We are, apparently. All right, we're gonna go ahead and get started. I'm Doug Anmuth, JP Morgan's internet analyst. It's our pleasure to have with us Fiverr's founder and CEO, Micha Kaufman, and CFO, Ofer Katz. Fiverr's mission is to change how the world works together. It's a global marketplace that democratizes access to talent and provides talent with opportunities that ranges from small businesses to the Fortune 500. More than 4 million customers worldwide worked with freelance talent on Fiverr in the past year. Micha is a serial entrepreneur who's founded and led several tech ventures, and he's been Fiverr's CEO since the beginning, 14 years ago. And Ofer has served as Fiverr's full-time CFO since 2017, consulting CFO for several years before that, and previously acting CFO at Wix. So welcome, Micha and Ofer.
Thank you. Thanks for having us.
Absolutely. All right, let's begin where the conversation, where most conversations begin these days, which is with AI. AI services on the platform nearly doubled their GMV in 1Q . You've talked about more than 50,000 customers having ordered AI services on Fiverr. So is AI friend or foe?
Mostly friend. You know, we've been talking about this for the past few quarters, providing pretty extensive analysis, showing that AI is net positive. You know, obviously, we understand the fear of job displacement coming from AI, and it's a justifiable fear. It is going to displace some jobs. The good news is it's going to create so many more. So it's going to produce more jobs than it's going to destroy, in our view, and the numbers that we're seeing right now from the marketplace is actually backing this view. And I think it's very early in this stage to actually try to understand the long-term implications of it, because we're all wrapping our heads around the impact and what's it gonna do.
But it's very apparent that it is creating new types of professions, and skills, and demand. And we're obviously net positive, and we're net excited about it.
Okay, great.
Yeah.
So you highlighted chatbot development as a popular-
Mm-hmm
AI service, certainly in 1Q. What other areas and services related to AI are you seeing strong demand for?
You know, things that have to do with model training, data scientists, prompt engineers. You know, people think about prompt engineering as, you know, what do you write to GenAI to produce something? But the reality is that it is far more complex. Even the design of highly sophisticated, bespoke versions of chatbots require super sophisticated prompting. And sometimes, the prompt engineering, the prompt that you provide, an engine might be several pages long to produce an answer, which is one line. That level of sophistication and training to make sure that the technology avoids high level of hallucinations and inaccuracies is extremely labor intense. So we're seeing demand for that. It's pretty much across the board.
It's just new ways of a new wave of skills that is being searched on our platform.
Okay. You have more than 10,000 AI experts on the platform.
Right.
How do you vet these freelancers? How do you ensure that they're doing the highest quality work?
So, I mean, we've been talking about the vetting mechanisms on Fiverr forever, and we're continuing to perfect those. So we have our rating and reviews, the proprietary technology that we've developed. And obviously, when it comes to more sophisticated types of offerings, whether they're agencies or highly professional, we have more rigorous ways of doing vetting. We have, you know, the combination of technology that we've developed, plus people that actually do some of the vetting on these skills. And all of that is backed by feedback that we get from our community.
Okay. So complex services, which are really where human skills are essential to kinda unlock this, the potential, those continue to grow at a healthy double-digit rate.
Mm.
Now accounting for over one-third of GMV. Maybe you can just talk a little bit about how you kinda break out, you know, services across the platform a little bit. But how should we think about growth in that category in particular? You know, where can that go, as a percentage and within the business over the next couple of years?
Yeah. So, essentially, this was a part of a way to provide transparency to the market in how we view the impact of AI, and so there were three groups: the simple, the neutral, and the complex.
Mm-hmm.
Simple were the ones who have been mostly, as the name implies, very simple types of services that, over time, technology can actually replace, or at least it can replace the entry point of these skills or services. Neutral are those who are not being impacted, whether AI doesn't serve those categories or where AI doesn't change the course of these categories. And complex are categories where the human in the loop is extremely important, and therefore, we see those actually increase. I think that we're gonna continue seeing this breakdown, as I've said. We're gonna see some displacement of very simple-
Mm
Types of tasks. On the other hand, we're gonna see many more skills on demand, where you need to have the human in the loop in order to make the most out of technology. I think, you know, for those who are again going through the same process like us of trying to wrap our heads around it, what happens with AI and GenAI in particular is that while it produces, set aside the inaccuracies and all of the hallucinations, but if you look at what you can produce with GenAI, it's pretty incredible. The thing is, everybody has access to this incredible you know new feat, right?
So this creates the new baseline and there's always gonna be this idea, this chase after a way to actually produce something that is above the baseline, which is why the demand for human talent and creativity is always gonna be there. It's just gonna appear in different ways and categories.
