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Fiverr International - Stock Pitch

Fiverr International has been on a rollercoaster ride since its initial public offering. At times trading at over 10 times its IPO-level, the stock price has almost returned to its original stock emission value. In the meantime, the underlying fundamentals of Fiverr International have significantly changed for the better. The online freelance market holds untapped potential that the company is well-positioned to capitalize on. While there are risks involved, the advent of Generative AI also presents opportunities for Fiverr to expand into new service categories, leveraging the indispensable human touch required for optimal results. But see for yourself.


Since its public debut, Fiverr International (NYSE: FVRR) has been on a volatile rollercoaster ride. Like many other growth stocks, FVRR was happily traded at vast premiums during the Covid-19 pandemic. Meanwhile the market correction has brought down the company’s stock from an all-time high of $323.10. So far that the stock trades within its IPO range, despite operating profitably and offering far more services on a matured freelance platform. The market virtually has overcorrected itself and made FVRR once again worthy of consideration.


Investors have yet to fully appreciate the opportunities the innovative and ever-expanding platform provides, particularly in the context of the ongoing shift in the freelancing market from offline to online. As the market begins to recognize Fiverr's true value and growth potential, there is a substantial opportunity for investors to benefit from an increase in its stock price. Additionally, Fiverr's current valuation and business size make it an attractive target for larger corporations looking to diversify, adding a potential M&A angle to its investment thesis. My current FVRR price target for the coming 12 months lies between $35 (base case) and $40 (bull case) which would result in a year-over-year upside between 25%, and 42% respectively, see valuation for more details.

Company Background

Fiverr International was founded in 2010 and started as an innovative online marketplace connecting buyers and sellers of freelance services on a centralized platform. Named after the original concept to offer services starting at $5, Fiverr revolutionized the freelance economy by creating an intuitive and transparent platform where freelancers could provide a wide range of digital services and gain far-reaching visibility. Its founders, Micha Kaufman and Shai Wininger, envisioned a world where people could buy and sell digital services just as easily as physical goods on an e-commerce platform.


In the early days, Fiverr was primarily a platform for small jobs, often called "gigs," which included graphic design, writing, and video editing. However, as the digital economy expanded, so did Fiverr's offerings. The platform evolved to include more complex and higher-priced services, catering not only to individuals but also to small and medium-sized businesses. In recent years, Fiverr has introduced new business segments, addressing potential revenue streams on both the buyer and seller side. Fiverr Pro was launched as an elite tier on the marketplace, featuring hand-picked freelancers to ensure that clients receive top-tier and professional work. Thus Fiverr hoped to steer away from the original $5 freelance services and serve a more affluent clientele. Similarly Fiverr Business was introduced to facilitate collaboration amongst teams and enable services that require increased complexity. For freelancers, Fiverr also offers Learn from Fiverr as well as Fiverr Studios to support sellers in providing better and bundled services.


In 2019, Fiverr went public on the New York Stock Exchange. This milestone marked a significant achievement for the company, reflecting its growth and the increasing recognition of the gig economy's importance. Trading at first in the $20 to $30 range, the company saw a significant boost during the Covid-19 pandemic. As businesses around the world adjusted to remote operations, the demand for digital freelance services surged. Fiverr's platform became a vital tool for many businesses seeking to outsource tasks and projects efficiently. Today, growth prospects as well as the stock price have normalized once again and the stock trades at around $28.07. However, Fiverr International is in a much stronger position since its IPO in 2019.


As of this writing, Fiverr operates globally, offering services in more than 160 countries. The platform hosts millions of gigs in over 200 categories, ranging from traditional freelancing fields to emerging digital services. In terms of financial performance, Fiverr has shown a promising trend toward long-term profitability. In the third quarter of 2023, the company reported revenue of $92.5 million, marking a 12.1% year-over-year increase from $82.5 million. As for profitability, Fiverr reported a net income of $3.0 million in the third quarter of 2023, a sharp turnaround from a net loss of $11.4 million in the same quarter of the previous year. The company continues to innovate and adapt, ensuring that it remains at the forefront of the evolving digital landscape.

