Freelance marketplace Fiverr International (FVRR 4.75%) announced its earnings results last week. Revenue for the fourth quarter of 2021 came in 43% higher at $80 million while non-GAAP diluted earnings per share improved 83% to $0.22. Both numbers came in ahead of Wall Street estimates.
While investors have good reasons to cheer a market-beating quarter, there is more to take away from the latest earnings announcement.
Fiverr ended 2021 with a bang
The pandemic was a boost to Fiverr. Workers stuck at home joined Fiverr as freelancers (or sellers who offer a service) to make ends meet, while buyers (consumers that pay for the work performed by a freelancer) came to the platform to look for solutions: from web design to interior design, and more. The result was a massive surge in transactions on Fiverr's platform.
After delivering a record 77% growth in revenue in 2020, Fiverr finished 2021 with yet another set of solid results. Revenue surged 57% to $298 million while adjusted earnings before interest, tax, depreciation and amortization (EBITDA) more than doubled from $9 million to $23 million. Operationally, active buyers grew 23% year over year to 4.2 million while the average spend per buyer rose 18% to $242.
Fiverr also ended the year with a solid balance sheet with more than $641 million in cash and cash equivalents, marketable securities, and bank deposits. That was after spending $95 million acquiring Stoke Talent, a freelance management platform. With its strong balance sheet, Fiverr is well-positioned to invest to grow its business for years to come.
Buyers are spending more money on the platform
One of the key success factors for Fiverr is its ability to attract and retain buyers. The latter is paramount since loyal customers can generate enormous value over time for the platform. Put it simply, the tech company needs to delight customers to keep them coming back.
There are a few ways Fiverr measures customer stickiness. One is to track the average spending per buyer; the goal is to keep this metric moving upward steadily over time. Another way is to grow the net retention rate, which measures existing buyers' spending on a year-over-year basis. The aim is to have a percentage over 100%, meaning existing buyers are spending more year over year.
Both metrics came in positive for the year. The average buyer spending rose by 18% year over year while the net retention rate for the cohort who joined on or before 2018 was 110%. Fiverr attributes its strong performance mainly to a broadening service catalog and moving upmarket. Consequently, customers had more reasons to transact on Fiverr's marketplace, which led to higher income and better customer retention for the young company.
Fiverr will grow more moderately in 2022
Fiverr benefited tremendously during the COVID-19 quarters, evident by its unusual growth spikes. For perspective, revenue grew 77% and 57% in 2020 and 2021, respectively, much higher than the 45% and 42%, respectively, in 2018 and 2019.
But as global economies reopen and people get back to their workplaces, we can safely assume that growth will be more moderate for most tech companies. Unsurprisingly, Fiverr guided for slower top-line growth (between 25% and 27%) in 2022. It also expects to generate EBITDA of $27 million to $33 million, up from $23 million.
While nobody likes slower growth, Fiverr's latest guidance is anything but weak. On top of that, I like that the company continues to deliver positive and growing adjusted EBITDA while growing its top line rapidly -- illustrating the scalability of its marketplace business model. It is rare for young growth companies to deliver positive EBITDA, making Fiverr one of the special ones.