Q2 2021 Fiverr International Ltd Earnings Call
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Good morning, and welcome to the Fiverr second quarter fiscal 2021 earnings conference call. All participants will be in a listen only mode should you need assistance. Please signal our conference specialist by Christian Starkey, followed by zero.
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then 1 on your telephone keypad.
Withdraw your question. Please press Star then 2.
Please note this event is being recorded.
I would now like to turn the conference over to my interest me. Please go ahead.
Thank you operator, and good morning, everyone. Thank you for joining us from fibers earnings conference call for the second quarter ended June 30th 'twenty 'twenty 1.
If we doubled our active buyer base.
Tripled our revenue base and achieved a nearly 30% positive swing in EBITDA margin.
We grew significantly faster than our competitors and rapidly expanded our market share from the freelancing economy.
Fiverr is leading the changes in how the world works together and setting the industry standard with our disruptive and first of its kind business model.
Covid has created some unprecedented growth for our business in the past year.
Like many of the companies, which reported their Q2 in the past 2 weeks, we also see a new post COVID-19 effect.
Most of the World has been confined to home for the past 18 months.
When COVID-19 restrictions were lifted from the U S and Europe or on the second half of my people are in desperate need to get out of home and have some off screen time.
Coinciding with the summer in school holidays people are taking vacations, which is a really healthy thing to do and that translates to less time spent on line.
It would be prudent we are adjusting guidance for the fiscal year 2021 based on these incremental trends over the past few weeks.
I would like to highlight that our fundamentals continue to be very strong.
Far stronger than pre pandemic, the reduced online activity translate into more and more of that new customer cohorts and less activity from those who are taking vacations.
Well that said none of this changes the underlying strength of our business, our long term outlook and the massive market opportunity. That's ahead of us.
Our cohorts continue to spend much elevated levels compared to pre pandemic. We continue to drive majority of our revenue from repeat buyers and majority of our new buyers from organic channel.
And per buyer continues to grow rapidly as we go up market.
<unk> continued to buy large ticket size services through products such as milestones in subscription.
We continue to be highly efficient and acquiring new buyers and lastly, our take rate grew nicely from 27, 2% this quarter with 27, 8% this quarter, serving as a testament massive value, we generate for our buyers and sellers.
Against the backdrop of the increasing demand for skilled talent.
The adoption over most work and continued investment in digital channels.
<unk> are increasingly turning to fiber access digital service provider.
Driven by accelerated pace of investment and innovation.
<unk> maintains its position as a powerhouse that enables more buyers and sellers to participate in the digital service economy and allows them to do more on fiber with greater convenience and efficiency.
During this quarter, we made exciting progress towards our upmarket strategy.
Fiber business was launched just 3 quarters ago.
And even with limited exposure already represents 5% of core market based business growing faster than our overall market base.
This product is still in its early cycle to become a mature solution for larger businesses.
Early data indicate a buyers significantly increase their spend with us after joining fiber business.
The White glove service, we provide reduces the friction and last mile conversion, allowing our buyers to execute their project on Fiverr with peace of mind.
Combined with collaboration and project management tools, we see improvement in overall engagement and spend.
We signed 2 important partnership this quarter with sales force in weeks.
The partnership allows the customers of these companies who have a streamlined experience and accessing qualified talent on our fiber platform.
With dedicated training programs to prepare and qualify sellers with a desired skills.
Will enable a 1 click order experience for corporate buyers.
At the same time, ensuring a smooth on boarding experience and a high quality service delivery.
While these partnerships currently focus on seller candidates from the disabled community.
<unk> is pilots for additional corporate partners and a broader seller audience.
Another area that I'm Super excited about is the seller services.
We are increasingly establishing our platform to be more than just a place to funds up.
Also on an ecosystem that allows talents to grow their business.
Following fiverr learn and promoted gig.
We launched seller plus from Q2.
The latest addition to this family of products.
Stellar bus is a subscription based loyalty program that provides a suite of benefits to subscribers, including advanced analytics.
The ability to send coupons.
Access to dedicated success manager and so on.
So now we have fiverr learn to help a seller improve their skills and deliver better services to our buyers.
Added to that we have promoted gigs to bring our sellers more profit can exposure and no filler plus equips, our sellers with data and tools convert better retain their clients better and become more sophisticated participants of our marketplace altogether.
Initial feedback from our seller community has been extremely positive.
We plan to further expand benefits in the program and to make it a no brainer for any quality and motivated fiber sellers.
We are also making continued progress in expanding promoted.
During the quarter you reached an important milestone by achieving quarterly on revenue and promoted gigs of $1 million.
This is still small compared to our overall revenue potential is significant.
In the coming quarter, we will continue to grow the coverage a promoted gig on the market and continue.
To explore and innovate new ad products.
