Fiverr International Ltd.

and welcome to the FIBO Q420 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Maya Tracy. Please go ahead.

Thank you, operator, and good morning, everyone. Thank you for joining us on Fiverr's earnings conference call for the fourth quarter ended December 31, 2020. Please note that this call is being webcast on the investor relations section of the company's website. Full details of our results and additional management commentary are available in our shareholder letter, which can be found on the investor relations section of our website at investors.fiverr.com. Joining me on the call today are Michal Kaufman, founder and CEO, and Ofer Katz, CFO. Before we start, I would like to remind you that certain matters discussed today are forward-looking statements that are subject to risks and uncertainties relating to future events and or the future financial performance of Fiverr. Actual results could differ materially from those anticipated in these forward-looking statements. A discussion of some of the risk factors that could cause actual results to differ materially from any forward-looking statements can be found on FIBRS periodic public filings with the U.S. Securities and Exchange Commission, including the importance factors discussed under the risk factors section in FIBRS 20F filed with the SEC. The forward-looking statements in this conference call are based on the current expectations as of today, and Fiverr assumes no obligation to update or revise them, whether as a result of new developments or otherwise. During this call, we'll be referring to some non-GAAP financial measures. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures are provided in the earnings release we issued today and our shareholder letter, each of which is available on our website at investors.fiverr.com. And now I will turn the call over to Mika.

