Hey guys, sasha, a few days ago, fiverr posted amazing q4 results and the stock market reacted immediately, with a 15 jump up when the markets opened immediately. After not that you would know it now, because the price has since completely tanked, along with the rest of the market because of ukraine fears and everything else going on and fiber shares now, trade at 70, which is 7 below where the share price was just before Those results came out and there was a reason why the stock went up 15. The results were really good better than my own estimates, and in this video i will share some really deep insight from this earnings score. My outlook and valuation model for fiverr and i'll tell you what my target share price is and explain how i calculated just a word of warning.

This video is going to get pretty geeky so if you're allergic to numbers or have an analysis, intolerance. This video will not be for you and remember that this is all just my opinion. I may well have made mistakes and i don't own a crystal ball. What i do own is a link that gives you a ten dollar bonus for signing up to light here, who are the sponsors of today's video lightyear? Is the only investing app in the uk that lets you invest in u.s stocks like fiverr completely for free, every single other, investing app will charge you something usually for an exchange fee as the very minimum, but lightyear does not charge any foreign exchange fees for up To 3000 pounds a month, this is a new app and they are adding a whole ton of features very very quickly.

So if you want to check it out and go and invest in u.s stocks without having to pay fees, my link in the description will give you that 10 bonus just for signing up and making it a positive one pound or more okay. First up here is what fiverr reported in the earnings. Q4 revenue was 79.8 million dollars which absolutely smashed everyone's expectations me included. I was expecting something in the 75 to 76 million area, so that is a very healthy beat.

Gross margin drops a little, although it's still sitting nicely at over 80 and as expected, the company lost money. The operating loss was 13.9 million dollars and that meant that the net loss was 19.5 million dollars and on the surface, that kind of looks bad, because here we have a company that made 80 million dollars in revenue and lost 20 million on that revenue. So let me dive in and explain what's happening here just so you know, i am going to mention some good things and some bad things about fiverr, because there are both good and bad things to talk about. If you want only one side of the story, you've come to the wrong channel and remember that fiverr is the second biggest position in my portfolio, so i may well be biased in my assessment, but it is what it is.

So, first, let's look a little deeper at the cost, because the costs showed up this quarter and not necessarily in a good way. Sales and marketing in r d were both roughly in their usual ballpark. Sales was actually down just a little bit at 50.5 percent of total revenue, but the general and admin costs jumped up from around 16 to 17 that they used to be to 20.5 percent of revenue. So that is a very noticeable jump.

But there were two reasons why that jump happened, and this is why i'm not really at all concerned. First, if you look at the gap to non-gaap reconciliation in the cash flow, you can see that there was 6.2 million dollars in stock-based compensation within the general costs. This is way higher than it has been recently and fiverr have recently been revamping their senior leadership positions and doing quite a bit of hiring a lot of the costs associated with issuing employee stock options are in this number here. For that reason, but remember this is not a real cost.

Fiverr didn't actually lose or spend that money. This is an accounting cost. Fiverr didn't actually go and spend 6.2 million dollars on anything. They just wrote some options on the piece of paper and that cost them nothing in terms of actual cash flow.

Now the other factor that increased the general and admin costs was this one-off contingent consideration, revaluation and acquisition related costs, and if we look back at the cash flow statement, you can see exactly what happened. Fiverr has been busy acquiring smaller businesses that can help them scale faster, and you can see that there's this line of 87.8 million dollars being spent on acquisitions, a small portion of which came through in the general and admin costs. If you want the details, fiverr bought a company called stoke talent in november that has extra features and tools for employers on the fiverr platform, and the company also completed the integration of and dot co, and they actually bought them about three years ago. So those two have contributed towards this extra cost.

Here, anyway, let's dive a little bit deeper in the shareholder letter, fiverr published my favorite chart this circles chart over here. You might remember last time i showed you this chat. I pointed out that there was something odd with the q1 and q2 2017 circles, because my analysis indicated that they were missing about a quarter's worth of data in this graph. Well, that data has been missing from this chart for about four years or whatnot.

