Fiverr is a high-growth company that has put its investors on a
wild round trip to nowhere since it came public this stock soared during covid more recently,
the bubble in this company's stock has burst, and it's currently down
88% from its peak price in 2021. So is the thesis for owning this stock busted? I don't
think so which is why i'm happy to open up a starter position in this company today why
here's everything you need to know about Fiverr my name is Brian Feroldi and my name is Brian Stoffel
thanks to Ccommonstock for sponsoring today's video as the time is recording i am a shareholder
of fiverr and i am not yet a shareholder of fiverr now Brian in talking about Fiverr we need
to remember this company at one point was worth over $10 billion dollars but today trades for
just about $1.3 billion Fiverr's mission statement is to change how the world works together this is
simple inspirational and optional so how does it do that well it is set up an e-commerce
marketplace where businesses can find freelancers to get work done that they need and freelancers
can find customers for what they have to offer the company calls this a service as a product model
fiber has been in high growth mode for many years and is rapidly expanding its offerings for that
reason spending on sales and marketing to acquire new customers is currently very high we don't have
a ton of data yet available to tell whether or not this service is recession proof but so far it
looks to be recession resistant and since this is a marketplace business the vast majority of this
company's revenue is recurring in nature so what kind of mode does Fiverr have around its business
well the first and most important to investigate is the network effect here's how the company
visualizes it as more companies come to the marketplace because they demand quality work more
freelancers will join and get more value out of it by supplying that quality work which only draws in
more companies creating a virtuous cycle that virtuous cycle is on full display over the last
couple of years but it's possible that there could be a chink in the company's armor right now as
the number of active buyers in this platform has recently flatlined that said the amount that each
of those buyers spends has continually increased however the rate of that increase has tapered off
beyond the network effect we do think that our switching costs in place both for buyers and for
sellers once you get set up on this company's platform it does become onerous to switch
and we can see that by looking at cohort analysis we see a contraction usually followed by an
expansion this is to be expected as new people try the platform out some will stay some will leave
but those that stay tend to spend more beyond that we do think that there is value in the company's
brand name as fiverr has become synonymous with hiring people online although this is far from
the strongest brand name we've ever seen now when you take into consideration the fact that
buyers have flatlined and their spending has tapered off we're gonna say that the moat here
is at least stable turning to financials fiverr has been in high growth mode for many years
growing its revenue at more than 43% clip over the last three years one thing to applaud about
this company is that it's producing gross margins well over 80% percent although it's not producing
bottom line net income at least on a gap basis but those bottom line losses aren't a huge concern for
us why because the company has been free cash flow positive for quite some time and it has a fair
balance sheet now once that net income switches those returns on capital will also become positive
turning to management we were pleasantly surprised to see that micah kaufman co-founded this business
and is still the ceo to this day and he is leading an organization that employees love giving it high
reviews on glassdoor.com and he has a ton of insider ownership turning to potential we think
that fiverr has a fair amount of optionality built into its platform if you look back at the recent
history this company has consistently rolled out new products and new services that open up new
revenue opportunities because that net income was so low we have little doubt that there is a ton of
room for the operating leverage to improve in the years ahead and the market for hiring freelancers
around the globe is massive coming in at more than $240 billion dollars in annual spending and that
figure itself is growing rapidly and while the company has made some acquisitions in the past
the vast majority of the growth has been organic so how is this stock done for investors so far the
answer there is not great the shares are actually down since coming public in 2019 although the
company has consistently exceeded wall street's estimates on the bottom line and unsurprisingly
given where it is in its growth stage it is not returning any cash to shareholders via buybacks
or dividends turning to risks there are a handful for investors to keep in mind first and foremost
is competition there are numerous competitors out there the biggest of which is upwork but there are
also smaller players such as 99designs and guru so far fiverr has had no problems attracting
attention to itself despite that competition but it would be a mistake to overlook it completely
