Should You Buy the Dip in Fiverr?

Headquartered in Tel Aviv, Israel, Fiverr International Ltd. (FVRR) is known for its platform connecting businesses with freelancers that offer digital services in more than 200 categories. The company launched Seller Plus on August 12—a subscription-based loyalty program for freelancers—and launched its first new vertical dedicated to services related to data in March.

Because the number of people performing freelance services is increasing worldwide, Fiverr is well-positioned to benefit.

However, the stock has lost 26.4% over the past month and 46.7% over the past six months to close yesterday’s trading session at $172.08. Furthermore, it has declined  25.8% in price since reporting disappointing second-quarter earnings results on August 5. In addition, FVRR’s withdrawal of its proposed public offering of ordinary shares in March 2021 was not well received by investors, and  hedge fund sentiment has declined considerably recently. So, FVRR’s near-term prospects look bleak.

Here’s what we think could influence FVRR’s performance in the coming months:

Top Line Growth Doesn’t Translate into Bottom Line Improvement

For the second quarter, ended June 30, 2021, FVRR’s top line surged 59.7% year-over-year to $75.26 million. The company’s annual spend per buyer increased 22.8% year-over-year to $226. However, its total operating expenses for the quarter increased 78.7% year-over-year to $71.08 million, while its operating loss came in at $8.34 million, representing a 1,295.3% year-over-year rise. Its net loss was $13.30 million, versus  $124,000 in the prior-year period.

Disappointing Management Guidance

The rapid spread of the COVID-19 Delta variant  continues to worry investors. But at the same time, more people are getting vaccinated. According to the latest CDC data, 71.5% of U.S. adults have received at least one dose of  COVID-19 vaccine. Consequently,  more people have been taking vacations and spending less time online, translating to modest new customer generation for FVRR.

So, the company now expects its third-quarter revenue to come in between $68 million - $72 million, and its full-year revenue to be between $280 million - $288 million. Its adjusted EBITDA is expected to be between $2.5 million - $3.5 million in the third quarter and between $12 million - $14 million for the full year.

Lofty Valuation

In terms of forward EV/S, FVRR’s 21.69x is 1,336.4% higher than the1.51x industry average. Likewise, the stock’s 22.81x forward P/S is significantly higher than the 1.30x industry average. Its  forward EV/EBITDA and EV/EBIT of 444.48x and 759.81x, respectively, are higher than the 10.96x and 14.35x industry averages.

POWR Ratings Reflect Bleak Prospects

FVRR has an overall D rating, which equates to Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight distinct categories. FVRR has a D grade for Value, which is in sync with its higher-than-industry valuation ratios. In addition, the stock has a D grade for Stability, consistent with its beta of 2.

Furthermore, it has a D grade for Quality. This is justified given FVRR’s negative value for trailing-12-month EBITDA margin compared to the 11.93% industry average. In addition, its trailing-12-month ROCE, ROTC, and ROTA are also negative compared to the 15.72%, 6.87%, and 5.38% respective industry averages. In addition to the POWR Rating grades we’ve just highlighted, we’ve also rated FVRR for Growth, Momentum, and Sentiment. Click here to see all the FVRR ratings.

Bottom Line

FVRR’s shares are currently trading lower than its $225.93 and $224.12 respective 50-day and 200-day moving averages,  indicating that the stock is in a downtrend. In addition, even though analysts expect its revenue to increase 35.6% year-over-year to $417.28 million in its fiscal year 2022, its EPS is expected to decline 31% year-over-year to $0.20 in fiscal 2021. So, it’s wise to avoid the stock now.

FVRR shares were trading at $171.65 per share on Friday morning, down $0.43 (-0.25%). Year-to-date, FVRR has declined -12.02%, versus a 19.86% rise in the benchmark S&P 500 index during the same period.

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst.

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