Post-IPO Review: Fiverr International Is Positioned For 2020 Growth

IPOStreet

Fiverr International (FVRR) -Get Report went public in June 2019, raising $110 million in gross proceeds in an IPO.

The firm has developed an online marketplace that connects persons acting as service providers with companies and individuals needing service tasks completed.

FVRR has positioned itself to move upmarket, pursue the SMB segment and continue its international expansion, so I’m Bullish on the stock at its current level.

BULLISH

Tel Aviv-based Fiverr was founded in 2010 to connect freelance workers with organizations looking for assistance with service tasks through its online marketplace.

Management is led by Co-Founder, CEO and Director Micha Kaufman.

Below is an interview of the CEO just after the firm's IPO in June 2019:

Fiverr’s platform was developed to make the purchase of services from individuals as simple as an e-commerce transaction, what the company refers to as the Service-as-a-Product [SaaP] model.

Using machine learning and its database of hundreds of thousands of workers, the company has developed matching technologies that helps reduce the inefficiencies associated with the search for, contracting and collaborating with freelancers, such as the reliance on intermediaries.

On the Fiverr platform, buyers can browse over 200 categories of productized service listings, which Fiverr refers to as Gigs.

For the 12 months ended March 31, 2019, the company served about 2.1 million active users looking to hire freelance workers and about 255,000 active freelancers, or sellers, offering their services through the Fiverr platform.

According to a 2017 market research report by Ask Wonder, the total number of freelancers available in 2017 was about 154 million people worldwide.

The main factors driving market growth are the need to escape corporate environment demands and the rise of digitization, such as smartphone apps that have made it easy for workers to find jobs, whether full-time or part-time.

North America accounted for 77 million freelancers in 2017, more than half of the workforce in the same year.

Major competitors that operate platforms for workforce recruitment:

FVRR’s topline revenue by quarter has risen consistently over the past five-quarter period, with Q4 2019’s results coming in at 42.5% higher than the same period in 2018:

fiverrrev
Source: Company Financials

Gross profit by quarter has produced a similar trajectory:

fiverrgross
Source: Company Financials

Operating losses by quarter peaked in Q2 2019 and have since moderated somewhat:

fiverrop
Source: Company Financials

Earnings per share (Diluted) have made progress toward breakeven, although are still quite a distance from that milestone:

fiverreps
Source: Company Financials

Since its IPO, FVRR’s stock price has risen 66.4 percent vs. the U.S. Online Retail index’ rise of 15.7 percent and the overall U.S. market’s drop of 7.0 percent, as the chart below indicates:

fvrrtstchart
Source: TheStreet

Commentary

In its last earnings call for Q4 and full year 2019, management highlighted its 42% revenue growth and EBITDA margin improvement of almost 1,100 basis points.

Management said that its continued innovation in optimizing its matching algorithms and improving the buyer and seller experiences resulted in increased growth in the second half of 2019.

Also, during the year, FVRR focused on international expansion efforts, with increased footprints in the UK and Germany.

International expansion through website language and marketing localization will be a big priority for the company in 2020, followed by a desire to ‘go upmarket’ by pursuing business customers of up to 200 employees in size.

To that end, the firm has launched new products (Studios, Team and VID Accounts) and intends to launch additional initiatives in this area.

Financially, the year produced impressive growth and improved metrics, although the firm is still a ways away from operating breakeven.

With the Covid19 pandemic making distributed work a priority for many firms, FVRR is well placed to capitalize on what I view as a continued trend toward independent working arrangements.

The stock appears to have bounced back quite sharply after the overall market selloff.

While FVRR isn’t cheap when compared to other online work marketplace Upwork, FVRR’s revenue growth rate is significantly higher.

With continued international expansion combined with pursuing the SMB market amid the ongoing trend to distributed work, FVRR looks to be in the right place at the right time as long as it can execute accordingly.

My bias on the stock at its current level is Bullish.

BULLISH
Comments

News

FEATURED
COMMUNITY