Business context and reporting period
Fiverr International Ltd. is an Israeli company operating a global online marketplace for digital freelance services, including Fiverr.com, And.Co, Fiverr Learn and ClearVoice. The filing is a Form 20-F for the fiscal year ended December 31, 2019, rather than a standalone 2019 fourth-quarter filing. Financial statements are presented in U.S. dollars under U.S. GAAP.
Fiverr enabled approximately $401.0 million of gross merchandise value through 2.4 million active buyers in 2019, compared with $293.5 million of GMV and 2.0 million active buyers in 2018. Revenue is primarily generated from transaction and service fees, generally recognized when orders are completed.
Key financial metrics
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Revenue | $107.1 million | $75.5 million | +41.8% |
| Gross profit | $84.8 million | $59.9 million | +41.7% |
| Gross margin | 79.2% | 79.3% | Down 0.1 percentage point |
| Operating loss | $(34.8) million | $(36.5) million | Loss narrowed by $1.7 million |
| Operating margin | (32.5)% | (48.3)% | Improved 15.8 percentage points |
| Net loss | $(33.5) million | $(36.1) million | Loss narrowed by $2.5 million |
| Net loss attributable to ordinary shareholders | $(34.2) million | Not separately presented | Includes $0.6 million deemed dividend |
| Adjusted EBITDA | $(18.0) million | $(21.0) million | Improved by $3.0 million |
| Net cash used in operating activities | $(13.9) million | $(51.7) million | Outflow decreased by $37.7 million |
| Cash and cash equivalents | $24.2 million | $56.0 million | Down $31.8 million |
| Marketable securities | $110.4 million | None reported | Primarily U.S. Treasury and corporate bonds |
| Total liabilities | $87.6 million | $57.1 million | Up $30.5 million |
| Shareholders’ equity | $148.8 million | $54.0 million | Up $94.8 million |
Cost of revenue was $22.2 million, or 20.8% of revenue. Research and development was $34.5 million, sales and marketing was $62.8 million, and general and administrative expense was $22.4 million. Share-based compensation was $8.9 million, compared with $11.6 million in 2018.
The 2019 take rate was 26.7%, compared with 25.7% in 2018. Spend per buyer increased to $170 from $145, while active buyers increased 17% to 2.352 million. Repeat buyers generated 58% of core marketplace revenue, compared with 57% in 2018.
Material changes versus the prior comparable period
- Revenue growth was driven by 17% growth in active buyers, 17% growth in spend per buyer, a 100-basis-point increase in take rate and incremental revenue from And.Co, Fiverr Learn and ClearVoice.
- Gross margin was broadly stable, while operating margin improved materially as operating expenses declined from 127.6% to 111.7% of revenue.
- Sales and marketing expense increased 26.2%, slower than revenue growth, while research and development increased 32.4% to support product and platform expansion.
- Operating cash outflow improved substantially, partly due to lower user-fund-related cash outflows and working-capital changes.
- Cash and cash equivalents declined because proceeds were redeployed into marketable securities and the company funded the ClearVoice acquisition. Total liquidity, including cash, bank deposits and marketable securities, was approximately $149.5 million.
- The June 2019 initial public offering generated approximately $113.3 million of net proceeds in the financial statements. The company also completed the acquisition of ClearVoice in February 2019 for approximately $11.8 million in cash, with contingent consideration valued at $4.2 million at acquisition and $6.3 million at year-end.
- Marketable securities increased to $110.4 million, consisting primarily of fixed-income U.S. Treasury and corporate bonds. No impairment was recorded.
Guidance, outlook, commentary and risks
Management stated that it expected revenue and operating expenses to grow as the company expanded its marketplace, product offerings, international reach, research and development and marketing capabilities. It expected research and development expense to increase in absolute dollars but decline as a percentage of revenue. The filing does not provide specific numerical revenue, profitability or EBITDA guidance.
Management believed available liquidity would be sufficient to meet business needs for at least the next 12 months. The company continued to expect operating and net losses for the foreseeable future and could not assure investors that it would achieve or sustain profitability.
- The filing identifies customer and freelancer acquisition and retention, competition, platform reliability, mobile functionality, brand reputation and the ability to scale operations as core business risks.
- Cybersecurity and privacy risks are material. A 2018 incident involving unauthorized access to several thousand user accounts was reported to Israeli authorities; the Israeli Privacy Protection Authority closed its administrative supervision procedure in April 2019 without determining that Fiverr committed a violation or breach.
- Regulatory exposure includes privacy and data protection, payments and money transmission, indirect taxes, worker classification, consumer protection, intellectual property and international compliance. The filing specifically discusses GDPR and the California Consumer Privacy Act.
- The company depends on Amazon Web Services, payment processors and disbursement partners. Disruption, unfavorable contract changes or regulatory restrictions affecting these providers could impair operations and liquidity.
- COVID-19 was identified as a significant subsequent risk. The filing states that the duration, severity and effects of the pandemic on demand, sellers, employees, business partners, investments, revenue and liquidity were uncertain.
- The company had approximately $27.3 million of disclosed contractual obligations, including $19.0 million of operating lease obligations, $3.5 million of long-term loan obligations including accrued interest, and $4.8 million of purchase obligations.
- Fiverr reported no material pending legal proceedings and no off-balance-sheet arrangements. It does not expect to pay dividends in the foreseeable future.
Most important facts for investors to verify
- Whether active-buyer growth, spend per buyer and the 26.7% take rate remain sustainable as the company scales.
- The path from a 2019 operating loss of $34.8 million and Adjusted EBITDA loss of $18.0 million to profitability and positive cash generation.
- The composition, maturity and risk profile of the $110.4 million marketable-securities portfolio and the company’s total liquidity after user funds and restricted deposits are excluded.
- The financial contribution and integration performance of ClearVoice, And.Co and other value-added products, including contingent acquisition consideration.
- The effect of COVID-19, macroeconomic conditions and changes in demand for freelance services on 2020 and later results.
- Potential dilution from 4.46 million outstanding options, 118,253 restricted share units and the 2019 share incentive plan.
- Exposure to worker-classification, privacy, payment-services, tax and international regulatory changes, including potential compliance costs or liabilities.
- Foreign-exchange sensitivity, particularly the impact of Israeli shekel costs on U.S.-dollar-reported margins.