Fiverr (NYSE:FVRR) Misses Q4 Revenue Estimates

Full Report / February 22, 2024

Online freelance marketplace Fiverr (NYSE:FVRR) fell short of analysts' expectations in Q4 FY2023, with revenue up 10.1% year on year to $91.5 million. Next quarter's revenue guidance of $92.5 million also underwhelmed, coming in 5% below analysts' estimates. It made a non-GAAP profit of $0.56 per share, improving from its loss of $0.03 per share in the same quarter last year.

Fiverr (FVRR) Q4 FY2023 Highlights:

  • Revenue: $91.5 million vs analyst estimates of $92.55 million (1.1% miss)
  • EPS (non-GAAP): $0.56 vs analyst estimates of $0.49 (14.7% beat)
  • Revenue Guidance for Q1 2024 is $92.5 million at the midpoint, below analyst estimates of $97.34 million
  • Management's revenue guidance for the upcoming financial year 2024 is $383 million at the midpoint, missing analyst estimates by 6.3% and implying 6% growth (vs 7.2% in FY2023)
  • Free Cash Flow of $27.41 million, up 18.3% from the previous quarter
  • Gross Margin (GAAP): 83.1%, up from 81% in the same quarter last year
  • Annual Active Buyers: 4.1 million, down 200,000 year on year
  • Market Capitalization: $993.6 million

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.

Gig Economy

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:META), 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 strong, averaging 27.4% annually. This quarter, Fiverr reported mediocre 10.1% year-on-year revenue growth, missing Wall Street's expectations.

Fiverr Total Revenue

Guidance for the next quarter indicates Fiverr is expecting revenue to grow 5.2% year on year to $92.5 million, improving on the 1.5% year-on-year increase it recorded in the same quarter last year. For the upcoming financial year, management expects revenue to reach $383 million at the midpoint, representing 6% growth compared to the 7.2% increase in FY2023.

Usage Growth

As a gig economy marketplace, Fiverr generates revenue growth by expanding the number of services on its platform (e.g. rides, deliveries, freelance jobs) and raising the commission fee from each service provided.

Over the last two years, Fiverr's active buyers, a key performance metric for the company, grew 2.3% annually to 4.1 million. This is one of the lowest rates of growth in the consumer internet sector.

Fiverr Annual Active Buyers

Unfortunately, Fiverr's active buyers decreased by 200,000 in Q4, a 4.7% drop since last year.

Revenue Per Buyer

Average revenue per buyer (ARPB) is a critical metric to track for consumer internet businesses like Fiverr because it measures how much the company earns in transaction fees from each buyer. This number also informs us about Fiverr's take rate, which represents its pricing leverage over the ecosystem, or "cut" from each transaction. Fiverr ARPB

Fiverr's ARPB growth has been decent over the last two years, averaging 8%. The company's ability to increase prices while growing its active buyers demonstrates the value of its platform. This quarter, ARPB grew 15.4% year on year to $22.32 per buyer.

Pricing Power

A company's gross profit margin has a major impact on its ability to exert pricing power, develop new products, and invest in marketing. These factors may ultimately determine the winner in a competitive market, making it a critical metric to track for the long-term investor.

Fiverr's gross profit margin, which tells us how much money the company gets to keep after covering the base cost of its products and services, came in at 83.1% this quarter, up 2.1 percentage points year on year.

For gig economy businesses like Fiverr, these aforementioned costs typically include server hosting, customer support, and payment processing fees. Another cost of revenue could also be insurance to protect against liabilities arising from providing transportation, housing, or freelance work services. After paying for these expenses, Fiverr had $0.83 for every $1 in revenue to invest in marketing, talent, and the development of new products and services. Fiverr Gross Margin (GAAP)

Gross margins have been trending up over the last 12 months, averaging 82.9%. Fiverr's margins are some of the highest in the consumer internet sector, enabling it to fund large investments in product and marketing during periods of rapid growth to stay one step ahead of the competition.

User Acquisition Efficiency

Unlike enterprise software that's typically sold by dedicated sales teams, consumer internet businesses like Fiverr grow from a combination of product virality, paid advertisement, and incentives.

It's expensive for Fiverr to acquire new users as the company has spent 53.9% of its gross profit on sales and marketing expenses over the last year. This relative inefficiency indicates that Fiverr's product offering can be easily replicated and that it must continue investing to maintain its growth trajectory.

Profitability & Free Cash Flow

Investors frequently analyze operating income to understand a business's core profitability. Similar to operating income, adjusted EBITDA is the most common profitability metric for consumer internet companies because it removes various one-time or non-cash expenses, offering a more normalized view of a company's profit potential.

Fiverr reported EBITDA of $16.11 million this quarter, resulting in a 17.6% margin. Furthermore, Fiverr has shown strong profitability over the last four quarters, with average EBITDA margins of 16.4%.

Fiverr Adjusted EBITDA Margin

If you've followed StockStory for a while, you know that we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills. Fiverr's free cash flow came in at $27.41 million in Q4, up 188% year on year.

Fiverr Free Cash Flow

Fiverr has generated $82.13 million in free cash flow over the last 12 months, an eye-popping 22.7% of revenue. This robust FCF margin stems from its asset-lite business model and scale advantages, giving it the option to return capital to shareholders or reinvest in its business while maintaining a healthy cash balance.

Key Takeaways from Fiverr's Q4 Results

We struggled to find many strong positives in these results. Its revenue guidance missed analysts' expectations and user growth has stalled. On the other hand, at least free cash flow seems to be heading in the right direction. Overall, we think this was a mixed quarter for Fiverr. The stock is up 3.9% after reporting and currently trades at $26.9 per share.

Is Now The Time?

Fiverr may have had a bad quarter, but investors should also consider its valuation and business qualities when assessing the investment opportunity.

We think Fiverr is a good business. Its revenue growth has been good over the last three years, and growth is expected to increase in the short term. And while its growth in active buyers has been lackluster, the good news is its impressive gross margins are a wonderful starting point for the overall profitability of the business. On top of that, its powerful free cash flow generation enables it to stay ahead of the competition through consistent reinvestment of profits.

At the moment Fiverr trades at 13.6x next 12 months EV-to-EBITDA. There's definitely a lot of 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.

Wall Street analysts covering the company had a one-year price target of $36.18 per share right before these results (compared to the current share price of $26.90), implying they saw upside in buying Fiverr in the short term.

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