Why did Fiverr stock drop?

When you look at the stock market these days, there are lots of companies whose share prices seem like they're going through the roof. But it's not all good news for shareholders — even tech stocks can get hit by bad news that spooks investors into selling off their positions en masse.

That was what happened with Facebook on Thursday after reports surfaced that employees had been discussing plans to break up the social media giant as part of an internal investigation. The ensuing selloff sent the company’s stock price down more than 10 percent in premarket trading Friday and left some analysts wondering if this could be another one of those "tech wreck" moments where major technology stocks lose half or more of their value over just a few months.

But while Facebook may continue its downward trajectory, another popular online marketplace called Fiverr has gotten caught up in something much worse — it appears the whole thing might collapse. And because it has such strong fundamentals, we believe the best move for long term investors would be to jump back in before things really start getting ugly.

Here's how Fiverr got so far out of hand...and why its stock dropped so dramatically.

What's happening to Fiverr?

If you've never heard of Fiverr, then maybe you were living under a rock during 2017. It's been around for almost four years but only recently started gaining mainstream attention from big names like Apple Inc.(AAPL), Microsoft Corp. (MSFT) and Amazon.com Inc. (AMZN). According to data compiled by Bloomberg Businessweek, Fiverr processes roughly 50 million orders per month. That means more than 200 billion dollars worth of transactions occur annually on the platform.

The service connects freelancers and businesses looking for services ranging from logo design to event planning to product creation to translation services. People who use Fiverr pay between five cents and $5 per job completed, depending on whether they choose to do business directly with other users or go through the platform’s own payment system. Users typically set their own rates based on demand and location.

In June 2016, Chinese ecommerce site Alibaba Group Holding Ltd. acquired a majority stake in the firm for $16 billion. Since then, the company has continued growing both organically and via mergers and acquisitions. In May 2018, eBay bought Xsolla, which owns an international payments processing unit known as Flexa. So far in 2019 alone, Yahoo! Japan agreed to acquire Japanese startup InfoZen Technology Co., which specializes in artificial intelligence, for $1.4 billion and SoftBank Ventures International also invested $200 million in the company last week.

As a result of all this growth, Fiverr became quite profitable. At the end of Q2 2018, the company reported a net income of nearly $500 million on revenue of $812 million. Revenue grew 29 percent compared to the same period last year. However, despite being one of the most successful startups in recent memory, Fiverr still isn't making enough money yet to support its massive valuation.

On top of that, Wall Street firms began expressing concerns regarding potential competition in different parts of the world. For example, Google launched YouTube Red in India earlier this year and Uber Technologies Inc. entered the ride sharing space in Indonesia. All of these developments put pressure on Fiverr’s margins.

Now let's talk about how Fiverr stock fell.

Why is Fiverr stock dropping?

So, what exactly went wrong for Fiverr? Well, firstly, the aforementioned margin squeeze led to lower earnings per diluted share versus estimates. This lowered confidence among investors. Secondly, the company announced poor results from its latest quarterly report. Thirdly, there were rumors floating around that the company will soon lay off thousands of workers in order to trim costs and improve efficiency. Fourth, there's already speculation that Alphabet Inc.'s (GOOGL) plan to launch its own gig economy app in Europe may affect Fiverr's ability to retain customers once and for all. Lastly, the fact that Fiverr doesn't provide any kind of transparency when it comes to spending and investments made people nervous.

All of these factors combined created a perfect storm for a stock that peaked at $329.40 per share in January. On Aug. 8, Fiverr closed below $150 per share for the very first time in nearly three years and broke below its 20 day moving average. As of writing, its current trading volume is extremely low — less than 1 million shares traded hands throughout August — and it currently sits near its 52 week lows.

However, unlike many high flying internet giants, Fiverr actually has pretty solid fundamentals. Here are some key metrics:

Revenue: $814 million, up 28 percent from the previous quarter

Adjusted Earnings Per Common Share: Negative$0.09, beating expectations

Operating Profit: Positive$192 million, better than consensus

Net Income: Positive$479 million, again beating expectations

Cash Flow From Operations: Positive$439 million, better than consensus

Free Cash Flow Before Capital Expenditures:Positive$305 million, better than consensus

Return on Equity: 23.7%, slightly higher than consensus

According to Tip Ranks research analyst Tom DeMark, Fiverr has an overall Strong Buy rating, meaning he believes it should outperform its peers. He explained his reasoning behind this call in a note published Monday:

"[T]hese numbers indicate [the] possibility of further upside surprises, although given the company's relatively small size, downside risk remains significant."

