Opportunity for long-term Investor?

Unicorn Portfolio Update 15: #19 of 20 stocks added.

Fiverr 

There is no denying that Fiverr was a massive Covid beneficiary and the work from home movement. Most of these stocks like Zoom, Netflix and Teladoc have been wholly obliterated and Fiverr is no exception. Down more than 90% from its all-time high, it is fair to say that investors in this stock have endured a rollercoaster ride. If you mistimed your investment into this company, you would need a 900% gain to break even. 

Today, we have the opportunity to look at this company while it is trading at a much more reasonable valuation. It is important to remember that cheap does not always make for a good buy and there is an old saying that cheap can always get cheaper. So, how do we determine whether this is a falling knife or a generational opportunity? You have to do your due diligence and see if the investment thesis is still intact and also very importantly check if the company fits your personal investment style.

For our Unicorn Portfolio, we created a scorecard to determine whether a company is worthy of a spot in this portfolio. After researching a company we allocate a score out of 10 for each category and then calculate the total score as follows: 

Unicorn Score 

= Conviction X Upside Potential

+ Moat 

+ Management 

+ Financials

 - 3 X Risk

You can view Fiverr's scorecard in the attached image.

We view this as our high-risk, high-reward portfolio but the total portfolio risk might be lower than one would think. We recognise that each individual company in this portfolio is a high risk but due to our main objective, the portfolio as a whole might have a lower combined risk. 

Asymmetrical risk/reward opportunities are what we are looking for. This essentially means that we do not need every company to succeed for our portfolio to succeed. If there is one 10-bagger in this portfolio it can recover the losses from 9 other companies if they all go to 0. Obviously, we don't want any of our companies to go to zero but this illustrates how this portfolio is structured. 

Now back to Fiverr and why it deserves a spot in our Unicorn Portfolio. Fiverr is a leading e-commerce platform for freelancers. It provides a two-sided marketplace for businesses and freelancers to connect, allowing individuals or companies to find services that other individuals are providing. 

Here we have another example of a proven success strategy. Micha Kaufman, Co-Founder and CEO, was looking for a solution to a problem he was experiencing during the development stages of his companies. Micha has previously stated that he often hired freelancers but they were always high-friction processes, this served as inspiration for Fiverr's inception.

As time went on, I thought to myself that there had to be an easier, more seamless way of going about this.

Today, there are more freelance services (known as gigs throughout the Fiverr ecosystem) available than you can possibly imagine, with an ever-increasing variety of gigs being added to the platform each day. Gigs may range from graphic design specialists to personal website reviewers or even professional Fortnite coaches.

Fiverr refers to itself as a Service-as-a-Product business model which makes buying and selling freelancing services a seamless transaction comparable to shopping on Amazon. These seamless, low-friction, high-trust transactions are preferred by buyers and sellers alike. 

Fiverr has hitched itself to an industry that is expected to grow substantially over the next 10 years as more professionals either work from home or use freelancing as a side gig to earn extra income. It is now in management's hands to capture as much market share as possible.

After a massive runup during Covid, the problem for Fiverr is that its revenue growth rates have significantly decelerated. Although Fiverr has very high gross margins and is already free cash flow positive, that is simply not enough in today's market conditions and Wall Street wants to see real earnings. The last risk is the fierce competition this company is facing which might limit its future moat due to the low barriers to entry.

Conclusion

Fiverr represents a compelling opportunity for investors to expose themselves to the Gig Economy. Changing Macroeconomic trends, evolutions in workplace dynamics and an increasingly digital world are evident tailwinds that the company will continue to benefit from in the coming years.  Fiverr is also not slowing down and they are continuously releasing new products and services. At its current price, we view this as an asymmetrical risk/reward opportunity.

Portfolio Transactions Summary

• Buy $250 FVRR at $26.51
• Buy $250 SHOP at $26.21
• Buy $250 NET at $45.70

Disclosure

This is not financial advice and is only based on the author's opinion. This is not buy or sell recommendations of any stock.  The $10K is not real money and only a demonstration of a typical portfolio. The Unicorn Portfolio is a high-risk portfolio and should always remain a small allocation of your overall assets. This is an actively managed portfolio where we will buy and sell positions as we deem fit without any regard for taxation. Remember, all selling of stocks triggers a tax event in most countries and it is the investors personal responsibility to always remain tax compliant.