Online freelance marketplace Fiverr (NYSE: FVRR) missed analyst expectations in Q2 FY2022 quarter, with revenue up 12.9% year on year to $85 million. Guidance for the next quarter also missed analyst expectations with revenues guided to $81.5 million at the midpoint, or 7.11% below analyst estimates. Fiverr made a GAAP loss of $41.8 million, down on its loss of $13.2 million, in the same quarter last year.
Fiverr (FVRR) Q2 FY2022 Highlights:
- Revenue: $85 million vs analyst estimates of $86.7 million (1.95% miss)
- EPS (non-GAAP): $0.12 vs analyst estimates of $0.09 (33% beat)
- Revenue guidance for Q3 2022 is $81.5 million at the midpoint, below analyst estimates of $87.7 million
- The company dropped revenue guidance for the full year, from $355 million to $336 million at the midpoint, a 5.35% decrease
- Free cash flow of $6.24 million, roughly flat from previous quarter
- Gross Margin (GAAP): 79.3%, down from 83.3% same quarter last year
- Annual Active Buyers: 4.2 million, up 200 thousand year on year
Based in Tel Aviv, Fiverr (NYSE: FVRR) operates a fixed price global freelance marketplace for digital services.
Fiverr operates a global digital services marketplace in over 450 categories including graphic design, digital marketing, translation and programming. The company operates in over 160 countries, with roughly 2/3rds of its business taking place in English-speaking countries.
The value proposition for buyers of “gigs” is multi-part: access to an expansive catalog of digital services and a diverse pool of freelancers, price certainty for clearly defined services, and the knowledge that Fiverr will regulate any disputes between buyers and sellers of services.
For gig sellers, Fiverr provides an audience and digital storefront to list their services. By reducing the need to source a pipeline of new projects, freelancers can focus on execution. The fixed price element removes the need for negotiating with buyers. Fiverr also provides the business support infrastructure for freelancers, such as standardized contracts, invoicing and payment, financial reporting, marketing and real-time performance feedback along with a customer support function.
The iPhone changed the world, ushering in the era of the “always-on” internet and “on-demand” services - anything someone could want is just a few taps away. Likewise, the gig economy sprang up in a similar fashion, with a proliferation of tech-enabled freelance labor marketplaces, which work hand and hand with many on demand services. Individuals can now work on demand too. What began with tech enabled platforms that aggregated riders and drivers has expanded over the past decade to include food delivery, groceries, and now even a plumber or graphic designer are all just a few taps away.
Fiverr (NYSE:FVRR), competitors include Meta Platforms (NASDAQ:FB), Upwork (NASDAQ:UPWK), Microsoft’s LinkedIn (NASDAQ:MSFT) and privately held Freelancer.
Fiverr's revenue growth over the last three years has been exceptional, averaging 55.9% annually. The initial impact of the pandemic was positive for Fiverr's revenue, but growth rates subsequently normalized.
This quarter, Fiverr reported an mediocre 12.9% year on year revenue growth, and this result fell short of what analysts were expecting.
Guidance for the next quarter indicates Fiverr is expecting revenue to grow 9.65% year on year to $81.5 million, slowing down from the 41.9% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 19.2% over the next twelve months.
As a gig economy marketplace, Fiverr generates revenue growth by a combination of the volume of services users order and how much commission it earns.
Over the last two years the number of Fiverr's active buyers, a key usage metric for the company, grew 30.3% annually to 4.2 million users. This is among the fastest growth of any consumer internet company, indicating that users are excited about the offering.
In Q2 the company added 200 thousand active buyers, translating to a 5% growth year on year.
Revenue Per User
Average revenue per user (ARPU) is a critical metric to track for every consumer internet product and for Fiverr it measures how much it earns off each transaction on its platform, a measure of the pricing leverage Fiverr has with both its users and providers of services.
Fiverr’s ARPU growth has been decent over the last two years, averaging 20.2%. The ability to increase price while still growing its user base shows the value of Fiverr’s platform. This quarter, ARPU grew 7.57% year on year, reaching $20.24 for each of the active buyers.
User Acquisition Efficiency
Unlike enterprise software that is typically sold by sales teams, consumer internet businesses like Fiverr grow by a combination of product virality, paid advertisement or incentives.
It is very expensive for Fiverr to acquire new users, with the company spending 64.6% of its gross profit on marketing over the last year. This low level of sales and marketing efficiency indicates a highly competitive environment, with little differentiation between Fiverr and its peers.
Earnings & Free Cash Flow
Investors typically look at a company’s operating income to get a sense of how profitable a core business is. Adjusted EBITDA is the most common profitability metric for consumer internet companies, similar to operating profit, but removes various one time or non-cash expenses to give a more normalized measure of profitability.
Fiverr reported EBITDA of $4.6 million this quarter, which was a 5.41% margin. Over the last twelve months Fiverr has shown a solid, above-average profitability for a consumer internet business with average EBITDA margins of 7.7%.
If you follow StockStory for a while, you know that we put an emphasis on cash flow. Why, you ask? We believe that in the end cash is king, as you can't use accounting profits to pay the bills. Fiverr's free cash flow came in at $6.24 million in Q2, down 58.1% year on year.
Fiverr has generated $29.4 million in free cash flow over the last twelve months, 9.05% of revenues. This strong FCF margin is a result of Fiverr asset lite business model and provides it plenty of cash to invest in the business.
Key Takeaways from Fiverr's Q2 Results
With a market capitalization of $1.37 billion Fiverr is among smaller companies, but its more than $307.1 million in cash and positive free cash flow over the last twelve months give us confidence that Fiverr has the resources it needs to pursue a high growth business strategy.
It was good to see that ARPU is still growing. On the other hand, it was unfortunate to see that the revenue guidance for the full year missed analysts' expectations. Overall, this quarter's results could have been better. The company is down 10.9% on the results and currently trades at $33 per share.
Is Now The Time?
When considering Fiverr, investors should take into account its valuation and business qualities, as well as what happened in the latest quarter. We think Fiverr is a solid business. We would expect growth rates to moderate from here, but its revenue growth has been exceptional, over the last three years. And while its sales and marketing spend is very high compared to other consumer internet businesses, the good news is its user growth has been strong, and its strong free cash generation allows it to sustainably invest in growth initiatives.
Fiverr's price/gross profit ratio based on the next twelve months is 4.4x. There are definitely things to like about Fiverr and looking at the consumer internet landscape right now, it seems that it doesn't trade at an unreasonable price point.
The Wall St analysts covering the company had a one year price target of $43.8 per share right before these results, implying that they saw upside in buying Fiverr even in the short term.
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