July 1, 2022

Buy Fiverr Stock (NYSE: FVRR): Company’s Latest Acquisition Should Help Defend Its Business Model

Good that Fiverr International Ltd. (NYSE: FVRR) propelled the stock up 20%, they simply brought it back into the range where it spent most of the year.

While the market has rewarded revenue growth and increased forecasting, a few other comparisons to Q3 2020 show there could be more than you think.

Third Quarter 2021 Results

Although revenues improved, the company posted a poor third quarter result, with increased losses and weaker cost control.

  • Income: US $ 74.3 million (+ 42% compared to Q3 2020)
  • Net loss : $ 14.3 million (increased loss of $ 13.9 million from Q3 2020)

However, the increase in net loss is not the only negative news; somewhere in the numbers we can find significant growth in stock-based compensation. While it can be a good tool for attracting talent in an industry where competition is cutthroat, stock-based compensation should be reasonable relative to earnings.

NYSE: FVRR Stock Based Compensation (Quarterly) Source: AlphaQuery

On the other hand, Fiverr made progress with high-value buyers, increasing their stake from 57% to 62% in the quarter. However, income concentration carries another risk for a business that operates as a middleman, as there is a chance that it will be bypassed.

This is arguably one of the reasons why Fiver has recently taken risks. acquired Stoke Talent in a transaction valued at US $ 95 million. Stoke Talent is a freelance employee management platform that was last valued at US $ 44 million.

A significant delay compared to the general market

Since Fiverr International has posted losses over the past twelve months, we believe the market is likely to be more focused on revenue and growth, at least for now. When a company is not making a profit, we generally expect to see good revenue growth. As you can imagine, rapid revenue growth, when sustained, often leads to rapid profit growth.

In the last twelve months, Fiverr International has increased its revenues by 68%. It’s more than most other for-profit businesses. The 0.2% year-over-year drop in the stock price would be seen as disappointing by many, so one could argue that the company is getting little credit for its impressive revenue growth. The silver lining is that if this company moves its profits in the right direction, such top line growth could be an opportunity.

A different perspective

While Fiverr International shareholders are down 0.2% on the year, the market is up 30%. While the goal is to do better than that, it’s good to remember that even large, long-term investments can sometimes underperform for a year or more.

However, Fiverr’s business model is not without flaws. To some extent, it can be compared to dating service. The better the connection, the more likely participants are to form a lasting relationship and leave the dating service. The same is not true of freelancing, but the company’s efforts to increase integration show that it is aware of the problem.

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