In conclusion, I am Super proud of our team for their relentless focus and ability to navigate through the pandemic hyperscale analogy and continued to execute at the highest levels.
With that I will turn the call over to Ofer, who will share a few Q2 highlights as well as some color for the rest of the year Ofer.
Thank you <unk> and good morning, everyone.
Our Q2 results showed continued strong growth across all of our metrics as we continued to expand our market share and drive the transformation of how the world works together.
Revenue for Q2 was $75.3 million up 6.6% volume driven.
Driven by a 43% growth on occupier.
23% growth on spend per buyer and an 80 basis point expansion on victory.
We continue to move up market is highly valued by those now representing over 61% a full marketplace revenue up from over 55% a year ago.
As we mentioned we saw some near term fluctuations on our marketplace that are consistent with the border post COVID-19 trends.
As COVID-19 jurisdiction were largely missed it in the U S and Europe.
The majority of fiber revenues coming from people are taking time off existing families and having a break from work after the extended period of lockdown.
This seasonality in the second half of the sale was expected when we provided guidance in may.
However, we didn't have visibility on the unprecedented nature of a post pandemic hypo seasonality.
Based on the incremental trends, we saw since the second half estimate adjusted.
Adjusting our full year guidance.
For full year, 'twenty or 'twenty, 1 we now expect revenue to be in the range of 280 to 288 million, representing a growth rate of 48% to 52%.
At the low end, we expect the hypo seasonality to continue for the remainder of the deal on.
The high end, we expect that ended up demand for personal travel is in Q4 and some of it is coming to an end.
Full year adjusted EBITA.
In the range of $12 million to $14 million, representing an adjusted EBITDA margin of 4.6 percentage points.
We have ramped up our hiring based on the tremendous growth on <unk> and expected growth going forward.
We continue to believe that this investment from political force will drive long term growth initiatives.
The reduction in leverage is short term in nature.
For Q3, we expect revenue to be $68 million to $72 million and EBITA to be 2.5 to $3.5 million.
In light of recent force.
Average trends, we expect Q3 revenues to be slightly down from Q2.
Well that said, we are well positioned to stay resilient through this period of volatility and uncertainty.
1 <unk>.
We operate on horizontal marketplace on our revenues well diversify our close over 500 category.
When the stay at home or those 11 place categories related to E Commerce and gaming.
On the really well.
Actual drop shipping in roughly 3 months.
Now as the world reopens on demand for hiring and surges.
We're seeing strength in categories, such as restaurant on writing and Airbnb.
Second majority of our revenue came from existing cohort from those buyers continue to stay engaged on our marketplace for a very long time.
From Q2, while spend from liquids biased modestly came down from peak levels.
<unk> massively elevated compared to pre COVID-19 levels.
Third our highly sophisticated SCO SCM engine continues to be a key competitive advantage.
The continuous channel electrification and automation of on marketing technology allows us to stay disciplined in Q2.
Yeah for the quarter was 1 ex and will continue to return our performance marketing investment and Novartis 3 months.
We expect disciplined post COVID-19 seasonality 1 zone.
Texas, We don't have a sales force and long sales cycle will allow us to quickly pick up the growth.
In summary, we had an amazing Q2.
And the fundamentals of the business are stronger than ever.
We as management are committed to stay pumps per line and forthcoming.
We remain heads down focused on continued execution innovation to empower our community of buyers and sellers on to.
To drive long term sustainable growth of our business.
With that we'll now turn the call over to the operator for questions operator.
Thank you we will now begin the question and answer session.
To ask a question you May press Star then 1 on your telephone keypad.
If youre using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then 2.
Please ask that you limit yourself to 1 question and 1 follow up if you have additional questions you may reenter the question queue.
At this time, we will pause momentarily to assemble our roster.
And our first question will be from Brad Erickson with RBC. Please go ahead.
Hey, Thanks, guys good morning.
So couple of questions I guess first you mentioned the change in buyer behavior in the past few months here just curious to learn a little bit more there I guess when you think about things like traffic and conversion in any of the inputs that drive your funnel of demand I mean, I guess did you see all of those.
Things sort of generally slowed down at the same commensurate rate versus revenue on I guess also wondering if you've seen freelancers, making themselves sort of less available in light of the labor shortages and do you think that also had any effect on the slowdown you're seeing and then I have a follow up.
Hey, Brett good morning. Thanks, Thanks for the question.
So what we're seeing is this.
<unk>.
The existing fundamentals and cohorts are very strong.
When we look at our older cohorts those of 2018 and box spend levels are 15% higher.
In 2020, and they expand further into Q1.2021through May and they came down slightly after then still massively above pre pandemic levels.
If we look at 2019, and 2020 cohorts, 10% to 20% better than typical cohorts in its first 2 years.
