Fiverr Community Forum

Fiverr CEO Micha Kaufman saw order flows accelerating during the COVID-19 lockdown period!

Call Transcript

Questions & Answers:

Operator

[Operator instructions] And the first question today comes from Doug Anmuth with JP Morgan.

Doug AnmuthJ.P. Morgan – Analyst

Thanks for taking the questions. I have two. First, just, Micha, if you can talk more about the six straight weeks of accelerating GMV, a little more on your views on how you think COVID-19 is kind of changing the business and potentially what new opportunities does it open up for you beyond the crisis? And then, Ofer, you just talked about EBITDA profit kind of pulling forward roughly a year or so. Just hoping you could expand a little bit on what gives you the confidence on pulling that into the back half of '21.

Micha KaufmanFounder and Chief Executive Officer

Doug, thanks for the question. So as to the accelerating GMV, I think that in our update in April, we said that the volatility period has been very short for us. It was about 10 days. And afterwards, we didn’t just bounce back, but actually, if we can, grow.

The good news is we’re seeing that growth across the board. We see that across all categories. We see that across all cohorts, new and old, and we see that across all geographies. Now I think that in some special way, although the COVID-19 had some devastated effects, it also made the case for what Fiverr is preaching for for 10 years.

The ability to hire a workforce remotely, to engage remotely in a very efficient way has become something of an increased awareness. And I think that fiber is becoming in a sense, a critical tool for both businesses and freelancers. So the fact that we are seeing that growth coming very strong in April, in some verticals, we see that growth being nearly doubling the growth on a monthly basis. And we see that across all of our categories.

And we see that our new customers, those who joined Fiverr post the COVID-19, their behavior is very consistent with our older cohorts in terms of their activity, the categories in which they purchase. I think that in a sense, fiber has enjoyed a massive awareness jump due to this situation and the fact that people were locked home and were forced to think about how to do things remotely. So although it’s very hard to predict what’s going to be in the future, I think that the resiliency of our cohorts, both new and old, reaffirm our assurance that fiber is indeed a critical go-to-market base for our needs.

Ofer KatzChief Financial Officer

And Doug, this is Ofer. The second part of the question was about the pull forward of the profitability in one year and what gives us the confidence. I think that the confidence is based on what we’ve been seeing in Q1 followed by the last few weeks into Q2. I think the behavior of the cohort, old cohorts together with new cohort, and our ability to scale the business in such a short time in terms of efficiency of sales and marketing, in terms of gross margin that curtail high, fast.

And together with the update of the guidance, it’s actually accelerate our previous guidance and expectation, give us the confidence that we can reach to the point with the scalability of the business and the foundation of the business, which is based on existing core that keeps contributing more and we are just going to meet this point of time earlier. So this is what we are based on.

Doug AnmuthJ.P. Morgan – Analyst

Thank you both.

Operator

And the next question comes from Nat Schindler with Bank of America.

Nat SchindlerBank of America Merrill Lynch – Analyst

Yes. Hi guys. Is there any characterization you can give me of the new buyers would use more of your traditional small company buyers looking for help on single things? Or have you done more to penetrate the large buyers given the environment? Also on the seller side, I know you said across all categories, but has there been any particular change on what has shown up on the platform that is new and interesting since the change in kind of stay at home orders?

Micha KaufmanFounder and Chief Executive Officer

Good morning and thanks for the question. So to begin with, there is an increase in our high-value buyers, which now represents 58% of our revenues. And what we’re seeing is we’re seeing that the behavior of all of these new buyers is very consistent with what we’ve seen. We have a combination of small businesses, medium businesses and larger businesses, with maybe a little bit more skewed in recent cohorts toward the more larger.

That said, the SMB continues to be very vibrant, and this is shown by the fact that our older cohorts, those who have been with us for even 10 years have been going back into growth. So we’re seeing this really across the board. In terms of categories, I think that in April, we talked in our update to the fact that there were, as we view it, four phases to this crisis. The first was the fact that I think there was a denial.

And most countries didn’t think that it was their problem. Then it turned to panic, where I think people were starting to focus home. Then there’s self-preservation where people are home and figuring out what to do. And very fast from that, there’s adaptation.

