Freelancing marketplace Fiverr International (FVRR 2.77%) was a market-beater during the pandemic when the stock soared more than 1,200% in just over 12 months. Unfortunately, the stock has given back those gains, now down from when it went public in 2019.
The price action might give investors the impression that Fiverr is a loser, a fluke stock that won't ever approach its highs again. However, that might not be the case. Here are three reasons to love Fiverr as a long-term investment from today's price.
1. Revenue slowdown isn't as bad as it looks
Fiverr operates a marketplace platform where it brings freelancers together with individuals and businesses needing skilled talent. Fiverr makes money by taking a portion of each transaction in its ecosystem, doing $85 million in revenue in its 2022 second quarter and $325 million over the past four quarters.
Pandemic lockdowns benefited Fiverr because people were exploring new income streams to compensate for soaring unemployment. Fiverr's revenue growth accelerated from under 50% to 100% before plunging to just 13% today:
Fiverr's great quarters from 2021 are now working against growth, creating high comparables the company is struggling to improve on. The boost from the pandemic clearly wasn't permanent, and a potentially shaky economy is making matters worse. Numerous companies have grown cautious about the economic outlook moving forward as high inflation puts pressure on consumers.
Fiverr's management has taken the approach to focus on profitability over growth in the short term, discussing cutting expenses and laying off 60 employees during its second quarter earnings call. The company has generated $29 million in free cash flow over the past four quarters; protecting cash flow would help prevent the company from dipping into its balance sheet, which has a net debt (total debt minus cash) of $35 million.
Cutting back on growth isn't ideal, but recessions can become a survival game for growing companies. Fiverr doesn't want to get caught burning cash should revenue drop, which might better serve shareholders over the long term.
2. Secular trends are still in Fiverr's favor
A conservative approach to running the company could benefit shareholders, especially when one considers the intact long-term opportunity ahead of the company. Fiverr estimates that the freelancing economy is a $247 billion opportunity in the U.S. alone, which Fiverr's captured just a tiny sliver of, primarily because independent freelancers still mostly work offline.
Fiverr's marketplace gives buyers and sellers alike a secure ecosystem (Fiverr oversees it). It also offers sellers a larger audience than one couldn't likely get in front of alone and buyers a variety of talent to choose from.
The internet has made freelancing more accessible, which could continue growing over the coming years. Statista estimates that roughly 70 million people are freelancing in the U.S.; it could reach 90 million by 2028. Fiverr's brand recognition and efforts to work more closely with enterprise clients could lead to growth that doesn't wow you year to year but could steadily grow for many years to come.
3. The valuation is a fat pitch
A euphoric market can do silly things, and Fiverr's valuation is a great example. Investors can see below how the stock's price-to-sales ratio (P/S) multiplied when the stock soared, but then it crashed back to earth. Now at a P/S of just 4, the stock's as cheap as it's ever been.
Investors today could capture the stock's organic growth as investment returns, even if the valuation itself doesn't increase moving forward. Fiverr nearly tripled its revenue, increased its spending per buyer from $170 to $259, and began generating positive cash profits since going public in 2019.
In other words, the business is getting stronger despite Wall Street's lack of appreciation for those facts. Growing companies are typically less proven and volatile, but Fiverr's progress since going public positions the company for a bright future. If you believe in Fiverr's potential, it's hard to be upset about investors' opportunity to scoop up shares for less.