Okay, great. Let's talk about product and innovation. You recently moved to a semi-annual product release cycle. Maybe you can talk about the change, how it's helped both your customers, as well as kind of internal product and engineering teams.
Sure. So, so since last year, we just—I mean, as a company, we're a product company and we continuously push product innovation every day. It's actually pretty incredible to think about a platform that serves... This is the highest traffic platform in the world for digital services, and we're doing multiple deployments every day with our product changes a number of times a day, which is pretty mind-blowing, at this scale. And as we were continuing to push innovation out, we've realized that it's too much of a burden on our community to actually track the number of changes that we're pushing out, and it creates this issue of signal to noise. So that's one.
The other is, internally, we wanted to do—we want to do less things but do them with more force and, and with more time to actually push more meaningful things. So instead of doing incremental things, to be able to invest in step functions. And therefore, we decided to do two major releases every year, and in those two releases, we always have news for all of our community, for the buying side, the selling side, in a digestible way, in a way that we can communicate and our community and the market can actually understand. So this, from an operational standpoint, this is—this was incredibly well received within the team because it allows them to have more proper time to actually work on larger things.
And it makes sure that we, in a planning cycle, we don't do it so many times a year, where we waste a lot of resources in just, you know, getting dragged into these planning cycles. So, right now, we've been doing that a number of times, as of last year, and this is working very well for us.
Okay. Anything we should be looking for in your July product release, just as you continue to push up market?
Well, plenty of things which we're not gonna discuss for competitive reasons. I mean, yeah, there's so many things that we're excited. So some of these things we've started announcing in previous releases, and we're gonna continue investing in Neo, is one of them, you know, our smart-
Mm.
... copilot engine, the investment in agencies, and many more that-
Yeah
... I'm not gonna get into, but, it's coming soon, so.
Okay. And then, maybe you can talk a little bit about just how you're using generative AI internally, and what it means for your product teams for coding and engineering, you know, a lot of companies that we cover talk about seeing efficiencies up to, you know, 30%, for example. Some have talked about even higher. You know, curious to see, to hear what your engineers and product people are seeing.
I'm actually curious how companies measure increase in efficiency, because this is really hard.
Mm-hmm.
How do you measure that for a software developer? Is that the-
Lines of code?
Numbers... Yeah, but the numbers—I mean, I've been coding for 20-something years.
Yeah.
Lines of code is-
I know
... not a good measurement of productivity. From an intuitive standpoint, obviously, we're using AI massively, and we've been doing that for the past, I don't know, five,
six years.
Mm-hmm.
And obviously, with GenAI, with LLM models, as of, you know, what was it? November of
2022
... of 2022. You know, this has been massively adopted. Intuitively, obviously, it does increase productivity in the sense that a lot of what engineers are doing is copy-pasting from open source, which LLM is great at doing. So this saves them from doing the type of work that they hate anyway. Right? So they can- it frees up more resources to actually, you know, focus on the types of things that they like. The same goes with marketing. I actually think that marketing is the number one space that is being disrupted by GenAI in a good way, by the way.
Mm-hmm.
Again, it allows you to crunch tremendous amount of data and make sense of it in many ways that is much less time-consuming, and again, frees up the team's time to actually be creative, think about new ideas, and spend less time on just crunching, processing data, trying to, you know, to make sense out of the things that they're seeing. So, definitely from a team's perspective, I think that there is a step function in productivity. It's very hard to measure exactly what it is.
Mm-hmm.
I think it's gonna get better over time anyway, because technology is getting more and more mature, making less and less mistakes-
Mm
... and being less generic. Which is interesting, and also allowing more companies to actually have private clouds, where you can actually use it for the benefit of the company without exposing too much of your information to the general public.
Okay. Maybe we can talk about Business Solutions. Just kind of, it's early in the enterprise opportunity. What are the, what are the top things that you think you need to do to expand your reach with mid and large business customers?
Yeah. So, I know we've talked about this many times. I think one of the great things about what we've been seeing on our platform is that it attracts every type of customer you can imagine, from the micro businesses to the Fortune 500. And it's what we need to do is we need to do a number of things. One is we need to identify them as early as possible to understand who is this visitor and how they should be treated. The second thing is we need to provide a host of different type of customer experiences that are dependent on the context of the customer.
What we've been doing with Business Solutions is really creating these new experiences. So obviously, we've been very well known for creating this e-commerce platform that allows customers to come in and just do quick searches, find what they need, click, buy, and move on. However, in more complex types of jobs, which are associated with more complex types of companies and needs, sometimes you need slightly different models. You need to pair a customer with a consultant that can actually help them figure out how to put together their product specification, and only then match them with the right talent. In some cases, customers would like us or someone from the platform to actually manage a project for them.