if we turn to dilution the company is handing out a lot of stock based compensation but it has been
improving and should continue to do so moving forward beyond that there is some valuation
risk that investors are taking on today although it's far lower than it's been in the past we'll
have more to say about valuation in just a bit so let's turn to how the company did during the
second quarter revenue grew 13 to 85 million that was lower than wall street and management
were expecting on the bottom line the company's earnings per share on adjusted basis fell 37% to
$0.12 although that did outperform wall street's estimate margins were down across the board but
on an adjusted basis they all remained positive free cash flow and net income both took a step
backwards as the company ramped up its spending on the flip side the balance sheet remains in
perfectly fine shape now when we look at the third quarter management is expecting revenue
to grow at about 10 percent at the midpoint that's lower than wall street was expecting
and the company doesn't provide earnings but wall street expects them to fall about 42 when it comes
to the full year this company has been pulling back on its guidance all year in february of this
year management had originally guided for 26% top line growth this year however they since updated
that in may and they were calling that to just 18% growth at the midpoint well then in august
they pulled the plug on that as well but the new guidance is worth looking at top line growth is
expected to just be 13% but adjusted ebitda is supposed to be higher than originally planned
essentially this top line is not growing nearly as fast as management originally thought due to that
short-term attrition that we saw and the stalling growth in active buyers it's my belief that that
phenomenon is temporary but make no mistake if i'm wrong about that shareholders could get hurt from
today so what is going to move the needle moving forward well the first thing is to see those total
buyers grow from the 4.2 million markets been sitting at for about a year second we want to
see the company continue to swim upstream and get more spending from each of its buyers third
one of the ways the company can do that is by increasing its take rate that's the amount of
each transaction that fiverr gets to keep and that has been moving in the right direction fourth keep
an eye on free cash flow we want to see this number remain positive and start to grow again
overall we think that the moat direction for this company is definitely stable however we disagreed
about the current state of the thesis i believe that thesis for owning the stock is on track
though there are some early warning signs that are worth watching and i believe that with users
growth stalling and spending per client tapering off that this is a yellowish green flag there
are some warning signs so how did fiverr score on our investing checklist the answer there is
pretty good for me this got a 79 which is towards the high end of my investable category and on my
framework this got a nine which is right in the middle of my robust investable category turning
to valuation we believe that fiverr is currently between phase two and phase three although keep
in mind this isn't a perfect guide so we think the company is not yet optimized for the bottom
line yet rather we believe that it is optimized for revenue and gross profit for that reason
we think the price to sales and price to gross profit ratio are the most useful metrics at
this point so let's take a look at those on a price to sales basis fiverr trades for about
four times sales which is far less than it did topping out at over 50 over the last two years
gross profit has continued to grow since this company came public recently topping out at 263
million dollars over the trailing 12 months given the company's market cap of about 1.3 billion
that puts this company at just five times gross profit which i think is a very reasonable number
we can also take a peek at a couple other metrics fiverr trades for about 45 times free cash flow
that's meaningful because this company is not optimized for free cash flow and it is spending
a ton on sales and marketing fiverr doesn't have a trailing p e ratio but it does have a forward
p e ratio that finger at 288 continues to look extremely high but keep in mind this company is
not optimized for earnings i expect that number to drop meaningfully over the next couple years
as the company focuses on the bottom line so what do you think about our decision to purchase
shares of fiverr head on over to common stock and leave a comment in our display on this decision
we're gonna dig through your comments and highlight the best one and whoever makes the most
insightful comments will be paid 100 by common stock we want to give a shout out to scoreboard
investor who won the most insightful comment for our decision to purchase shares of figs
common stock will pay scorecard investor $100 so if you want a chance to win $100 simply head
on over to common stock leave a comment and you'll be entered in the contest so there
you have it i'm excited to make an investment in fiverr today although i do admit it is a company
that is going through a rough patch right now we hope you enjoyed this summary Brian's Out