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    Value Investing Engine No. 1 Activist Letter to ExxonMobil Board of Directors

    December 08, 2020

    Value Investing Engine No. 1 Activist Letter to ExxonMobil Board of Directors

    Engine No. 1 Activist Letter to ExxonMobil Board of Directors

    Posted: 07 Dec 2020 06:48 PM PST

    Fiverr Analysis (NYSE: FVRR)

    Posted: 07 Dec 2020 08:39 AM PST

    Business Overview

    Fiverr is an online marketplace that connects freelancers and buyers (businesses, entrepreneurs, and others). Buyers on Fiverr's platform can buy services across a variety of services ranging from one of eight verticals:

    1. Graphics & Design
    2. Digital Marketing
    3. Writing & Translation
    4. Video & Animation
    5. Music & Audio
    6. Programming & Tech
    7. Business
    8. Lifestyle

    These verticals cover more than 300 different gigs. The number of gigs offered is only expanding each year. Some examples of "gigs" (what Fiverr refers to as a job/service) are logo design, website development, and blog writing. These "gigs" are standardized through a defined cost, scope of work, and delivery date. Different sellers will have different prices for an identical service, but each seller will offer the same service to different buyers at the same terms. Fiverr's management team has done this on purpose in order to make it feel like a typical e-commerce transaction. Although the name Fiverr implies $5, projects can range from $5 to thousands of dollars.

    Why do sellers choose Fiverr?

    • Fiverr aggregates demand for sellers, allowing freelancers to get jobs without having to proactively sell their services. Fiverr helps freelancers with contract negotiations, payment collection, and other administrative tasks.

    Why do buyers choose Fiverr?

    • Buyers want vetted talent. Buyers can look through reviews of different sellers to find a talented freelancer. Instead of having to go out and look for talent, Fiverr aggregates the supply of talent on its platform. Through an e-commerce like experience, buyers avoid the hassle of negotiating price, terms of the work, and the delivery date.

    Total Addressable Market

    Management expects the total market opportunity to be roughly $100bn, which seems fair. I think the best-case scenario is that this company could be a couple hundred billion dollars in market cap. If freelancing takes off as it has in the last decade and as more organizations both large and small look to utilize talent over a short period of time, more buyers will be spending money on Fiverr. Small companies do not have the luxury of hiring full-time employees but would be willing to pay for someone skilled enough to complete a project. There is another startup called Lemon.io that has remote developers on its platform to help non-technical entrepreneurs start and launch a business. I believe the market could be much larger than many people understand.

    Fiverr can be the winning freelancing platform. Fiverr benefits from network effects which could give Fiverr a competitive edge over competitors. Who knows what this space will look like, but I think more people will be self-employed/working for some side cash than the current amount today.

    Fiverr's spend per buyer has also increased each year. The normalcy of using a platform like Fiverr will most likely grow in the future as more people and businesses try to outsource small and large tasks like logo design, voice-overs, social media, website building, and plenty of other tasks.

    Competitive Advantages:

    1. Marketplace
      If Fiverr becomes the largest freelancing marketplace in the world, this business could be huge. Fiverr seems to be the winning marketplace but they have strong competition from Upwork and Toptal.
      Marketplaces benefit from network effects. As more buyers are on the platform, more sellers are attracted to using the platform, and vice versa. If Fiverr captures the leading market share in this industry, smaller competitors will be unable to compete with them.
    2. Switching Costs
      Sellers are able to establish a "storefront" where they can showcase skills, establish a track record, and develop a professional reputation.
      If sellers wanted to switch platforms, they'd have to consider the costs of basically starting anew on another platform. Some sellers may use multiple platforms but if Fiverr is the most active platform for the majority of sellers, then why not focus the most time on Fiverr.

    Tailwinds

    1. Gig Economy
      A 2016 McKinsey Independent Work Study found that up to 162 million people across the US and Europe were engaged in "independent work." There weren't other details in conjunction with this number, but more and more people will look to automate work through professionals with better skills than an amateur (like a professional graphic designer making a logo versus a sloppy logo done by an amateur). More and more people will turn into freelancers (even if it's only part-time) in order to get some extra cash and work on some skills on the side.
      I think COVID-19 has shown people that relying on a typical 9-5 job isn't always a guarantee. People more than ever are looking to make some extra cash.
    2. Work from Anywhere
      Through platforms like Fiverr, Substack, and many others, people can work from wherever, when they want to work, and how they want to work for. This is a tailwind that COVID-19 has accelerated and I believe it is here to stay. Fiverr allows buyers and sellers to connect without ever having to meet in person and much of the communication can be done through messages or the occasional Zoom call.

    Financials

    There are a handful of financial numbers and categories that I believe matter most for Fiverr. As a preface, like the early innings of many marketplaces, Fiverr has not been profitable in the last three annual years. This is just a snapshot of the income statement, and a full investment memo would cover more of this picture.

    2019

    • GMV: $401 million
    • Revenue: $107 million
    • Operating income: -$35 million
    • Active Buyers: 2.4 million
    • Spend per buyer: $170
    • Take rate: 26.7%
    • Repeat buyers: 58% of revenue
    • Buyers who spent over $500: 54% of revenue
    • Service fees: 27% of revenue
    • Transaction fees: 73% of revenue

    2018

    • GMV: $294
    • Revenue: $76 million
    • Operating income: -$36 million
    • Active Buyers: 2.1 million
    • Spend per buyer: $145
    • Take rate: 25.7%
    • Repeat buyers: 57% of revenue
    • Buyers who spent over $500: 50% of revenue
    • Service fees: 27% of revenue
    • Transaction fees: 73% of revenue

    2017

    • GMV: $213 million
    • Revenue: $52 million
    • Operating income: -$20 million
    • Active buyers: 1.8 million
    • Spend per buyer: $119
    • Take rate: 24.5%
    • Repeat buyers: 55% of revenue
    • Service fees: 25% of revenue
    • Transaction fees: 75% of revenue

    Fiverr has some really great growth and I believe COVID-19 has accelerated the revenue and GMV. The increasing take rate is also a pretty picture. GMV is growing nicely and I believe there is an incredible runway for this business. There will always be work needed to be done and people willing to pay for it.

    Fiverr charges buyers 5% and sellers 20%. For a $100 gig, buyers pay $105 and sellers receive $80. Fiverr pockets the difference. This is a combined take rate of 25%. The additional percentage points are from additional revenue streams like advertising and services offered to both businesses and freelancers.

    Future Questions

    1. Competitors
      I know Fiverr has competitors like Upwork, Toptal, and more traditional staffing companies. I'd research these other companies and mostly Upwork because Fiverr and Upwork seem to be the two largest freelancer marketplaces. Fiverr and the rest of the online freelancing market is in the early innings of its future potential.
    2. TAM
      Although management cites the total addressable market around $100bn, the whole work industry is in the trillions of dollars. If Fiverr were to continuously capture a small portion of this market for years and years to come, I think this industry could have a long runway of growth for Fiverr and for others competing in this industry.

    Conclusion

    Fiverr is an extremely attractive company for me personally. I'd be interested in covering Fiverr in a more in-depth research report in the future. Fiverr has a ~$7.2bn market cap at the time of this email (December 7th, 2020). I think Fiverr can easily increase its market cap by more than 10x in the future. The mega bull thesis is that the majority of online services are performed on Fiverr's platform. If Amazon sells the majority of physical goods then Fiverr sells the majority of online services. That's a strong statement to make, but I believe it's not impossible.

    I provide weekly analysis on a different company at Weekly10K.substack.com. If you made it this far, I appreciate you!

    submitted by /u/Career_Regular
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    Market mechanics and technicals (short squeezes, etc.)

    Posted: 07 Dec 2020 03:43 PM PST

    I'd like some detail on short squeezes and the mechanics behind them. The questions come in the face of high valuations for a handful of companies ($600 billion market cap for Tesla, etc.) that implicitly require very high financial returns to justify.

    I can't help but wonder about the market mechanics that might be creating the situation instead of just believing that everyone is armed with a DCF and calculating the true present value of securities on the market.

    This leads me to a few questions, but I invite recommendations on how to learn more if outright answers are too involved. It's been a few years, but I have read books like Reminiscences of a stock operator, generally familiar with the Hunt Brothers and their silver market corner, etc.

    1. How can you define a short squeeze? We know it's when the price rises and forces short sellers to cover their short. But is there a way to quantitatively describe this? What metrics would you use?

    2. Is there any way to differentiate them? Would it be based on how closely the security is held? (Northern Pacific was held by 2 people and JP Morgan whereas Tesla is held by countless individuals)

    3. Is there any way to estimate how long they occur for? Do they eventually turn from sellers who add liquidity, or what?

    4. Do options traders influence this? Let's say folks buy call options, and it send the price of a call option higher, wouldn't that allow for firms to step in and created a synthetic call? (Buy the underlying security, buy the put, sell the call) If so, could this create a leveraged impact on underlying security ownership from the firms trying to capitalize on rising call option prices, which requires them to buy the underlying stock?

    submitted by /u/financiallyanal
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    Water Quarterly Fall 2020

    Posted: 07 Dec 2020 09:20 AM PST
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