Good morning, everyone, and thank you for joining us on the call today. Before I start, I am extremely pleased to be able to announce that Ofer Katz has been promoted to President and CFO of Fiverr. I am especially delighted as he has not only been with Fiverr since the early days, but is an exceptional CFO, an admired leader, and one of my closest and most trusted friends. We had an unbelievable year of strong execution and growth at Fiverr, and Q4 capped off the year with a strong finish. Q4 revenue was $55.9 million, representing a year-over-year growth of 89% and further acceleration from Q3. Looking back, we have now delivered seven straight quarters of accelerating revenue growth since Fiverr went public in June 2019. This speaks to the resilience of our business model, the consistent execution of our team, as well as the tremendous opportunity in the freelancing space we operate in. Active buyers surpassed 3.4 million representing accelerating growth of 45% year over year. Businesses around the world and across all industries continue to turn to Fiverr as they transform their business online and navigate through the remote work environment. At the time when their traditional way of sourcing work and engaging with clients has been disrupted by the pandemic, more and more freelancers see Fiverr as their platform of choice. During 2020, our relationship with our community deepened and flourished. Revenue retention from buyers across all of our mature cohorts from 2018 and earlier increased significantly in 2020 as compared to 2019. They contributed more than just consistent stream of revenue as they have done previously. Instead, spend level from these cohorts increased on average 15% in 2020 compared to 2019. In 2020, we saw more buyers from these existing cohorts coming back to Fiverr, ordering more frequently, and purchasing more expensive gigs as their need to strengthen their online presence intensified during the pandemic. The 2019 cohort also showed strong revenue retention of over 70%, higher than typical cohort from year one to year two. A study by Qualtrics shows that the impact of COVID-19 has driven small and medium businesses to increase their freelance hiring budget by 56%, and Fiverr was able to capture a meaningful share of that spend. Looking ahead, the impact of COVID-19 should drive a long-term and sustainable tailwind for our business that lasts far beyond the pandemic itself. Businesses of all sizes across all industries are undergoing a paradigm shift as they adopt remote work and optimize workforce distribution. Fiverr's mission to change how the world works together and our business model That enables businesses to access global talent on demand and to collaborate and deliver work for our platform has never been more critical. 2021 got off to an excellent start. We saw record level of traffic and buyer registration in January as the strong momentum of 2020 continued into the new year. We hope you had a chance to see our first Super Bowl commercial a few weeks ago. The ad was viewed by nearly 100 million people on game day and has received extensive media coverage and continues to draw strong engagement on social media. We are extremely excited to bring the Fiverr brand to the forefront of the global stage, and we will continue investing in our brand throughout the rest of this year. The strong momentum that we've seen so far and the continued strength of our cohort gives us the confidence to provide strong full-year 2021 guidance amid continued uncertainty of COVID-19. Our business is resilient, and we believe we will continue to grow at a fast pace under a good but challenging macro environment. We believe that the accelerated adoption of digital transformation and remote work will allow us to exit the pandemic stronger than before. And this is reflected in our 2021 revenue growth rate guidance of 46% to 50%, compared to our pre-pandemic 2019 revenue growth rate of 42%. I'm also extremely excited about our roadmap ahead of us. We have many new initiatives, new products, and new opportunities heading into the new year. For the first time in the history of Fiverr, we expect to surpass $2 billion in freelance earnings delivered to our seller community. It is a great and fulfilling achievement for all of us at Fiverr. It is what continues to motivate us and drive us to do more build better products, and create more opportunities for our community. We are also increasingly conscious of our social and corporate responsibilities as our company and our shareholders base grows. We have built out our environmental, social, and governance ESG processes and framework, and we'll be releasing a comprehensive ESG report in accordance with the SASB standard later this year. Regarding our priorities for 2021, we are focused on continuing to execute on our strategic initiative that is going upmarket, international expansion, and building more value-added products and services, as well as continuing to invest in our brand and marketing. You can expect us to continue to expand our upmarket coverage on both demand and supply front. On the demand front, we will focus on fiber business and our integration with WordPress, continuing to roll out milestones and our subscription features. And on the supply front, we will focus on the continued improvement of our catalog infrastructure and the expansion of top creative talent through the acquisition of working, not working. International expansion is another key priority for 2021. We will focus on deepening the penetration in existing markets by providing local buyers and sellers with a more culturally integrated experience, catalog and content. And last but not least, promoted gigs continue to grow and expand nicely, and we will continue to grow additional value-added services for our sellers on the marketplace. We are incubating additional projects to unlock the synergies with the acquisitions we made with SLT Consulting and Working Not Working. Leveraging Fiverr's technology, we have the vision to build a platform that will allow Fiverr to be an indispensable resource for the marketing teams of large companies. To fulfill that vision, we recently assembled an advisory board that includes CMOs from some of the world's most prominent brands to help us drive the strategy forward. I would like to conclude by saying that 2020 was an unforgettable year on so many levels. At Fiverr, we celebrated 11 years of our existence, and I could not be more proud of what we have achieved or more excited about what lies ahead for us. With that, I'm going to turn the call to Ofer, who will share a few financial highlights. Ofer?

