Online freelance marketplace Fiverr International (FVRR 1.34%) was a massive winner during the pandemic. Its stock climbed from the $20s in March 2020 to as high as $336 just a year later.
Since then, the stock has cooled and fallen back to under $150 per share. Was Fiverr just a COVID-19 sensation? Shares appear more reasonably priced today, but investors will want to consider some things before buying shares.
Fiverr was a COVID-19 stock
Sometimes, stating the obvious isn't bad; it's OK to be straightforward. Fiverr was a company that benefited very much from the pandemic. People were restricted to their homes or laid off from their jobs, so they turned to other income sources.
Image source: Getty Images.
Fiverr's freelance marketplace was a popular destination, and its ease of access for both sellers and buyers boosted the company's revenue growth. Fiverr grew revenue 42% year over year in 2019, so seeing 2021 Q3 revenue grow 42% year over year shows that the company is settling into its pre-COVID growth trajectory.
Investors could see this as a positive. Fiverr's growth is reverting to pre-COVID speed, but it's on top of the spike seen during the pandemic. It's not giving that growth back. Management expects total 2021 revenue of almost $300 million, 54%-56% over 2020, which shows that growth is plenty intact.
But it can still be a long-term winner
If the demand for freelancing remains strong moving forward, there is a lot of room for Fiverr to continue growing over the coming years. Fiverr values its existing market opportunity at approximately $115 billion, which is still mostly offline freelancing that hasn't migrated to digital platforms.
As a leading freelance platform, Fiver competes with Upwork and Microsoft, which launched a freelancing service inside of LinkedIn. It's reasonable to think that Fiverr can continue growing when the overall opportunity is this big.
The company is also moving to "go upstream," expanding its platform to service enterprise clients and higher-skilled sellers. Fiverr Business was explicitly launched to cater to enterprises, with a dedicated "white glove" service and other special perks.
Fiverr also recently acquired Stoke Talent for $95 million. Stoke is a freelance management platform that will help enterprise customers better integrate freelancers on Fiverr into their own operations, with workflow tools, project tracking, and more. The average spend per buyer on Fiverr has steadily increased from $145 in 2018 to $234 in Q3 of 2021, so investors should watch for this to continue rising over time.
If the way people work continues to evolve as the pandemic passes, with companies outsourcing work to freelancers and businesses embracing remote work as a whole, Fiverr could enjoy the tailwinds.
Where does its valuation stand today?
The stock grew 10X from its pandemic lows in under a year, so even though Fiverr has a lot of long-term potential, the stock pulling back makes a lot of sense. Shares were valued at a single-digit price-to-sales ratio before COVID-19 and shot to more than 36.
FVRR PS Ratio (Forward) data by YCharts
Investors are left trying to decide whether Fiverr should fall back to its pre-pandemic valuation or if the long-term upside justifies a higher valuation. It's easy to see that the stock is at least reasonably valued, but I would hesitate to call it "cheap."
Management guided Fiverr's earnings before interest, taxes, depreciation, and amortization (EBITDA) to be positive at $19.5 million to $21 million on an adjusted basis for 2021. Still, the company is not profitable yet on a bottom-line basis; reported net losses were $14.3 million in 2021 Q3. This shows a path to earnings growth, though, which should occur as revenue grows and outpaces rising expenses.
There is a lot to like in Fiverr, but it's admittedly cloudy trying to gauge the stock's valuation. In cases like this, a dollar-cost averaging strategy makes a lot of sense, building a position a little at a time while investors continue to figure out Fiverr coming out of COVID-19.