Investment Thesis

Today there are mainly three key drivers which make Fiverr International an attractive entry opportunity at its current valuation:

Market Misconceptions

Today’s freelancing market is largely fragmented and localized. And although Fiverr is not the only platform operating a transactional marketplace where freelancers' services are listed in a catalog format, it is one of the two leaders in this space. In a 2023 survey, Fiverr ranks number one with respect to overall satisfaction levels and likelihood to recommend the marketplace among freelancers. Considering that in this decade the market is set to shift more online, Fiverr can capitalize on its wide-ranging ecosystem and retain a large market share in a winners-take-all environment. The marketplace model is undervalued, especially considering the substantial freelancing market size, which is estimated at $115 billion in the United States alone. A significant portion of this market is still transitioning from traditional offline models to online platforms and Fiverr's ability to capitalize on this shift, coupled with its strong execution, positions it as a leader in this space, ready to capture significant market share as more freelance work moves online.

Expanded Offerings and AI Integration

Fiverr's revenue growth is driven by continuous innovation in its product offerings and an expanding take rate, which has seen its largest sequential increase since 2018. The take rate refers to the percentage of revenue the platform takes from the transactions made between buyers and sellers. This growth is bolstered by technology and value-added services like Promoted Gigs and Seller Plus. Moreover recent upmarket initiatives, including Fiverr Business Solutions and Fiverr Certified, target larger enterprises and more sophisticated buyers, further expanding its market reach and potential for revenue growth. Partnerships with companies such as Amazon, TikTok, and Stripe to list certified freelancers also show promise in establishing a firmer online presence and distribute services.


Additionally, the integration of AI in its services, such as Fiverr Neo which has already exceeded 100’000 active users, represents a significant growth opportunity. AI not only improves platform efficiency but also opens new market opportunities, as there's a growing demand for freelancers offering AI-related services. In a recent survey 13% of business owners indicated they already hired freelancers for AI services, and 48% stated they would be highly likely to hire freelancers with AI-related offerings.

High-Value Customer Acquisition and International Expansion

The company’s strategic shift towards acquiring higher-value customers is a key growth driver. Fiverr reports that new buyers are spending 20% more on their first purchase compared to historical averages. Additionally, Fiverr's international markets, where it has focused on localized marketing campaigns, are growing quickly and outpacing the broader marketplace. This focus on high-value customer acquisition, coupled with international expansion, positions Fiverr to capture a larger share of the global freelancing market, thereby increasing its revenue and market footprint.


Fiverr’s stock is presently trading with an EV/EBITDA multiple of approximately 12.5x, based on projections for 2024 (comparing NASDAQ: UPWK’s EV/EBITDA of approx. 60x). This valuation seems modest when considering Fiverr's impressive, forecasted EBITDA compound annual growth rate (CAGR) of 75% from 2022 to 2025, complemented by a "low-to-mid teens" Revenue CAGR and a promising outlook for free cash flow. The current valuation suggests that FVRR might be undervalued, as it is expected that it should trade at a higher EBITDA multiple, above the "low teens" range comparing companies with similar CAGR. This assessment implies that the market might not be fully recognizing Fiverr’s growth potential and its financial health.


In the third quarter, Fiverr's revenue reached $92.5 million, surpassing estimates and aligning with the upper end of its guidance. This 12% year-over-year growth was primarily driven by an increased Spend Per Buyer and a notable expansion in its take rate. The company's adjusted EBITDA for this period was $16.5 million (17.9% margin), exceeding expectations and reflecting effective margin expansion and cost control. When compared to its main competitor, Upwork, Fiverr's unique market positioning and focus on high-value customer segments highlight its potential for further growth and market share capture. Its innovative offerings, such as Fiverr Pro and Promoted Gigs, have contributed to a higher take rate and improved customer retention.