Thank you, Micha, and good morning, everyone. To reiterate what Micha said, I'm very happy about how we ended 2020 with a strong Q4 on top of three amazing quarters. Revenue in the fourth quarter was $65.9 million, up 89% year-over-year, and an acceleration from 88% year-over-year growth in Q3. Active buyer grew 45% year-over-year to $3.4 million, accelerating from 37% year-over-year growth in Q3. Spend-per-buyer continued to expand with strong cohort behavior up 20% year-over-year to $205. We entered the full year of 2020 with revenues of $189.5 billion and GMV of nearly $700 million, representing euro-baril growth of 77% and 74% respectively. Our marketplace also continues to enjoy a healthy take rate of 27.1%, reflecting the excellent value we create on our platform and our ability to monetize our products and services. With the significant growth of the scale of our marketplace, we achieved a key milestone of reaching positive adjusted EBITDA on a full year basis. Full year 2020, adjusted EBITDA was 9.1 million, up from negative 18 million last year, representing an adjusted EBITDA margin of 4.8%, an increase of 2,160 basis points from 2019. The significant revenue growth in the past year, together with the continued efficiency in sales and marketing and discipline in operating expenses, is what enabled us to reach this important milestone two years ahead of our expectations. We will continue to prioritize growth, and at the same time, we expect to make continued progress toward our long-term target model. Now on to guidance. For the first quarter, 2021, The revenue is expected to be 63 to 65 million. This represents year-over-year growth of 84 to 90%. Adjusted EBITDA is expected to be negative 4 million to negative 3 million, which includes the impact of one-time Super Bowl expense of 8 million. Excluding the Super Bowl expense, our guidance implies Q1 adjusted EBITDA margin to be 7% at midpoint. We are also introducing strong full-year 2021 guidance. For the full year 2021, revenue is expected to be at the range of $277 and $284 million, representing a year-over-year growth of 46% to 50%. Adjusted EBITDA is expected to be in the range of $16 to $21 million, representing an adjusted EBITDA margin of 9.6% at midpoint, excluding the one-time Super Bowl expense. As Micha mentioned, we are very encouraged by the strong trends we see so far this year, both in terms of new buyer acquisition as well as a strong cohort behavior for our existing cohort. Our cohort behavior gives us excellent visibility into 2021 and speaks to the underlying strength of our model. This is a critical year with as much macro uncertainty as we are seeing. As we lap the COVID-19 impact in the second quarter, we expect both active buyers and center buyers to become more normalized. We expect our take rate to continue to be strong and steady, with potential for modest upside as we continue to grow value-added services on the platforms. The resilience and visibility of our business model formed a strong foundation that allows us to aggressively invest in many long-term initiatives. Growing up market continues to be a top priority across Fiverr and private business continue to evolve with additional product features and marketing investments. We are also deepening our efforts around international expansion, with an expanding product team as well as a new linguist team to bring our local offering to the next level. Lastly, promoted gigs are progressing really well. While still very small in terms of revenue contribution, it is growing at a strong pace. We are also exploring opportunities for additional advertising products on our marketplace. With that, we'll now turn the call over to the operator for questions. Operator?

We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then 2. Please limit yourself to one question and one follow up. If you have further questions, you may re-enter the question queue. At this time, we will pause momentarily to assemble our roster. The first question comes from Michael with Goldman Sachs. Please go ahead.

Hi. Thank you very much for the question. I just have a couple on the active buyers. Could you talk a little bit about the drivers of that really strong momentum that you saw in January? And then, you know, did you see that follow through after your Super Bowl commercial in February? And then as a follow-up, Could you just talk a little bit more about how we should think about the trajectory of net ads throughout the year? Ofer, you mentioned a normalization in the second quarter. I was just wondering if you might be able to expand on that a little bit. Thank you.

Hey, good morning, Michael. Thanks for the question. So as for active buyers, as we've said previously, There's two factors that are influencing this. One is the momentum, the strong momentum that we've had last year, which we've carried into this year in terms of new buyers. And this is thanks to added awareness, both because of the movement to online, the digital transformation, and also at the beginning of the year with the Super Bowl ad. as well as the increased activity and engagement of our existing customers, meaning our existing customers throughout the year have been more active. We said about 15% more active, and that also includes newer cohorts that are joining us. So if you combine those two, that explains why we're seeing elevated degrees of activity on our hires.

Uh, in terms of, uh, uh, net ads, uh, prior to the COVID, uh, we'll send between 100 to 200, uh, net ads, um, quarterly. Uh, post-COVID in the last, uh, three quarters, uh, this number grow to approximately 300. Uh, we expect that, um, once the, uh, lepping period, uh, is over on, on Q2, we'll see more normalized growth of active buyer comparing the period of the last 30 quarters.

Just to comment on other words, in other words, If we, up until Q2, we are comparing post-COVID to pre-COVID. And in Q2, we're going to start lapping that effect. So we're going to compare a Q2 to Q2, which both are within COVID. And this is why we said that we believe that that would be starting to normalize those changes.

Okay. Great. Thanks very much, Miha and Ofer. Really appreciate the time. Thank you, Michael.

