Hey guys, it's sasha today, i'm going to tell you the biggest problems with fiverr stock. If you are an investor in fiverr or you're, considering investing in fiverr, these risks are very significant and can easily tank the company's stock. In case you don't know, fiverr is one of my biggest positions in my portfolio. So don't take this the wrong way.

I am a big fan of fiverr as a company as a stock, and i have an in-depth valuation, video that explains my thesis in a lot of detail. I'm gon na link that video in the description and up here, if you want to watch it after this one. But if you are a serious investor, you will want to do a proper risk assessment as part of your due diligence of any stock that you are putting your money into, because if you don't genuinely understand the problems, the company has and know what the risks of Investing are you're, not investing you just gambling, because every company has its own risks and in this video i am not going to cover the rubbish that you might see on other channels or in the media. A popular criticism, for example, is that fiverr is not making a profit and has growing costs.

Both of these things are true, but they are not really a problem if you actually understand the numbers and the reasons for that again, i go through all of this. In a lot of detail in that other video in the description, so let's dive into the first risk - that is perhaps the most obvious, and that is the competition at the moment. Fiverr is in a pretty lucky position where there is actually very little competition. Surprisingly, in the space, there are only really two companies of any size providing a platform for hiring freelancers globally, and these are fifa and upwork.

There are a lot of smaller, more specific platforms for specific kinds of jobs, but these are not really competing in the same space at all, and then we have job boards and websites like linkedin, but again the offering is vastly different on them and it would take Quite a lot for them to pivot into operating in the same way. In the same space on fiverr, you can go and turn up to the website and hire somebody to go and do a job for you in five minutes with all the contractual details, payments communication - everything seamlessly happening through the platform, so it's very easy. The risk is that either new platforms spring up to compete with fifa, because the massive opportunity that the economy space in the future is likely to present - or we will see one of the incumbents like the linkedin - make an actual serious alternative. We've had lots of noise.

Lots of rumors over the last few years, but nothing has so so far turned up now. If someone made a really compelling really great alternative fires, business model could be dead in the water very quickly because in terms of technology, it is not really the most sophisticated product. The features on the site are not all that complex, but a big mitigant here is that being first to market and growing before any competition turns up is a huge competitive advantage here. Some types of businesses gain a massive advantage if the lack of serious competition lets them hoover up the space over a few years and sort of become the place where everyone already is starting a new platform when everybody is already on a different one, is much more Difficult than starting one up when there isn't anything out there at all a platform that bridges, freelancers and clients relies on there being a lot of freelancers and a lot of clients for that platform to be effective.

So if you're starting from scratch, that is a very difficult problem to solve, and it's going to cost you a huge amount of marketing dollars now. My personal analysis at the moment gives fiverr's business model and upper hand over upwork. So i am not overly concerned about upwork taking over the space and completely killing fiverr off. Don't get me wrong.

I think upwork will probably stay around and do quite well, but i really like what fiverr is doing in terms of their business, but if upwork or any other competitor does really seriously turn up to really try to push fiver out. One big risk fighter is that their fees are going to have to come down to compete, even if they do compete, because at the moment fivers fees are huge. They charge 5.5 to the buyer and take another 20 from the seller, so the platform fee in effect is about 25 of the total amount being paid for the work, and that is a lot. That is a crazy amount of money, and those fees would probably drop by a factor of at least 10 if we have serious levels of competition, because that is essentially a platform fee or a service fee and 25 is pretty expensive.

So, even if the competition doesn't eat a lot into fibers market share directly, it can affect those revenue numbers instead. Now the second big risk of fiber is liquidity. The company is spending all of its spare revenue on marketing to grow the business every quarter. I've explained that before, but marketing spent doesn't just grow on trees and if you look at the balance sheet, the amount of cash for fiverr has dropped to 145 million dollars as of q3.

Last year, almost half the amount that was in the bank account the year before that now the good news is that fiverr is not carrying any real debt, so they don't have to worry about repayments, going up, and it's generally a pretty healthy position to be, and Especially for a very early stage business - and they can always choose to take on debt if they can get the right terms and they feel it's the right business decision. But fiverr does have 367 million dollars of convertible notes on the liabilities list, and that is quite a big big number. In october 2020, fiverr raised money through issuing 400 million dollars worth of convertible senior notes, and those notes came with another 60 million dollars in options that were exercised when the deal closed. Now those notes will only be payable in 2025.

