Why I’m holding Fiverr

Fiverr’s share price crashed 30% this week after releasing second quarter 2021 results.

Second quarter 2021 results were great with revenue (up 60% year on year) and free cash flow (up 215% y/y) growing nicely. However, Fiverr shocked the market by cutting guidance for 2021 revenue.

From Fiverr’s CEO:

When COVID restrictions were lifted in the U.S. and Europe around the second half of May, people were in desperate need to get out of home and have some off-screen time. Coinciding with the summer and school holidays, people are taking vacations, which is a really healthy thing to do, and that translates to less time spent online. To be prudent, we are adjusting guidance for the fiscal year 2021 based on these incremental trends over the past few weeks.

Fiverr second quarter 2021 prepared remarks

Fiverr is now expecting 3Q21 revenue to amount to range from USD68 to USD72 million which implies 30-38% y/y growth or a 4-10% q/q drop in revenue. This will be the first sequential drop in revenue in the company’s history as a listed company and is probably the reason why markets were spooked. The company’s forecast for 2021 revenue has also been cut to USD280 to USD288 million which implies 48-52% y/y growth.

I’m disappointed that management cut 2021 guidance after just raising it last quarter but I’m holding on to my shares for 3 reasons.

First, Fiverr’s forecast for slowing growth in the third quarter of 2021 is also consistent with the sales forecast of other US e-commerce platforms (Amazon, Etsy) and Upwork, another freelancing platform. Fiverr has been a COVID beneficiary in 2020 with huge growth in the platform’s e-commerce and website design categories so relaxing movement restrictions was bound to hurt Fiverr and other online platforms. Fiverr is also a versatile platform and the company has other categories such as Airbnb listings and resume writing which should benefit from a pandemic recovery.

Second, Fiverr is still expanding upmarket and increasing recurring income and switching costs.High-value buyers, (USD500+ annual spend) grew q/q and makes up 61% of core marketplace revenues from 59% in 1Q21.

  • Fiverr Business, a subscription service for enterprise customers launched three quarters ago is already 5% of the company’s core marketplace business.
  • Subscriptions are now available for 150+ categories. Instead of a one-time purchase, buyers can purchase a recurring service (eg. content marketing) on a monthly basis. Fiverr said over 20% of subscription orders have a duration of 6 months.
  • Fiverr has launched Seller Plus, a “Prime like service” subscription (USD29/month) for sellers which includes access to a personal success manager, advanced customer engagement tools and the ability to send coupons. These tools will be helpful for sellers aiming to improve conversion and retention.
  • I also like Fiverr’s partnership with Wix to train people with disabilities to build websites and to make them more accessible for the disabled. This partnership could be a huge win-win by creating jobs for the disabled community and a larger base of loyal Fiverr sellers.
  • Improving seller retention and expanding upmarket is a key part of Fiverr’s flywheel. More buyers and frequent spend attracts and retains more skilled sellers who will in turn attract more buyers. 

Lastly, one quarter of slowing growth doesn’t make a trend so I’m willing to wait and see until end-2022. Fiverr’s revenue forecast for 48% growth in 2021 is still impressive and Fiverr may grow 40-50% for many years because of the secular shift towards e-commerce, remote work and outsourcing. Will people shop online, work remotely and seek freelancers online after COVID-19? I think so.

Will I buy more Fiverr shares? With tough comps ahead for the third and fourth quarter of 2021, I suspect Fiverr’s growth will be relatively weak this year.  I will probably buy more if the share price falls below the USD150 levels.   I already have a decent position and am wary about increasing my position in a company with limited recurring revenue. Fiverr’s valuation is lower now but the company’s 22x EV/LTM revenue multiple is still high compared to its 2019 levels (7-8x EV/LTM revenue).

In short, I’m holding on to my Fiverr shares. Fiverr is expanding upmarket and making their platform sticky. Growth should accelerate again in 2022 with Fiverr benefiting from secular trends such as the shift towards online retail and remote work.

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