Hey guys, it's sasha today, i'm going to tell you about a stock that i am really excited by. I have spent a few days solid, studying it in a lot of detail. I didn't do anything else didn't even have time to make any videos, but there was a reason for that. My models on the stock say that there is a 350 upside which is insane and very, very rare.

I hardly ever see anything even remotely close to that order of magnitude in my models. The only other time i recently saw something like that was when tesla was trading at 550 earlier this year and i had a 3 000 price target. So, just like that episode with tesla, i am going to talk about this thing and i'm also personally investing in this stock. So remember that my analysis may be biased as a result and while we're on the caveats front, this video is going to get seriously geeky and is going to be a little bit long way more in-depth than my usual videos, because there's just that much information that I want to share it's only a fraction of the information that i dug up over the last couple days, but i felt that i wanted to give you more than the normal amount.

Also, this is not the sort of stock that is going to go and explode and grow by a factor of two or three in the next few weeks. Absolutely not so, if you're here looking for some fast money, this is not for you. This one is a long-term play for me and i will explain exactly why that is. When i go through the numbers and remember i am not your financial advisor, i am just a random guy on youtube and i am here just sharing my opinion so make sure that you do your own due diligence.

You set your own target share price and you do your own homework before you invest in anything now now that that's out of the way, let's get into the details, the stock, you might not be surprised to hear that i'm going to be talking about today is Fiverr as i'm recording this video fiverr is trading at 164 dollars in the pre-market for those who haven't heard of fiverr before it's an online marketplace for people who are able to hire other people to do some kind of work for them. You know you can hire somebody to write something for you. Design new website do some analytics, recording some music pretty much whatever it is that you want five at the moment is valued at just under six billion dollars. So a pretty small company in the grand scheme of things and they went public in june 2019 and it has been consistently losing money, never turning a profit.

In the three most recent quarters. Fiverr has had the three highest losses ever losing 17.8 million dollars in q1. 13.3 million in q2 and 14.3 million dollars in q3. So on the surface, a lot of analysts who don't dig any deeper, will pass on the stock and think it is awful, but i dug pretty deep here.

So let me share some of this analysis with you. First off i went and collected all the financial data i could from fiverr. The company only has published quarterly reports going back to q2 2019 because of when they went public. But if you look through those quarterly results, they also compare them to the same quarter from the previous year.

So i went and got all of that data from that going back to q2 2018 and there's a few interesting points in here that i wanted to point out. First, look at the gross profit margin over the last three years. It started off at 78.4 percent, which is already really high by the way in q2 2018, and it is now all the way up to 83.3 percent just over three years later. This is amazing because the cost of delivery of the service is very cheap here and it is likely to continue climbing as fiverr improves its scale, but then just below that i have the year-on-year growth and you can see that from q2 to q4 last year, fiverr's Growth has exploded, we saw revenue grow by about 70 percent on average, and the global covert situation was definitely part of the reason why this happened as companies couldn't meet.

People couldn't go to the office, blah blah blah getting more remote. Work to fill in those gaps became much more popular as a solution, but look at what happened this year. That growth has continued at a rate that is higher than it was before the jump, and that is phenomenal, because if you look at many many other online businesses, they have really struggled this year because they had such a massive bump last year. Look at facebook look at pinterest, look at almost any of them.

The q3 rate of growth has dropped down to 33 percent, which seems kind of low compared to the last two quarters. But if you look very carefully, q3 2020 had a sizable quarter on quarter jump and was 77 up compared to the previous year. So what we're really seeing here is two things: sort of overlapping the rate of growth for fiverr based on this data is accelerating, rather than decelerating, and the events of last year have simply taken some of the growth from this year and potentially even next year and Moved it back to last year, so, for example, look at q3 2019 fiverr made 27.9 million dollars in revenue, which was thirty four point: six percent up from 2018 and the revenue in q3 2021 last quarter two years later, was 74.3 million dollars. So that means that the average rate of growth from 2019 q3 to 2021 q3 was 63.2 per year, all right below.

I have the operating costs here that i've collected as well of the business. These are the sales and marketing r d and the general and admin costs you can see further down here, that all of these costs are reducing as a proportion of revenue, and that is exactly what we want to be seeing. That is how the business will become profitable as it scales over time. Until very recently, the costs were actually larger than the total amount of revenue the company was generating, so they had to borrow money in order to spend that money on the cost, and that is because the company has been very aggressive at reinvesting money back into the Business and research and development costs are improving the platform and marketing drives more new customers.

