Chit Chat Stocks - Fiverr (FVRR) with Kris from Growth to Value

Episode Date: August 12, 2021

Kris from Growth to Value joins us this week to discuss Fiverr the online freelance marketplace. In this revamp of our original "Deep Dive", we now focus on welcoming guests we consider experts on a particular company. Kris brings his expert knowledge of Fiverr for a great discussion regarding the history and future of the Israeli-based company. Enjoy the show! Our Thursday Deep Dives are sponsored by Quartr, the new way of doing company research. Access conference calls, presentations, transcripts, and more for FREE on your mobile device. Download Quartr on the App Store here: https://apps.apple.com/us/app/quartr-investor-relations/id1552412128  Download Quartr on the Google Play Store here: https://play.google.com/store/apps/details?id=se.quartr.android  Want updates on future shows and projects? Follow us on Twitter: https://twitter.com/chitchatmoney Interested in more of Kris's work? Follow him on Twitter: https://twitter.com/FromValue?s=20 Rather watch us on video? Subscribe to our YouTube channel: https://www.youtube.com/channel/UCG5Ni-SI-jyrEsoNUhqftNQ  Contact us: [e-mail]  Timestamps Discovery | (5:27) The Business | (11:38) Management | (19:50) Further Questions | (20:40) Disclosure: Chit Chat Money hosts and guests are not financial advisors, and nothing they say on this show is formal advice or a recommendation. Brett Schafer and Ryan Henderson are general partners and portfolio managers at Arch Capital. Arch Capital and its partners may hold securities discussed on this show. Learn more about your ad choices. Visit megaphone.fm/adchoices Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Chit Chat Money. Today we have our deep dive episode. We are talking Fiverr with Chris, our friend Chris. And if you're not familiar, this is the first time we'll be doing this format. It's a bit like our 25 Stocks of Christmas format from a long time ago, if you listen to those. But what we have is on Tuesday, it's not so deep dive. That's with Ian or Brad. And that's just us covering the basics of the company. Same format we've been doing in the past. Right. And then Thursday is our deep dive episodes. That's where we'll have on a guest like Chris, where we consider them to be an expert on a specific company. And that's more of us just asking questions and getting their takes on the company. But before we talk about Fiverr specifically, we got a word from our sponsor, Corder. I've been using the app pretty frequently, actually. I'm now becoming like a real customer. You're an MAU.

Yes, I am satisfied MAU. I don't know if it's monetizable yet, but basically, if you don't know what quarter is, you can listen to all your conference calls. You can look at transcripts. They have those up pretty fast. So you can go download it on your iPad, I guess. That's where I like to read the transcripts. They have investor presentations and it all gets uploaded really fast, which is super nice. And they have tons of companies and you can also recommend companies. It's 100% free. It's on Android. It's on iOS. Go download it. You can follow them at quarter underscore app, no E. So, Q-U-A-R-T-R underscore app. Search it in your app store. You'll find it. Now, how did you like the interview?

It was great. We just finished it up. So, we're kind of doing a reverse chronological order. We're time traveling on you, but it was awesome. Chris is always great. I mean, he had one, we were on before with him talking C-Limited. Seemed there was a lot of reception with that one. People liked it. This was similar. Fiverr is an interesting company and it's a high growth stock. It was one of those that got affected potentially by COVID. So we go into a little bit of those dynamics and they have four or five different growth initiatives that sounded really promising. I mean, again, this isn't a stock pitch or anything on our part, but it sounded like they're making tons of headway into the freelance industry and trying to bring that

into an optimal online environment. And yeah, there's a lot of good information. That's all I can say. We didn't cover every little thing, but I think anyone can have quite a few takeaways from this episode. All right. Without further ado, let's get to the interview. Welcome to Chit Chat Money. On this show, host Ryan Henderson and Brett Schaefer interview industry experts and riff on the world of investing. As a quick reminder, Chit Chat Money is a CCM Media Group podcast. Ryan and Brett are also general partners at Arch Capital, and Arch Capital may have positions in the securities discussed in this podcast. Anything discussed on Chit Chat Money by Ryan or Brett or any other podcast guest

is not formal advice or recommendation. Now, please enjoy this episode. All right, today we are welcomed by Chris. It's From Growth to Value. If you listen to the show on a regular basis, you are very familiar with the service, potential multi-baggers. Chris, Why don't you kind of, for anyone that doesn't know you, introduce yourself a little bit and then talk about Potential Multibaggers. Yeah, well, you know, I'm Chris at FromValue on Twitter. And I started with Potential Multibaggers, actually, this series in 2017. First pick was Shopify, you know, which is more than a 20-bagger right now. And, you know, I made it into a subscription service and not Shopify, of course, but Potential Multibaggers.

