As Fiverr (FVRR 1.34%) stock emerged from the onset of COVID-19 in early 2020 with a stunning 10x rally, it felt as if the remote gig-worker renaissance was unstoppable. However, amid a return to a modified normalcy, a share-price correction was practically inevitable.
Fast-forward to early 2022, and the unthinkable has happened: Tech stocks are out of favor. With that, investors might seek a bottom-fishing opportunity after a year-long drawdown in Fiverr stock.
Fiverr's fourth-quarter results beat expectations and provided encouraging guidance, yet the stock went down anyway. This would typically be an ideal buy-the-dip setup, but unfortunately, a deep dive into the financials will raise a few big red flags.
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Fiverr's growth driver
At first glance, it would appear that Fiverr's recently released quarterly and full-year results should have catalyzed a share-price turnaround. Indeed, after achieving 57% year-over-year revenue growth in 2021, the company has demonstrated that the remote work revolution is far from defunct even as the coronavirus wanes.
Fiverr asserts that this growth "has been driven primarily by the growth of active buyers and spend per buyer," and the data supports this. While COVID-19 undoubtedly prompted a shift to remote work in 2020, the easing of that catalyst in 2021 wasn't problematic for Fiverr. Indeed, the number of active buyers on Fiverr's platform grew from 3.4 million at 2020's end to 4.2 million at the end of 2021.
Moreover, Fiverr's average customer has been spending more on the platform. Fiverr's per buyer spend has increased each year over the past four years, from $145 in 2018 to $242 in 2021. Additionally, the data suggests that Fiverr's customers have increasingly returned to the platform to make purchases, thereby providing a measure of revenue predictability for the company. Specifically, repeat buyers contributed 55% of Fiverr's core marketplace revenue in 2020, and that figure moved up to 59% in 2021.
Fiverr has also exhibited growth in the area of big-ticket spenders. Impressively, 63% of Fiverr's 2021 core marketplace revenue came from buyers who spent over $500 versus 58% in 2020. On top of all that, Fiverr ended the year on a strong note in Q4 2021, having grown the platform's active buyer total 23% year over year, and its spend per buyer increased 18% year over year.
A bad spending habit
Some investors might have felt jittery and/or disappointed when Fiverr guided for 2022 sales to increase "only" 25% to 27%. Yet, that's not necessarily Fiverr's biggest fiscal issue.
In 2020, Fiverr generated $189.5 million in revenue and incurred a $14.8 million net loss. Then, in 2021, the company took in $279.7 million in revenue -- once again showing that that remote-gig movement still had momentum. However, it also posted a huge $65 million net loss.
Apparently, the contractors are working, but Fiverr's business model isn't. When the revenue is growing while the net loss is widening, over-spending is typically to blame. Such was the case with Fiverr in 2021 versus the prior year, and the company's largesse spanned multiple categories. An 88% increase in general and administrative expenses (including employee-related costs and share-based compensation), a 73% jump in research and development costs, a 69% rise in sales and marketing expenditures, and a 56% expansion in cost of revenue (including payment processing fees, among other outlays) all contributed to an exceedingly expensive year for Fiverr.
Not the right time for Fiverr
Fiverr's continued ability to generate strong revenue is evidence that the remote-freelancer trend is alive and well, even two years after COVID-19's emergence. Yet, Fiverr hasn't necessarily led by example when it comes to controlling financial outlays.
It's a shame, as Fiverr has no shortage of favorable data points, including large-scale spenders on the company's platform. If Fiverr can't convert its robust sales into a better bottom line, though, then any share-price turnaround could be temporary. Therefore, value-hungry investors should wait and watch for Fiverr to commit to cost-cutting measures before jumping into the trade.
