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From just $20 in March 2020, Fiverr International Ltd (FVRR) stock surged to an all-time high of over $323 in February 2021 as investors rewarded companies that made the most of worldwide mobility restrictions. With the reopening of the economy, however, investor focus shifted to companies that would benefit from the pent-up demand for leisure and outdoor activities, and Fiverr stock has struggled ever since. The company lost nearly 70% of its market value last year amid the tech stock selloff, and the stock is now trading at its pre-pandemic levels. As discussed in this analysis, the recent selloff offers growth investors a good opportunity to invest in a young, fast-growing company at a fair price.

The business

Fiverr is a global online marketplace offering tasks and services, often referred to as "gigs", that start at $5. The company was founded in 2010 and has since grown to become one of the largest and most popular platforms of its kind, with millions of users and thousands of available services. Fiverr allows freelancers to offer a wide range of services to clients around the world. These services, or "gigs," can be in the form of creative or digital services, such as graphic design, writing, marketing, or programming. Fiverr is designed to be an easy-to-use platform for both buyers and sellers, with a simple pricing structure and clear terms of service. The company has a strong focus on customer satisfaction and has introduced several features to ensure both buyers and sellers are able to have a positive experience on the platform. In addition to its online marketplace, Fiverr also offers a range of tools and resources for freelancers, including educational content and the Fiverr Pro program for top-rated sellers.

Fiverr’s lackluster market performance in 2022 does not come as a surprise since many tech stocks were hammered last year because of macroeconomic challenges. The growth on the Fiverr platform also slowed since companies were forced to slash their budgets. However, freelancing is seeing stellar growth in the post-pandemic era as companies and highly qualified professionals are slowly but surely embracing the freelancing culture as it benefits both these parties.

Fiverr also has a program called Fiverr Business, which offers premium services to medium and large-sized businesses. This has been a tremendous growth driver in recent years as large corporations decentralized due to the pandemic and shifted to work-from-home/remote work options. Although large corporations sometimes hire freelancers on a contract basis, the gig economy has been a great value driver for small businesses as it allows them to save costs on hiring full-time employees, training, and retention. On the other hand, gig workers get to earn additional income or start their own businesses.

Growth opportunities

The growth of the freelancing platform stalled after Covid-19 restrictions were lifted and economy opened up again in 2021 and people got back to offices. In addition, the rising inflation caused many businesses to cut their budget and postpone additional hiring. These challenges continued throughout 2022 influencing the slow growth of the Fiverr platform. This sparked fear among investors that Fiverr's growth is not sustainable with growth decelerating while the company continues to make losses.

Most economies have gone through a period of mass resignation in the last two years. Though everyone's reasons for changing jobs or leaving the workforce are different, some are linked to pandemic-related fears and economic uncertainty. Furthermore, according to some reports, resignations were fueled by burnout, a toxic work environment, and shifting life priorities. It is easy to believe that the pandemic caused people to reconsider their life priorities. Social media has also influenced people's desire to work fewer hours or leave the labor force entirely. Furthermore, workers are opting not to return to the office, making working from home/remote work the most important factor in job acceptance today.

Exhibit 1: Total non-farm quit rate (2020-2022)

Source: Federal Reserve

As remote work, work flexibility, and health become more important, the gig economy will see robust growth in the coming years. The reason is simple: gig workers control their own working hours and workload, and their pay is frequently higher than what they would earn in a year at a full-time job. Although the competition is fierce and it is difficult to stand out, platforms such as Fiverr have assisted many gig workers in establishing their businesses, growing clients, and earning consistent income.

Exhibit 2: Top reasons why U.S. workers quit their jobs in 2021

Source: Pew Research

Furthermore, as general prices rise, most businesses are opting to hire freelance or contract workers at a lower cost than hiring a full-time employee. Rising inflation has also forced many businesses to reduce their workforce. In times like these, businesses tend to hire temporary workers to fill positions for a limited time. It benefits both the company and the worker. Companies can continue to operate without interruption in product or service development, and workers can add new clients. This was one of the main reasons behind Fiverr’s massive success in 2020. Amid challenging economic conditions, many companies are likely to prefer working with contract workers remotely than hiring full-time employees, which is good news for Fiverr although this possibility has not been recognized by many market participants today.

The financial performance is not bad as it sounds

Fiverr reported an 11% year-over-year increase in sales to $82.54 million in the third quarter of FY22, beating the consensus estimates of analysts. The number of active buyers increased by 3% YoY to 4.2 million. The platform’s spend per buyer increased 12% to $262, another encouraging sign of growth. The take rate or the amount Fiverr receives from each transaction on the site, increased by 160 basis points to 30%, up from 28.4% last year. These numbers reflect the popularity of freelancing, remote work, and Fiverr's established position in the freelancing marketplace industry. As work trends continue to shift in favor of remote working, Fiverr seems well-positioned to break through to profitability.

Fiver was able to reduce its net loss from $14.3 million to $11.4 million by focusing on cost efficiency. Fiverr generated $5.7 million in operating cash flow in the third quarter and had $152.9 million in cash and equivalents. The company anticipates revenue of $79.8 million to $85.8 million in Q4 2022, with adjusted EBITDA of $7 million to $8 million. Although management anticipates a slowdown in the fourth quarter, sales are expected to increase in 2023 as normalcy prevails and companies focus on thriving amid macroeconomic and geopolitical challenges.

Takeaway

Fiverr is a rapidly expanding company that brings in positive cash flows and the company has a promising long-term future. The gig economy is still in its early stages, and there are many opportunities for growth as the work trend shifts. At a price-to-sales multiple of over 3, Fiverr is not cheaply valued in the market despite the forgettable performance in 2022, but it would be irrational for investors to wait until a high growth company becomes cheap to invest in one. As Warren Buffett famously said, it would not be a bad idea to invest in a wonderful company at a fair price, and Fiverr certainly seems a wonderful company in the freelancing niche as it is carving out competitive advantages by focusing on offering a streamlined experience to both buyers and sellers. 

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