And, you know, I started doing this full time a bit more than a year ago now. And what I do is I try to find, you know, Potential Multibaggers, the title already says it all. I try to find companies that can go up several times in value, several times over. And what I mean is a potential multibarrier, for me, should have the potential to go 10x over the next 10 years. So that's about 26% per year on average, which is high. um but you know you also you know i i look at a lot of criteria and and deep analysis um when i start um you know when i pick a stock i'm always invested together with my multis as the subscribers are called and um i i research deeply so um i give at least five articles um and then um updates

weekly if there's anything so um you know it's it's quite concentrated i've made uh 23 picks now and um sold a few and uh you know we're doing uh we're doing great we're beating even the nasdaq by 100 percent per pick on uh on average so that's that's quite good i think yeah the performance speaks for itself. And the company we're going to be talking about today is Fiverr. We're going to hope to get an overview on that, how you found it, but let's, you know, we're going to have some deeper questions about the stock and the company, but first, how did you find Fiverr? When did you find Fiverr maybe? And how long have you followed it? Well, let's make a different, let's make a distinction here between the company and stock. And I found Fiverr as a company years ago. You

You know, I wanted a logo, not for potential multibaggers, but for, you know, for a running competition, which I organized. And that was, I think, 2015. And, you know, I think I got probably, I tried seven or eight. you know sellers on Fiverr and you know the quality was um let's be friendly not as I wanted and um uh you know in the end I just you know took a local guy here specialized in logos uh paid him a lot more and uh but it was good so when uh the stock um IPO'd in a I think June of 2019, initially, I was not really interested because of that, you know, experience that I had. And then during the pandemic, it started rising.

And I thought, well, OK, I don't want it. It's probably not going to last. Then, at that moment, I read Clayton Christensen's book about disruptive innovation. In that book, I learned about disruptive innovators, that they're seen as very low quality at first. have better players in the market. That was Upwork, which was a combination of Elance and I forgot the other one. It was a merger. Upwork was seen as the big boy in this space and reliable. Big companies use it, et cetera. Fiverr was seen as junk, actually. and I had that idea as well and then I read

Christensen's book, by the way Matthew Prince, the CEO of Cloudflare Clayton Christensen has been his professor and unfortunately Christensen died but he wrote a note to Matthew Prince that he had been following all along and he still wanted to help if he wanted to help. I always think that is a great story.

But let's get back to Christensen's book. Disruptive innovator is often seen as really low quality and appealing just to a certain low quality niche. And, well, of course, Fiverr checks all the marks. But because it's seen as low quality, it also has much more freedom to experiment. And that's what disruptive innovators do. And because of that constant experimentation, they improve much faster.

They listen to what their users want. And at a certain moment, they overtake the incumbent players in the market. And when I read that, I thought, oh, my God, I have to look at Fiverr. I really have to look at Fiverr. And what I saw was exactly that process going on. And it's still going on. And, you know, everything that I have seen, you know, it's about a year ago. So I think that I looked at Fiverr again, not again, but for the first time as a stock then.

because everything I saw then pointed me to the disruptive innovation that Chris talked about, and everything that I have seen in the last year has only accelerated that, and I think that you can discuss about Upwork versus Fiverr, and a lot of things, a lot of people will say, I see more quality in Upwork, and it's used by bigger companies, et cetera, et cetera, et cetera. Sure, of course, but those kinds of companies get better over time, but slower than the disruptive innovator. In this case, to me, it's very clear that Fiverr is that disruptive innovator. And, you know, what I have seen in the last year is only, you know, it's only accelerating together with its revenue growth.

