Online freelance marketplace Fiverr (NYSE: FVRR) reported results in line with analyst expectations in Q4 FY2022 quarter, with revenue up 4.23% year on year to $83.1 million. On the other hand, guidance for the full year missed analyst expectations with revenues guided to $357.5 million at the midpoint, or 2.29% below analyst estimates. Fiverr made a GAAP loss of $1.3 million, improving on its loss of $19.5 million, in the same quarter last year.
Fiverr (FVRR) Q4 FY2022 Highlights:
- Revenue: $83.1 million vs analyst estimates of $83.5 million (small miss)
- EPS (non-GAAP): $0.26 vs analyst estimates of $0.18 (47% beat)
- Revenue guidance for Q1 2023 is $87.5 million at the midpoint, roughly in line with what analysts were expecting
- Management's revenue guidance for upcoming financial year 2023 is $357.5 million at the midpoint, missing analyst estimates by 2.29% and predicting 5.97% growth (vs 13.8% in FY2022)
- Free cash flow of $9.54 million, up 79.6% from previous quarter
- Gross Margin (GAAP): 81%, in line with 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 exceptional, averaging 50.2% annually. Unfortunately, the pandemic had a negative impact on Fiverr's revenue growth.
This quarter, Fiverr reported a rather lacklustre 4.23% year on year revenue growth, falling short of Wall St expectations.
Guidance for the next quarter indicates Fiverr is expecting revenue to grow 0.94% year on year to $87.5 million, slowing down from the 26.9% year-over-year increase in revenue the company had recorded in the same quarter last year. For the upcoming financial year management expects revenue to be $357.5 million at the midpoint, growing 5.97% compared to 13.8% increase in FY2022.
Usage Growth
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 21.4% annually to 4.3 million users. This is a strong growth for a consumer internet company.
In Q4 the company added 100 thousand active buyers, translating to a 2.38% 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 12.4%. The ability to increase price while still growing its user base shows the value of Fiverr’s platform. This quarter, ARPU grew 1.81% year on year, reaching $19.33 for each of the active buyers.
User Acquisition Efficiency
Consumer internet businesses like Fiverr grow by a combination of product virality, paid advertisement and occasional incentives, unlike enterprise products that are typically sold by sales teams.
It is very expensive for Fiverr to acquire new users, with the company spending 64.3% 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's EBITDA came in at $9.4 million this quarter, which translated to a 11.3% margin. Over the last twelve months Fiverr has shown a solid, above-average profitability for a consumer internet business with average EBITDA margins of 7.28%.
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 $9.54 million in Q4, up 25.6% year on year.
Fiverr has generated $27.9 million in free cash flow over the last twelve months, a 8.27% of revenues. This FCF margin is a result of Fiverr asset lite business model, and provides it with the optionality to further invest in the business.
Key Takeaways from Fiverr's Q4 Results
With a market capitalization of $1.4 billion Fiverr is among smaller companies, but its more than $328 million in cash and positive free cash flow over the last twelve months put it in a very strong position to invest in growth.
We struggled to find many strong positives in these results. On the other hand, it was unfortunate to see that the revenue guidance for the full year missed analysts' expectations and the revenue growth was quite weak. Overall, it seems to us that this was a complicated quarter for Fiverr. The company currently trades at $39.34 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. Although Fiverr is not a bad business, it probably wouldn't be one of our picks. Its revenue growth has been exceptional, though we don't expect it to maintain historical growth rates. But while its user growth has been strong, unfortunately its sales and marketing spend is very high compared to other consumer internet businesses.
At the moment Fiverr trades at next twelve months EV/EBITDA 38.3x. We don't really see a big opportunity in the stock at the moment, but in the end beauty is in the eye of the beholder. And if you like the company, it seems that Fiverr doesn't trade at a completely unreasonable price point.
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