Hey guys, it's sasha, the stock market has taken a huge dump and fiverr was no exception. Fiverr is now trading at roughly 30 dollars, as i'm recording this video, which is 72 down year to date and a whopping 82 down. Since i made my first fiverr analysis, video on this channel in august last year now, the background here is incredibly important. All grey stocks, especially pre-profit companies, have been absolutely decimated, as the 2022 stock market crash is taking hold.

The stock market overall is only about 18 down so far this year, but growth stocks are way ahead. Almost every single one is down over 70 and the fact is a lot of these growth stocks did have incredibly inflated valuations based on a huge load of opium. We had some absolutely ridiculous valuations out there. I've talked about some of them on this channel, but as the market sells off, every growth stock will get swiped up in that sell-off frenzy.

The question is: is fiverr going to recover, or is it actually just a garbage hype stock? Well, i'm going to share my thoughts and analysis in this video and i apologize in advance. This one is going to get somewhat geeky and go pretty deep. Fiverr has just posted their q1 results two days ago and immediately after those results came out, fiverr lost another quarter of their value, dropping from 40 down to 30, and here is what happened in those results. Q1 numbers themselves actually looked.

Great q1 revenue was 86.7 million dollars up 27 year-on-year another record quarter. Marketing spend was 47.8 million dollars. This is the first figure that i look for in the p l for fiverr, because it is massively important i'm going to explain why. In a second and as per usual, the company posted a loss of 70 million dollars for the quarter.

So hey kinda looks like a loss-making company with no hope just keep losing more and more money right, well scroll down to the cash flow statement, and it gets a little more interesting because you can see in here how fiverr thinks and runs their business. This bit is important because i'm going to use it later on when i go through the model with you, so we start with a 17 million loss that five posted and then down here you can see that there's a whole load of amortization and depreciation 3.1 million. Here then, the 1.7 million of multiple securities and another 600 000. On convertible notes.

These numbers are included in the 17 million loss, but they are essentially just paper losses. The company didn't have to actually spend any of this money. They didn't pay out any dollars from their bank account. In fact, they have already spent that money in the past on buying things and investing in assets and the way accounting works is, if you go and buy expensive assets spend a whole load of money in one big go.

You can't just go and put it through as expenses as a business. You have to gradually depreciate those things over a few years and then there you also have the share based compensation, which is a whopping 18 million dollars now share based compensation under that 2019 plan. Has ramped up recently in the last few quarters and it is pretty high relative to their revenue, but this is a 10-year fixed compensation plan and this is all coming from the conversion options in rsu's and remember. That plan is fixed on a yearly basis for the next 10 years.

Well, seven years now, anyway, if we take away the share based compensation and depreciation, then you can see at the bottom here that fiver is operationally profitable. They got 7.7 million dollars into the bank during the quarter, that's kind of roughly what it means and the net operating cash here is nine percent of the total revenue, and if you look at their past results on seeking alpha, you can see that they have been Cash flow positive for the last two years. By the way you can get 50 off seeking alpha by using my link in the description, i pay full price, i'm a paying member, but if you want to discount, feel free to go and use that instead, i use it for all of my analysis and data Gathering anyway, that margin always hovers at around the 10 percent of the total revenue for fiverr at the moment. So the business model, from where i'm sitting seems to be that now that they have become operationally casually positive, they want to stay there, but as long as their operation in cash flow positive to some degree, they want to spend every dollar other than that on marketing.

Because that marketing converts into customers - and you can see that in my tracker - because the sales and marketing budget has been absolutely exploding for fiverr - recently 47.9 million dollars in q1 - that's up 20 quarter and quarter. I'm going to explain in a huge amount of detail why this is important in just a second, but going back to the results. The one thing that really spooked investors and cores triggered that massive sell-off was this drop in guidance. Q2 guidance is actually roughly the same as q1 and the full year guidance has dropped since the last quarter and last quarter they guided 373 to 379 million dollars, but this quarter that's dropped to 345 to 365 million dollars and investors absolutely lost their marbles.

Fiverr is a busted grey story, sell the stock get out, while you can now on the earnings score, they actually covered in some detail why they dropped this guidance and it's not very surprising. There are two main factors that overlap: one is the war in ukraine. That's caused a spent dip in europe during march and april they're, actually saying that it's sort of stabilized a little bit through the first few days of may that they're, seeing so far but they're. Taking a conservative approach.

Saying hey, maybe we're going to see a prolonged effect for the whole of the year, so they drop guidance partly because of that russia and ukraine combined add up to less than one percent of fiber's total business. So there isn't a noticeable direct impact, but the spend dipped in other european countries and as the world is opening up after covert. There is a general drop in online spend which includes fiverr and on the call. They acknowledge that this is a one-off drop that isn't going to be making any meaningful long-term impact to the business, but here is an interesting way to look at it.