And I think that will continue. And at a certain moment, there will be no doubt anymore who's the leader in this space. And, you know, if you look back at a lot of companies, you know, think about, you know, Netflix and Blockbuster. In a typical example, Netflix was seen as low quality or it's just a niece who wants to mail DVDs, et cetera, et cetera. But it just innovated that much faster, and that's why it completely crushed Blockbuster. I'm not saying that Fiverr will crush Upwork. I think they both have positives, but I think if we look in 10 years' time, and I always invest for the long term, I think it will be very clear that Fiverr will be by far the leader in the space. So talk a little bit more about Fiverr's business model.

What do they do, and then why do you like it as an investment? Yeah. One of the problems that I had initially as a user of Fiverr was that I was not used to what they do. It's completely different. If you go to Upwork, you hire a freelancer, almost like you do if you go to a local guy or girl. You just say, oh i want a logo and um he or she will make the logo or maybe five you know designs and get that you can choose and whatever um with fiverr it's a bit different they they have made services into products so um their services are um you know more stand standard standardized than uh that's That's not a really great word, but whatever.

So they are made into products. So a service as a product. And that's actually what Fiverr sells. And, you know, you have to know quite well what you want. You know, I want a logo. It has to be, you know, it has to be yellow. And it has to look more or less like this logo that I got from the internet or from your references that you show me.

You have lots of people with lots of styles. You have to choose the one that appeals to you so you can see their portfolios, et cetera. So that's actually what Fiverr does. And in so many markets, I'm talking about logos now because that's so cliche and one of the first use cases for a lot of people for Fiverr. But, you know, if you want, you know, if you want to make an app, you can do that on Fiverr as well. If you, I don't know, if you want to let someone else produce this podcast, you can do that on Fiverr. You can have voiceovers. You can have, you know, I'm just saying a few things that come to my head because they're somehow in my world.

But there's so many things, so many software related things as well. um you know if if you want uh last week i had a twitter spaces about fiverr and and a guy came on and he he said that he um um he let somebody on fiverr uh write a personalized erotic story for example that's possible and he said it was really good um but by the way it was not about himself it was about uh a threesome between warren buffett charlie munger and who was it i don't i don't remember oh man what you could i mean that doesn't say you can get anything you can get anything on fire you can get anything on fiber yeah yeah so um and and he he went for the really quirky things and funny things and um you know it's it's um that's that's i saw someone i don't

know if it was a joke or not but i saw someone who could be you know a pretty woman um dressed all in black who could come to your funeral to stand on the side to look mysterious that To make it seem like you have a secret lover or so, just $500. Either that's another example of you could do anything on Fiverr or that's a great advertisement by someone to get either Fiverr itself or to get someone to use Fiverr. Yeah, sure. Just to kind of dive a little deeper into it. So does someone post a listing basically? Like they say, hey, I want a job or is it someone offering their services?

Where does the bidding come in, I guess? Yeah, well, it's actually you or traditionally because there are new lines of businesses there. But we'll talk about that later. But basically, you know, you're you want something. Let's take the iconic logo again. You want a logo. You go on Fiverr. You search for logo.

you see different styles, vintage or modern or whatever. You click there. You see different people offering their services. You go through their portfolios. At a certain moment, you say, I like these logos. I want my logo to be in this style as well. You click on that. You can can ask a few questions to the seller. And if you, you know, if you have a feeling that this is, this will be it, you know, you can, you can buy, mostly, you can buy one of three products, basic, standard and premium. And, you know, they have difference, you know, for example, premium will have unlimited revisions, and you will have the source file, etc, etc. So, you choose one of the three.

Of course, for premium, you have to pay a bit more. And then, you know, the seller starts working. And, you know, he or she makes a logo, sends something to you, sends it to you. And then you can say, well, I want a bit more of this or that, or it's completely not what I want. It's something completely different from what I want because I want this and that and that and that. And then they keep working until you say, yes, that's what I want. I accept it. And then the payment goes through.

