I am neutral on Fiverr International (FVRR) because its strong growth momentum, significant competitive advantages, and implied upside relative to its consensus analyst price targets are offset by its lofty valuation multiples.
Fiverr is a leading online marketplace for freelance services. The Israeli company provides a platform for freelancers to offer their services to a wide reach of global customers. (See Analysts’ Top Stocks on TipRanks)
Strengths
Fiverr allows skilled freelancers to offer their digital services in over 500 categories, across nine different segments, including digital marketing, graphic designing, animation, video, and programming.
In the 12 months ended June 30, 2021, the company saw 4 million customers buy a wide range of services from freelancers across 160 countries.
The company’s mission is to change how the world works together.
Recent Results
Fiverr showed positive performance in its third quarter of 2021. The company launched Fiverr Workspace that aims to offer an all-in-one business solution to freelancers.
It also introduced its new TV and digital brand campaign, “Something from Nothing” in the United States, United Kingdom, Germany, and Australia.
Fiverr reported a year-over-year revenue growth of 42%, which was attributed to 33% growth in active buyers and a 20% increase in spend per buyer on a year-over-year basis.
The company saw its active customers grow to 4.1 million, compared to 3.1 million in the same quarter of the previous year. In addition, spend per buyer reached from $195 to $234 year over year.
GAAP gross margin in the third quarter of 2021 was 83.3%, which resulted in a decrease from the 83.4% in the third quarter of 2020. GAAP net loss was $14.3 million compared to $0.5 million in the third quarter of 2020.
The company has announced its fourth quarter estimates and increased its full-year guidance due to the overall positive performance of Fiverr. As such, the fourth quarter of 2021 revenue guidance is expected to be between $74.5 million to $77.5 million, with an adjusted EBITDA between $5.5 million and $7 million.
The company’s full-year guidance was raised and is expected to be in the range of $292.4 million to $295.4 million, with an adjusted EBITDA between $19.5 million to $21 million.
Valuation Metrics
Fiverr stock looks very expensive at current levels.
Its EV/EBITDA multiple is currently 134.2x, which is above its already lofty historic average of 104.3x. Furthermore, its P/E ratio is 300.9x, which is also way above its already bloated average of 180.7x.
That said, growth is expected to be strong over the next few years as revenue is expected to grow by 55.5% in 2021 and 26% in 2022.
Wall Street’s Take
From Wall Street analysts, Fiverr earns a Moderate Buy analyst consensus based on two Buy ratings, two Hold ratings, and zero Sell ratings in the past three months. Additionally, the average Fiverr price target of $199 puts the upside potential at 61.7%.
Summary and Conclusions
Fiverr International benefits from a very large network of customers and freelancers, giving it significant competitive advantages in space.
Additionally, growth is expected to remain very robust in the coming years which should improve economies of scale and profitability for the company. Last but not least, Wall Street analysts are very bullish on the stock with the consensus price target leaving over 50% upside over the next year.
On the other hand, the valuation multiple is very high and therefore requires stock grow rapidly while also improving profitability for many years to come. As a result, investors – should they decide to invest here – need to keep in mind that this is a highly speculative investment.
Disclosure: At the time of publication, Samuel Smith did not have a position in any of the securities mentioned in this article.
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