These are <unk> cohorts and quality looks strong so far.
When we when we look at 2021, we expect smaller cohort size in H 2.
The.
The efficiency and the quality has remained but the quantity is slightly smaller.
Now what we're seeing is.
Mostly in the top of the funnel of the traffic.
Now it should be said seasonality was expected it was factored in when we provided guidance last quarter.
But what we're seeing is what we called hyper seasonality.
Is.
As a result of the long Lockdown Online's fatigue Summertime school holidays people, just need time out of home now more than ever.
When we look at the guidance that we provided we assume that the hyper seasonality will continue throughout the rest of the year and this is just given the unprecedented nature of Covid. We don't know how long. This is going to last 10 guiding the way we have is the.
On the prudent thing to do.
But we know that this is unusual level of seasonality in it would it would end.
At some point.
So to your specific question, we are seeing it mostly on the top of the funnel.
Listing activity remains very high yes, more people on you've asked about.
On both sides of the marketplace. If people are are indicating that they are taking more time off the answer is absolutely yes.
We have a way to measure within our studies our research team.
Time that people Mark is out of out of the office.
And this is now increasing.
Now again, we know it's temporary people people have been locked for almost 18 months.
They have spent tremendous amount of online they just need to go out.
It's going to I don't know if its going to end at the end of the summer or if it's going to last throughout the entire second half of the year our assumption to be prudent is that this is going to last throughout the second the second half of the year. We think that this is the right thing to guidance.
Got it that's helpful and I guess generally squares with the Q4 guidance.
I guess second question I'd have is.
What have you seen.
In parts of the world that have gone back down back into Lockdown and I guess just have any of those geographies may be seen as a smaller amount of reversion the business turn a couple of months ago.
Thank you.
So this is really interesting I think.
This is the unprecedented nature of this pandemic and we're seeing this I mean.
You look at Israel, Israel was ahead of the curve in everything.
In the beginning maybe not but then high degree of cases than the highest degree of vaccination and we were 1 of the first to relax.
Or dismissal of the restrictions of Lockdown now we've seen the delta variant coming in we're starting to give the third vaccination and there's talks about lockdown during September which is the holiday time in Israel. So we are definitely not done with this we shouldnt even.
All it post pandemic the pandemic is not over.
So 1 interesting cases, what's happened in July in Australia.
So.
2 factors for Australia..1 is the fact that there is full lockdown since July 2nd thing is it's winter.
And what we're seeing there is we're seeing amazing activity.
It is if there wasn't any change from the height of the pandemic.
So definitely when you have very broad.
Lifting of restrictions.
Definitely coinciding with summer because summer is it.
When people can actually go up.
If it were to be in the winter, we may have seen slightly different behavior, but right now Australia is a good is a good case to look at what happens when there is locked down and there is winter activity. There is very very high.
That's great. Thank you.
And the next question will be from Ron Josey with JMP Securities. Please go ahead.
Great. Thanks for taking the call and taking the question maybe mix on another question just on the hyper seasonality can you talk about maybe the size and scale of the projects that youre seeing on the platform from call. It mid Meda to current I'm wondering if maybe you are still seeing the number of projects are smaller in scope as.
Folks take more time off which makes sense and then as a follow up to that maybe just talk about the freelancer base. So you're still seeing more freelancers, joining from a supply perspective, and while we're talking supply might as well talk to the demand side any.
We understood understood the vacations and whatnot, but just talk a little bit more about where youre seeing like new active buyers and things along those lines. Thank you.
Good morning, Ron Thanks, so much for the question so no the number of projects smaller projects in scope.
It's not something that we see.
As I said, what we're seeing is mostly top of funnel now if you look at the different sizes of customers on the other hand, you see that the larger types of customers are less affected by this hyper seasonality and again. This is common sense. If you think about it if it's a larger organization and.
1 of the team members he has going on vacation, it's fine because the risks are actually working so there are less volatile.
You think about freelancers on the 1 hand, or if you look at Smbs, They don't need to get permission from anyone to go on vacation just close up on day. They can disappear for 3 months if they want to.
So what we're seeing and this is this is 1 of the reasons why we spoke about fiber business as an example, and high value buyers.
Both are increasing very very nicely.
So youre seeing high value buyers getting to the level of 61% and you see fiber business, even though it's a super young.
Product being.
Scaling up very rapidly, which we're very happy with it so again top of funnel. That's what we're seeing so I feel less activity people spending slightly less time in front of screens and that is what's pushing it it's not changing.
The mix. This is what we call the fundamentals the fundamentals are extremely strong strong as ever.
I would just add on if you look at the spend per buyer, which is another good indication.
The amount of money.
Our buyers on spending on our marketplace, it's actually grow by 23%.
So by all means what we have said.
