Freelancing platform Fiverr International (FVRR 0.97%) was a big winner during the pandemic but has struggled since. Today, its share price is down about 88% from its high.
Revenue growth continues slowing; revenue grew just 4% year over year in the fourth quarter. So is Fiverr even a growth stock anymore? It doesn't seem like it, but now could be the best time in a long time to add shares to your portfolio.
I'll explain how and why Fiverr is poised to generate strong investment returns over the next several years.
Should investors fear slowing growth?
Fiverr is a marketplace that connects freelancers (sellers) with individuals and enterprises that need specialized talent (buyers). The company benefited from increased freelancing during the pandemic when lockdowns pushed people to generate income online. However, its growth steadily slowed since early 2021 and grew just 4% year over year in Q4.
The slowdown could give the impression that Fiverr's best days are behind it, but that might not be true. The uncertainty of the economy played a significant role in slowing growth, which management discussed at length on earnings calls.
FVRR Revenue (Quarterly YoY Growth) data by YCharts.
Fourth-quarter results revealed several signs that Fiverr's business remains very healthy. For example, management noted that active sellers and sellers joining the platform hit all-time highs. Large buyers (spending $10,000 or more) grew 29% year over year. Furthermore, the company's take rate expanded by 100 basis points to 30.2%.
In other words, the company is attracting more sellers, growing relationships with enterprise buyers, and flexing its value for both parties, evidenced by the increasing take rate.
Bottom-line focus paying off
Like it or not, Fiverr's management doesn't operate with a grow-at-any-cost attitude; profitability was a strategic focus in 2022. The company wrapped up last year showing strong momentum toward operating more profitably in 2023.
Management guided for non-GAAP EBITDA of $45 million to $55 million in 2023, potentially a 100% or more increase from 2022's $24.4 million. Given management's expectations for revenue growth between 4% and 8%, efficiency is almost solely driving the jump in forecast EBITDA.
Fiverr earned $0.71 per share in 2022; analysts believe a more profitable Fiverr can earn $1.68 per share in 2024, the average estimate. That's more than a 136% increase over the next two years, so this rapid earnings growth could fuel investment returns.
Attractively priced for long-term returns
Consider how fast Fiverr's valuation will change over the next few years. Fiverr trades at a price-to-earnings ratio (P/E) of 56 at the current share price. But that P/E drops to 24 against 2024 earnings-per-share (EPS) estimates.
What many investors might be missing is that Fiverr's revenue growth could pick back up as the economy eventually improves. Analysts agree, estimating that annual revenue growth could rebound to between 20% and 30% for the next several years.
The revived revenue growth could drive significant earnings growth beyond 2024, blazing a path to long-term returns. Of course, Fiverr isn't a risk-free investment and the company must deliver results that meet expectations.
Still, the stock's sharp decline dramatically reduced the risk of buying it, making it an intriguing investment in the future of work.