In some cases, it's providing them with the technology to write those in-depth specifications. In some cases, they need access to account executives. And so, creating these, this host of very comprehensive solutions is something that we've been investing a lot in. And we're seeing the fruits of it right now. As we're working with larger businesses, we're able to address more of their needs, build the right confidence and trust with them, and as we do that, we're able to have a much, much deeper and longer relationship with them, and we see how that positively affects their spend with our platform.
Do you need to have higher touch sales strategy there to go upmarket successfully?
Well, so, we have a tiny sales team. Most of it we inherited from an acquisition that we've done. But, as I've said, I think the good news is that we have enough of that demand coming into our funnel, probably most of it organically, just because we've built a very strong brand in our space. And it's just identifying them and being able to interact with them in a way that suits their style or their way of doing business.
Okay, good. All right, GMV accelerated a little bit in Q1. So it had a decline in active buyers, but that was offset by solid growth and spend per buyer, just as you continue to move upmarket. How do you expect active buyers to trend going forward? And does this strategy change if macro, you know, kind of improves, and you do more top-of-funnel marketing? How do you think about that?
We don't think we don't anticipate any change in the behavior or numbers of active buyer in the next few quarters. And yes, we think that as the market turn there will be opportunity to acquire more of the smaller type of business. As of now, as top of funnel is shy, we are focused on high-value buyer, where lifetime value to CAC is working pretty well for us, and you can see how it behave on the ROI diagram.
But we believe that as the business turn, as the macro turn, and SMB are going to go back and invest on their own business and growth, we'll see them coming to the platform with budget, and their opportunity might mature to acquire more of them.
Okay. Seller monetization programs continue to show very strong growth. Maybe you could talk a little bit about how you think about penetration of Promoted Gigs and Seller Plus subscription, and what kind of runway do they have?
Yeah. So both program are working really well for us and for the audience. I think in terms of Seller Plus, we keep initiating more services, different tier, different offering to different audience, and we anticipate this will expand over the foreseeable future, both in terms of tiers, audience, and services. And for Promoted Gigs, there is much unutilized inventory in the platform. So again, on both program, we believe there is a room for us to further grow the program.
Okay. Maybe going back to talk about macro, and just the backdrop, are you seeing any changes across SMBs or anything stand out across regions? I know you were pretty early to be impacted in 2022, really. And so I guess, just curious if you think on a rebound, as things start to turn better, would you also be early to improve?
Historically, we've seen that the answer is yes for this. I mean, you know, as a platform with still pretty high percentage of smaller businesses, where we serve as a pretty accurate barometer for changes in macro. And obviously, we explained many times that the smaller businesses are more affected or more exposed to macro because of the fact that the cost of borrow is just very high, and that creates a burden on them. They have less of return capital for growth, and so they behave more cautious in this environment. I'm sure we're gonna see those changes pretty early. We haven't seen any changes so far.
Mm-hmm.
Actually, as a company, if, like, if you think about the space in which we operate, you know, we've called out the fact that professional staffing last year went down 19%. This year, I think the first quarter started with a negative in the teens as well. So this is the backdrop-
Mm-hmm
... that we're working from. So the fact that we're able to continue producing growth, despite of the fact that this market is, at least for now, very negative, I think is a good sign. And obviously, when this environment is going to improve, we do expect to be one of the first to be able to see and call it out.
Okay, great. Thinking about profitability, you had 17% EBITDA margins, and that was, you know, despite slower top-line growth in this tough environment, but you're continuing to manage the business with good discipline and efficiency. I guess, what are some of those key levers that can get you to that long-term target of 25%, both in a, you know, if the current market were to sustain and also in an improved environment?
I think that if you track us since we went public, how we improve EBITDA over time, it's only about scale and discipline. I think there is a very good fundamental for the unit economy, that, you know, where we operate, every customer that we acquire is profitable, and it's only a matter of time until those cohorts mature into profitability. And, you know, 65 of the business is recurring from all cohort. They are going to be the, you know, the cohort we acquire today are going to be the new level of efficiency for next year and so on.
So I think whether the market become better and we grow faster and have more resources to invest, or whether the market behaves as it is in the last few quarters and it requires more discipline on our behalf, I think it's only a matter of scale and discipline, and we know how to do that because this is what we are doing for the last few years, and we plan to continue to do exactly the same. There's no step function. It's just about making sure that we acquire the right cohort, and we work with them on this long journey over time.
Okay. You initiated a $100 million share buyback program not long ago. You've obviously talked about the stock price being attractive for repurchases. How do we think about your capital returns philosophy? You know, is it being more consistent in the market or opportunistic? Any other color you can provide there?