They know us.
Go across all categories and countries.
Our funnel that has been that had been produced but the fundamental.
In terms of activity and behavior.
Is the same and getting better developed market.
Yes, that's very helpful.
Your other question about the freelancer base.
We're seeing we're seeing a very.
Steady stream of new freelancers coming in however, again when you look at the freelancing side day also been locked down for a long time.
And they also need some time off.
Do remember that we're still within the stimulus package and this is going to last until <unk>.
If I'm not mistaken September 6th so I think that people have also.
Lack of very high motivation to necessarily go back or start their career.
Always seeing a very high stream of freelancers coming in.
Nothing has changed in this idea of people wanting more freedom of how the.
Create their career.
Remote work is also not changing that.
That concept is not reversing itself.
The ideas that were born during the pandemic will just accelerate.
But we just need to get out of the hyper seasonality and again as I've said, it's really impossible nobody has a crystal ball to understand how this is exactly going to play out. This this is why we're being cautious.
Makes sense thanks, guys.
The next question will be from Doug Anmuth with Jpmorgan. Please go ahead.
Thanks for taking my questions.
Just 2.
Can you explain all of that fairly well I just wanted to follow up on 1 point there just curious on the top of the funnel we've seen some other companies that are.
Had some impacts from Google SCO changes just curious in particular, if there's anything there that you're seeing and then maybe just secondly on fiber business up to 5% of core marketplace.
Revenue it.
It sounds like Youre doing a lot of things there to remove friction obviously you can get on boarding right. Just curious what other functionality and tools, you're kind of thinking about their fiber businesses you will see further enhance that product. Thanks.
Yeah.
Thank you Doug and good morning.
I think youre right to point that generally speaking we've been.
We've been listening to all of the earning calls.
In the past 2 weeks.
And I think in general companies are talking about reduction in traffic I think most of them are actually because of the hyperscale seasonality.
Some are because of SCO, we haven't seen any change in organic or ACO impact we've been preparing very very well.
In advance for those changes and these changes haven't impacted us at all.
And Doug.
Go to the DIY chalk.
<unk> demonstrated that.
On the resilience of the on fleet.
Performance marketing environment.
We kept the 3 months.
COI.
Despite the fact of lower traffic.
And a slightly higher cost of acquisition.
We kept the <unk>.
Our lifetime value to cost.
As higher consistent to prior cohort and I think that bear in mind lastly that we are increasing.
We are increasing the.
On the investment in southern marketing comparing previous call. So all of those platforms.
Oh, well demonstrated in DIY on the long term like from <unk>, which hasn't been changed.
Let's see.
Patterns through the Google SCO.
Got it.
On the business.
On the fiber business.
Yes, we already moving friction on things.
The more we have audience and buyers using the system.
Net more and more.
On more on Manta.
Based upon that we are building the next step.
We mentioned on the prepared remarks on the shareholders' net those out we reached the first milestone of.
A 5% of the overall marketplace revenue from.
From fiber business, which is for US is a great achievement given the.
The early early days of the product.
When we when we look for.
So what we see.
See more customer.
PSM.
CSM involved.
Weighted supply.
To give additional volume those are common debt that we get from from the thousands of buyer who are using the system.
And we also look into what is called Fms, which has a freelancer management system we plan.
To offer in the long term the ability.
Businesses to manage.
A different class of fragrances.
So that the roadmap for the long term.
Pretty heavy we adjusted the early data from 3 quarters since we launched the product we already have.
Thousands of buyer and also new buy of on buyers of the marketplace that our pumps from controlling themselves into the system.
Cause of the value.
They see the loyalty is higher spend per buyer is higher so we're pretty excited.
This project in the long term.
Okay, great. Thank you.
And again, if you have a question please press star 1.
Our next question comes from Jason <unk> with Oppenheimer. Please go ahead.
Hi, This is Patrick Joseph on for Jason Thanks for taking our question.
You just spoke about their business helping.
On the business diversify away from the slower F&B demand just.
Just curious to hear how your subscription products.
Helping diversify as well and when do you see subscription products big enough to be material to growth.
Hey, Thanks for the question so on subscription.
They were launching in February of this year currently operating in 152 category, which is up from 25 categories in Q1.
What we can.
Some data that we can share on this is up 52% of transactions are buyer working with sellers for the first time, which is really great indicates that the March base have created the level.
On Av.
Of convenience and trust necessary for people to start engaging subscriptions without even working.
First time together.
And 20% about 20% of the subscriptions are for 6 months.
So we're now working on expanding this to the entire market base and this is obviously the larger the customer the larger their projects and their commitment ability the more they use it on so this is definitely.
1 of the products that we're super happy with and Super relevant for fiber business customers.
Okay.
Okay. Thanks I appreciate it.
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