It all started with a simple idea - to offer services for as little as five dollars. Today, it's a platform that connects freelancers and clients from more than 160 countries, enabling complex projects in graphic design, programming, and even artificial intelligence. With constant innovation and a growing demand for digital services, the company is becoming a key player in the emerging work environment where freelancing and technology are shaping the future of business.

While the initial focus on low-cost services attracted the masses, the platform now focuses on quality and premium offerings. The average client spend is growing and the number of freelancers offering specialised services, including those related to AI, is reaching into the thousands. The combination of human creativity and modern tools brings huge potential for both companies and freelancers, who can use this platform to reach global clients and participate in projects that define the future.

Company introduction

Fiverr $FVRR is a global online platform that connects freelancers with clients looking for various project-based services. The company was founded in 2010 in Israel by a pair of entrepreneurs, Michae Kaufman and Shaai Wininger. Its name, "Fiverr," comes from the original idea that all services should be offered for a fixed price of $5, which attracted a large number of customers and service providers. Over time, however, the platform has expanded its portfolio, and today services can be found in a variety of price ranges, often for much higher amounts than the original five dollars.

Fiverr specializes in a wide range of services that include graphic design, digital marketing, writing and translation, programming, video and animation, music and audio, and other categories. The platform acts as a digital marketplace where freelancers can offer their services to a global clientele. This means that clients from all over the world can find experts for different tasks regardless of geographical boundaries, greatly increasing the opportunities and potential for both parties.

Although Fiverr started as a small startup in Israel, it now operates worldwide and is one of the leading platforms for freelancers. The company is headquartered in Tel Aviv, but its services are available globally, with a user base that includes clients and service providers from more than 160 countries.

Over the course of its existence, Fiverr has made several significant acquisitions that have helped it expand its portfolio of services and improve its technology infrastructure. In 2019, Fiverr acquired AND CO, a company that focuses on billing and contract management for freelancers, which helped the platform expand its toolset for its users. In 2020, Fiverr acquired ClearVoice, a platform focused on content marketing and freelancer management, further strengthening Fiverr's position in the digital services market.

Fiverr is interesting not only for its growth and success in the market, but also for its impact on the workplace. The platform has allowed many people to work independently, create their own hours and work on projects that interest them. As a result, Fiverr has become a major player in the gig economy, which is increasingly becoming a mainstream part of the working world.

- The gig economy is a type of economic system in which workers perform short-term, temporary or freelance work instead of traditional, long-term employment.

Fiverr, traded under the symbol $FVRR on the New York Stock Exchange, remains a strong player in the digital services space despite challenging market conditions. Although the company's stock has declined approximately 17% over the past year, Fiverr continues to grow and improve its financial position, which is reflected in its steady earnings trend. This growth is mainly fueled by the advent of artificial intelligence, which is transforming many industries, including the world of freelancing.

Contrary to fears that generative AI could replace the need for human freelancers, Fiverr sees the future more in a combination of human creativity and technological tools. While AI is capable of automating some tasks, many still require a human touch to achieve a quality result. Fiverr is seizing this opportunity and has introduced a number of AI-driven services in recent years, which include both automated tools for connecting clients with freelancers and new AI-focused categories.

The growth of these comprehensive services, which include financial advice, AI development and mobile app development, for example, is helping to further Fiverr's development in a competitive environment. The company has seen a significant increase in demand for AI services, currently offering over 10,000 AI professionals on its platform. These new services include, for example, designing AI avatars or creating custom apps based on generative pretraining transformer (GPT) technology.

How was the last quarter?

Financially, Fiverr reported revenue of approximately $94 million in the first quarter of 2024, an increase of 6% compared to the same period in 2023. The company also made a net profit of $0.8 million, a significant improvement from a net loss of $4.3 million in the previous year. This positive result builds on 2023, when Fiverr achieved an annual net profit for the first time in its history.

Although the number of active buyers decreased by 6% year-over-year in the first quarter of 2024, the average spend per buyer increased by 8%. Also of particular note is the increase in the number of "high-value buyers," those who spend more than $500 annually; these buyers increased 4% from the previous year.

The company also reported operating cash flow of $21 million, up 57% year-over-year. In addition, Fiverr maintained a strong gross margin, which reached 83.5% in the most recent quarter, up 130 basis points from a year ago. The company also increased its "take rate" (the percentage of each transaction that Fiverr acquires) to 32.3%, an increase of 190 basis points from a year ago.

Fiverr also successfully completed the $100 million share repurchase program announced in April 2024, and introduced new products, including a profession-based catalog and hourly contracts, focusing on long-term collaborations and expanding its addressable market. The acquisition of AutoDS added subscriber-based software services to its portfolio, which generate stable revenue and offer synergies for future growth.

Although some investors may still be concerned about whether Fiverr can succeed in a post-pandemic environment, the company is showing several positive trends that could present an interesting opportunity for long-term investors. Thus, Fiverr is not only surviving, but actively adapting and expanding its capabilities in a rapidly changing digital world.