The next question comes from Doug Anmuth with JP Morgan. Please go ahead.

Great. Thanks for taking the questions. Congratulations, guys, on a great year during a difficult time. First, just helping me thought you can talk more about some things internally. So your pace of product innovation just seems to be really accelerating when we think about category rollout and promoting gigs, expanding very quickly your efforts in the marketing industry as well. Can you just talk about some of the things that you're doing internally to really drive that innovation on the product side? And then perhaps, Ofer, just on promoted gigs, just curious if there's any more color you can give us on on the number of sellers or revenue contribution or just any more kind of data on how that's going so far. Thank you.

Hey, Doug. Good morning. Thanks for the question. So as to the first question, you are correct. I think that as a company we are accelerating the pace of releasing new products. Some of it is due to the fact that the team is growing faster and were able to execute more. Some of it was contributed to the fact that we've seen some elevated efficiency as we were moving actually to remote work. People were spending less time commuting or just wasting time on their way to and back from the office. And beyond that, I think that the sense of mission that we had during this crisis, understanding that there is a community that relies on us as a company, has invigorated the team with added energy. And lastly, I would say that I think that we put together processes that allows us to just work more efficiently and do more, knowing that beyond the basic fundamentals of the core business, we need to continue innovating, moving very, very fast to ensure our position as a market leader. So I think all of these contributed to the fact that we're able to show more innovation pushed out of Fiverr.

Then in terms of promoted gigs, we actually just opened promoted gigs for more than 500 categories today. So up until recently, it was open to a certain number of categories. I think it was 60 categories until recently. Then we expand the exposure into the entire set of categories. Yet to be said, it's only on the first four rows. So there is a lot of expansion ahead. We are very excited about the progress. uh we do put a lot of attention um into the uh buyer experience that's hurting the bike experience as we uh as we uh extend um expand the uh spend categories and expand to to more seller and and and um and more gig listing um i think that you know there is there is amazing growth uh ahead of us uh numbers look great but still small comparing the entire revenue that we see on the marketplace so that we look forward to see how this will impact our net revenue and take rate in the coming few quarters.

Okay. Great. Thank you both. Thank you, Don.

The next question comes from Ron Josie, the JMP Securities. Please go ahead.

Thanks for taking the question. And, Ofer, congrats on the promotion to president here. I wanted to maybe follow up on Promoted Gigs to Tug's question and ask a question on guidance. So first on Promoted Gigs, Ofer, you talked about 500 categories, more ad slots. And, Mika, in the letter, you talked about $1,900 of work for one gig. seller on $200 and spend them. I'm just wondering if that sort of ROI is what you're seeing across the platform and any insight on maybe what you're seeing just around demand and demand side where ad load can go. And particularly, I think you talked about increasing seller tools in the letter. So any insights there? around that, so just expanding on promoted gigs. Then, over on guidance, if you could help us understand a little bit more about the drivers here, that would be helpful. Obviously, a good amount of new incremental products this year with promoted gigs, fiber business, working, not working, new platforms. But then, I'm also wondering if guidance assumes the same rate of spend growth from, call it, the pre-2018 and call it the post-2019 cohort. Any more details on guidance would be helpful. Thanks, guys.

Thanks so much, Ron. Good morning. So as to promoted gigs, to complement what Topher said, the rate of opening up promoted gigs to all categories today has been faster than we anticipated. And that was thanks to the fact that what we're seeing is we're seeing high level of adoption, high level of retention of those who are using it, and high levels of satisfaction from the customers that are actually buying through these ad placements. So all of that encourages us to open up, basically, PromoteGigs to all of our categories. Now, it's far from being exhausted in terms of potential, because as Ofer said, it's just the first four rows. And this is just on listing pages, so we haven't used a lot of our different assets. to put promoted gigs on. Now on average, the ROI is extremely positive. In some cases, it's not. So when you look at average, you get everything. But essentially, by the fact that a very, very high, that the vast majority of those who are actually using it are continuing to use it because the ROI is positive. In some cases, it's extremely positive. In some cases, it's marginally positive. But that differs between categories. So it's a very hard question to ask in specific terms. Because, again, it's operating in 500 categories, and the amount of outplacements in each category differs. But all in all, we're very happy with it. It is generating money. It is increasing its contribution. But as Ofer said, in comparison to the overall activity on Fiverr, it's still small. But we're happy to see it grow and grow very, very well.

