or Germany, where they are experiencing new waves of outbreak, where you see some uplifts in traffic that are similar to what we’ve seen in the midst of the pandemic, said being more cohorts of supply to the market base, but we haven’t seen any trends or anything that would indicate that post-pandemic, we should expect to see a return to the old baseline.
I think Ofer mentioned there is, and we do expect that there is going to be some normalization as we start lapping, but that normalization doesn’t mean that we’re going back to the historical level. Our new baseline is being tipped, which means that we are much, much larger these days and growing much, much faster.
Nick Jones
Great, thanks. Then just one separate question. Yesterday, the U.S. labor department rescinded a regulation proposed during the Trump administration regarding gig worker employment status. This reverts kind of back to the Department of Labor rule from 2008, I think it’s the seven factor [indiscernible]. Can you just remind us how--or how should we be thinking about the impact of this on Fiverr in the U.S., if there is any impact at all? Thanks.
Micha Kaufman
Absolutely. There should be a clear distinction between the gig economy and the freelancing economy or the talent economy. The latter in which we fall into focuses on providing freelancers with the freedom to work on whatever they want, whenever they want, and charge whatever they see fit for their services. Our service resembles the relationship that Amazon has with its merchants or Etsy has with its sellers. We don’t believe that the current [indiscernible] are relevant for the ecommerce platform.
We do continue to monitor the developments, but we definitely think that the rules that are within the regulation and within court decisions do not apply to Fiverr.
Nick Jones
Great, thank you.
Operator
Again if you have a question, please press star then one.
Our last question is from Jason Helfstein from Oppenheimer. Go ahead.
Jason Helfstein
Thanks guys. Two questions. One, just on marketing, you’ve obviously seen significant, I guess, marketing efficiency tailwinds - a big chunk of that is COVID, but also you’ve built meaningful brand awareness, so help us think about how you see marketing efficiency going from here. We can all kind of run numbers and we have a sense of probably, based on the guidance, what you’re going to spend on marketing, but how should we think about marketing efficiency and what it means for net adds for the rest of the year? How do we think about that, and do we hit a point where you start adding more adds, more net adds but perhaps they spend less? Just how do we think about the relationship the rest of the year?
Then the guidance for the rest of the year, any meaningful contribution from Fiverr Business or subscriptions in the guidance the rest of the year? Thank you.
Ofer Katz
Hey Jason. I think the way we measure the marketing efficiency is well demonstrated in the ROI chart, and if you follow that, you can see that we are able to cover the cost of investments within the first quarter of investment, so that the ROI actually is approximately three months, and this has been the case almost since we went public [indiscernible] and it’s just getting better. We are able to invest more dollar-wise, bring more buyers, bring bigger wallet buyers, but still keep the ROI super efficient. We’ve also been able to increase the marketing investment and the awareness, and awareness [indiscernible] than conversion, and reduce the cost of sales and marketing as percentage of revenue over time. That’s how we measure.
We think that the buyers we bring have a high lifetime value, which doesn’t mature in the first quarter. Buyers that we bring have been active in the marketplace for many years, so that if I return back to the ROI, you can see that after two, three and four years, the lifetime value to cost is more than four and it’s growing on a quarterly basis, quarter over quarter.
You know, when we look forward, we believe that we can maintain the sustainable ROI metrics. We do that by adding more channels, investing in technology, opening more categories, and increasing lifetime value of buyers. This goes to the second part of the question in terms of products like Fiverr Business, products like subscription, but many others, so that every quarter, and this has been the case since inception of the company, the quality of the buyer is higher. We are able to pay more for each buyer because of its lifetime value and keeping the ROI super efficient.
In terms of guidance, once Fiverr Business or subscription become more mature and more substantial to the business, we will get more color. I think we are--you know, the [indiscernible] product that’s in release a quarter or two quarters ago and still adding users, we are collecting the data, so that is still early, and over time we think that we’ll be able to share more data. [Indiscernible] last data point that do capture this growing up market and the contribution of all the products that we release, we think that we do share the high value buyers as percentage of revenue, how this group is contributing to the overall revenue. This has been growing to 59% of our quarterly revenue, comparing 58% in the last quarter, so the contribution of those products - yes, too early to model, but contribute to the overall high value buyer, and you can see that, how if you attract this high value buyer over--you know, since we went public, you can see how this number is growing, mainly because of those types of planned initiatives.
Jason Helfstein
Thank you.
Operator
This concludes our question and answer session. I would like to turn the conference back over to Micha for closing remarks.
Micha Kaufman
Thank you Kate. Thank you everyone for joining the call today, and have a good rest of the day. We’ll talk to you next quarter. Thank you.
Operator
The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.
- Read more current FVRR analysis and news
- View all earnings call transcripts