Fiverr’s Q1 2020 Financial Results and Future Guidance — Coronavirus and Signs of a Changing Market?

Fiverr International Ltd., the online freelancer/digital services marketplace, has reported its financial results for Q1 2020, showing that it took a coronavirus hit but is rebounding.

This comes a day after our post on the earnings report for Upwork, the online freelancer marketplace and managed solution company. As we mentioned in that coverage, now is a time when many wonder if the massive increase in working remotely and the shifting needs of, and new restrictions on, organizations will lead to a greater use of remote contingent workers and service providers.

A recent Spend Matters PRO brief focused on the potential of online platforms with remote workers to fill gaps in the uncertain times of the COVID-19 disruption (see CORONAVIRUS RESPONSE: Contingent Workforce and Services Solutions — How to find the right workers, services in a crisis). Both Upwork and Fiverr are mentioned in that PRO brief. It should be noted that Upwork and Fiverr have very different kinds of offerings and business models.

For more on Upwork’s business and offerings, see Upwork Post-IPO Rising: A Next-Gen Staffing Industry Analysis. For more on Fiverr’s business and delivery “product-as-a-service” model and other offerings, see Post-IPO Perspective on Fiverr — What Lies Ahead.

Let’s look at Fiverr’s dip and revival in the coronavirus era and see what it means for the wider contingent workforce market.

Fiverr’s First Quarter

Fiverr’s Q1 2020 financial report provided evidence of a growing company that is becoming stronger financially quarter by quarter. The earnings report included these Q1 2020 results, compared to the same Q1 2019 results:

• Q1 2020 gross services volume (GSV) grew to $559.5 million, a 15% increase over Q1 2019.
• Q1 2020 revenue grew to $83.2 million, 21% increase over Q1 2019.
• Operating expenses increased to $68.7 million in Q1 2020, representing an increase of 30%. Broken down into categories, over that same period.
  • G&A grew by 13%
  • R&D expenses grew 22%
  • Sales and marketing expenses increased by 50%
• GAAP net loss in the first quarter of 2020 was ($6.2) million compared to ($8.3) million, in the first quarter of 2019.
• Adjusted EBITDA in the first quarter of 2020 was down but improved to ($2.9) million, compared to ($5.4) million in the first quarter of 2019.

Other operating metrics were also reported:

• Active buyers grew to 2.5 million a/o 3/31/2020, compared to 2.1 million as a/o 3/31/2019 (increase of 17% over the prior year)
• Spend per buyer reached $177 a/o 3/31/2020, compared to $150 as a/o 3/31/2019 (increase of 18% over the prior year)
• Take rate for the year ended 3/31/2020 was 27.1%, up from 26.2% for the year ended 3/31/2019.

COVID-19 impacts

Negative COVID-19 impacts occurred mainly in March, at which time marketplace volumes declined over several weeks. But there was a significant V-shaped recovery rebound in April (the first month of Q2). In a letter this week to shareholders from CEO Micha Kaufman and CFO Ofer Katz, they stated:

“While the global pandemic caused some temporary volatility on our marketplace in March, activities quickly bounced back and resumed growth exiting the quarter. In fact, the upward trend continued robustly into April. Although April is usually a seasonally weaker month due to Easter holidays, we hit GMV record-breaking days multiple times.”

As shown below, gross merchandise value (GMV) associated with all annual customer-buyer cohorts (the year when customer-buyers first used Fiverr) rebounded in April after the initial shock.

(click images to enlarge)

Also noted in the letter, a similar rebound occurred across all of the service areas (main vertical categories).

Several weeks is not enough evidence to draw any reliable conclusions about COVID-19 having positive influence on usage/GMV, but more information will accumulate in the coming quarters.

Fiverr Forward

In terms of Fiverr’s financial outlook for Q2 2020 and full-year 2020, the company stated in its shareholder letter noted that, “given the strong momentum we have seen in recent weeks, we are raising our full-year 2020 revenue and EBITDA expectations from prior guidance,” as shown below.

Exhibiting a confidence that not many other businesses would show today, the letter also stated: “We are also accelerating our timing to profitability and target turning EBITDA positive in the second half of 2021.” And it continued: “We expect that our strong cash position, together with revenue growth momentum and path to profitability, will allow us to continue to make long-term investments to drive growth.”

Investor Confidence

Fiverr is publicly traded on the New York Stock Exchange, where the company’s share price closed at nearly $40 a share after the announcement of the Q1 2020 financial results and future guidance (though it looks like investors were anticipating good news in the weeks preceding).

There are at least two other observations worth making. First, the share price crashed with the market on Feb. 22, reaching a low of $21.69 per share on March 3 and eventually rose to $39.19 several weeks later, an increase of about 80%. Second, the $39.19 closing price on May 7, 2020, represents an increase of 25% of closing price $31.49 on the day of its IPO June, 14, 2019, (which many thought overvalued at the time). In any case, investor expectations currently have Fiverr pegged for continuing solid performance in future quarters (despite the COVID-19 crisis — or perhaps because of it).

Note: As of noon Eastern time today (Friday, May 8), Fiverr’s share price had increased to $49.40 ($10 higher than the prior day’s closing price). 

Conclusion

Of course, expectations of Fiverr’s future performance clearly should be caveated by a safe harbor statement. But besides Fiverr (which has a very unique and solid operating model and  productized services), there are literally hundreds of different kinds of online work/services platforms with different operating/delivery models that focus on different labor/skills/expertise categories. (Online work services/platforms are broken down in the aforementioned brief, CORONAVIRUS RESPONSE: Contingent Workforce and Services Solutions — How to find the right workers, services in a crisis and in other Spend Matters research in this area going back 5+ years).

Given current conditions and trends, procurement/HR executives should be starting or returning to thinking — if they are not already — about online work/services platforms and how they may be helpful in the current pandemic-impacted business environment and labor markets. In fact, we are inclined to think they will be and that 2020 could be a pivotal point for these platforms and, of course, the client-business that start to use them.

With a diverse population of well over a thousand B2B work/service platforms across the globe today, it is very important for practitioners and executives to understand the supply-side environment and determine which platforms offer workforce/services and other capabilities suited to the needs of a given organization. For example, some platforms have capabilities to work with businesses at an enterprise scale and may have experience in doing so. Some platform providers may offer various value-added services (such as employer of record, etc.), while others may not at all. And it will come down to a particular company’s needs, size and other factors.

In any event, we will be maintaining our research focus on businesses like Fiverr, and we are eager to see what their futures will hold.