Shares of freelance marketplace Fiverr International (FVRR 3.74%) dropped on Thursday after the company reported financial results for the fourth quarter of 2023 and gave financial guidance for 2024. As of 11:30 a.m. ET, Fiverr stock was down about 9%.
This is one of the market's biggest fears
In Q4, Fiverr generated revenue of $91.5 million, up 10% year over year and squarely inside of management's guidance. That's good. However, active buyers on the platform fell from 4.3 million in 2022 to just 4.1 million in 2023.
Fiverr's management tried to put a positive spin on the drop in active buyers, saying it focused marketing dollars on more high-quality users. That may well be. However, the company still spent $161 million on sales and marketing in 2023 -- 54% of its gross profit -- and lost roughly 200,000 active buyers. That's not good.
What does the company expect in 2024?
In 2024, Fiverr expects to generate revenue of up to $387 million, which would be a 7% increase from 2023. That growth rate is nothing to write home about. And how the company expects to grow revenue is concerning to me.
Fiverr's active buyers are decreasing, as I pointed out. And the company only expects about a 1% to 2% year-over-year increase in volume on its platform in 2024. The revenue growth, therefore, is coming from the freelancers who sell services on the platform.
Fiverr monetizes its base of freelancers with a variety of services. However, sales volume is essentially flat, and the base of buyers is decreasing. Therefore, the company could risk losing some of its active freelancers if they're not making enough money to justify what they're paying Fiverr.
As a shareholder, I'm encouraged that Fiverr is still growing and getting closer to profitability. But I'll be watching its marketing spend and active buyers in coming quarters very closely because these metrics could have long-term implications.
