All You Need To Know About Fiverr Before You Invest

Business Model

Fiverr’s mission is to change how the world works together. Its business model is centred around the concept that people should be able to buy and sell digital services in the same fashion as physical goods on an e-commerce platform. 

Through its platform, businesses can outsource ad-hoc tasks, such as logo design, video creation and editing, website development and blog writing, with prices ranging from $5 to thousands of dollars, to freelancers from all over the world.

Fiverr coins the productized service listings on its platform as Gigs. Each Gig has a clearly defined scope, duration and price, along with buyer-generated reviews.

Besides its core marketplace, Fiverr also offers an ecosystem of value-added products that empowers its freelancers to build a successful freelancing career and enables businesses to implement an effective and efficient strategy to utilize the freelancing workforce. 

On the demand side, ClearVoice offers a subscription-based content marketing solution, WorkingNotWorking provides paid access to high-end vetted creative talent, trusted by many of the world’s leading brands and agencies, including Google, Netflix and Spotify, while Stoke Talent provides a freelancer management system to help businesses manage freelancers across channels, all of which cater to medium to larger sized businesses. Fiverr acquired the three businesses, Working Not Working (February), CreativeLive (October), as well as Stoke (November) in 2021.

For freelancers, Promoted Gigs and Seller Plus provide advertising capabilities, and Fiverr Workspace provides freelancers with a software solution to manage administrative tasks such as invoicing, contracts, time tracking and organizing workflow with their clients, so freelancers can spend more time delivering value to their clients. Fiverr also provides comprehensive learning and development offerings through Fiverr Learn and CreativeLive that help freelancers grow professionally. 

Products tailored to serve enterprise customers

Fiverr Pro

The company introduced Fiverr Pro in 2017. Sitting alongside the main platform, Fiverr Pro features vetted talent who typically charge higher fees than regular sellers. This is intended to attract SMBs with larger budgets and more complex projects.

Fiverr Business

In September 2020, it launched its Business segment, which allows companies to tap into a pool of vetted freelancers to have their tasks completed. Fiverr monetizes this service by charging companies $149 per year for teams of up to 50 users.

Fiverr Business offers enterprise customers access to the same Fiverr marketplace, but with even more functionality and control. For example, buyers can use the new interface to collaborate with their freelance team as a group and monitor the completion of your project with custom task lists. To top it all off, buyers will have your very own Success Manager to help them find the right talent for any job and assist them in managing the completion of your projects.

In Fiverr’s 2022 1Q earnings call, Fiverr’s CEO Micha Kaufman commented: 

“We are also investing towards our vision of a Talent Cloud, a holistic solution that utilizes talent-as-a-service. Imagine as a marketing manager, some days you need someone to help you do simple video editing, other days, you need a full-fledged TV commercial production, then there are times you are looking for someone to help you manage content on your social media channel. With Talent Cloud, you don’t even need to think about how to allocate and distribute the workflows, but rather just turn to Fiverr, and our system will assemble the team, distribute the workflows, and take the project to the finish line. This is the talent-as-a-service we are envisioning, let our technology do the optimization and customers can focus on growing their businesses.”

Fiverr Business currently makes up over 5% of Fiverr’s marketplace revenue.  While the small business part of Fiverr’s business is feeling the impact of the macro shift, Fiverr Business is gaining momentum. In its most recent quarter, Fiverr Business saw an over 50% growth in accounts year-over-year and an even higher increase in order value year-over-year.

Both Fiverr Pro and Fiverr Business are crucial initiatives that serve as the first few stepping stones for Fiverr to go upmarket and capture the premium end of its customer base – big brands and businesses with large budgets. This should lead to higher spending per buyer which should translate to sustainable topline growth for the foreseeable future.

The corporate market historically has been dominated by Upwork, but this is changing with Fiverr’s continued focus on high-quality offerings catered to the corporate market.

Buyer experience

Fiverr provides buyers access to a catalogue of Gigs over 550 categories that they can compare and filter across parameters including Gig details, seller reviews, price and delivery time. Each Gig includes the details of the service provided, the price, delivery timeframe and reviews from previous buyers of that Gig, allowing buyers to make informed decisions based on their needs, budgets and tastes.

When looking for someone to help me with logo design, Fiverr allows me to choose from a variety of different categories and many customisable logo options. As a business, this makes it hassle-free and convenient for me to quickly look for a seller that can give me exactly what I want.

Personalisable Options: As a part of the Gig concept, buyers can select from different tiers, namely Basic, Standard and Premium, each with different levels of service such as different word counts for a translation, video lengths for a video edit or the number of revisions for a logo design. Fiverr facilitates further customization through custom orders. A buyer can request a custom order through the platform with his or her unique requirements.