So there's a bit of time to build up the cash flow uh in the meantime, but the notes are about one and a quarter: the size of fiverr's total current annual revenue. So the issue is that to grow that revenue they have to spend marketing dollars that they don't currently have and with cash running low fiverr will either have to go and slow down on the marketing which is going to slow down growth, which is going to be A negative impact on share price or they're going to have to go and raise money one way or another, and my projections say that fiverr is going to take years of growth before fiverr really begins being strongly profitable. So this liquidity issue may mean that the company is going to have to borrow money, which is not always a great thing. The alternative to borrowing is to raise funds through bonds, notes or share issue, and this is another big risk for the business that has recently become worse fundraising before the pandemic was pretty straightforward.

There was a lot of money flowing, but if we find ourselves in a prolonged downturn, getting cash into the business might prove more difficult, and this is an especially acute issue at the moment, because the recent sell-off in gray stock since november means that five share price At the moment, as i'm recording, this video is about 80 instead of 170 to 230 dollars that it was three months ago. So any kind of fundraising, through issuing shares or any share based instruments in the near future would have to give up way more equity. More than double the equity to get the same amount of cash, so the effect of any share dilution, as a result of that should the company choose to do that are going to be pretty painful now, the next risk for fiverr is whether they can actually expand Their business model to different ways of working the current business models being very effective and it works in a very specific way, which naturally makes it somewhat limited. The client comes to the platform finds the provider of a service goes and hires them for the job and waits for the job, to get done very simple and for some types of work.

That is a great experience. It's super fast and very convenient, but in some cases it just doesn't work. In fact, in quite many cases, for example, i actually personally hire a lot of writers for my website business and with writers. I can't just go and hire someone based on the description.

They've put up and some samples and some reviews or whatever it is that i can see on fiverr, there's a bit more to writing and we have a very specific in-house style. So i personally use upwork to hire writers instead of fiverr, because the upwork model works in the opposite way. You go and put out an ad, then people apply to do the work and you get select who you want from the applicants sort of more old school way of doing it right. It's a lot more effort, but i can set a short test question to quickly check which writers match what i'm looking for now, i feel for fiverr to really develop into what they could be.

They need to allow for a broader depth of different ways for the sellers and the buyers to find each other and to work with each other. Fiverr is also not a great platform for higher ticket work if you're paying thousands for something. That's quite important. You probably want to know a bit more about the person than you know, the reviews and the picture that you can see on their profile and the 25 in total fees becomes very noticeable at that level as well.

So the risk here is that fiverr fails to expand the platform to cater to all these different types of the gig economy, which naturally restricts its reach and may hinder its ability to grow. The next risk is one that most people probably are not aware of, and it's the fact that fiverr is a very small company, something that you should know the market cap as i'm recording. This video is below three billion dollars, which is tiny in the grand scheme of things, and the daily trading volumes for the stock on the shares are very small. There are very few analysts that are interested in fiverr.

It is not the kind of stock that gets anywhere near the kind of publicity that some of the bigger ones. Do you never hear it discussed on cnbc or on youtube, and that carries a more technical type of risk than fundamentals, the risk that movements in share price may not be as forthcoming and that there may be a significant lag factor between performance and the share price? Reflecting that performance with low interest and low coverage, the problem is that, even if the company's long term fundamentals do look phenomenal, there might just not be enough eyeballs from the big money to push that share price up, and that is a very real risk. There are many many examples where small companies grow several several orders of magnitude, but because they are below the radar. Nobody really notices and the share price doesn't reflect that growth at all.

Now, fiverr itself is sort of an example as well. Its current share price is less than it was in july 2020 and you could argue that maybe everything was overpriced through the whole of last year. Maybe it depends, but in that time fiver's revenue has increased by 60 and my personal view is that it was underpriced. Three months ago, let alone today, so there you have it.

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.