So when people started being at home, we’ve witnessed a few new types of interests that are more around online tutorials, taking courses, things that have to do with more of the stayed home. But that trend shifted very fast. Now we reacted to it by launching 30 new categories and adapting very fast to it. And one of the benefits of being a horizontal marketplace is that we can react superfast to any trend that is within the market.

But we saw that there in essence, the categories were all picking up and there wasn’t any concentration around any specific category. And whatever trends, whatever new trends that we’re seeing, we’re reacting to. The one thing that is, I think, apparent or emphasize in this era is the fact that a lot of businesses are realizing that they need to move a lot of their off-line activity into the online. And there’s no better place to do that than on Fiverr.

And this is why a lot of our initial campaigns is a reaction to the COVID-19 and a lot of our engagements with our community was to really help them do exactly that. So use the fact that this lockdown that was imposed to us would be used by businesses to move their activity to the own line, and we’ve seen a lot of activity around that. But to my point, this was across the board.

Nat SchindlerBank of America Merrill Lynch – Analyst

Just on a separate question. We’ve heard a lot about the changing media dynamics as other companies have pulled back because of the negative impact this has had on their business. Are you doing anything to really adjust your media spend? And are you seeing new areas that are opening up for you in order to increase engagement, we know that search will probably hold on in your categories for a little bit, but I could imagine that you have a lot of opportunity in brand and other off-line ad campaigns.

Micha KaufmanFounder and Chief Executive Officer

Yes. Thank you. so we’re definitely reacting to changes. So the first one is the fact that, as I’ve noted, there is a huge increase in awareness, which means that the organic portion of our marketing is growing very, very fast, and we can use that in the mix with our performance marketing.

The changes or the trends that we’re seeing with the performance marketing is the fact that very large advertisers are pulled off from the market. As an example, the travel business or the hospitality business that have pulled off the market, creating an opportunity for an acquisition in a much lower prices. And obviously, we are there to capture this opportunity and respond to it. And again, because we’re a horizontal marketplace, we’re able to diversify our marketing campaign so that we pick the most optimized keywords, the most optimized categories at each and every point to ensure that we’re paying as little as possible and converting as high as possible.

So we’ve seen those changes. And I’ve made a note in my opening comments to the fact that we’ve been able to produce marketing campaigns using our own platform because we were imposed not to travel and not to work with any production companies, we’ve done everything on the platform. So a lot of the beautiful campaigns that we’ve been shipping during the first quarter and into the second quarter were performed and produced on the platform. And we’re not the only ones who are taking advantage of that.

Our customers are taking advantage of that as well.

Nat SchindlerBank of America Merrill Lynch – Analyst

Great. Thank you.

Operator

And the next question comes from Ron Josey with JMP Securities.

Ron JoseyJMP Securities – Analyst

Great. thanks for taking the question. Micha, I really appreciate the increased guidance and insight here. Maybe changing tack a little bit and talking about just newer products and on promoted gigs, you talked about five categories, an 80% adoption rate and retention rates.

I’m wondering if you can talk about what you’re seeing early days on just the ROI of promoted gig to the sellers. The rollout plan for more categories. And Ofer, I think you mentioned in the letter, it wouldn’t have an impact this year. Wondering why not, I guess is the question.

Micha KaufmanFounder and Chief Executive Officer

Thanks, Ron. Ahead of schedule, which we’re very happy with. And the original plan, as we discussed in previous earnings calls was to gradually release that, test it, optimize it, and perfect it over time. So the idea was to start, and just again to emphasize, what’s really important about promoted gigs is that those ad placements are going to be relevant and are going to be high quality.

So what we’ve done is we’ve launched with five categories with limited offering with a limited group of sellers to start testing a number of things. Relevancy and quality and the conversion are very strong. The ROI on promoted gigs is very high. And because of that, what we see is we see a mere tension among those sellers who started testing it because of the strong ROI.

So the adoption of this plant to those who we offered to participate in it was very high, was more than 80%, and the retention was close to 100%. And everything that we see from that is very high. The same goes for the buyers who are actually using it. This is demonstrated in the click-through and the conversion, but the levels of satisfactions are very high.

So with that, the plan is to start scaling this product to more sellers, to more categories and to more areas of the product. We just started the test with the subcategory pages. We’re going to extend it to our search and to other areas of the site. So this is going to be gradually throughout the year.