So that's how it works. So is the payment like held by Fiverr or like when does that payment actually occur? Yeah, the payment is held by Fiverr because it's, you know, it's safer than for both parties because, you know, if you're a seller and that's one of the, you know, one of the biggest advantages, I think, for both for buyers and for sellers. um you know you've got that safety um because you know if if i have to pay up front as a buyer and i don't get what i want i feel cheated and if someone uh you know makes 10 logos and the buyer says you know i don't want them you know that guy feels cheated or girl feels cheated as well so fiverr is actually you know the the bang there um which keeps the money and um pays the seller once the customer is happy. Now, let's go through the unit economics a bit

because a lot of people may want to learn about that. Say there's $100 being spent by someone buying a service on Fiverr. What's going to Fiverr itself and what's going to the seller in a typical transaction? And if there's any differences in any new different types of products that they sell you can go into that as well well on average on average uh 27.4 dollars last quarter goes to fiverr on that 100 so they have a take rate on the platform of uh 27.4 which is very high which is more than double uh that of upwork for example so um upwork has a take rate it went down a bit in the last quarter uh half a percent and it's somewhere around 13 now Fiverr could still, you know, despite the fact that they already had 27%,

they could still let it grow to 27.4% take rate and all the rest goes to the seller. So that's quite simple. Actually. Fiverr has a take rate of 27.4%. Okay. And then I guess we'll talk about the other products later, but Ryan, do you have the next one? Yeah, I guess. I mean, what, what's sort of the biggest risk you talked about upwork um is there i guess what could go wrong with this investment i think i think you know the best investments i always look for the bear case

and and risk etc um and the the best the very best investments have something coming that is very hard to come up with a a bear thesis uh you could say that it's you know highly valued Sure. I mean, but if you look out for the long term, I think that's less important. But, you know, one of the of the risks that I thought initially could be a problem and a lot of people who don't know Fiverr that well or have not used it as a, you know, as a buyer or seller. You know, one of the risks that I thought would be, you know, would be important, but it's actually not, is, you know, circumventing the platform. So, you know, you're a seller, I'm a buyer, you know, let's just work together without Fiverr taking 27.4%, right? That's what you would think. but um fiverr you know has has been really smart in that way because and you know they're they're

even making it better let me explain you already have that what i said the money is already something okay you know but um as a seller you know let's say that i go off platform with you If Fiverr finds out, you're off the platform. Yeah. And you don't have new jobs coming from Fiverr. Also, if you go on the platform for too long, you know, your ratings are gone. You don't show up, you know, if you look for a logo, there are probably thousands and thousands of sellers. If you're a good worker, you know, you'll be at the top.

If you leave the platform for a few months, you will go down. That's another reason to stay on the platform. Those are really important things to know already. Fiverr is even making it better because they start working now with subscriptions for the sellers. So for $29 a month, and it's still in the testing phase, but the results are incredibly good, Fiverr says. So for $29 a month, you get lots of perks. So, for example, you get a dedicated success manager. yeah so if i'm a seller i you know i want to sell something i i want to sell you know how

how to invest in stocks right of course for example uh i have to start out if i pay that subscription uh as a seller i get someone who helps me to position uh to to to say how i should how i should sell my service how i can um you know have success i get a personalized success manager right um i get faster payments um what else um reduce take rate or is it still the same no the take rate is still the same but uh for example i get priority support if i need support um oh yeah very important i can give coupons to certain clients that come back i um i get much better analytics, which helped me, again, to grow my business, et cetera, et cetera, et cetera.

And this is just the starting phase, right? So, Misha Kaufman, the founder and CEO of Fiverr, has said that they saw great success with the subscription and that they want to build it out like some sort of prime for sellers. He talked about Amazon Prime for sellers then, because they want to add more and more and more and more services in that subscription. Right. And I guess one more, you kind of mentioned it before we hit the ad break, is what are your thoughts on management? How important is it to your thesis here? Can you repeat the question, please?

Oh, no, no worries. No worries. What are your thoughts on management? You mentioned the founder there. How important is that to your thesis on Fiverr? Management is always very important to me because I think still a lot of investors don't look at management enough because, you know, it's so important. Why? Because companies are made by people. It's as simple as that. You know, we're talking here because you guys took the initiative, you know, to ask me to come into your podcast. right and that's that's also how it works in in huge companies uh what people do makes a lot of difference so you you you want the best management there possible right and misha kaufman is a very good um uh ceo uh initially i thought you know the first quarters i i looked back then once i

started researching fiber i thought he was sometimes a bit nervous on conference calls etc., but probably English is not his first language, which I can understand. I was kind of nervous as well. If I make a mistake, it's not that bad. If you make a legal mistake as a CEO, I think you can be a bit nervous about that. But if you hear his conference calls now, and I would encourage everybody to listen to the last conference call, he's a very straight talker. He's very honest. He gives a lot of details when the analysts ask questions. He really wants to explain to people what's going on, et cetera, et cetera. He's not one who talks around the problem. He just says it as it is.

By the way, his co-founder was Shai Winninger, the founder and I don't think he's the CEO now, or is he, of Lemonade? Yeah, I don't think he's CEO, but I think, yeah, he's definitely a founder. Yeah, CEO or CTO, I don't know exactly, but he was the co-founder of Fiverr and left after five or six years because he wanted to found Lemonade. And the CFO, I forgot his name now, he's also very, he sounds reliable. And, you know, I really encourage people to listen to it. I read a lot of conference calls, but this is one to listen to because he can hear the sincerity, I think. And so, yeah, if you hear him talk about what he wants to, I'm talking about Misha Kaufman now. If you hear him talk about what he wants to accomplish with Fiverr, you know, it's no, you know, it's no promo talk.

it's it's from the heart he's living that every day and um you know he also you know when he talks about something uh he also executes on it and and comes back to it it's accountable for himself um as well as for the others and um yeah i mean he's he's a big part of why i like uh fiber so much he has a big stake in the company as well But it's not that big of a company in the market cap-wise. I think $8 billion, somewhere around that. But half a billion dollars of that is in Misha Kauffman's portfolio. Right.

And they put up the numbers that show that when they say something, they're establishing that track record. They're establishing that track record so far. Yeah. Yeah. And if you look at, you know, revenue growth, you know, Fiverr fell almost 25% on the last earnings call because they lowered their guidance, which they had, you know, raised two times in a row significantly, significantly. and um um they lowered their guidance by seven percent or so the stock dropped to 24 percent which i found funny because um if you listen to what he said um you know i think it was um being conservative as well uh he talked about hyper seasonality and you know we have heard that from other CEOs now too.

You know, Pinterest was an example. Roku was an example where the CEO said, well, we have not seen this before. And the best analysis, you know, came from Misha Kaufman and therefore alone, it's already worth listening to the conference call as well because you can also apply it to other companies. And he talks about hyper-seasonality.

And yeah, he said, yeah, we factored in seasonality, but what we see now has we have never seen before now people have been tied to their screens so much that they really run now and um and they want to go out and they want to go to restaurants and want to meet people and family and and that's why they don't spend that much time um on you know on screens and and uh especially uh their market the smb market so small and medium-sized businesses um you know if you're a freelancer and you say you know the weather is good now and the next week let's go on holiday i know nobody will say no you're not allowed you have to ask your boss first uh so they you know they just leave for three weeks or a month or so and and

that's what fiber sees and that's why they lower their guidance but you know i'm saying conservative it in that way that they say oh we just uh were surprised by this uh that's hyper uh seasonality and you know we have accounted for the rest of the year that it will remain like this which i don't think will be the case i mean people yeah they want to go out more as so but you know once once um you know it's it's autumn let's say i think everybody will go back to their screens and more and more. I actually quite like it to be a conservative guy and then beat that estimate versus keeping your guidance and then missing on the earnings. If you look at revenue growth before the pandemic, it was 40%, 45%.

Even this quarter, I mean, quarter two of 2020 was, of course, the first pandemic quarter. And Fiverr grew 82%. It grew its revenue 82%. And if you have those comps, I mean, it's very hard to grow. But on top of that 82% growth last year in the second quarter, in this second quarter, Fiverr added another 60%, which I think is really impressive. And, you know, that's also a reason why I think Fiverr is an expensive stock, but it's worth it. And because also Misha Kaufman says we're seeing that even with this hyper seasonality, you know, the trend is not reversing. People, you know, want more and more freelancers to do, you know, certain tasks.

And we don't see any change there. That remains the same. We just see that people are a bit less on their screens, but the people who are on their screen, they continue to keep that high level of buying during the pandemic. So that is really encouraging if you're a Fiverr shareholder, I think. That's great stuff, Ryan. Are we going to end that? Yeah, we've got a few more questions, but first we're going to hit a quick ad break. this episode is brought to you by La Quinta by Wyndham here you are miles from home and ready

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all blocked thanks to advanced security included with cox panoramic wi-fi advanced security must be enabled in the panoramic wi-fi app restrictions apply welcome back in uh next question for me i guess what's maybe the counter thesis for fiverr why would somebody not be short i guess but what's sort of the bare thesis and then why do you think that's wrong well the bare thesis i have already explained a bit is that you know you can work off the platform um or uh some people believe that it's you know a coffee play um i mean i can see why people think that because their growth went up so much you know from 40 ish 45 percent uh to to 80 percent during the pandemic, but they're still growing 60%.

And I think, you know, even if they would go back to 40%, which is, you know, not too shabby after all, they can continue that for a very, very long time because more and more people start to use their services. And, you know, one of the elements that bears to use this, you know it's it's no it's it's it's all right for a freelancer um you know i mean as a buyer then as well but bigger companies won't use it so that's the the crux of a bear thesis uh a lot of times and i think that's wrong because um if you look at what they are doing right now

in this quarter, 5% of their revenue already came from Fiverr business. Now, that doesn't sound too impressive, right? But if you know that it only started three quarters ago, then 5% of revenue is already quite big, I think. And they see the average amount of a buyer going up as well. I don't remember exactly what it was before, but it's somewhere around $262 per user right now. And it was up quite a bit.

It was $180 or so before. So, yeah, you see that even big businesses like Unilever, et cetera, are using Fiverr as well. You see Fiverr itself scaling up. You know, they have their Fiverr business model and you can you can sign up for three months or six months there. And what you see is that a lot of people already take that six month subscription. So what is that actually? You know, for example, you want SEO for chitchat money for, you know, the for the website. right um but you want that each time you don't want it once as a gig but you want that on a

constant basis so you can take you can go to fiverr or you if you're a big business you go to the fiverr business and then you can take um you know as a fiverr business you you get a lot more um normally the subscription would be 149 a year which is ridiculous if you're a company of course but the first year it's even free and you don't even have to give a credit card you know um you can just try it out and how has you know um fiverr that you know how have they um gathered that revenue of five percent already just by you know that take rate of um 27.4 percent probably it will be lower for business i'm not sure but just by you know not not even by the subscription itself And if you have Fiverr business, you have a whole, you know, virtual room for yourself.

You know, if you're a business and you've got somebody working on, for example, let's take SEO, maybe you have another department which wants SEO as well. Well, you can add that other department to the virtual room as well. You can work with your overseas company or business there that you work with and your freelancer, et cetera, et cetera, et cetera. You get a whole virtual room completely dedicated to the project that you can take different steps in the process with dates that they have to be finished. It's a complete project management system in which you can integrate several freelancers for a certain period of time. know for example three months or six months and then you can add someone else for three months because you know you only need that person for three months but you know the other one you'll want for two years and yeah so it's a complete um completely different um unscaled um manner of

working worldwide with experts um instead of having and and you don't have to look as a business fiverr gives them to you so you just say i want an seo expert and fiverr says oh this is one that we think is good for you because he or she has experiences in this you know in this space or in this industry that you are in um you know you talk you say okay or you say i want someone else that's okay too and you know that's how it works so it's a completely um virtual environment in which you can work together on a worldwide basis with, you know, experts in certain areas. And for the sellers, of course, this is very interesting as well, because, you know, they don't have to live in a certain place. They can be anywhere in the world and, you know,

they can earn their money there with their expertise. Right. Okay. That makes sense. I think that the Fiverr business and the Fiverr expert, that sounds very promising for them well for the stock itself i think we should talk about the valuation in the multiple a bit you mentioned the market cap is eight billion dollars can you give a reference to what some of the financials look like and are they profitable yeah and how you think about them going forward when kind of underwriting the investment yeah well they are profitable um i don't remember exactly uh i think they had free cash flow or something in the high teens but i'm not sure um you know i i i usually remember the story but forget the numbers the

exact numbers and you know i looked at it uh last week when your news came out um but um yeah they are profitable they are investing uh a lot uh you know they are um they're in high growth mode so you don't have to look for profitability as such it's an expensive stock i don't know the price the sales ratio by heart as well um but you always have to look uh over the long term and if if you look at you know how they could grow in the you know in the next um five years, for example, and what is expensive right now could be very cheap then. So, in this kind of area, with those high growths and stocks that have an accelerating trend, and that acceleration is visible in their revenue growth as well, if they have

such an accelerating trend backing them up, I don't think you should sweat too much over the valuation. Just scale in slowly. That's what I always say to my

subscribers. If you see something very expensive, scale in slowly. Even if you think it's extremely overvalued, companies can be overvalued for a very, very, very long period. sometimes years and decades until all of a sudden you know they're not anymore because they have grown into their valuation and one of the things that i think are very important there and still

under stress in uh in investing are earnings beats if you if you look at a company and it's expected to grow, let's say, 25% per year for 10 years. It beats the earnings on revenue. I made the calculation, but it was somewhere a bit lower than 7% on average. Then, at the end of the that decade they have doubled the revenue so i you know those earnings beats compound as well um that's very important a lot of people i i don't hear a lot of people talking about that but it's extremely extremely important so you know evaluation is always um difficult very subjective in my opinion because and of course you know i i have already met i have already said it before a few times it is an expensive stock right it's it's not that um i'm i'm saying that you know

fiverr valuation doesn't matter i mean it it does matter and it matters in that sense that you have to know that it's an expensive stock and you know the 25 drop on seven percent lower guidance you can expect that with such a stock, right? Or with such an expensive stock. It's just if you look at for the long term, it doesn't matter that much. You know, I've said that I want 10 beggars over 10 years. And I mean, a 10 beggar is 1000%. What's 25% then? I mean, if you look at it from that context um it's um you know and and you know you see the same thing i think a while ago uh it was at a price to sales ratio 40 plus if you look at it now i'm i'm not sure i haven't looked at the the current uh price um to sales ratio but if you look at the forward it's 22 and if if it um you

If it beats the estimates, it's maybe 20 or so. And the year after, it's maybe 15 and then 10. And that's three years. And you could look at a stock that is a lot higher at that moment. And probably a lot of people say, oh, it's crazily expensive still. So if you want these kind of high growers, the volatility is inherent both ways, both up and down, because a lot of people only look at volatility when a stock drops 25%. But if it goes up 60% in, I don't know, six months or so, they don't describe it to volatility, right? So volatility works both ways, and you need volatility to have those outsized gains.

Right. You got to expect that with something like this. Are there any specific financial metrics that you look for, I guess, each quarter that any Fiverr shareholder should look for? Is it take rate, revenue growth, anything in particular? Yeah, those two especially. So take rate and revenue growth. I mean, the take rate is very stable. It's also a part of the Barrett thesis that some people say, oh, they can never sustain that high of a take rate. So their strength is used against them.

But they have been still expanding it and making it a bit higher each time. So, yeah, the gross margins, they have very high gross margins. I don't remember exactly, but somewhere 82%, 84%, something like that, which also says that they can monetize this very well if they want it to. Again, it's already profitable. I don't remember exactly how much EPS they had, earnings per share, but it was positive. um so um yeah i mean in it's it's very important to look at revenue growth because if you look at studies um they show that revenue growth is about three quarters of stock price appreciation over a 10-year period if you look at a one-year period uh the most important factor is um valuation

um but if you look at the three-year periods um the revenue growth has already taken over versus valuation and over a 10-year period valuation is depending on the study on the studies there are a few one percent or five percent of the total stock return so that's why i focus on revenue because that's the most important factor about again depending on the study and the time period etc 70 to 75 percent of the stock return is correlated with revenue growth of course revenue growth as such also you also have to look at the quality of revenue growth if you have you know a company like uber for example has you know i haven't checked it lately so maybe i'm wrong and i'm angering uh uber shareholders here but when it came public

uh especially if you looked at the unit economics i was terrible i mean they they really bought their revenue and you always have to see that operating leverage that the higher revenue goes the the better the you know the the other profitability um uh ratios should be as well so that's important to look at so there has to be a correlation between between those two okay and we talked about Fiverr experts a bit. We talked about Fiverr business and we talked about the subscriptions. And if you have anything else on those, because those seem like important growth drivers going forward, if you have anything else on those, feel free to add. But one other question we want to ask is the working, not working acquisition that Fiverr made. How do you think

that fits into the company? Well, first I'll go back to subscriptions because there are actually two kinds of subscriptions and subscription fiverr subscription is actually uh meant for you know buyers um so the other one that i talked about subscription for the sellers is called um is it plus yeah i think so so fiverr plus i think um and um so let's talk about subscription it's it's a bit the same as business but without the virtual room etc but you know you guys that would be perfect for you if you want a service you know somebody who always does the editing of your podcast you have a and you found someone that you really like you can take a subscription to that particular seller and so that's from the device and i think that's important