The company's main theme on the earnings call was its focus on higher-end and premium services. While the 3.9 million active buyers on the platform are down 8% from last year, average spend per buyer climbed nearly 10% to a record $290. This is important because it suggests that a cohort of loyal users is increasing engagement in the marketplace and validating its value proposition.

Fiver's reseller monetization programs allow for more flexible service options such as recurring subscriptions, which has translated into higher activity. Fiverr's adoption rate of 33% in the quarter, which measures the proportion of total transaction value the company recognizes as revenue, improved from 30.7% in Q2 2023.

Fiver has translated this momentum into significant free cash flow, which reached $20.7 million in Q2 and $92 million for the year to date.

Outlook

Fiverr also reaffirmed its full-year guidance and raised the lower end of expected revenue and adjusted EBITDA, reflecting positive developments in their full-service business and expansion into long-term freelance employment. For the third quarter of 2024, Fiverr expects revenue between $95.0 million and $97.0 million and adjusted EBITDA between $17.0 million and $19.0 million. Full-year 2024 guidance is for revenue between $383.0 million and $387.0 million and adjusted EBITDA between $69.0 million and $73.0 million.

The Q2 results were good enough for Fiverr to revise its full-year guidance higher. As the platform expands, steady growth along with efforts to control costs and generate efficiencies are expected to contribute to earnings and free cash flow.

In terms of accelerating growth, Fiverr sees traction with its artificial intelligence tool NEO as an integrated customer assistant within the marketplace to facilitate the transaction process. The company is also betting on Fiverr Pro to professionalize multiple offerings with increasingly complex service categories. The ability to continue executing on a strengths-focused strategy should be a tailwind for the stock.

Results over the past few years

As you can see, the company is only slowly getting into positive territory in terms of net income (based on recent quarters, not years). When we focus on revenue, net earnings and EPS, we can see clear improvement everywhere since the pandemic. The reason for the negative earnings was primarily due to the entire platform trying to adapt to the changing market environment and new client demands, which led to investments, investments in AI, and also a couple of acquisitions to move the company to positive earnings.

Why could the stock see growth?

Fiverr's revenue has never stopped growing - Many investors quickly abandoned custom economy champions like Fiverr after the first COVID-19 vaccines became widely available. The bear thesis assumed that the golden era of company growth would hit a brick wall as people returned to their pre-crisis lifestyles and workplaces.

However, this grim outcome never materialized for Fiverr. Its growth has slowed significantly, but it has always moved forward. Each earnings report before, during and after the pandemic set a new record.

In other words, the health crisis was never the sole reason for Fiverr's success, and the business is growing again after a brief period of nearly stagnant sales.

Wall Street professionals are starting to catch on - Analysts' recommendations and price targets are never perfect guides to any stock's immediate future, but their opinions often have the power to move the market. Currently, the analyst community generally agrees that Fiverr is poised to beat the market in the coming year.

According to The Wall Street Journal 11 analyst firms recently reported ratings on Fiverr stock: Eight of them called it a buy and the remaining three settled for a hold, with a sell rating in sight. The 52-week average price target is $36.18 per share.

Among these bullish reviews, financial heavyweights like Goldman Sachs recently upgraded their rating to bullish from neutral, citing a healthier U.S. economy and a steady stream of innovative service upgrades. Goldman Sachs expects Fiverr's profit margins to increase in 2024, while the top line should see "re-acceleration" from more customers and higher average spend per client.

"Based on this framework relative to current valuation/share price, we now see a positive risk/reward bias on the stock," Goldman analyst Eric Sheridan wrote. In other words, Fiverr shares look undervalued based on the moderate business risk and low share price.

Fiverr is not resting on its laurels - Fiverr's financial improvement in 2024 and beyond should be driven by an innovative spirit. The company has released several new products, services and tools over the past year. For example:

It bought talent management specialist Stoke Talent for $95 million in 2021. Last spring, the platform was renamed Fiverr Enterprise, giving enterprise-class business giants a seamless platform for managing third-party services on a day-to-day basis. The system includes tools for budgeting, project management and scheduling.

For service buyers who are just below the large enterprise class, Fiverr Pro offers planning and project management services across a wide range of freelance talent.

Fiverr Neo is an artificial intelligence (AI) chatbot, similar to OpenAI's ChatGPT, that helps service buyers find the right freelancers. "The more choice people have, the harder it is for them to choose," CEO Micha Kaufman said in a product announcement six months ago. Neo helps buyers sift through their needs and requirements and connect them with available freelancers.

These constant innovations to its business model help make it a perfect fit for the young and fast-growing freelance services market.

Analyst predictions

Based on 8 Wall Street analysts who have offered 12-month price targets for Fiverr International in the last 3 months. The average target price is $31.29 with a high forecast of $36.00 and a low forecast of $26.00.

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