What happened
In nine of last year's 12 months, shares of Fiverr International (FVRR 0.25%) closed at a lower price than where they started. Six of these month-long drops amounted to 10% or more. For example, Fiverr's stock fell 26% in April, closing out with a 17% price drop in December. All told, the stock is down 72% since the S&P 500 index peaked on Jan. 3, 2022, according to data from S&P Global Market Intelligence. Let's see why the operator of freelance services markets took such a drastic haircut last year and whether there is any hope for a full recovery.
Spoiler: Fiverr will be around for a long time, and the company is changing the way people work.
So what
You might argue that Fiverr's big price drop started in the winter of 2021. The stock had raced skyward during the phase of widespread lockdowns to control the COVID-19 pandemic, only to reverse course as soon as vaccines became widely available. From this perspective, where Fiverr's freelancers look like the unique byproducts of a temporary health crisis, the stock now trades a hair-raising 91.4% below the all-time highs of February 2021.
In the four earnings reports published during the calendar year 2022, the company delivered top-line revenues no more than 5% away from analysts' consensus estimates (and above target three times) while posting bottom-line earnings far above the Street's projections.
At the same time, it's true that the official guidance targets, on which analysts often base their own financial modeling, trended downward as the year went by.
The original revenue guidance from last February pointed to full-year sales of roughly $376 million -- a 20% year-over-year increase. That target was lowered to approximately $355 million in May and again to $336 million in August's second-quarter report. The latest available revenue guidance suggests 2022 sales in the neighborhood of $347.5 million, breaking the string of negative revisions. Hitting that guidance-range midpoint would work out to annual sales growth of 12.6%. That would be an uptick from the current growth rate of 11.1%, yet far below the torrential revenue doubling in the year ending in March 2021.
Now what
If you see nothing but stalled growth in Fiverr's reported figures, I can't blame you for keeping your hands off the stock.
However, you should also know that the company is growing by double-digit percentages amid a worldwide economic crisis, generating robust cash profits from this expanding revenue stream. Meanwhile, the stock now trades at reasonable valuation ratios such as 29 times forward earnings, 3.3 times trailing sales, and merely 2.4 times cash on hand. I can think of many traditional value stocks that look downright expensive next to Fiverr today.
And what it all comes down to is that Fiverr has established itself as a leader in the so-called gig economy, where freelancing and contractor work can be at least as rewarding as a traditional nine-to-five desk job. The world of work is changing before our eyes, and Fiverr is leading the charge. This is a long-term revolution, not a short-lived fad.
The deep stock price discounts we see today may last for a while, but Fiverr is going places in the long run. If you agree with my analysis, I highly suggest stocking up on these undervalued Fiverr shares while the rebate lasts. The rebound could be just as sharp and unexpected as the first price drop was in 2021.
