Fiverr (FVRR): Buy, Sell, or Hold Post Q2 Earnings?

Fiverr (FVRR): Buy, Sell, or Hold Post Q2 Earnings?
FVRR

Over the last six months, Fiverr’s shares have sunk to $8.54, producing a disappointing 13.1% loss – a stark contrast to the S&P 500’s 21.1% gain. This was partly due to its softer quarterly results and might have investors contemplating their next move

Why Is Fiverr Not Exciting?

Despite the more favorable entry price, we’re sitting this one out for now. Here are three reasons you should be careful with FVRR, plus one stock we’d rather own

1. Declining Active Buyers Reflect Product Weakness

As a gig economy marketplace, Fiverr generates revenue growth by expanding the number of services on its platform (e.g. rides, deliveries, freelance jobs) and raising the commission fee from each service provided

Fiverr struggled with new customer acquisition over the last two years as its active buyers have declined by 14% annually to 2.7 million in the latest quarter. This performance isn’t ideal because internet usage is secular, meaning there are typically unaddressed market opportunities. If Fiverr wants to accelerate growth, it likely needs to enhance the appeal of its current offerings or innovate with new products.

2. Revenue Projections Show Stormy Skies Ahead

Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite

Over the next 12 months, sell-side analysts expect Fiverr’s revenue to drop by 23%, a decrease from its 6.8% annualized growth for the past three years. This projection doesn’t excite us and implies its products and services will see some demand headwinds

3. Inefficient Marketing Strategy Eats Into Profits

Unlike enterprise software that’s typically sold by dedicated sales teams, consumer internet businesses like Fiverr grow from a combination of product virality, paid advertisement, and incentives

It’s relatively expensive for Fiverr to acquire new users as the company has spent 49.2% of its gross profit on sales and marketing expenses over the last year. This inefficiency indicates that Fiverr operates in a competitive market and must continue investing to maintain an acceptable growth trajectory

Final Judgment

Fiverr isn’t a terrible business, but it isn’t one of our picks. Following the recent decline, the stock trades at 1.2× forward price-to-gross profit (or $8.54 per share). While this valuation is optically cheap, the potential downside is big given its shaky fundamentals. We’re fairly confident there are better stocks to buy right now. We’d recommend looking ata dominant aerospace business that has perfected its M&A strategy.

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