FVRR - Fiverr Earnings: Back From The Dead Again

Summary

• Fiverr International Ltd. reported Q4 2022 results a week after its main competitor, and results look substantially better than expected.
• The most attractive consideration is that Fiverr International's EBITDA profile is set to double this year compared with 2022.
• At 40x forward EBITDA, Fiverr International stock isn't in the bargain basement, but it's far from expensively priced too.

Investment Thesis

Fiverr International Ltd. ( FVRR ) put out guidance that positively surprised investors. Perhaps the most alluring part of the story is the setup. There's the combination of investors' expectations being relatively muted, plus its EBITDA guidance expected to double from $24 million in 2022 to $50 million in 2023.

Furthermore, keep in mind that the freelance business is very sensitive to the economy. Particularly Fiverr's business, as by definition the business is aimed at smaller start-up companies, rather than more established enterprise clients. Indeed, as a reference point, we see that annual active buyers saw no growth in the year to Q4 2022 .

At 40x forward EBITDA, FVRR stock isn't particularly cheap. That being said, if FVRR can continue to positively impress with its solid profitability, suddenly the stock can look quite cheap, but only in hindsight.

Heading into Earnings De-risked

A week ago, Upwork Inc. (UPWK), Fiverr's work marketplace competitor reported its results that saw its stock get hit hard. The main difference between Upwork and Fiverr's results is that Upwork guided for yet another year of unprofitability, while Fiverr's guidance in comparison looks to double its profitability.

Revenue Growth Rates Reaccelerate

The graphic above uses management's Q4 2023 outlook. Please note that this is a midpoint revenue growth rate outlook and the final figures may look different.

The point, though, is to see how management's guidance lines up with analysts' expectations.

As you can see here, analysts were already expecting FVRR to report a 15% CAGR by the time the business exits Q4. And, at this moment in time, management's guidance appears to fall short of analysts' expectations.

Moreover, FVRR hasn't historically been the type of company that lowballs guidance and then easily beats analysts' expectations.

As you now, FVRR didn't beat analysts' expectations for Q4 2022, and looking back over its trailing year and a half, FVRR didn't have a consistent pattern of over-delivering against expectations.

Consequently, I'm inclined to believe that what we see here is pretty much what we'll get from FVRR.

Profitability Profile

I've already touched on this aspect several times. Consider FVRR's EBITDA profile for the past two years.

Now, looking ahead to 2023, FVRR guides for $50 million of EBITDA, a full 100% increase y/y.

The other positive consideration to think about is that FVRR's EBITDA profile typically converts into free cash flows at a very high rate. Thus, to say that FVRR could make $50 million of free cash flow in 2023 is a very fair observation.

FVRR Stock Valuation -- 40x Cash Flows

FVRR ended Q4 with a net debt position of approximately $370 million. This is mostly made up of its convertible notes. The Notes have a conversion price of approximately $214 and are due in 2025, meaning that they are out of the money. Therefore, FVRR's creditors will need to be "made whole." Accordingly, these convertible notes will become a current liability within 12 months.

Put more simply, I believe that a fair way to weigh up FVRR's valuation is to state that Fiverr's Enterprise Value, its market capitalization plus the convertibles, add up to $2 billion.

Accordingly, looking out to the end of 2023, FVRR is priced at very approximately 40x EBITDA.

The Bottom Line

The overall theme with Fiverr International Ltd. is how the company navigates the more challenging macro environment.

How, despite having to contend with a more cautious business environment, Fiverr International Ltd. is doing all it can to take control of the bottom line. Basically, it's the theme that has percolated through this earnings season: the businesses that can balance growth and profitability are now being rewarded for doing so. And those that can't are being left behind, like UPWK.

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