Fiverr (FVRR) is an Israeli freelance marketplace that caters to small-to-medium tasks worldwide. I am bullish on the stock. (See Analysts’ Top Stocks on TipRanks)
Earnings and Outlook
Fiverr managed to post third-quarter revenue growth of 42% to beat estimates by $3.22 million.
As of September 30, active buyers grew by 33% year-over-year, while spending per buyer grew by 20%. In addition, the take rate saw a quarterly increase to 28.4% from 27%.
Fiver also upgraded its full-year guidance and expects revenue to come in between $74.5 million to $77.5 million, compared to the previous consensus of $72.8 million.
Fiverr has tried to gear its services towards high-value customers in an attempt to increase average spending per customer. This has been a successful strategy, as annual high-value expenditure has risen to 62% from 57% last year.
As the outsourcing market continues to grow, we’re seeing larger tasks being passed off to freelancers, and I believe that Fiverr will benefit in the long haul if it pivots and taps into the corporate outsourcing market.
Stoke Talent Acquisition
Growth through lean acquisitions is an essential strategy for value creation in the technology space because it allows you to scale much faster than starting segments internally.
Fiverr recently completed its fourth significant acquisition by snapping up the freelance market platform “Stoke Talent” for $95 million.
Stoke Talent will continue to operate independently; however, key technology will be combined with Fiverr’s existing tools to create cost synergies.
According to the CEO and founder of Fiverr, “It supports Fiverr’s move upmarket and allows us to engage with much larger customers; It allows Fiverr to offer software solutions to businesses that already have freelancers that they work with and now can manage them easily; It allows Fiverr to pair its marketplace talent with large customers that need access to freelancers they still do not yet have a relationship with; It gives Fiverr access to the offline freelancing market that is still orders of magnitude larger than online freelancing.”
Although Fiverr’s gross profits have increased by 70.4% year-over-year, operating income has decreased by 117.5% during the same period, predominantly due to high administrative and R&D expenses. If Fiverr can continue to acquire synergetic assets, we’ll see significant improvement in operating expenses.
Key Growth Points
The company remains in a hyper-growth phase, so looking at valuation multiples of the stock is counterproductive.
Fiverr has added value through growth across the board during the past year. Levered free cash flow, working capital, and CapEx have increased 300.7%, 106.6%, and 94.1%, respectively.
Combining these figures tells us that the company has managed to add value through significant cash inflows, improved short-term liquidity, and efficient capital allocation.
Fiverr stock is far from reaching an inflection point. Though, it has to be said that the firm will need to bring its leverage ratio (110.7%) down a tad for shareholders to harness the full value of their money. However, this isn’t something that I think will affect the short-term stock price.
Wall Street’s Take
Turning to Wall Street, Fiverr has a Moderate Buy consensus rating, based on two Buys and two Holds assigned in the past three months. The average Fiverr price target of $199 implies 3.8% upside potential.
Concluding Thoughts
Fiverr continues to defy the odds by growing from strength to strength. The company’s targeting of higher-value customers could prove to be a game-changer as corporate outsourcing becomes more popular. Key metrics show that value has been added across the board through the company’s operating cash flows, working capital, and CapEx.
Disclosure: At the time of publication, Steve Gray Booyens had a long position in FVRR.
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