And I think we made a note that from the experience of other companies that have done it, and we’ve been in touch with, we know that it could take up to 12 months to optimize this product. And I think that because of that, we’ve taken the cautious measure of not factoring any wishful thinking into it. And this is why this is when we think about guidance, this is not a part of it. Because again, it’s a new product.

The pace of adoption, the pace of scale may differ, depending on the progress. And this is why we didn’t want to factor this into our guidance.

Ron JoseyJMP Securities – Analyst

Got it. Thanks you.

Operator

Thank you. And the next question comes from Brad Erickson with Needham & Company.

Brad EricksonNeedham and Company – Analyst

Hi guys. Thanks. First one, and this may have already been asked, maybe in some ways, I jumped on a little late, so I apologize. But I guess, just when we think about the real GMV composition of these categories where you saw activity increase as a function of work from home and stay at home.

And I know you called some of them out, gaming, I guess, social media, online lessons with e-books. So when we think about those categories that are especially stronger lately, what portion of those situations from a business planning assumption standpoint, where do you think we’ve fundamentally changed online from off-line permanently versus maybe some of the effects are a bit more temporary? I know it’s a really hard question to answer, but just wonder if you could help investors understand that, kind of what your gut tells you there given how broad-based the categories you address are? And then I have a follow-up.

Micha KaufmanFounder and Chief Executive Officer

Thanks, Brad. So essentially, I’ve made the note that a lot of businesses are taking this opportunity to move from offline to online. I don’t think that this is going away. I don’t think that this is changing.

I think that the awareness to the importance of doing business online is not going to fade away. That said, if I relate to some of the categories that we mentioned and you repeated in your questions, like gaming, social media, e-books and so forth, what we’re seeing in these categories is that even if you have customers that have joined through gaming, these customers continue to buy with us across many other categories. So essentially, we don’t think because of the cohort, at least from what we’re seeing right now, and again, I want to put the caveat that nobody really knows where this is going to develop into. But what we’re seeing in the five weeks since the outbreak or the rebound from volatility is we’re seeing a consistent cohort behavior that is not limited or not concentrated into specific categories.

These new cohorts behave very similar to our older cohorts, and all of them are growing, all of them, including very old cohorts. They didn’t just rebound to their activity but are spending more and being more active on the marketplace. So to your point, it’s very, very hard to forecast what’s going to happen and nobody can actually do that. What we’re seeing from our data right now is very consistent and a very resilient activity of our customers across all cohorts, including new one.

Ofer KatzChief Financial Officer

I would like to augment and say that we have the capacity to monitor, in fact, behavior, not only on category level but also geography, which gives us a huge advantage as we speak, to see how different countries and a different audience in countries that goes through this pandemic in different time zone are reacting, whether they work from home, how does it imply into a number of orders, the categories behavior and on. So what I can share is that while some countries were pretty much blocked in terms of working only from home, if any, and some of them already released, we see and experience a continued strong activity despite the fact that people are working back from the office and are going to normal course of running the business. So this is why we don’t think it’s necessarily a temporary raise driven only by the pandemic.

Brad EricksonNeedham and Company – Analyst

That’s super helpful color. And then maybe just a follow-up for Ofer just related to the raised revenue guidance for the year. Is there any contribution of that from the Spain and France rollout? It sounds like it’s going a little bit better than expected. Or is it just more a function of just the broadly stronger activity you were talking about with everyone being at home right now?

Ofer KatzChief Financial Officer

So obviously, France and Spain and Germany are super performing and part of the raise of guidance is related to the successful launch. And I think that you probably went through the document that we shared earlier today. We released the machine learning translation that actually already give us a good signal about the usage. So together with emerging traffic, better conversion, I think we are continuing to see the maturity of the investment in geography expansion in different languages.

Operator

The next question comes from Jason Helfstein with Oppenheimer.

Jason HelfsteinOppenheimer – Analyst

Hey guys, thanks. I guess two I don’t think were answered as yet, but I apologize if they were. Any update on traction you’re seeing in Fiverr Studios? And then kind of just how you’re thinking about that for the rest of the year. And then it seems that you are going to lead into marketing in second quarter and beyond because marketing is more efficient now given what’s happening in the market and how well you’re able to actually convert new traffic.

