Over the last six months, Fiverr’s shares have sunk to $8.54, producing a disappointing 13.1% loss - a stark contrast to the S&P 500’s 21.1% gain. This was partly due to its softer quarterly results and might have investors contemplating their next move.
Is now the time to buy Fiverr, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Is Fiverr Not Exciting?
Despite the more favorable entry price, we’re sitting this one out for now. Here are three reasons you should be careful with FVRR, plus one stock we’d rather own.
1. Declining Active Buyers Reflect Product Weakness
As a gig economy marketplace, Fiverr generates revenue growth by expanding the number of services on its platform (e.g. rides, deliveries, freelance jobs) and raising the commission fee from each service provided.
Fiverr struggled with new customer acquisition over the last two years as its active buyers have declined by 14% annually to 2.7 million in the latest quarter. This performance isn’t ideal because internet usage is secular, meaning there are typically unaddressed market opportunities. If Fiverr wants to accelerate growth, it likely needs to enhance the appeal of its current offerings or innovate with new products. 
2. Revenue Projections Show Stormy Skies Ahead
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Fiverr’s revenue to drop by 23%, a decrease from its 6.8% annualized growth for the past three years. This projection doesn’t excite us and implies its products and services will see some demand headwinds.
3. Inefficient Marketing Strategy Eats Into Profits
Unlike enterprise software that’s typically sold by dedicated sales teams, consumer internet businesses like Fiverr grow from a combination of product virality, paid advertisement, and incentives.
It’s relatively expensive for Fiverr to acquire new users as the company has spent 49.2% of its gross profit on sales and marketing expenses over the last year. This inefficiency indicates that Fiverr operates in a competitive market and must continue investing to maintain an acceptable growth trajectory. 
Final Judgment
Fiverr isn’t a terrible business, but it isn’t one of our picks. Following the recent decline, the stock trades at 1.2× forward price-to-gross profit (or $8.54 per share). While this valuation is optically cheap, the potential downside is big given its shaky fundamentals. We’re fairly confident there are better stocks to buy right now. We’d recommend looking at a dominant aerospace business that has perfected its M&A strategy.
Stocks We Like More Than Fiverr
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