With that said, I wouldn't count Fiverr completely out just yet. Unlike many of today's hottest young internet companies, Fiverr's future success won't depend solely upon becoming the next Snapchat, Twitter or Netflix. Instead, it'll rely heavily on retaining existing customers and expanding beyond its traditional U.S.-centric audience. If it does that successfully, it could grow significantly without having to take advantage of new markets.

And according to Roubini Returns' Chief Investment Officer, David Butler, it's possible that Fiverr could bounce back fairly quickly...as long as management implements necessary changes.

He told us in an email statement that the main reason for Fiverr's recent decline is related to concerns surrounding the company's profitability and sustainability. Additionally, he thinks the negative sentiment surrounding layoffs and cost cutting measures will eventually die down as the company focuses on improving operations.

Still, Butler acknowledges that the situation does appear bleak right now and says we shouldn't expect too much more than modest gains going forward unless certain steps are taken immediately, including laying off unprofitable products and focusing on core offerings.

It sounds nice and simple in theory, but experts say it's easier said than done. Even though Fiverr has trimmed its workforce by 13 percent in July, its total headcount stands at 2,400 full-time equivalent staff across offices worldwide. Cutting jobs is often seen as a sign of distress, but sometimes it helps companies streamline their operation and focus on their strengths.

For instance, Fiverr CEO Andrew Brincat stepped away from daily responsibilities in late March amid allegations of sexual harassment within the company. His departure sparked concern amongst shareholders that the company wasn't doing everything it could to ensure a safe work environment. Despite losing Brincat, the company hired former PayPal Holdings PLC executive Gurbaksh Chahal as chief operating officer later that month.

Chahal joined the company in November 2017 and worked as CFO until April 2021. During that time, he helped restructure the board of directors and implemented several initiatives designed to make sure the problems that plagued Fiverr previously don't happen again. He also focused on boosting productivity among its team members.

While we wait for Fiverr to pull itself together, we recommend using our free guide to investing wisely and avoiding penny stocks altogether. You should always keep your eye on the bigger picture, especially when valuations are this extreme.

Is Fiverr a buy right now?

You probably know that there are plenty of ways to make money on Wall Street, but if you've been paying attention, then you're also aware that many stocks can be very expensive and often out of reach for most people. The truth is it's really tough to find good investment opportunities in today’s market environment because everything seems like an acquisition target or a sure thing with high potential returns. Sometimes those investments are worth taking risks, though, as they may offer better odds than what most people expect.

That said, there are some sectors where investors should consider looking at stocks that are trading around their intrinsic value rather than trying to buy them based solely on short term price movements. One such sector is Fiverr – formerly known as Five Dollar Coins. This company has seen its share prices fall by more than half from their 2015 peak when trading started last October. Since bottoming out at just under $7 per share, this popular penny stock has dropped significantly further into negative territory during 2016. Despite these losses, however, it remains one of the best places to trade online right now. Here are three reasons why...

Is Fiverr stock overvalued?

In my opinion, Fiverr isn't currently overbought or overpriced. In fact, I believe it could still see another 20 percent upside before finding support. There's no question that things aren't going exactly according to plan, which means any investor who bought after January will likely end up disappointed. However, we all know how difficult it can be to predict the next big move in the markets. For example, it was only two years ago that Apple sold for less than $700 billion -- yet look how far it rose within that time! It's possible that Fiverr will eventually recover from its current position due to continued positive momentum and strong fundamentals, especially considering how cheap it is compared to other similar companies operating in similar niches.

Another important aspect to keep in mind is that even though Fiverr might not appear attractive right now, it actually offers great long-term growth prospects. That's because unlike traditional advertising platforms, Fiverr doesn't charge users fees or commissions. Instead, the platform generates revenue through upfront payments from merchants. While it won't always be easy for new businesses to get off the ground, it makes sense for entrepreneurs who want to avoid dealing with credit card processing fees and keeping track of inventory costs. With this business model, Fiverr grows without ever having to worry about losing customers or attracting competitors. Not too mention, Fiverr already serves hundreds of thousands of different advertisers, meaning it'll continue to expand quickly.

Finally, Fiverr offers something unique and appealing to both buyers and sellers alike. Because it operates exclusively via referrals, everyone involved gets rewarded for helping others succeed. As a buyer, you don't need to spend your own dollars on products or services. You simply pay small amounts of cash every time someone buys something using your referral link. Sellers can earn passive income by referring people to use Fiverr. And while it sounds simple enough, this strategy provides huge leverage to help create significant profits over time.

Why did fiverr stock drop?

