FVRR - Fiverr Q1 Earnings Preview: What To Look For

2023-05-09 13:15:01 ET

Summary

• Fiverr International Ltd. is about to report its Q1 2023 results on Thursday May 11, premarket.
• I argue that one of the most important metric investors will need to focus on will be its growth in active buyers.
• FVRR stock isn't cheap, even though it's down at close to a multi-year low. But it could have found a bottom, if its growth rates could stabilize.

Investment Thesis

Fiverr International Ltd. ( FVRR ) is about to report its Q1 2023 results this Thursday, May 11 premarket. For shareholders, there's a central focus: can Fiverr show concrete evidence that it's improving its profitability profile?

Furthermore, Fiverr will go to great lengths to explain how AI technology will continue to make its operations more efficient. This is even though many investors have made the claim that AI could disrupt some of the more monotonous and repetitive tasks in the labor workforce, thus hampering the size and breadth of Fiverr's TAM.

While the bull and bear debate with respect to AI is unlikely to be settled in this upcoming quarter, investors will be keen to appraise whether Fiverr can deliver any further upside to its profitability profile in 2023.

For my part, I urge readers to weigh this uncertainty against the fact that a significant aspect of its slowing growth rates are reflected in the share price. Rather, the key, I believe, is to be found in Fiverr's active buyers figures.

For now, I remain bullish on Fiverr if Fiverr's Q1 2023 can show that its active buyers have not only stabilized but are in actuality still steadily increasing.

Why Fiverr? Why Now?

Fiverr's share price has been crushed in the past several months and presently finds itself trading near its multi-year lows.

The main reason why investors want little to do with Fiverr derives from the risk factor that the bulk of its target audience are SMBs (small- and medium-sized businesses. A customer base that notoriously cuts back on spending during a recessionary environment.

When the economy was still relatively strong, back in Q4 2022, Fiverr's active buyer base grew a paltry 1% y/y, as you can see below.

Indeed, the crux of the bearish debate contends that with the economy potential weakening even further as we progress into H2 2023, there's every likelihood that we may even see active buyer growth rates turn negative.

Consequently, for Fiverr to deliver any top line growth, Fiverr will be contingent on having to raise prices. That, I charge, is where the bull case could fall apart.

Fiverr's Revenue Growth Rates Rely on Price Power

For Fiverr to positively impress investors this Thursday, with an alluring top line growth rate for Q1 2023, Fiverr will need to show a blend of active buyers increases plus an increase in spend per buyer. Why does this matter?

Because Fiverr competes with many freelancing companies, not only with Upwork Inc. ( UPWK ) for enterprises at the high end of the customer spectrum but also primarily at the low-end of the customer spectrum, with all kinds of startups.

Put simply, if Fiverr were to mostly deliver strong growth rates on the back of increasing its pricing, this would cut into its value proposition, sometimes called a moat. And that's the bear case.

FVRR Stock Valuation -- 40x EBITDA

The bull case makes the assertion that Fiverr is relatively asset-light, particularly if we were to believe that SBC isn't a real cost to shareholders.

Meaning that Fiverr's EBITDA line converts into free cash flows at a very high margin, with less than $2.5 million spent on capex projects in 2022.

Furthermore, as you can see above, over the past 12 months, Fiverr's bonds appear to have repriced higher by at least 15%. This means that bondholders are today more inclined to give Fiverr's free cash flows the benefit of the doubt.

Consequently, if bondholders are willing to give Fiverr's prospects the benefit of the doubt, with the stock now so out of favor with investors, this leaves a stock that is today substantially de-risked.

The Bottom Line

Fiverr International Ltd.'s valuation has fully compressed as investors have become too despondent with regard to Fiverr's decelerating growth rates. There was a time when investors were happy to pay very high multiples to sales. Today, investors are very price-sensitive and cautiously eyeing up Fiverr's cash flow prospects.

If Q1 2023 shows an influx in active buyers, I believe this could bode very well for Fiverr International Ltd. stock. In summary, this is a high-risk high-reward investment.

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