Here is my tracker of five sp l. You can see that they were pretty consistently growing their revenue at about 30 year-on-year during 2019 and they only went public during that year, so it can't go back many more years than that and then covet hit and their growth absolutely exploded. 69. In q2, 2020.

77. In q3, 64 and q4 and so on, and so when we're comparing growth during these quarters that we're seeing this year compared to back, then we have this lapping effect, because you're, comparing numbers to numbers that last year, grew by a huge proportion relative to the year. Before that, that makes sense, the same effect actually hit many other companies as well. For example, facebook and netflix got absolutely battered because their user numbers flatlined or even dropped and that affected their performance.

So the same sort of effect is happening here, but not in the same way as in looking a lot better for fiverr. The last two quarters grew by 16.7 and 15.2 percent, but here is the math look at q4, 2020 and q4 2021 and then add them up. 63.6 percent and 16.7 multiply 1.636 by 1.167, and you get 1.909 then take 1.909 to the power of a half and you get 1.38. So q4 grew by 38 on average over those two years.

Now do the same thing for q1 1.45 times 1.152 that equals 1.67, and that is 29.2 percent growth per year on average over those two years now look at their guidance for q2, taking the lower bounds 14 growth year on year. That is an average of about 28 over the last two years. So for me, the revenue growth is looking really quite consistent despite that bump and then the sort of coming off of that bump and on the earnings call. There was a lot of really interesting comments about fiverr business.

Fiverr is working to attract more larger companies to their platform and fiverr. Business is growing very fast. Business accounts grew by over 50 percent year and year, and their order value grew even faster. The great thing about these larger business customers is, they tend to be a lot more consistent with spending their money.

They don't fluctuate anywhere near as much based on macroeconomic situations or other things happening around the world. On the call. Fiverr also mentioned that high value customers spending over ten thousand dollars in the platform grew by ninety percent year-on-year, so there's a definite switch over happening and that's kind of good for long-term business. Now, let's look at the most important chart in the shareholder letter and it is these green circles.

If you watch some of my older videos, you will be familiar now. They have made this chart smaller and it's actually slightly less easy to read, but it's okay. I exported it in maximum available resolution to photoshop and i drew on all of the lines for every 0.1 return on investment and, as per usual, i went and measured all of those circles. Pixel analysis this chart here is showing the return on investment for customers booked in every quarter.

Going back to 2017.. Investment in this case is performance marketing. That is a part of the total marketing budget. The one issue that fiverr is having is that the recent cohorts are not returning as much in the first quarter as they used to.

You can see that the first circle is getting lower and lower every quarter, and you could say that maybe this is some kind of saturation, maybe from now on it's just going to get worse. Marketing is less effective, but my analysis is actually indicating. This is more of an unwind from the period during which cove it happened. The numbers are just reverting back to what we saw in 2018 and 2019, but look at the performance of those 2018 and 2017 cohorts.

The gaps between the green circles are growing. This is really important. This is incredible. Look at the gaps down here then compare how far apart the circles are up here.

This means that the customers that joined fiverr four to five years ago are spending more per quarter now than they did last year or the year before, and that is incredible for this type of business. This is what non-linear growth looks like, because those cohorts are now hitting five times the multiple on the marketing cost that it cost to bring them in. These numbers are staggering, because fiverr generally recoups the marketing cost, roughly speaking in just over one quarter. Those first circles are sitting just under that one x line, and here is the really interesting way that i look at these circles.

You can see that, just after you go and book the customers, these circles start contracting, so the circles get closer and closer together and the gaps between them become smaller because you know in the first quarter you make a huge amount of money. So when the customer first signs up they're, probably signed up because they want to spend money, then you make a lot less in the second quarter, even less in the third quarter and so on and so on. But after roughly speaking, three years, those customers start spending more their businesses grow, their demand grows. They get used to the platform.

Whatever you can see that the q3 2018, the q2 2019 cohorts are currently at that switchover point where the circles were getting closer and closer and closer, but then stopped getting closer and are now starting to expand. So naturally, i measured each of those circles, and here is the graph by the way i share all of my models with my patreons at t level, including this one. So if you want full access to go and play around with the numbers and see what's what feel free to sign up, the link is in the description. If you don't want the models but want to join the community, you want to join for the conversations and discussion feel free to join as an espresso member instead.

So on the chart, the purple lines here are the 2017 cohorts. The yellow orange lines are 2018 and you can see the 2018 generally didn't perform as well as some of the other years, but still doing really quite nicely and continuing to grow. The green lines are 2019 with every year. The lightest line on this is the q1 and the darkest is q4.