Just how should we be thinking about kind of cadence for the rest of the year? And then perhaps domestically versus international?

Micha KaufmanFounder and Chief Executive Officer

Jason, good morning and thank you for the question. So as for Fiverr Studios, Fiverr Studios is growing very nicely. And actually, it is just the beginning of what we’re planning around this area. With the great signals that we’ve seen from Fiverr Studios, we are planning right now to extend that product and actually grow it into something more extensive that will not just allow sellers from Fiverr to team up into virtual studios but will allow existing agencies to join the platform and use it as an agency.

So again, early days in that product but we have great plans for it. It is growing. It is doing well, but we think that this is just the beginning of a larger offering that we have around that.

Ofer KatzChief Financial Officer

And Jason, this is Ofer. The second part of the question about marketing. So historically, usually, the investment in marketing is ramping up in Q1, and that has been done approximately 20% comparing last year. But then historically, it seems to be stable throughout the year.

I think we are taking advantage of the circumstances and the fact that lots of opportunity for us to scale. And you should expect that investment in marketing in Q2 and beyond is going to be bigger than Q1. So we are playing very opportunistic, being aggressive as unit economy framework allows us and a bit of space for us to invest more, and we are doing that.

Brad EricksonNeedham and Company – Analyst

Thank you.

Operator

And the next question comes from Eric Sheridan with UBS.

Eric SheridanUBS – Analyst

Thanks for taking my question. Two, if I can. One, in terms of the behavior you’re seeing on the platform, any updated view on what that might mean longer-term for take rates in the business, especially maybe even driven by the adoption of value-added services by the demand side you’re in the current environment? And then, Ofer, with pulling the profitability forward into '21, curious if that also has an update for your long-term margin thoughts.

Ofer KatzChief Financial Officer

So Eric, on the take rate, we have been demonstrating over the past few quarters our ability to increase take rate moderately and we plan to continue to do that by providing more value of the service. And I think Micha spoke about promoted earlier. This is one type of additional services on the seller side that can contribute to take rates. So we feel very comfortable with the take rate that it is.

I would take the advantage of this timing to share that we don’t feel any pushback neither on the buyer and the seller on pricing and take rate. We feel very convenient and confident with the existing structure of take rate. We haven’t made any change. We don’t plan to make any change on the fundamental take rate, which is transaction related.

So that any additional take rate that you will see in the future is tied up and directly related with additional services, and we have a few of them in the pipeline. So I think this is on the take rate. In terms of our long-term margin thought, it hasn’t been changed. It’s 25%, as we’ve said before, and we are heading there.

It’s just a matter of scale of the business. I think the efficiency is embedded to everything we do, all the way from gross margin to R&D, further marketing and G&A. I think we have been able to demonstrate how we do that during the last four quarters since we went public, and we are confident we can keep delivering the same rationale in the future.

Brad EricksonNeedham and Company – Analyst

Thanks so much.

Operator

And the final question today comes from Drew Kootman with Cantor Fitzgerald.

Drew KootmanCantor Fitzgerald – Analyst

Thanks for taking my question. Just one for me. I wanted to touch on annual guidance. You guys are one of the few companies that’s continued to give in your guidance, which is great.

So just curious, what kind of economic conditions you’re assuming in guidance? And any thoughts on how your revenue growth reacts if the economy is faster or slower to recover?

Ofer KatzChief Financial Officer

So this is Ofer. And I think that we have been tracking the behavior of cohort in the marketplace on a daily basis since inception, including the last few weeks, where we track it even more intensively. We actually open a data hub home all hands with many people around the company participate a daily update and behavior across all dimensions that you could imagine on territory and categories and cohort and many other KPIs that we measure here in the company. So when we look forward, we always said that we guide based on what we know, and we feel confident based on existing cohort, not only new cohorts, that even in a scenario that the COVID-19 pandemic uncertain circumstances, we feel confident that there are some circumstances for us to benefit.

So there are some positive and negative impact of the continued uncertainty. But from what we’ve seen recently, we have the confidence to upgrade our guidance for the remainder of the year.

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A Must Read Conversation!!

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Hints given, this says it all.

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This is called “stress test” because sellers are having difficulties in handling the strong ROI. :rofl::rofl::rofl::rofl::rofl: