My Fiverr Due Diligence
Here are my thoughts for Fiverr:
Fiverr's revenue has been growing for about 50% YoY for the last 4 years and was $298M in 2021.
They state that cost of revenue was $52M so they had a nice 83% gross margin and $246M gross profits.
Their net income was -$65M mostly because they spent $159M on marketing.
According to their shareholder letter, they get about $1 in same-year revenue for every $1 they spent on marketing. And then about $1 every year. Probably because the customers who stay on spend more, so they make up for the churn. At least for the short time they are around, average yearly spent per customer has stayed roughly flat.
Given this retention and the high gross margin makes it very likely, that those marketing dollars are well spent. As the marketing investment has a positive ROI after 2 years already.
Ok, let's look into the future.
Say their growth in the next 5 years will be 25%, half of what it was over the last 4 years. Then revenue would be $298*1.25^5 = $909M. If their gross margin would still be 83%, then their gross profit would be around $755M. Let's imagine they stopped all marketing at that point. And let them burn another $100M on fixed costs. Then we are at $655M earnings.
Give that a pe ratio of 10 and the market cap would be $6.6B.
Right now, their market cap is $1.73B
Going from $1.73B to $6.6B in 5 years is a ROI of 31%.
Not too shabby. I don't see what could go wrong. I think I'm in!
What are your thoughts? Am I missing something?