Online freelance marketplace Fiverr (NYSE: FVRR) reported results in line with analyst expectations in Q1 FY2023 quarter, with revenue up 1.47% year on year to $88 million. The company expects that next quarter's revenue would be around $89 million, which is the midpoint of the guidance range. That was roughly in line with analyst expectations. Fiverr made a GAAP loss of $4.27 million, improving on its loss of $17 million, in the same quarter last year.
Fiverr (FVRR) Q1 FY2023 Highlights:
- Revenue: $88 million vs analyst estimates of $87.7 million (small beat)
- EPS (non-GAAP): $0.36 vs analyst estimates of $0.24 (49% beat)
- Revenue guidance for Q2 2023 is $89 million at the midpoint, above analyst estimates of $88.4 million
- The company reconfirmed revenue guidance for the full year, at $360 million at the midpoint
- Free cash flow of $13.2 million, up 38.1% from previous quarter
- Gross Margin (GAAP): 82.2%, up from 80.4% same quarter last year
- Annual Active Buyers: 4.3 million, up 100 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.
Sales Growth
Fiverr's revenue growth over the last three years has been impressive, averaging 46.7% annually. This quarter, Fiverr reported a rather lacklustre 1.47% year on year revenue growth, in line with analysts' expectations.
Guidance for the next quarter indicates Fiverr is expecting revenue to grow 4.69% year on year to $89 million, slowing down from the 13% 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 8.82% over the next twelve months.
Usage Growth
As a gig economy marketplace, Fiverr generates revenue growth by the volume of services its users order (e.g. rides, deliveries, freelance jobs) and how much commission it earns from each service unit provided.
Over the last two years the number of Fiverr's active buyers, a key usage metric for the company, grew 15.2% annually to 4.3 million. This is a solid growth for a consumer internet company.
In Q1 the company added 100 thousand active buyers, translating to a 2.38% growth year on year.
Revenue Per Buyer
Average revenue per buyer (ARPB) 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, also known as its take rate.
Fiverr’s ARPB growth has been decent over the last two years, averaging 8.3%. The ability to increase price while still growing its active buyers shows the value of Fiverr’s platform. This quarter, ARPB shrank 0.89% year on year, settling in at $20.45 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 61.7% 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 $11.3 million this quarter, which was a 12.8% margin. Over the last twelve months, the company has exhibited strong profitability with average EBITDA margins of 9.38%.
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 $13.2 million in Q1, up 93.2% year on year.
Fiverr has generated $34.3 million in free cash flow over the last twelve months, 10.1% 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 Q1 Results
With a market capitalization of $1.08 billion Fiverr is among smaller companies, but its more than $329 million in cash and positive free cash flow over the last twelve months put it in a very strong position to invest in growth.
It was good to see Fiverr provide next quarter revenue outlook exceeding analysts’ expectations. That feature of these results really stood out as a positive. On the other hand, it was less good to see that the revenue growth was quite weak. Overall, this quarter's results were not the best we've seen from Fiverr. The company is flat on the results and currently trades at $29.52 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. Its revenue growth has been exceptional, and that growth rate is expected to increase in the short term! And while its sales and marketing spend is very high compared to other consumer internet businesses, the good news is its strong free cash generation allows it to sustainably invest in growth initiatives, and its user growth has been healthy.
At the moment Fiverr trades at next twelve months EV/EBITDA 20.5x. There are definitely things to like about Fiverr and looking at the consumer internet landscape right now, it seems that the company trades at a pretty interesting price point.
The Wall St analysts covering the company had a one year price target of $49.7 per share right before these results, implying that they saw upside in buying Fiverr even in the short term.
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