Fiverr also allows buyers to make recurring purchases from their favourite sellers through the Subscriptions feature, or to break down a large project into multiple purchases through the Milestones feature.

Seller Tools

Advertising. To help sellers increase visibility and grow their business Fiverr offers an advertising tool, Promoted Gigs, that allows sellers to bid and win prime locations on the website through an auction mechanism. Promoted Gigs are cost-per-click, so sellers are charged only when their ads are viewed and clicked by the buyer. Sellers decide a daily budget and the maximum bid per click, and Fiverr also provides automatic bidding tools to help sellers optimize their bid price and maximize their exposure with minimum efforts on their part.

Workspace. Some of the freelancers on Fiverr have become so successful that they can build their businesses that employ multiple employees. Fiverr has developed Workspace, which helps freelancer-turn-business-owner run their companies and handle dozens of client requests at the same time.

There is a Free as well as Unlimited tier available. The Free tier offers a limited number of features, such as seller integrations, ready-to-use contracts, or payment processing. Unlimited, which costs $24 per month extends that by providing sellers with editable contracts, business analytics, priority support, custom-branded documents, and many more.

Providing sellers with a variety of additional tools increases the robustness of Fiverr’s platform. Normally, sellers would be incentivized to leave the platform as soon as they’ve built up a recurring client base due to the fees charged.

However, taking the hassle out of client and business process management does give them a greater incentive to stay on due to time savings (which then can be used to serve more clients).

Learning and education. Fiverr offers tutorials and materials on using Fiverr infrastructure tools, allowing sellers to get the most out of their experience using Fiverr. This is supplemented by the Seller Help Center, which will enable sellers to open tickets with customer support as well as access a comprehensive set of FAQs and how-to videos. Fiverr also provides access to a library of high-quality educational content through Fiverr Learn and CreativeLive to help freelancers improve their skills and grow professionally.

This is an excellent business direction that Fiverr has taken. There is a much stronger value proposition for freelancers looking to start their gigs to take up courses on Fiverr as compared to other online course providers such as Udemy or Coursera. This is because the courses provided by Fiverr Learn are most likely far more relevant and useful in terms of equipping freelancers with practical skills they can directly apply to their gigs on the main Fiverr marketplace. Being a top-notch online course provider is a lucrative source of growth that Fiverr can consider expanding into in the future, giving the business optionality.

Furthermore, by having its sellers go for courses to upgrade their skills, the services they will provide will be of higher quality. This leads to more satisfied buyers and higher retention rates. As the quality of demand improves, freelancers earn more and are motivated to continue providing higher-quality services.

Thesis

1. Network Effect

As with other platform business models, Fiverr possesses an economic moat known as the network effect. More buyers attract more sellers onto its platform, which, in turn, leads to more selection and better value for money, driving more engagement and spending by buyers.

Fiverr leverages predictive AI technologies to recommend Gigs to buyers based on their purchase history and other activity in the marketplace. Further, it is also utilized to improve the liquidity between supply and demand in the marketplace, ensuring that seller capacity and buyer demands are in balance.

AI inherently implies network effects because as more buyers and sellers use the platform, the algorithm can better personalize selections leading to improved buyer engagement and spending per buyer.

2. Revenues a small % of the total addressable market

For the past 3 years, approximately 70% of Fiverr’s revenue was generated from Gigs purchased by buyers located in the United States, the United Kingdom, Canada, Australia and New Zealand. As Fiverr expands its platform to include additional languages, the company expects to deepen its penetration into Western Europe, Asia Pacific and Latin America.

Fiverr estimates its total addressable market to be $100 billion. With its 2021 revenue of $1 billion, Fiverr still has a lot of room for future growth. In addition, it is estimated that the total freelancer income in the US is $750 billion.

3. Industry Growth

Freelancers will have an increasing role to play in the workforce of tomorrow.

Outsourcing to freelance workers helps businesses to scale effectively without incurring the fixed costs of hiring full-time employees. Therefore, companies are displaying a higher preference for managed gig workforces to undertake key tasks in sales and marketing as well as customer experience and relationship roles, among others. 

For freelancers, the gig economy offers the advantage of remote working, overall convenience and flexible work hours as per personal preference.

The freelancer platforms market is expected to grow at a CAGR of 15-16% from 2022 to 2028, where it is estimated to be worth around $10 billion.

Key Metrics

GMV

GMV reached  $1,018.7 million in 2021, representing a 47.9% CAGR from 2017.

Number of Buyers

In 2021, the number of buyers on Fiverr increased to 4.2 million. 