And then, Ron, for the second part of the questions, we always guide based on what we know. We do not factor with the thinking or new business model that we don't feel comfortable and have enough data to support guidance. Having said that, new features or recently initiated features are not included in the guidance. We base guidance based on cohort behavior over the long term. We do factor the uplift that we've seen during the corona period. I think that, as we mentioned before, all cohort spend grow by approximately 15%. And if you go into the shareholders' letter, you can see the revenue cohort diagram that specifically demonstrates how this cohort behaves. We think that this type of behavior is not temporary other than permanent. We also feel that the new cohort that we were able to acquire into 2021 even stronger in terms of spend, in terms of the frequency and ASPs. So this all goes into the guidance of 2021. Now, you know, the guidance for the coming year is higher than what we've seen as growth rate for the year 2019 pre-corona. uh we grow by 42 percent in 2019 we are focusing uh 28 at midpoint uh between 46 to 50 percent so we do uh feel enough confidence uh based on the uh as said on existing cohort and our ability to train maintain a very efficient unit economy as we acquire more buyer and lastly The organic channels perform very well as well. So all in all, I think that we assume that there will be some normalization in terms of growth as we look for COVID-19. But yet to be said, the growth rate is anticipated to be higher than pre-COVID.

Thank you. Very helpful.

The next question comes from Nick Jones with Citi. Please go ahead.

Great. Thanks. You know, Mika, maybe on Fiverr business seems to be off to a strong start with thousands of buyers registering. You know, how many of your buyers today do you think fit, you know, fit the mold for Fiverr business and kind of what's the opportunity from here on that solution and an offer maybe on, you know, the spend per buyer? That continues to grow nicely. And I know there's a bunch of factors in there. But on average, is frequency contributing to the growth, or are you seeing kind of an uptick in kind of price on what people are spending on a per-project basis? Thanks.

Hey, good morning, Nick. Thanks for the question. As to Fiverr business, Fiverr business really has a, when we look at the customer base of it, it's really a combination of both existing customers that are moving from Fiverr into the Fiverr business to enjoy the team features and the collaboration. but also new customers that are joining Fiverr through Fiverr Business. We do think that the potential of shifting some of our more established, larger types of customer to Fiverr Business is still untapped. There's a lot of potential there. But we definitely also spend time figuring out how to effectively acquire and onboard businesses directly to fiber business. We've seen a combination, if you look at the, you're correct to say that the growth seems to be going very well. It is a combination of both existing and new. We haven't seen any concentration in one of these camps in particular.

In terms of contributing to growth, center buyer is based on frequency and ASP, and I'm happy to say that both are contributing. We've seen tremendous improvement in both, which I think is the balanced approach that we've been always pitching to. And as we look forward, we believe there's tremendous opportunity to impact those in terms of product and quality and target audience. As we go up market, and you have spoken outside of business earlier, we see that business buyer that use the product are using it more frequently. And we also see that the average ASP is higher. So as we go up market, the growth, which is based on stem-to-bar in our model, actually refers to improvement in both frequency analysis.

Great. Thanks for taking the question. Thank you, Nick.

The next question comes from Eric Sheridan with UBS. Please go ahead.