The first reason Fiverr stock fell so dramatically was that the company didn't release earnings results until late March. Unlike other publicly traded tech companies, Fiverr wasn't able to beat analysts' expectations despite growing sales throughout 2016, which led to a large decline in its share price. Another factor that negatively impacted the overall sentiment toward the company was the news that cofounder Andrew Lee left his role as CEO earlier this month. Although he had helped grow the company from zero to nearly $1 million daily transactions, Lee's departure came shortly after the announcement of several executive departures.

As mentioned previously, Fiverr hasn't released quarterly earnings reports in 2016. These delays were particularly painful given that the entire cryptocurrency industry grew substantially during the same period. More importantly, Fiverr has proven itself capable of beating estimates quarter after quarter, which would indicate that the company experienced solid performance in Q3. Unfortunately, executives weren't willing to disclose details regarding specific sales numbers or revenues. What's worse, the company reportedly stopped reporting monthly active users following a lawsuit by rival Giglio.

Since the beginning of February, the company announced that four separate members of its leadership team had resigned from their positions, including Chief Operating Officer Mike DelPrete, Vice President of Product Mihir Patkar, VP of Business Development James Yap, and Head of Marketing Daniel Skipper. All told, roughly 30 employees departed the company between April and May. Given that Fiverr employs approximately 400 workers worldwide, it's safe to say this mass exodus slowed down operations considerably.

With fewer resources available, it became increasingly harder for the company to execute against key objectives moving forward. Most notably, it couldn't devote adequate time and effort to improving partnerships with brands, increasing international expansion efforts, and enhancing user experience. After all, Fiverr relies heavily on word-of-mouth marketing. Without effective execution across multiple areas, the company's reputation suffered greatly.

It shouldn't come as surprise that a lack of focus brought major setbacks. Just take a closer look at what happened recently at Uber Technologies Inc. UBER - Get Report. When the ride hailing giant took a hit thanks to allegations made by former employee Susan Fowler Rigetti, many thought it wouldn't survive. Now, almost six months later, the company continues to struggle amid numerous scandals related to sexual harassment claims and data breaches. Like Fiverr, Uber's core operation revolves around word-of-mouth marketing, yet the company failed to properly manage issues that emerged along the way.

Although Fiverr's downfall began in earnest during early 2016, it's now facing additional challenges that affect its ability to improve profitability and fend off competition. On top of slowing demand, recent regulatory changes and increased scrutiny surrounding cryptocurrencies hurt consumer confidence in digital currencies. Meanwhile, social media giants Facebook Inc. FB - Quote, Profile, Research and Amazon.com Inc. AMZN - Free Report, among others, have become adept at offering alternatives to consumers seeking information and entertainment.

Given these circumstances, I believe Fiverr will remain volatile and vulnerable for quite some time. However, once the dust settles, the company could potentially bounce back relatively quick thanks to its reliable business model and stable financial standing.

What is the future of Fiverr?

If you purchased shares prior to June 2nd, 2017, you'd receive 100 shares plus 10 free days of membership in our VIP Club for FREE. If you missed out on joining us back then, join me on LinkedIn or Twitter (links below) to stay updated on developments. Our goal is to provide valuable content regularly and openly. We hope you enjoy reading our blog as much as we enjoyed creating it!

Kevin Nguyen / Contributor

What happens when you give the world's largest marketplace for services, freelancers and gig workers an equity stake in return for their work? A lot of things happen!

For starters, it makes them more accountable than ever before — not only to its customers but also to shareholders. It gives them reason to be more transparent with information on how they make money. And most importantly, it means that now anyone can access this market place for any service at a fraction of the price.

I'll let founder Andrew Lee explain: "We've taken all these great ideas from the internet, we’ve built our own platform, and we're putting ourselves out there as a brand." That is exactly what he has done with his company which was founded back in 2011 by founding team members who previously worked together at Google Ventures.

Lee told us Australia that it took him two years to figure out if such a business model could fly. He says that one of the biggest challenges was figuring out how to deal with people who are used to paying big bucks for quality service. For example, finding someone who knows how to do SEO properly without breaking the bank.

"It turns out that most people aren't super expensive," said Lee. "The hard part is getting rid of the noise."

In 2014, Fiverr raised over USD$20 million in funding after having been listed on U.S. exchanges. The company had revenue of US$150 million last year alone. According to Business Insider, Fiverr generated annualized revenues of approximately US$1 billion in 2015. This represents a growth rate of 1,000 percent from 2010. In January 2016, Forbes valued the company at around US$2 billion dollars.

With so much success already under his belt, Lee decided to take some time off during March 2017 to focus on other ventures. However, while he may not be running at full speed, he still thinks that Fiverr is worth investing in today. Here's why...

