Fiverr: Unlike The Stock, The Company Isn't Broken

Summary

• Fiverr is a buy after falling 75% from highs.
• Fiverr is building the one-stop solution for freelancers.
• The fundamentals keep improving rapidly.

Klaus Vedfelt/DigitalVision via Getty Images

Thesis

After falling 75% from its 2021 highs, Fiverr (NYSE:FVRR) is a buy here. The company is building a sticky ecosystem and is positioning itself to become the place to be for freelancers all over the world. Fiverr already is in my portfolio with a 4% allocation after I purchased more shares last week at $56 per share.

Macro

According to GlobalNewsWire, the market size of online freelancing platforms is expected to grow from $3.39 billion in 2019 to $9.19 billion by 2026, a 15.3% CAGR. In the following graphic, I modeled Fiverr's past and expected revenue growth (I took the marketscreener analyst expectations and extrapolated the last 2 years with the normal market growth rate of 15.3%) versus the total Freelancing platform market. We can observe that Fiverr has taken a lot of market share, more than doubling its market share in the last 2 years. Fiverr is expected to grow significantly faster than the total market, so there is ample opportunity for the company.

Freelancing platform market share and growth projections (Authors model)

Transformation Of An Old School Industry

Freelancing is still largely an offline industry. In their investor presentation Fiverr estimates that freelancing still is done primarily offline, with online-only having a fraction of this industry expected to grow into a trillion-dollar industry in this decade. The company compares this situation to e-commerce in 1994: Gradually market share will shift to online. In the following sections, I will showcase why Fiverr is well-positioned to capitalize on this trend.

Market share of online freelancing (Fiverr investor presentation)

Building The Freelancing One-Stop Solution

Fiverr is building an eCommerce-Esque One-Stop-Solution for freelancing to differentiate itself from its array of competitors like Upwork (UPWK), LinkedIn (MSFT) and Freelancer.com. In the following graphic, you can see what this eCommerce-Esque approach looks like. The big advantage of this approach in my opinion is that you give users something they are familiar with and you make the process as easy as possible. Their competitor Upwork has an inverse system, where employers make an offering where freelancers can apply, rather than freelancers making a post with their portfolio and credentials for employers to simply buy the service. In my opinion, Fiverr's approach is superior and will lead to better growth with more freelancing coming online.

Fiverr's eCommerce approach to freelancing (Fiverr Investor relations)

The Corporate Opportunity

Fiverr is constantly innovating its platform to improve the experience and increase its reach for new customers. One trend through the years has been the increased focus on higher quality work. With the launch of Fiverr Pro in 2017 and Fiverr Business in 2020 they are targeting larger, corporate buyers that have different expectations than normal people that might use Fiverr for a gift idea or amateur video editing. With Fiverr Pro freelancers can get verified as high-quality, professional, freelancers. These jobs have a higher starting price and assure buyers of a higher quality outcome. With Fiverr business, the company iterated on this and created a platform specifically for large corporate customers to transact. The corporate market historically has been dominated by Upwork, but this is changing with Fiverr's continued focus on high-quality offerings catered to the corporate market. In 2027 the number of freelancers is expected to exceed the number of employed people for the first time in the US. This is not only because people decide to be their own boss, but also corporations decide to employ more freelancers. Google is one of the best examples. In 2019 54% of the company's employees were freelancers. These trends are tailwinds for Fiverr.

Fiverr product roadmap (Fiverr investor presentation)

New Products

Fiverr also continues to launch new products, like milestones, subscriptions, Fiverr Choice and advertising services. These features are catered to freelancers to enhance the experience on the website. With milestones, they get the ability to sell larger services with milestones to have multiple goals and payments. Subscriptions allow for a subscription to a freelancer's services, allowing for better planning and recurring revenues. Subscriptions have already been adopted by over 50000 gigs and 20% of subscriptions are commitments for more than 6 months. Fiverr Choice is a program, where Fiverr recommends services based on the data they collected about the user. Fiverr already noticed that Fiverr Choice buyers are 20% more likely to become repeat customers. Lastly, advertising services allow sellers to promote their gigs. This is a classic advertising model like Amazon (AMZN) is running on its marketplace.

The Data Advantage

I already mentioned Fiverr Choice in the last paragraph, I think that Fiverr's data advantage is an overlooked part of the business. Besides Choice, Fiverr also launched Fiverr Inspire, which is a "personalized browsing experience that enables buyers to discover sellers through real projects and deliveries they have completed on the platform." Because 100% of the workflow between buyers and sellers is on Fiverr's website, they have all the data they need to customize the experience for customers and create a moat for the business. Fiverr already saw increased engagement and people that just browse these suggestions for fun, like they would on a social media like Pinterest (PINS). Having the data leadership is important to create a large and sticky ecosystem

Bolt-On Acquisitions

To grow its product catalogue and increase retention Fiverr also does bolt-on Acquisitions. These services are then integrated into the Fiverr ecosystem to grow it further.

Fiverr Bolt-On acquisitions (Fiverr website)

Software Business As A New Entry Point

In recent years Fiverr also started to develop a software business. Last year they acquired Stoke Talent for $95 million, management software for freelancers to manage their whole operations. I see tremendous potential in the software business for Fiverr. Software Systems like this can be a great entry into their ecosystem. With Stoke Talent, they also cater to both online and offline freelancing opportunities. Even offline freelancers can manage their operations via Stoke Talent and eventually when they come online, they already have an entry point into the Fiverr ecosystem. Fiverr is playing the long game and is well-positioned to capture a large share of the market.

Ecosystem Leads To High Margins

All of these building blocks in Fiverr's ecosystem led to rising margins and take rates from an already high base. Fiverr managed to grow its gross margin to 82% in recent years and has an industry-leading take rate of 29.2%. With more services and software being added to the Fiverr ecosystem this take rate will continue to go up or at least stay at this high level. Fiverr has a highly scalable and profitable platform that will eventually generate high cashflows.

Fiverr Take Rate (Fiverr Q4 presentation)

Risks

Fiverr is a small and fast-growing company and thus an investment in Fiverr carries a lot of risks. A few of these risks include

• Fiverr must maintain its image to continue to attract and retain buyers.
• Fiverr has been a loss-making company on a GAAP basis in the past and needs to prove high profitability.
• The freelancing industry is a highly competitive landscape and Fiverr must prove its resilience as a company.

Valuation

Fiverr is expected to report an FY23 EPS of $1,55. With a share price of $54.77 that leaves us with a forward PE of 35, a very reasonable multiple for a company expected to grow at over 25% for the next years in a market with large secular tailwinds. On the Enterprise Value/Sales multiple we can see that Fiverr experienced a strong overvaluation during the pandemic and now shed all of its multiple expansion. Fiverr is a much stronger business now than it was before the pandemic. The pandemic also accelerated the secular trend for online freelancing, a trend that is not reversing.

Fiverr EV/Sales (Koyfin)

Conclusion

Fiverr is a buy, because the company is doing a good job building an ecosystem and positioning itself to become the single platform freelancers want to be at. The valuation is good considering the growth- and profitability outlook for the company. Fiverr is part of my portfolio with a 4% allocation. I purchased more Fiverr shares last week.

Disclosure: I/we have a beneficial long position in the shares of FVRR either through stock ownership, options, or other derivatives. 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.