That's how you can tell, and you can see that during covet a few cohorts are performing way better than average. The blue lines up here are the 20 20 cohorts, and you can see that those lines have started trending slightly downwards in the last quarter or two, and my take on this is that these cohorts are reverting to the mean after being ridiculously profitable in the first Year and the customers booked at the end of 2019, the q3 and q4 cohorts on the green lines also did really really well because covert hit just after they started working with fiverr. So they signed up spent the initial batch of money and then suddenly coveted hit and they continued using those services. But look at these red lines.

The red lines are 2021 last year and you can see that these are trading very very nicely along pretty much exactly the same trajectory that 2017 followed and 2018 and 2019. The first half of 2019. So far and remember, the newer cohorts have way more customers in them. So the total revenues that they're going to make in the future are going to be far far bigger too and to make it even easier to see here is the same chart, but with the jumps from one circle to the next.

Instead of a cumulative line - and you can see here that the 2017 cohorts - the purple lines are doing exceptionally well earning well over 20 percent on the investment in them every quarter, the 2018 cohorts are down and you can see that the covet cohorts, the blue lines And the two green ones started off doing really really well, but they're, gradually coming down and heading back to roughly the same place kind of normalizing. The red lines which is 2021 are following the same chord trajectory as well, so in general, the cohort data here. For me looks absolutely solid. Now i've reworked a number of the assumptions in this model to make them more conservative because of the less certain outlook, because i wanted to just have a bit more certainty in the numbers.

So i'm assuming here that those green circles start at 0.9 times return on investment and then relatively quickly drop all the way down to 0.15 and from there they just decay. Now going back to the chart that is actually pretty low, you can see that even the yellow lines here, the 2018 cohorts are sitting on 0.17 or 0.18. So i thought, let's stick in a somewhat conservative assumption and assume that all cohorts are going to be a lot worse in the future than they were in the last five years and then in the cohort projection tab. I take each quarterly cohort, existing ones and future ones and model them out for 10 years.

I assume that the marketing budget as a proportion of revenue is going to fall over time because, as the business scales, it doesn't need to be spending quite as much money and i'm modeling that the marketing spend in each quarter on the revenue earned in the previous Quarter not in the same quarter. This is to make sure that we adhere to that policy. I was talking about earlier that fiverr seems to have of spending as much excess cash as possible on marketing to grow the business subject to being cash flow, positive every quarter. So marketing spend in the model drops as a function of revenue over time down from 60 at the moment to 40, but the proportion of marketing spend that is, performance marketing starts at 65 and goes up to 75, and this is the percentage of the total marketing Budget that is literally driving new customers through the door.

So, as the company scales, there is less share based compensation and less overall brand marketing as a proportion of the total, because more money is being spent on getting customers into the company to sign up. Then i have that quarterly assumption. I showed you before the return on investment on the performance marketing for every quarter and i'm miles applied all the way through to get my revenue number now, after adding up all of those cohorts, i get a q2 revenue total of 87.7 million dollars, which is 0.2 Million above the top end of their guidance, and the remaining three quarters of the year add up to 290 million dollars which makes the year total, including the quarter. We've just had go to 377 million, and that is also that is three percent above their guidance for the year, we'll see if i'm right we'll see, if maybe i'm a bit ambitious, but i don't feel it is a way out of whack.

In any case, i then have this p l model here by quarter, and you can see that the back book in this model slowly dies off. That is all the cohorts are doing, including q1. This year, the ones we've already had and the front book is all the future cohorts. Well, that part, naturally, is growing.

You can see in this model that the projection for me for fiverr is that they will only become gap profitable in late 2027.. I'm expecting them to continue to reinvest in growth for a little while yet, and i'm also using my latest fully diluted number of shares. In here 41 million i've updated the net debt numbers and i'm using a four percent, perpetual growth rate and a 22 times closing ebitda multiple, and with these assumptions with these projections, i get a target price of 258. using perpetuity approach and 398 dollars using the ebitda Approach, i'm going to go slightly closer to the multiple, because these cohorts create non-linear growth that i was describing and i'm going to stick a 350 target price on it.

Now this is after reducing all of the assumptions down considerably and in my opinion, some of them are probably a little bit on the pessimistic side and that valuation seems absolutely ridiculous and completely absurd, because fiverr is currently trading at 10 times less that price. At the moment now, that is why i personally am continuing to buy fiverr shares. I already hold a relatively big position in fiverr and i'm going to continue adding to it in the coming weeks and months. 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 appreciate it and, as always i'll see you guys later, you.