I love it when the stock market as a whole reaches the wrong conclusions about a perfectly healthy business. The buying windows opened up by these mistakes can be launching pads for wealth-building investments in the long run.
Fiverr's stalled growth engine is gearing up again
With that money-making idea in mind, let's take a look at Fiverr International (FVRR 3.74%).
The freelance services wrangler endured a bit of a slowdown from 2021 to 2023, but the growth story never ended and Fiverr is back to double-digit revenue increases again. Moreover, this company has become a formidable cash machine recently, pocketing 18% of its incoming revenue in the form of free cash flow:
FVRR Revenue (TTM) data by YCharts
The double-digit sales growth is expected to continue in this week's fourth-quarter report, as management's guidance suggests a 10% year-over-year increase to approximately $91.6 million.
And these are the early days of a very ambitious growth plan. The final target is nothing less than "to change how the world works together," uprooting stale definitions of basic concepts like "work," "careers," and "employment." As a standard bearer of the gig economy, Fiverr is defining and implementing the standards of a next-generation workforce.
An overview of Fiverr's growth-boosting tool belt
Fiverr can pull a lot of levers to achieve its long-term goals.
- Several new services have made Fiverr a more attractive choice for larger service buyers over the last year, including the Fiverr Enterprise and Fiver Pro platforms.
- Most of Fiverr's growth efforts have targeted America so far, but it's a big world out there and I expect game-changing results in locations like Europe and Southeast Asia in the next few years. Truly global expansion would be next on the menu.
- Fiverr has only captured a tiny slice of the potential revenue pie yet, even in the core American market. Management estimates an addressable market worth $247 billion a year in the U.S. alone, but most freelancing gigs are still doled out offline. Fiverr managed just $4.6 billion of freelance services over the last year, leaving immense room for further growth even in the most mature target area.
- Many skeptics see artificial intelligence (AI) as a threat to Fiverr's business model, but the company is rolling out its own AI tools such as the Fiverr Neo chatbot. Furthermore, AI systems still require high-quality input and reviews from human experts, especially in the creative fields that make up most of Fiverr's business. Hence, the company is establishing itself as a useful reseller of AI management services. Those robotic overlords look like a business opportunity for Fiverr, not an existential threat.
These factors are accelerating Fiverr's sales growth again, while also expanding the company's profit margins. Management's favorite profit metric is adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), which backs out many non-cash expenses to focus on the cash-based business profits. The margin trends for this metric are quite impressive these days:
Chart source: Fiverr International's Q3 2023 earnings presentation.
Does Fiverr look like a struggling company to you? In my eyes, it's a perfectly healthy growth stock with inspiring long-term goals and positive trends across many of its most important financial metrics.
Fiverr is also deeply undervalued
Yet, Fiverr's stock trades at just 16 times adjusted earnings, 3 times sales, and 17 times free cash flows. The stock price is down more than 91% from the all-time highs three years ago. And the Street isn't adjusting to Fiverr's robust growth prospects, either, as shares still trade 38% below its yearly peak.
There you have it. Fiverr's stock chart and valuation ratios suggest a company in dire financial straits, but the business is getting back on its feet after a couple of rough years and the long-term growth story remains downright inspiring.
I can't promise that the upcoming earnings report will send Fiverr's stock skyward, but you know what they say about the stock market weighing each company's business success in the long run. Luck favors the prepared, and you should consider starting a Fiverr investment before Mr. Market comes to his proverbial senses.
