Home Web designer profit Down 54%, is Fiverr Stock a smart buy right now?

Down 54%, is Fiverr Stock a smart buy right now?

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THELast year, business closures due to a pandemic led displaced workers to explore other avenues of employment, and many tried their hand at freelance jobs. Likewise, some remote workers found themselves with more free time, so they tapped into the odd-job economy for extra income.

CA did Fiverr International (NYSE: FVRR) popular with investors, and its stock price climbed 730% in 2020. But after peaking in mid-February, Fiverr stock has fallen sharply and is currently trading 54% below its all-time high. Looking back, this decline is not so surprising. In February 2021, Fiverr stock reached an astronomical valuation of 56 times sales, nearly 10 times higher than its price-to-sales ratio before the pandemic. Since then, a combination of downward revisions by analysts and weak forecasts (relative to Wall Street expectations) have combined to push the share price down.

So, is it a good time to buy Fiverr shares? Here’s what you need to know

Image source: Getty Images.

Fiverr has a strong business model

Fiverr brings e-commerce-like experience to freelance work. Its platform is a marketplace that connects buyers (businesses) with (independent) sellers of digital services, and its product catalog includes over 500 concert categories, including popular categories such as graphic design, web development, writing, editing, audio, video and animation. .

On the seller side, Fiverr helps freelancers create profiles, list skills and showcase their past work, and provides value-added products like Fiverr Learn, a training platform with on-demand videos led by experts in various fields. Fiverr also made acquisitions to expand its portfolio of freelance services, including acquiring content marketer ClearVoice and task management platform And.co (recently renamed Fiverr Workspace).

On the buyer side, Fiverr allows businesses of all sizes to find, browse and purchase digital services from freelancers. The company also relies on artificial intelligence to deliver personalized recommendations, making the process easier for buyers. More importantly, as its platform captures more data (seller profiles, transactions, user behavior), Fiverr’s ability to rank and recommend affected independents should improve, fueling the network effect. which drives its activity.

Impressive financial results

Fiverr has become an important gateway to the odd-job economy. There are currently 4.1 million active buyers on its platform, and active spend per buyer has jumped 20% to $ 234 in the past year. Additionally, Fiverr’s participation rate (income divided by the total deal value) reached 28.4% in the third quarter, up from 27% the year before. To put this in perspective, compete Upwork saw its participation rate drop to 14.2% in the last quarter. This huge gap highlights Fiverr’s ability to create value for users.

Unsurprisingly, the company is rapidly increasing its turnover.

Metric

Q3 2020 (TTM)

Q3 2021 (TTM)

Switch

Returned

$ 163.2 million

$ 273.8 million

68%

Source: YCharts. TTM = 12 rolling months.

As a caveat, Fiverr is not profitable on a GAAP basis and its net loss widened to $ 45.3 million in the first nine months of 2021, a significant change from a loss. net of $ 6.6 million over the same period last year. That being said, it makes sense to invest in growth right now, so I’m focusing more on free cash flow, a non-GAAP measure.

To this end, the company has generated $ 31.5 million in free cash flow over the past 12 months. This is encouraging because it means that Fiverr is generating enough money to pay the bills. And ultimately, the company’s impressive turnout – which has maintained its gross profit margin above 80% since 2018 – should translate into strong profitability.

Going forward, Fiverr places its addressable market at $ 115 billion, and the management team led by the founder is executing a solid growth strategy: adding more buyers and sellers, expanding its concert catalog, and expand into new geographic areas. Fiverr is also looking to go upstream, as evidenced by its recent acquisition of Stoke Talent, a freelance management platform for large companies. The move is also expected to make Fiverr a bigger player in the offline freelance job market, which is still an order of magnitude larger than the online market, according to management.

Why Fiverr is a smart buy now

At the height of the pandemic, investors were throwing money at Fiverr, which pushed its share price to outrageous highs. However, after falling 54%, the stock is now trading at 19 times sales, a more reasonable valuation. Even so, I think many investors still view Fiverr as a “COVID action,” meaning they expect its activity to decline as more workers return to the office. But nothing could be further from the truth, and these shortsighted expectations create an opportunity for long-term investors.

Case in point: the global market for independent platforms is expected to grow by 15.3% per year until 2026, according to Orbis Research. This means that the rise of the concert economy is a lasting trend, not a passing fad. And Fiverr is more than a pandemic play – it’s a company reshaping the way people work. From that perspective, this action indeed looks like a smart buy right now.

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Trevor Jennevine owns shares of Fiverr International. The Motley Fool owns shares and recommends Fiverr International. The Motley Fool recommends Upwork. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.