Is Fiverr International Overvalued?

I am bullish on Fiverr International (FVRR), because its massive growth potential, competitive positioning, and the bullish Wall Street analyst view make it look like it might be an opportune time to purchase shares.

Fiverr International is an Israeli online marketplace that connects small, medium, and large businesses with skilled freelancers working in more than 500 categories, including graphic design, video and animation, and digital marketing.

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Strengths

Fiverr offers its services to more than 160 countries across the world. In the 12 months ended June 30, 2021, 4 million customers bought services from Fiverr. Fiverr’s ad system – Promoted Gigs – was able to reach a milestone of $1 million quarterly ad revenue in a little over a year.

The company has amassed a strong portfolio through smart acquisitions. In 2017, Fiverr acquired the video creation platform VeedMe. Then, in January 2018, the company acquired AND.CO, a software manufacturer for freelancers. In 2019, the company bought ClearVoice, a premium subscription-based content marketing platform. In August 2020, Fiverr bought SLT Consulting, a boutique digital marketing agency. Finally, in February 2021, Fiverr acquired Working Not Working, the creative talent marketplace.

The company also formed a new alliance with Wix and Salesforce that will allow people with disabilities to build accessible websites.

Recent Results

The company generated revenue of $75.3 million in its second quarter, an increase of 60% from the year ago period. Fiverr also announced quarterly adjusted earnings per share of $0.19, beating consensus estimates of $0.13. This is in comparison to the $0.10 earnings per share a year ago.

The company saw record growth in active buyers, which grew to 4 million as of the second quarter, which ended June 30, 2021. This compares favorably to the 2.8 million in the second quarter of 2020, showing an increase of 43% year over year. Spend per buyer also reached $226, showing an increase of 23% on a year-over-year basis.

The company’s GAAP gross margin was 83.4%, showing an increase of 0.3% from 83.1% in the second quarter of 2020. The company also saw a GAAP net loss of ($13.3) million in the second quarter of 2021, or a diluted loss of ($0.37) per share. Adjusted EBITDA in the second quarter of 2021 improved to $7.4 million compared to $3.1 million in the second quarter of 2020.

The company’s revenue guidance range for the third quarter of 2021 was between $68 million to $72 million, with a year-over-year growth rate of 30-38%.

Valuation Metrics

Fiverr’s stock looks a bit pricey right now, given that the forward Enterprise Value to EBITDA ratio is a whopping 219.28x and the price to forward normalized earnings is 424.28x. (see FVRR stock charts on TipRanks)

Wall Street’s Take

From Wall Street analysts, Fiverr earns a Strong Buy analyst consensus, based on 3 Buy ratings, 1 Hold rating, and 0 Sell ratings in the past 3 months. Additionally, the average Fiverr price target of $219.25 puts the upside potential at 28.71%.

Summary and Conclusions

Fiverr is a company with tremendous upside potential, given that it is growing rapidly, operates in a high growth sector, has a large network advantage, and is making strategic acquisitions to further strengthen its competitive positioning. On top of that, Wall Street analysts are overwhelmingly bullish on the stock at the current price. Indeed, the consensus price target indicates over 25% potential upside for the stock in the near term.

That said, the valuation multiples are quite lofty, so while the stock looks like it could be an attractive purchase here, investors should keep in mind that a significant amount of growth is already priced into the stock, making it pretty speculative.

Disclosure: At the time of publication, Samuel Smith did not have a position in any of the securities mentioned in this article.

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