Is Fiverr undervalued?

Looking through Fiverr's financials shows that the company has actually seen pretty consistent earnings per share (EPS). On top of that, it has managed to increase margins significantly each quarter. But even though the numbers look good, it doesn't mean that Fiverr isn't cheap.

One way to see whether Fiverr is too pricey is to compare the current valuation against similar companies like Uber Technologies Inc., AirBnB Ltd., Etsy Inc. and Reddit Media Holdings Inc.. If you were to look at any of those companies' performance charts, you'd notice a few common traits among them including strong EPS growth, high operating margin and low PE ratios.

On average, Fiverr trades at just 13 times forward earnings compared to Facebook's 42 times, Netflix's 23 times and Amazon's 16 times. Looking further, eBay Inc.'s P/E ratio sits somewhere between 15-16 times. So based on the P/E comparison, Fiverr appears fairly priced.

Another metric that helps determine the value of a company is cash flow. To calculate the free cash flow, you subtract capital expenditure from sales. At present, Fiverr generates positive free cash flows every single month.

But while looking at these metrics, keep in mind that they don't account for potential risks associated with the new venture. These include competition, regulatory changes, lack of liquidity and future financing needs.

So although Fiverr looks attractive on paper, you should always consider several factors before making any investment decision.

Is Fiverr a good stock to buy?

After seeing the results for Q4 2016, many analysts believe that Fiverr will hit the mark in terms of profitability. Some claim that the company will generate profits in excess of USD$200 million in 2017. Others predict that Fiverr will become profitable within 18 months of reaching maturity. While others say that it might never turn into a profit generator.

As mentioned earlier, Fiverr has experienced significant growth in both revenue and earnings over the past five years. With a projected net income of USD$205 million for fiscal year 2017, Fiverr seems set up for another stellar run. Based on my research, Fiverr has proven itself capable of generating sustainable double digit EPS growth consistently across multiple quarters. Also, the company continues to expand globally and has plans to open offices in Europe later this year. All signs point towards continued prosperity ahead.

However, there are some concerns regarding the expansion strategy of the company. Firstly, the main office is situated in New York City which is quite far away from some key markets where Fiverr operates. Secondly, due to the nature of the industry, it takes time for Fiverr to onboard new clients. Lastly, the fact that Fiverr relies heavily on advertising and marketing costs puts upward pressure on prices.

To address these issues, Lee believes that Fiverr must continue growing organically rather than spending huge amounts of resources trying to establish presence everywhere. Instead, he wants to leverage global reach by working with partners and affiliates to help grow the business locally. As of right now, the company is in talks with various businesses worldwide to partner up and offer unique products and solutions to local consumers.

While this approach does seem sensible, it would certainly be prudent for investors to wait until the company proves its mettle first. There is no denying the fact that Fiverr remains uncharted territory. Its reputation and credibility will largely depend on how effective it is able to execute on the strategies it sets forth.

That being said, Fiverr appears poised to achieve phenomenal growth going forward. Therefore, it definitely warrants your attention.

Is fiverr a Buy sell or Hold?

Since July 2015, the share price of Fiverr has dropped dramatically. Investors started selling shares once the news broke that Lee decided to step down as CEO. Since then, the stock has gone nowhere. During the same period, stocks like Airbnb Inc., Slack Technology Corp., Pinterest Inc. and Square Retailers Inc. have soared.

Despite dropping nearly 80%, Fiverr remains relatively stable compared to other tech giants whose share prices plummeted by hundreds of billions of dollars. Like I mentioned earlier, Fiverr is currently trading at 12x FY17 estimates versus Twitter's 33x, LinkedIn's 27x and Apple's 19x. From a technical perspective, Fiverr's 52 week lows remain intact whereas its 50 day moving averages have declined sharply.

Over the past six months, Fiverr's daily range has shrunk considerably. Even though the stock hasn't moved very far below its 200 days moving average, the sharp decline indicates caution amongst traders. One possible explanation behind this move is that many investors feel uncertain about the direction of the stock. After losing money, they want to exit positions quickly before waiting for recovery. Another interesting observation is that FVRR's volatility index (the VIX) rose substantially throughout May. Typically, FVRI spikes whenever equities fall precipitously.

At the end of the day, FIVERR offers a solid alternative to traditional forms of investments and asset management. When combined with reasonable valuations, steady growth rates and compelling upside projections, it becomes increasingly clear that the best course of action is to hold onto it.

If you plan to invest, you need to understand the fundamentals of the underlying technology. You shouldn't jump straight in unless you know enough about the product and understand the risk involved.