Yeah, you know, I think we've mentioned the fact that we've been contemplating and thinking about how to use the cash on balance. And I think we, you know, we're, we wanna be opportunistic to maximize the shareholder value, obviously. And we've seen the stock, you know, getting to a point where we thought it was ridiculously cheap. And in that point, I mean, with the cash in balance that we have, a very strong cash position, and the fact that we've, you know, generated over $80 million of free cash flow last year, that was the right call. And as we think about the future, I mean, this remains an option.
We, these are instruments that are at our disposal, and are, you know, the idea is that we want to optimize again, always for the, for the, the shareholder value. And, we'll continue looking into this in the future. I hope that, you know, with time and when . . . I think right now, the share price is mostly driven by the fear of AI impact, but I think with time, when it dissipates and, you know, the share is gonna go back to its right position, and we'll reevaluate if this makes sense to continue doing in the future as well.
Okay. A question we get a lot just around this topic: You've got about $750 million in cash on the balance sheet now.
Yeah.
Also a convert maturing in late 2025. Are you confident in the current cash position plus your free cash flow generation that you just mentioned to satisfy the convert and the buyback?
Absolutely. Absolutely, I mean, if we cover it, we still remain with a very strong cash position. And I'll just mention the fact that we continue generating cash.
Mhm.
So, absolutely.
Okay. When we were talking about product components and releases, you mentioned Neo. You know, just as you integrate AI into really every aspect of the experience and product, maybe you can just talk about how you're leveraging Neo across the platform, how that drives better matching and conversion.
Yeah. So, you know, I've mentioned the fact that AI gives us newer tools to actually process tremendous amounts of data. And one of the biggest moats of Fiverr was the fact that as a transactional platform, where the transaction actually happens on the platform, we collect hundreds of data points on every transaction. The entire communication between buyers and sellers happens on the platform.
Mhm.
So the level of details that we have is incredible. And what these new technologies allows us to do is to crunch this data in real time and provide a level of matching between the two sides of every transaction to be at a level that was never possible. So this in essence, think about this as like, you know, building the next generation of search on steroids, or matching technology, which is the single most sophisticated challenge of every two-sided marketplace. So being able to use this technology in a smart way, because not everybody likes to talk to a chatbot. Actually, most people hate it. So how do you create these interactions in a way that doesn't feel like a, like a conversation with a bot?
How do you integrate these technologies in all of the experience that our customers or our community has is a challenging, but a super interesting thing to tackle, and this is where we're investing a lot of our energy. And I think that this is, you know, in many ways, this is the future of e-commerce. It's gonna be not just with us, and there is an opportunity to be innovators and to actually define how this technology is going to be used in these interactions and make them much better.
And because Fiverr, you know, the needs of our customers are very nuanced, being able to actually understand them in greater details and understand the uniqueness of the talent that we have on the platform, and being able to create those incredible matches is the holy grail. So if we can crack that at a better quality than we do today, then it's going to impact everything: the conversion, retention, stickiness, lifetime value. So it's a challenge worth pursuing, which is why we're giving this a lot of attention.
Okay. All right, one other thing I want to hit on the product side, and then we'll do a quick word association. All right, Fiverr Agencies, so that was launched in the January product release. Maybe you can just talk a little bit about early feedback there and just how you're kind of doubling down on agencies and what the opportunity is there.
Yeah, so you know, when you think about, I mean, we have agencies on both sides of the equation. We have agencies as customers, where they augment on their existing talent. Sometimes they need another function, and they just use our platform to get access to this talent. And we have agencies on the supply side, which has a number of benefits. Quality is one, because they have their own internal vetting process, so the team members within agencies are basically, if it's a good agency with a good reputation, it means that they do good job at vetting their talent. They have more controlled capacity because they can tackle project. They understand how to use their workforce more sophisticated than individual freelancers.
Many times, they're multidisciplinary, so they can tackle more sophisticated types of projects as well, which require more than a single type of talent. And for all of these reasons, it was important for us to start putting them front and center for our customers in the right opportunities, the right occasions. And so we've been having agencies forever, but we decided that we want to put more emphasis. And so this means that from a product perspective, developing more tools so that agencies would have greater control over their usage on the platform. And two, is just putting them in front of customers in the right times, the right needs. So the...
We started. We've announced a big step there in the beginning of the year, and you expect us to see more things around agencies in the coming few quarters.
Okay, real quick. We'll do an abridged version. Whatever comes to mind. Macro?
Same.
Spend per buyer?
Going up.
Complex services.
Going up as well.
Take rate.
Improving.
Uh, GenAI.
Exciting.
Share buyback.
Uh, doing.
Democratizing work.
For it.
All right, cool.