That's why they're piling money into it and that marketing line is the really important one that you really really need to pay attention to later on now, look at the rate at which the marketing spend is growing in q1. It was 134 percent year on year, because fiverr paid for super bowl ads, but even aside from that, the marketing spend is going through the roof and is growing even faster than revenue and remember that marketing is what is driving tomorrow's revenue. And this is where it's going to get really geeky we're going to turn the level up, and i really apologize in advance, but we're going to get really dirty in the numbers all right. I realized that i needed to do some in-depth cohort analysis.

Every quarter. Five are publishers of this graph in their presentation, which is, in my opinion, by far the most important bit of data in that whole pack. It shows you the quarterly performance of customers booked in each quarter, so you can see that the customers that five are booked in q3 2021 have just one circle just below that level of one. That means that they have one quarter of performance so far, but q2 2021 has two circles, because they've had two quarters of performance.

Since those customers turned up. The y-axis here is the return on investment for each cohort, where the investment is something that fiverr calls performance. Marketing so when you have a circle which is on the one x line, that means that the customers booked in that quarter have already earned a hundred percent of the performance marketing spend on acquiring them in that quarter. Now, performance marketing is not the entire sales and marketing spend; it is only a fraction of the total.

So naturally i wanted to find out roughly what that fraction was. So i took that graph that they published and unfortunately, there's not much data on there, but i went and took it and i drew my own lines on it, so i could understand with pretty high degree of accuracy what all of those circles were actually showing. I manually went through each circle on the graph going back two years and i made a close enough estimate of how much each of the jumps from one circle to the next one was now first off. Let's look at the data for the last set of circles.

So we're looking at the top two circles for each cohort or the top one for the most recent one, so how much the most recent jump has been. I have the latest value for that cohort here in column e and the increase from the last circle before that to this latest one in the next column. That's f, then, in column c, on the left, i added the total marketing spend from the quarter that i got from the profit and loss statements. So that's the marketing spend that the total company has been spending in that quarter.

Just to get us started with the data, i hope you're following then in column g. I take the latest circle jump, so the latest amount of revenue that they have generated according to that circle chart and i multiplied by that marketing spend and then i do it for all the cohorts and then i go and add them all up, and i get 112 million dollars now i don't know the exact marketing spent for the 2017 cohorts, but i have estimated them based on the trajectory of those cohorts in the future points that are available and try to track you back so that i could make a good estimate uh Anyway, all of this data also doesn't include anything from 2010 when fiverr launched to 2016., but those cohorts are really pretty small, especially at the beginning and i'm estimating that their total is going to be roughly around the 17 million dollar mark on that same scale. So the total of all of the revenues according to that calculation in the some of the marketing budgets feel like it's 129 million dollars. And why is this important? Because the total revenue in q3 was only 74.3 million dollars.

So in order to figure out how? Much of the total marketing spend was that performance marketing that then gets multiplied by those green circles. We just do the simple math, which you go and divide 74.3 million, which is what the revenue was in q3 by 129 million and we get 58. And this means that, according to my math here, the average proportion of the marketing spend that fiverr classifies as performance marketing is 58. So, let's use that as a rough approximation, it won't be perfectly accurate and this data does include cohorts going back all the way to 2017.

But if you look at the distribution, more than half of the revenue in the last quarter came from the last four cohorts. So this 58 is going to be very heavily skewed towards the more recent data and as the marketing budget for fiverr grows. I expect that performance marketing bit to actually form a bigger part of the total over time. So, if anything, we're probably going with a conservative assumption here all right now i go and take that 58 and multiply by each of those quarterly marketing spend numbers that we can get from their profit and loss statements to get the performance marketing spent in each quarter.

Now we've got a number we're going to then use it later on. Okay, first, let's look down here. This table shows the quarterly performance from each of those circles for each quarter. Where the data is available, you can see that we have full data on all cohorts.

Going back to q1 2019, but after that, all the cohorts only show the last 11 data points, so we're missing some of the early parts of the data except 2017 for q1 and q2. We seem to be missing one more data point, for i have no idea. Why reason i couldn't see any reasoning for that in any of the older packs, but but that's what it is. So the numbers in this table are the cumulative values, literally the value of each green circle.

On that graph, that i just showed you and below that i have a second table where i just work out the difference, so how much each circle has jumped from the previous one. So we can see the quarter specific performance for each of those circles and in between those two bits of data i have the two graphs. The one on the left is the cumulative graph, and this is really interesting. First off you can see the performance over time.

Does not decline and does not weigh in anywhere near as much as you would think, all the cohorts just keep going up and they keep going up at a very consistent rate, and this is really quite interesting. It also shows a couple of other things. I color-coded these so that each year has the same shade going from lightest to darkest, as you go from q1 to q4. And if you look, for example, these pinky purpley ones, q1 grows slower than q2, which grows slower than q3, which grows slower than q4.

But that rate of growth is set at the beginning and then relative to each other. They sort of seem to go almost in parallel, and this is really really interesting and even more interesting is that the same pattern happens in every single year. So there's definitely a very noticeable pattern there, but the different years do very differently compared to each other. 2018 is currently performing the worst out of all the years and 2017 is the second worst.

But the good news is that the newer years, the ones with far more customers are doing much better. The green ones are 2019 and the blue ones here are 20 20., and here is something really interesting. The first month of performance doesn't really tell you whether cohorts will go so just because you're doing something better slightly worse in the first month i couldn't see any strong correlation as to how the cohort will then perform from that, but the next three months. That's roughly months, two to four are critical in how the cohorts then perform afterwards.

They set the path because you can see some of these 2017 and 2018 cohorts actually started higher up, but then months, two to four set them on that lower trajectory, and it looks like based on the data once the cohort kind of sets off on a particular Trajectory it is almost impossible for it to then move off that trajectory, and none of them really do. That can be really really interesting. There can be some minor adjustments up and down as the product improves over time. The service improves et cetera, but those early months.

Two to four set the path pretty much and you can you can do whatever you like, but the cohort pretty much sticks to that path. Afterwards, now the chart on the right shows the deltas between these different circles, so it shows the difference between one circle and the next one up and so on. So you can see how the cohorts are trending towards that not 0.2 x on average. So after about a year we're getting about 20 of that original performance, marketing spent earned per quarter per cohort and it sort of flat lines from there.

Now the older cohorts have actually increased a bit at the end, but i wouldn't take that as a sign over anything. I'm not expecting that to happen, certainly - and i'm not modeling that to happen and the new cohorts are actually trending above the old ones. For now they are definitely doing better in the early months, but i'm just going to assume that they go and degrade down to roughly the same level. And now, let's look at just the first quarter performance.

How much money each cohort makes. In the first point on that graph, i just told you it's not really representative of what will happen in the long term, but it's really really interesting to take a look at that. Just on its own. The yellow stuff is where i had to extrapolate data out, because the data pre-2019 doesn't go back far enough, but i compared the trajectory of the later circles to try to make a pretty reasonable guesstimate.

I think - and here is something really interesting - that's going to be critical in a second fiverr is spending everything they can to get more customers to grow the business and they technically make all of the money back that they spend roughly in that first quarter. So the question is: why wouldn't you go and spend even more, even faster than they're already doing right? If you make all the money back pretty much straight away? Why wouldn't you do it? Well, there are some risks associated with that. You do have to borrow a lot of money. You have to find people who will lend you those sorts of money, and that is a thing in its own and what happens if, for whatever reason you don't make it back.

Maybe there's going to be a market crash, maybe something else unforeseen happens. Who knows maybe the opposite of what happened last year and then there's the cash flow issue. On top of that, you do earn the money back in the same quarter from people that you get in, but you have to spend the marketing money first, then you have to after you've spent it. You have to wait for the people to sign up.

You have to wait for them to agree the gigs, the jobs with the people doing the jobs. Then you have to wait for the job to get done, maybe a week or maybe a few weeks. Then you have to wait for the final payment to be settled. All of that so anyway, if you look at the data, fiver is super consistent here, and i think that may mean it's an intentional strategy.

Each quarter. The latest cohort makes about 29 to 30 percent of the total revenue from that quarter. It is so bang on and so consistent, except for one or two outliers. So this this i'm gon na use in just a bit q1 this year is the only one that really stands out and that's because those expensive super bowl ads that they add and kind of raise the total marketing budget above the average.

So i think there is a strategy here: sort of balance that rate of growth with some risk management, and it looks like the objective - or at least the outcome of that is to stick to that 29 to 30 percent mark so out of the total quarterly revenue In any one quarter, roughly 29 to 30 percent comes from the most recent quarter. Now i'll show you how i use that in a second at the bottom of the sheet. I have the projected multiplier, so i basically took that graph up here on the right and i plotted out what the average the rough average over time of those graphs is going to. Look like now.

Remember that the first quarter always performs the worst out of the four quarters of the year, and that's why i start the first quarter a bit lower. Then i bake in a relatively simple assumption. So, for example, i start off with anything between 0.95 times to 1.05 times in the first quarter, and then that drops pretty quickly towards that 0.2 x level that we just talked about. Remember the level to which all the cohorts were trending and then i go and reduce it from there as a gradual sort of degradation by half a percent per quarter.

That might not seem like a lot but based on numbers, i'm not seeing it degrade particularly fast. Either i don't know how we'll actually play out, but these trenches appear to be super resilient. The data actually shows them going up on the older cohorts, but i'm just assuming a gradual degradation and after three years the cohorts that were already at 0.2x lose another 15 of the revenue that they were making and so on. So i think that's kind of reasonable and then i go and build a forecast cohort by cohort.

I take each of the older cohorts and i take their current performance rate as a sort of rough starting point adjusted for q4 2021 and then i degrade them down a little bit more quickly than the newer cohorts from there. Then i have this triangle thing below and it's actually more simple than it looks. I just take each cohort and apply those average multiplier curves from the previous sheet to get to what their overtime performance will look like. So in 2021 for q4, for example, it has 1.05 in that first month because that's the first point and then it goes down to 0.4 in the second month down further towards that 0.2 mark and further down blah blah blah right then q1 in 2022 starts one Quarter later because it's the next quarter - and it starts with 0.95 because remember the first quarter of the year generally - doesn't do as well as q4.

So then i go and do that for the next 10 years. Then, on the left, i focus how much five i will actually go and spend on that performance. Marketing spent per quarter remember this is not the fuller marketing budget, just the performance marketing part that we worked out earlier. That translates directly into new accounts and remember that at the moment the new account the growth level is at about 63 percent per year.

I showed you that when we're looking at the p l, so i go and increase the marketing spend by somewhere in the 40 to 50 percent per year mark over the next few years. That's what they've been trending to. In fact, they've been increasing, and i think from like my personal point of view here, that the industry of outsourcing via platforms like fiverr, is going to grow a lot over the next decade, and this is probably the biggest error margin in this whole model. This is probably the one of the one assumption that is most likely to go wrong if this model goes wrong.

So if you have a different view, you might want to address this one over the others. Then, after about five years, i started tapering that rate of growth on the marketing spend quite a lot. I feel that right now, five is right at the beginning of the journey they're, a very small company - so i think the next few years growth is very, very achievable, but then i drop it all the way down to slow single figures of below 10 percent. In 10 years time, i'm trying to be a bit conservative here and assuming that eventually the rate of growth has to slow because of i don't know, saturation competitors or whatever it might not, but i'll take the upside in that case, so then below i do something Super simple: i take each of those numbers in the table above and i multiply them by the performance marketing spend on the left, the stuff in blue right.

So q4 2021 has a multiplier of 1.05 and then i go and take that 105 multiplied by the 25 million dollars, and so i get the 26.25 million dollars in revenue then the next month the multiplier drops to 0.4. So i take that same 25. Multiply it by 0.4 and i get 10 million dollars and so on and i'll do that for every single cohort for every single point in the future. And then i just go and add them all up quarter after quarter after quarter and look the total revenue projection for q4.

According to this logic, is 76.09 million dollars, and it's about the same as what it was in q3 and q2, so not very exciting and, interestingly, it is bang on where fiverr themselves are projecting the revenue to being q4 as well. So so far so good. But here is where it gets really interesting. You see these cohort based businesses have a magic effect of adding up like crazy over time, which gives them that non-linear growth so using the exact same projection with no other changes.

The revenue begins jumping to a massive 97 million dollars in q1. Now i might be over egging in this particular quarter, because i'm assuming based on the way that their spending spending pattern has been that q1 is going to be a blockbuster, spend because of super bowl ads and all of that. But on top of that, because they've been stacking a bit of cash and booking very high volumes of customers through this year, who will continue generating a lot of revenue in q1, more so than they have been doing in previous years. But then i go and revert it back to that normal sort of regular level of growth and look at the two sets of numbers in those lines at the bottom.