Looking ahead, Fiverr’s high take rates and efficient marketing strategies suggest a potential decrease in Sales & Marketing expenses to about 25-30% of revenue. This reduction could significantly boost EBITDA margins to the range of 30%-40%, enhancing overall profitability. Considering Fiverr's current trading price of $28.07, alongside its growth prospects, market position, and profitability improvements, the stock appears to be undervalued. A conservative valuation might place Fiverr’s fair value between $35-$40, suggesting a 25% potential growth from its current price as a base case.

Risk Factors & Mitigation Measures

Fiverr International faces certain risks which could lead to a further devaluation of its share price. The main risk factors include the impact of Generative AI on service categories, regulatory headwinds as well as competition for freelancers and buyers.

Impact of Generative AI on Service Categories

One of the most pressing concerns for Fiverr is the potential impact of Generative AI on its service categories. In the first quarter of 2023, Fiverr estimated that nearly 40% of its offerings might be vulnerable to the advancements in GenAI. This technology, capable of automating simpler tasks, poses a double-edged sword. On one hand, it streamlines operations and reduces costs; on the other, it threatens to lower the demand for human-performed tasks, which could lead to a decrease in pricing and, consequently, service volumes. As AI technologies become more sophisticated, the threshold of tasks they can undertake rises, potentially encroaching upon more complex and higher-value services traditionally offered by freelancers on platforms like Fiverr.


To mitigate this risk, Fiverr needs to strategically integrate GenAI into its own platform, thereby enhancing its service quality and efficiency. This integration could lead to improved task matching and more efficient project completion, thereby increasing the platform's overall value proposition. Additionally, Fiverr must encourage and facilitate its freelancers to adapt and evolve alongside these technological advancements. By offering resources and training in GenAI-related skills, Fiverr can help its community of freelancers stay relevant and competitive. This approach not only aids in risk mitigation but also opens up new opportunities for growth, as the demand for GenAI-informed tasks and projects is likely to increase significantly.

Inconsistent Fundamentals and Regulatory Headwinds

Fiverr also faces challenges related to inconsistent business fundamentals and potential regulatory changes. Inconsistent fundamentals, such as fluctuations in earnings, user growth, or marketplace activity, can lead to volatility in stock prices and investor confidence. Regulatory changes, on the other hand, could impose new constraints on Fiverr’s operational model, especially in different international markets where the platform operates. These changes might include stricter rules on gig economy workers’ rights, data privacy, or cross-border service provisions. Such regulatory shifts could necessitate significant adjustments in Fiverr’s business practices and could potentially limit its market reach or increase operational costs.

Competition with Platforms like Upwork

The competitive landscape in the online freelancing market, particularly with players like Upwork, represents a significant risk for Fiverr. Upwork and Fiverr, while seemingly similar, traditionally cater to different segments of the freelance market. Upwork tends to focus on larger, long-term projects, attracting clients who seek ongoing, complex work relationships. In contrast, Fiverr was originally associated with smaller, quicker projects. This differentiation, while beneficial in maintaining a unique market position, also exposes Fiverr to risks if market trends shift towards more substantial, long-term engagements, an area where Upwork holds an advantage.


To address this competitive risk, Fiverr has already started to strategically expand and diversify its service offerings without losing its unique value proposition. Exploring opportunities in longer-term and more complex project segments attracts a broader client base and reduce reliance on smaller projects. Continuously innovating the platform to improve user experience, expanding service categories, and enhancing project matching algorithms can help Fiverr maintain its competitive edge. This strategic shift, coupled with Fiverr's strong brand and user-friendly platform, could position it more favorably against Upwork in the evolving gig economy landscape. To reduce your exposure in your stock portfolio, consider splitting your potential allocation between Fiverr and Upwork.

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The author owned shares of Fiverr International on the publication date of this article. For more information please see our disclosure policy & portfolio tracker.

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