Spend Per Active Buyer

Fiverr’s spend per buyer as of December 31, 2021, was $242, up 18% from $205 as of December 31, 2020. Spend-per-buyer increased by a CAGR of 16% from 2012.

For the year ended December 31, 2021, buyers who spent over $500 accounted for 63% of core marketplace revenue, up from 58% in the year ended December 31, 2020.

And for accounts that are spending over $10,000 with Fiverr, the number has grown by 90% year-over-year.

This also suggests that Fiverr’s attempt to move upmarket to attract larger businesses as buyers have been gaining some traction. 

Financials

Revenue for Fiverr had an average 54.7% CAGR from 2017 to 2021. Pre-pandemic, revenue for Fiverr had an average 43.4% CAGR from 2017 to 2019, but as we only have data dating back to 2017, it may be good to wait for a longer track record.

Commissions generate 73% of revenue, with Fiverr generating another 27% from its value-added services.

Net income 

The company is still unprofitable as it continues to spend heavily on research and development as well as sales and marketing efforts.

Free cash flow

Fiverr’s capital-light business model allows for strong cash flow as it does not have to continually incur capital outlay to keep operations going. Free cash flow became positive in 2020, which is impressive for a young and fast-growing company like Fiverr.

Shares Outstanding

A red flag will be the rather significant increase in the number of outstanding shares. While we should be watching this number as we do not wish for any massive dilution to occur, this shouldn’t be too much of a concern in my opinion as it is normal for companies in their initial growth stages to reward employees using stock-based compensation methods. 

As long as this number doesn’t show sudden sharp increases, this should not be a red flag.

Risks

Highly Competitive Industry

The freelancing industry is a highly competitive and fragmented landscape. Fiverr faces competition from many similar businesses operating an online marketplace for services. Some of its more established competitors include Upwork and Freelancer.com. 

Upwork – 3.5billion GMV in 2021, 26.4% CAGR from 2017, 771,000 buyers, revenue grew 25.5% from 2017

Fiverr – 1.0billion GMV in 2021, 47.9% CAGR from 2017, 4.2billion buyers, revenue grew 54.7% CAGR from 2017

Freelancer.com – US$101.1m GMV in 2021, 

While Upwork is the larger player in terms of GMV and revenue, Fiverr has been growing at a much faster rate than Upwork in recent years. I will give credit to Fiverr for having a strong value proposition and robust innovation pipeline. There must be a reason why more buyers and sellers choose to go to Fiverr despite it having about twice the take rate as that of Upwork. (take rate is defined as revenue earned by Fiverr as a percentage of total GMV transacted on the platform). However, some healthy dose of scepticism is still warranted given that Fiverr did grow from a smaller revenue base as compared to Upwork. Still, I will think that Fiverr will still be able to outpace the growth rate of Upwork despite having a larger revenue base now.

While Fiverr has a Net Promoter Score (NPS) of 67 for buyers and 79 for sellers. For comparison, UpWork has a combined NPS score of 60.

Failure to compete in the SMB market

If Fiverr cannot successfully get larger enterprises to buy from their platform, it will significantly stunt its growth potential. Fiverr will be directly competing with Upwork, Freelancer, and Toptal for this market and the competition will be fierce. Fiverr currently offers 500 skills in 8 categories, compared to 10,000 skills in 90 categories on their rival Upwork, showing that Fiverr still has a long way to go in terms of improving the breadth of its offerings. 

LinkedIn very recently announced that they are developing a new freelance marketplace platform which will enable businesses to find, connect with, and pay freelancers all on the platform. This marketplace would let its 740 million users find and book freelancers, pitting it against Fiverr. LinkedIn has got a big brand and as such the competition needs to be taken as serious.

Geopolitical Risk

Fiverr is headquartered in Israel.

Historically, Israel has had – and continues to have – tense relationships with its neighbouring countries. But I am comforted by the fact that Fiverr has managed to grow strongly since its founding in 2010 despite Israel having been in multiple armed conflicts with its neighbours over the past decade. Nonetheless, I will be keeping an eye on the situation.

Summary

What I would like to know more about Fiverr would be its number of sellers, the average revenue per seller, retention rate and so on, as it seems there is relatively less transparency provided about its seller data. While Fiverr continues to focus on its investments to move upstream, it’s important that it also keeps its sellers satisfied with the platform experience, especially if they want sellers to continue using their platform despite the high take-rate.

While Fiverr definitely holds a lot of potential for future growth, it being a relatively new company in the initial stages of an emerging growth trend, means that there will be more investment risks one has to be able to tolerate and be mindful of. While such high-growth stocks can bring about spectacular returns, one also has to consider and be able to accept the wider possibility of eventual outcomes.

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