MKM Partners analyst Rohit Kulkarni on Tuesday cut his rating on freelancing platform Fiverr to Sell from Neutral, even as he lifted his price target to $185—still below the current market price—from $145.
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Shares of the online-freelancing platform Fiverr International had a stunning rally in 2020, appreciating 730% as the company’s business got a lift from the Covid-19 pandemic—and the stock has continued to levitate in 2021. But in the view of at least one analyst, enough is enough.
MKM Partners analyst Rohit Kulkarni on Tuesday cut his rating on Fiverr (ticker: FVRR) stock to Sell from Neutral, even as he lifted his price target to $185—still below the current market price—from $145. The analyst has been generally bullish on Fiverr’s business, and points out that his earnings and sales estimates are above Street estimates. But he thinks the valuation has reached extreme, unsustainable levels.
Kulkarni notes that as of Monday’s close, Fiverr was trading at 36 times his 2021 revenue estimate, “above historical peak of any other internet marketplace in recent times.” He notes that Fiverr’s valuation now exceeds that of Zoom Video Communications (ZM) and other pandemic-era winners.
“We believe Fiverr’s fundamentals are significantly stronger as the pandemic has accelerated the secular shift to online freelancing,” he writes. “We are positive on Fiverr’s long-term prospects and business model potential. However, shares are trading at feverish valuation levels.”
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He notes that while Fiverr trades at about 27 times estimated 2022 revenue, while other online businesses such as Match Group (MTCH), Chegg (CHGG), and Etsy (ETSY) trade between 12 times and 15 times estimated 2022 revenue. He notes that software-as-service companies tend to trade in the 25-to-30 times sales range—but he contends the SaaS companies have better revenue quality compared with a transaction-driven two-sided market such as Fiverr.
Kulkarni notes that he looked back to the bubble period of 20 years ago to find any companies with comparable valuations. He reports that Booking Holdings (BKNG) and eBay (EBAY) both briefly topped 35 times sales. Amazon.com (AMZN) never traded above 30 times. Twitter (TWTR) did briefly, but then corrected sharply. “All in, comparing 1999-2000 to today’s valuation levels has several caveats, however, we think there’s extreme optimism baked into certain stock prices today, and premium valuation multiples imply a razor-thin margin of error for those companies,” he writes.
Always volatile, Fiverr stock is down 5.3% to $223.07 in Tuesday trading. After last year’s astonishing rally, the stock appreciated another 38% before peaking at $270.05 at the close on Jan. 14. The stock is still up 14% for the year to date.
Write to Eric J. Savitz at [email protected]