too because that creates recurring revenue both for the you know fiverr but also for the seller of course which you know is an advantage uh as well so um there are quite a lot of you know things going on and they all point into the same direction and now i'm coming to that acquisition of working and not working and working not working is actually a high quality uh creative agency, and it shows the same thing. It's about going up market for Fiverr. It's about appealing to those big companies, to those

enterprises that also want to work with freelancers, but their needs are a little bit different there. Working is you know they they have worked with you know the big boys um i remember google i think amazon as well um or no it was apple what doesn't matter but you know if you have that kind of clients then you know that you're really upmarket by the way um when i when i went to to fiverr in 2015 or so um you only had um you know just to use the cliche but that pakistani guy uh who

you know did some logos in their free time now for example if you want um the you you also have pros and that's about one percent of sellers and uh fiverr um you know really checks that they have to go through a process they have to show their work etc to to prove that they are real experts in their field um and then you know once they are approved they are pro they can ask a bit more and as a buyer you know this is a really good one um okay i'm paying a bit more but this is a really good one and i've used pro as as a buyer myself and you know those people are really really good um and you don't you don't have to you know second gas because you know maybe uh is this a good one okay it's a pro don't worry about it it's good uh you know instead of

maybe i don't know 20 you'll pay 120 but you know it's still cheap if you compare it to you know if you have to go to um the local uh you know freelancer or whatever and it's often you know very high quality work um and you can you know ask for limited uh unlimited revisions etc etc etc so you have that pro angle as well and um you know working not working for example one of the by the way this is a an anecdote one of the people who has been approved as a pro is the the guy who um who created the apple logo he's he's on fiverr as well so uh started starting his his his um his basic gig is uh ten thousand dollars and then going up yeah good he's got the track record for uh yeah yeah sure um but you see you see that kind of

thing more and more and those people were not there five years ago that's what you see the quality goes up and up and up. I think a lot of people who don't use the platform don't see that, and they still see it as the crappy platform it was five years ago, which was my mistake initially as well. When Fiverr had its IPO, I was not interested because of that. It's only because of Clayton Christensen that I had a second look. Then I went on the platform again as a buyer and i saw you know that the quality had improved you know it was unrecognizable so also one of the things that fiber is extremely good at is removing all friction and you know that that was also something that uh you know i had i hadn't used it for a few years and you know it's

so frictionless now it used to be harder to know more clicking etc and you know though the one time flaking of amazon has been a great success well you have the same on fiber actually and it's it's a very smooth process um you know the first time you have to set up a little bit but then afterwards you know so easy um and um so working not working same thing it gives it gives fiber that up market feeling and it will be integrated into their business part especially. So you get very, very, very creative people

for a higher price. But a lot of companies are willing to pay that for the best experts in their fields. And working has a lot of great creative talent. All right. Well, I think that's all the questions we have for Fiverr. That covers it pretty well. If you want even more coverage, I'm sure you've written about it on potential multi-bagger. So if you want,

you know, all the details, you're going to have to sign up for the research, right? Yeah. Of course. And that does a two week free trial for everybody. If you don't like it, just cancel one click as well. It's frictionless to cancel as well. I think that's very important. I only want people who are, you know, a happy subscriber, um, and not people who are locked in. So perfect.

And where else can people find you? What's your Twitter handle? So on Twitter, you can find me at FromValue. And then if you Google potential multibaggers, you'll probably find me. Or you can go to Seeking Alpha and type potential multibaggers there or FromGrowthToValue, and you'll find me as well. So some of my articles are free as well. So, if you just want to follow me, if you don't have the money or are not there yet to pay, just take the two-week free trial and you'll learn a few things, I think. And I don't mind people canceling.

I used to be a teacher. I'm always happy if people are willing to learn. so um i i still i still you know i have that feeling that if somebody could just learn a thing or two in those two weeks i'm already happy as well perfect all right well we're going to close things out so we want to remind everybody that we are not financial advisors anything we say or discuss here on chit chat money is not formal advice or a recommendation brett and i our general partners at Arch Capital. So any positions or securities discussed, clients may have positions and securities discussed in this podcast.

There you go. Thank you everybody for listening. We'll see you next time.