Although Fiverr International Ltd.'s (NYSE: FVRR) latest earnings results propelled the stock 20% higher, it merely pushed it back to the range where it spent most of the year.
While the market rewarded revenue growth and increased guidance, a few other comparisons with Q3 2020 show that there might be more than meets the eye.
Third-quarter 2021 results
Although revenues improved, the company reported a mediocre third-quarter result with increased losses and weaker control over costs.
- Revenue: US$74.3m (up 42% from 3Q 2020)
- Net loss: US$14.3m (loss widened US$13.9m from 3Q 2020)
However, widening net loss ain't the only negative news; somewhere within the numbers, we can find the significant growth of stock-based compensation. While it can be a good tool to attract talent in the sector where the talent competition is ruthless, stock-based compensation should be reasonable concerning the earnings.
On the other hand, Fiverr made progress with high-value buyers, increasing their participation from 57% to 62% in the quarter. However, revenue concentration carries another risk for a business that operates as a middle man, as there is a chance they might get bypassed.
This is likely one of the reasons why Fiver recently acquired Stoke Talent in a deal worth US$95m. Stoke Talent is a platform for freelance employee management whose last valuation was US$44m.
Significant Lag Behind the Broad Market
Because Fiverr International made a loss in the last twelve months, we think the market is probably more focused on revenue and revenue growth, at least for now. When a company doesn't make profits, we'd generally expect to see good revenue growth. As you can imagine, fast revenue growth, when maintained, often leads to rapid profit growth.
In the last twelve months, Fiverr International increased its revenue by 68%. That's well above most other pre-profit companies. The share price drop of 0.2% over twelve months would be considered disappointing by many, so you might argue the company is getting little credit for its impressive revenue growth. On the bright side, if this company is moving profits in the right direction, top-line growth like that could be an opportunity.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
We're pleased to report that the CEO is remunerated more modestly than most at similarly capitalized companies. But while CEO remuneration is always worth checking, the essential question is whether the company can grow earnings in the future. So we recommend checking out this free report showing consensus forecasts.
A Different Perspective
While Fiverr International shareholders are down 0.2% for the year, the market is up 30%. While the aim is to do better than that, it's worth recalling that even great long-term investments sometimes underperform for a year or more.
However, Fiverr's business model is not without flaws. To an extent, it can be compared to the dating service. The better the matchmaking, the higher the chance that the participants will form a long-lasting relationship and leave the dating service. It is not the same with freelancing, but the company's efforts to strengthen the integration shows they are aware of the issue.
To truly gain insight, we need to consider other information, too. Take risks; for example - Fiverr International has 2 warning signs we think you should be aware of.
If you are interested in growth, you might not want to miss this free list of growing companies that insiders are buying.
Please note, the market returns quoted in this article reflect the market-weighted average returns of stocks that currently trade on US exchanges.
Simply Wall St analyst Stjepan Kalinic and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.