Thanks so much for taking the question, and I hope everyone on the team is as well. I think following up on the success you mentioned with the Super Bowl ad, and it seems that you're continuing to invest in brand initiatives and TV advertising, can you talk a little bit about the halo effect you might have gotten from that effort? what it might mean for marketing efficiency over the medium to long term? Is now the right time to sort of lean into marketing because you have a lot of momentum in the business and you want to maintain or maybe even accelerate that momentum? Or could you see some of the brand awareness that's building around the company lead to greater levels of marketing efficiency over the medium to long term? Thanks, guys.

Morning, Eric. Thanks for the question. So, you know, on the Super Bowl – I think that, you know, as a company that said that we're trying to build a household brand, the Super Bowl is a very important event. It's definitely a we-have-arrived event in terms of brand marketing, and I think that that definitely influenced the brand awareness, mostly in the U.S., but it has some halo effect outside of the U.S. as well. We've invested last year pretty extensively in brand marketing, including TV campaigns and work on social. And this was a peak in that investment, but also an event that propels our on the organic side. And a lot of brand is attributed to organic because it just creates market awareness. is extremely important. And to your question, if you are able to be in front of your customers on several weekly or monthly basis, performance marketing more efficiently also increases. And so we think that the combination of doing performance marketing and brand marketing together creates that efficiency. And I think that if you look at the unit economy of our marketing, you see that efficiency well built into everything, every dollar that we spend. We are leaning in, improving over quarters, despite the fact that we've been investing more in marketing every quarter. And we don't plan to stop. The economy justifies continued investment, we will continue to invest more. We are definitely seeing that. And we think that, you know, the Super Bowl is just another important milestone in establishing a household brand.

Thanks so much.

The last question comes from Jason Hellstein with Open Highmark. Please go ahead.

Hey, everybody. So I want to ask maybe two questions. First, on the subscription side, so when you think about the gigs you have been doing, Is there a way to quantify what percent of those gigs or what percent of GMB actually belongs in a subscription-type model, and then what the benefit would be, but then in addition, what new gigs would come on where you'd be able to add, because really they do lend themselves only to subscription? um and then the second um over i think you talked about in your prepared remarks that you saw take rate going up um kind of looking forward i mean historically when companies move up market there's downward pressure on take rates maybe talk about what you think the offsets are that that are actually going to drive up the take rate you know over the next you know medium term thank you morning jason thanks for the question um

Starting with your first one, subscriptions, we haven't published the exact percentage of categories in which this is relevant for, although that number is sizable. Subscriptions, when you think about that, has to do with a combination of things, both the convenience of being able to rehire or repurchase the same service over and over again without any hassle, but also it helps buyers and sellers establish a longer term relationship And in some cases, and this is open for sellers for their discretion, they can also combine that, the long-term relationship, with a discount as well. A lot of our categories have this in place. There are categories in which this is less relevant. If you need someone to help you do some grammar or editing work on your resume, this is probably not something that you have to subscribe to. But a lot of our services, if you think about that, most of the creative services are relevant for some buyers on a repeat basis. So we definitely see that this is, you know, we see this as an exciting opportunity for sellers to actually establish those longer-term relationships.

And then, Jason, related to take rates, we've been going up market for some time now. And I think that we've been able to demonstrate that TakeRate is going up with us. And it doesn't grow because of the transaction services, transaction-related. It's because of added value services that we add on top, whether it's a subscription on the seller side or capability on the buyer side, like the clearable subscription. The plan to our expectation to increase take rate modestly over time is based on the roadmap of all that release that we believe are chargeable and will contribute additional line of revenue. So behind that assumption, There is a full stack of products that we plan to launch over time, both on the buyer and the seller side, that we'll be able to monetize against and create or increase take-rate modestly, as said.

this concludes our Q&A session. I would like to turn the conference back over to Mihak Osman for any closing remarks.

Thank you, Operator. Thank you, everyone, for joining the call this morning. We are extremely excited with our performance and momentum heading into 2021, and we look forward to seeing you at the upcoming investor events. Have a great day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.