Before i made that video, but very interestingly, they seem to have fixed it, the very first time they published this chart after i made that video. What an interesting coincidence anyway, if you've not seen this child before this chart, shows how much each quarterly cohort earns for fiverr as a proportion of the performance marketing budget. Fiverr, don't publish what this percentage of their total marketing budget is as a performance marketing budget, and they even got asked a question about this in the q a after the earnings call, and they said that they don't publicly share that data. But that's okay, because i've been tracking their marketing and revenue data for years, and i take each of these circle charts every single quarter and i go and literally measure the pixels on the chart to get a pretty accurate representation of each of those data points.

So i can actually roughly work it out. The running average, according to my calculations, is about 65 and it's going up so roughly speaking, 65 of the total marketing spend is the separate budget called performance, marketing and performance marketing is what drives new customers to the platform. So you can see in this chart that, roughly speaking, they make back that performance marketing budget that they spent within the quarter on the customers that they booked in that quarter in the revenue that those customers bring so pretty good. They break even on that spend very quickly.

I have a table here where i have written down the values of each of those circles on that graph, plus all the circles from all the old versions of this graph, and you can see that the first quarter return in q1, 2021 was 0.91 as a multiplier And that is low. This is the lowest since q2 2019. That is the multiplier which says what proportion of the performance marketing budget those customers earned as revenue, the first quarter that they were there, and not only that but q4 is actually normally the quarter with the slightly higher multiplier uh in this chart. So that is extra.

Disappointing in the sense uh but then again, the revenue generated in q4 was in total quite a bit above expectations and based on my calculations, roughly one third of that revenue in q4 came from the q4 cohort. So from all the data that i am seeing, the performance marketing budget as a proportion of the total marketing is increasing faster than i previously expected. Now that is really good. The most recent quarter.

It looks like to be around about 65 on a blend across all the different cohorts, but the higher that number the better. So if it's increasing faster, that's good, because that means a bigger percentage of the total marketing budget, which is where they're spending the vast majority of their money is going directly into new customer acquisition, i.e growth now down here, i have two really useful charts the one On the left is the cumulative return on investment by cohort the one on the right is just the non-cumulative version. The investment in this case is the performance marketing budget. So this is basically a graph version of those circles for each cohort over time, and you can see some really interesting things here.

The older cohorts are absolutely killing it. Their revenue is growing rather than decreasing. This is the total. This is not just for the customers that are remaining.

This is in total for those cohorts they're making more money this year than they were making last year, which is mind-boggling. Those pink lines are the 2017 cohort and the yellow lines are the 2018 cohorts and they are both trending upwards, which is completely bonkers. This is showing that the tech improvements in the platform, the general scaling of the fiber platform and the improvements being made are actually making older cohorts, stick around and even accelerate the revenue over time. This is really really promising, because that potentially indicates that the company is moving the right direction and that potentially indicates that cohorts being booked today are also in for potentially being relatively sticky.

You can see that on the graph on the right. This is the non-cumulative version. Remember so this is showing how much they actually make in each quarter as that multiplier of the original performance marketing spend for those code codes, and you can see that after flatlining, somewhere around 0.16 0.17 sort of territory, the performance marketing budget then begins being paid back At a higher rate, they've been trending up, and there is one thing in this chart that is concerning, despite all of this good stuff, look at the blue lines here on the same chart. These are the 2020 cohorts and they started looking a bit like the green lines, which are the 2019 cohorts, the really well performing ones, and the first few data points for 2020 looked very similar to 2019, but then they have started trending downwards towards these other cohorts.

After about five or six quarters - and you can see this dip on the cumulative chart over here - the blue lines have started pointing down. This is potentially a problem, because the newer cohorts are a lot bigger and their input into future profitability of five eight is going to be larger and obviously fiverr spent a lot more money on acquiring them, so potential risk here is that the effectiveness of the marketing Dollars being spent, there is not as good for newer cohorts. You could look at the data and say that, potentially, these cohorts are not sticky. So after you've spent the initial money and they've booked the initial load of revenue, they then head downwards faster than others, but i think a more plausible explanation potentially here is that these cohorts look a lot more like 2018 and 2017, rather than the 2019 cohorts they Initially looked like, they just happened to follow the really good 2019 trajectory because they got that initial artificial, lift because of covet.

So when the whole world went to log down, remote work suddenly became much more of a thing. Those 20 20 cohorts maybe got that artificial boost and are now just reverting back to what the norm for them would be. Now i don't know it could be true, or they could be just particularly bad cohorts. It could be that as fiverr is ramping up its marketing spend the marketing spend, is less effective and is buying worse quality customers per dollar spent.