The year and year, growth here looks pretty much the same as what has been looking at recently. In fact, it has been growing recently, but i sort of cap it at that 45 to 50 per year level, just to be a bit conservative and then i drop it all the way down to 20 percent later on. So i'm not saying this is going to be growing at 100 or something insane. I kind of feel this is very reasonable for a business at this stage of the growth cycle and the one above that that line above.

That is the ratio that we talked about earlier. Remember the proportion of revenue in each quarter that is earned by the most recent quarter out of that total and remember that it was 29 to 30 per inch bang on over the last few years. Well, i try to stick to that very closely over the future years, presuming that is their current objective strategy, etc. Q1 is particularly high because of that high marketing spend we just talked about and q4 looks artificially high because of how the revenues over the last three quarters have kind of stayed really flat and sort of an artificial increase as a result of that more than a Real increase anyway, then i go and take these revenue numbers and stick them into the projected p l.

I split revenue into the back book and the from book. The back book is the sum of all the old cohorts. If you like, the ones that aren't going to be booking any new customers, so everything up to q3 2021 onwards and from book is all the new cohorts in the future, so starting from q4 and everything from then on now i then take the gross margin, so At the moment it is about 83.3 and i slowly increase it to just around 86 in 10 years time, because i'm assuming scale was going to give them that i feel that's very reasonable. Then i go and add in the costs.

The first line is that performance and marketing spend that we forecasted. Then i assume that over time, performance marketing will increase as a proportion of the total marketing budget. So we start with a 58 and then i increase it as the company grows to kind of hitting over 80 in 10 years. Time, which again, i feel, is quite reasonable and then i just go and divide one by the other to get my total sales and marketing budget.

If you like, and with the other costs, i just go and taper them down at the sort of rate they were coming down so far, but actually not as much as they've been coming down and flatlining. So keeping it somewhat conservative because, as the revenue increases, fixed costs, won't increase are linearly in proportion and that's pretty much it. I didn't go and add up all of that and here's the thing i only have fiverr breaking even in 2026, using this model, that's in five years time, and i think that until they approach that point, a lot of analysts won't really see what is happening under The bonnet because the headline figures will continue posting losses quarter after quarter year after year, a bit like what was happening with tesla. At one point, you could see what the numbers were doing under the bonnet.

If you studied the company, but on the surface it just kept losing money and the moment that they started turning a profit. Suddenly the share price exploded, because what was obvious to some people sort of became obvious to everyone else and look at what the magic of these cohorts adding up does in 2029 to 2031. This set of assumptions gives me a net profit number. That begin, looking ridiculous, because those triangles begin adding up super hard.

I have them breaking 1 billion in profit in 2029 and it goes on from there. Despite me, reducing growth massively remember, it goes down to single figures in those later years and i then add up that ebitda and free cash flow numbers to get my target share price estimates. Now you can see the reason why i did this model over a 10 year period, the company only breaks even in five years, and that's on a fully costed basis. So if i only forecast five years out, i will collect a whole load of losses.

In my valuation, and have pretty much zero residual value at the end, if i use the sort of the traditional dcf valuation approach right - and this is the typical mistake that people will make when valuing pre-profit growth stocks, because you have to give them some kind of Leeway some kind of runway past the break-even point for the valuation to make any sense at all otherwise you're going to have a negative evaluation number or something that just doesn't make any common sense. And then people get surprised when the company. You know that had a pe ratio of a thousand suddenly has a pe ratio of just 60, you know two or three years later. This is the reason why you have to let them have some time after breaking, even in your model, to make those assumptions, and then i'm going to do exactly the same thing that i always do in these types of videos.

Perpetuity approach, which uses just a four percent growth rate, which i think is very conservative, because we're talking 10 years out here, not five and a terminal ebitda multiple, which has a 20x multiplier again, pretty pretty pretty normal i'd, say and the two target prices i get From this mass are 528 and 761 dollars, and i would say that my thinking is way closer to that 761 dollar level. So i'll stick with a target of let's say 750 on fiverr, which is bonkers. Given the current share price of 164 dollars, that's over 350 percent upside and yeah this one, if it plays through, will probably take quite a few years to come through because of how the markets work and it may never compromise the analysts and the investors don't see The value - but this is my present value target price. Let's see what happens, i have a feeling that once the additive effect of these cohorts begins translating into revenues through next year, and then we begin suddenly in a few years, maybe breaking even in some co.

In some quarters, as the revenue continues growing, maybe then some other analysts might begin paying more attention. I am personally investing into fiverr for the long term, but remember i am just a random guy in the internet. So please do your own research. 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, you.