Who don't stick around as much. The next four quarters should make it really quite clear where that 2020 cohort is going. But if you look at the red lines, which is the 2021 cohorts, the really new ones, these seem to support that artificial boost theory, because they seem to be heading right along that 2018-2017 trajectory. But the cumulative charts are still growing really nicely for those older cohorts.

So if these new ones continue along that line, i'm gon na be more than happy. That is actually above where the forecasts in this model are so after these results, i've actually gone and flatlined my quarterly multipliers to all startup one before i had a distribution through the year saying that q4, for example, is particularly high and q1 is particularly low, but Because we are seeing a bit more fluctuation, i've just assumed that they're going to be flat. I was thinking if i should drop these lower, maybe to 0.95 average based on this latest one recording a particularly low number, but the trend over time for that multiplier is up, even though it oscillates up and down. I was thinking if i should drop these down a little bit, maybe to 0.95 because of what we saw in the last quarter, but the trend over time for these is going up.

So i think one is still reasonable when we're talking about a 10-year outcome. As an average expectation - and the thing is even if i did drop them, i did go and drop them a little bit more. It makes very little difference in the grand scheme of things to the final numbers, because it's only the first two points on very, very long term outcomes. So it's not really that important anyway, and then i have this projection by cohort here using those exact multiples.

Now this is where it gets a little bit interesting, because fiverr have officially given guidance of 85 to 87 million dollars in revenue for q1 2022, and this is quite a bit higher than the 79.8 million in q4. So i can roughly predict what the performance marketing budget in q1 is going to be on that basis about 34 million dollars. If i use the average performance marketing ratio - and that is only a 22 increase year on year - but remember that last year - fiverr had those super bowl ads and they spent a huge amount during q1. It was up 134 on the year before that.

So that is the reason why, relatively speaking, i see a slightly lower increase in q1 of this year. It's not necessarily an indicator of long-term expectations. Here now, over the last couple of years, performance marketing has been growing at around 60 to 70 percent year on year and actually accelerating, as the business was growing, they found they could spend even more money on marketing and i'm forecasting that this will actually drop in 2022 to offset the covert boom, i'm also expecting that they're going to have some financing issues, which means they're either going to have to raise cash through debt or through equity in some shape. But then i'm also expecting that a marketing spend is going to peak at only around about 44 to 45 percent after that particular period and then gradually decline over the next 10 years.

So in my mind, this is roughly on par with expectations. It's not particularly optimistic. I'm not saying it's going to continue growing at 60, 70 or grow even faster than that, i'm also not baking in a complete immediate death. So so to me, this makes sense by the way, if you want access to this model and all the numbers in there.

All of these models are available to channel members at t level. If you want to play around with them or use them as some kind of learning tool, you can sign up through the patreon link in the description or become a channel member right here on youtube. Both do the exact same thing: if you don't want the models just want to join the community, where we share insight, discuss stocks and all things related and get access to my target prices feel free to join as an espresso member. Instead, if you want to now, i updated all of the other assumptions as well on this model, the latest net debt figures and shares outstanding, and all of that and this mod was actually relatively simple.

It uses that performance marketing spend that. I just showed you as the core fundamental bit of input data and that it extrapolates each future cohort individually as a line uh using the charts that i showed you earlier in terms of how much each of those cohorts makes in each quarter after they're booked and Then they just sum them all up, so it isn't all that complex, really and then using those figures. I get a target share price of 491 dollars using the perpetuity approach and 715 dollars using the ebitda approach. I have tuned down a whole bunch of assumptions in this model, including codified growth rates and increasing the tax assumptions from the previous version.

So i'm going to drop the target price here down to 650, but it is a somewhat academic point at the stage for me. Fiverr looks like a very serious multi-bag of stock at this kind of share price, although of course i might be completely wrong and the company can easily stop performing and anything can happen at any point so i'll be buying a whole lot more shares of fiverr. As a result of all this, as and when i can, including on lightyear, who are the sponsors remember of today's video, so if you want to go check them out, remember you can go and use my link in the description to get that 10 bonus. If you found this video useful, please don't forget to smash the like button for the youtube algorithm.

Thank you so much for watching. I really really appreciate it and, as always i'll see you guys later.