Hello, everyone, and welcome to the Fiverr Q3 fiscal 2022 earnings conference call. My name is Drew, and I'll be coordinating your call today. During today's presentation, if you would like to ask a question, you may do so by pressing Star followed by one on your telephone keypad. If you change your mind, please press Star followed by two. I would now like to turn the call over to Jinjin Qian. Please go ahead.
Thank you, operator, and good morning, everyone. Thank you for joining us on Fiverr's earnings conference call for the third quarter that ended September 30, 2022. Joining me on the call today are Micha Kaufman, Founder and CEO, and Ofer Katz, President and CFO. Before we start, I'd like to remind you that during this call we may make forward-looking statements and that these statements are based on our current expectations and assumptions as of today, and Fiverr assumes no obligation to update or revise them. A discussion of some of the important risk factors that could cause actual results to differ materially from any forward-looking statements can be found under the Risk Factors section in Fiverr's most recent Form 20-F and other filings with the SEC. During this call, we'll be referring to some non-GAAP financial measures.
A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measure is provided in the earnings release we've issued today and our shareholder letter, each of which is available on our website at investor.fiverr.com. Now I'll turn the call over to Micha.
Thank you, Jinjin. Good morning, everyone, and thank you for joining us today. We are pleased to report strong results today. In the third quarter of 2022, revenue was $82.5 million at the top end of our guidance, and adjusted EBITDA was $6.6 million above our guidance range. This performance is the direct result of the actions we took to strengthen the flywheel of our marketplace. That is improving our efficiency in buyer acquisition, optimizing our catalog, building a better product experience, and in turn, driving more buyers to buy more from our platform. Our decision a few months ago to optimize our cost structure and accelerate our pace towards long-term margin target is also paying off.
Our Q3 Adjusted EBITDA margin of 7.9% represents a 250 basis points improvement from Q2, with a strong gross margin of 82.8% and cost saving across all expense lines. The scalability, efficiency, and highly diversified nature of our business model is setting us apart in navigating through this economic cycle. We operate a global marketplace where millions of buyers purchase digital services from our platform across over 550 categories. This allowed us to detect the shifting macro conditions as early as March. Our bottom-up go-to-market strategy with a highly efficient and data-driven approach allows us to stay disciplined when overall SMB spending is facing headwinds. In fact, we took a step ahead and even accelerated our pace of improving the bottom line when growth became more expensive.
In addition, we have a strong balance sheet and are generating strong cash flow. We believe maintaining a healthy cash flow and cash balance is essential in protecting shareholder value in the current macro environment and gives us the ability to focus on long-term value creation. We tremendously value the trust we have earned from you, and we are committed to staying responsible and transparent with our shareholders. All of this, in my opinion, is providing us with a great setup for future growth. For the rest of my remarks, I want to talk about why we have confidence, conviction, and optimism in our future growth. First, the opportunity in front of us is huge, and the secular trend of moving towards freelancing is only growing.
According to our latest annual Freelance Economic Impact Report, U.S. independent professionals earned a total of $247 billion in 2021. To quantify this further, according to a recent survey by McKinsey, 36% of the American workforce makes their living through independent work, a considerable increase from 27% back in 2016. Talents are increasingly demanding freedom, flexibility, and control over their own work-life balance. Furthermore, macro volatility is also driving talent to embrace freelancing more. We saw this during COVID pandemic, and in fact, in recent months, with inflation driving up the cost of living and a flurry of companies conducting layoffs, we saw a record level of sellers coming to our marketplace. Now, many of you have asked me why we haven't seen the marketplace benefit from those trends yet. The answer is twofold.
One, we looked into the industry hiring trends around the last economic cycle and noticed that during the economic downturn, freelance demand gets hit first before full-time hiring and oftentimes leads broader GDP trends. That said, freelance demand is also expected to be the first to recover as we climb out of the downturn, and the rebound is typically of a bigger magnitude compared to full-time employment and the GDP growth itself. The first part of the answer is a matter of timing, and we believe Fiverr will be the first to benefit from the upswing down the road. The second reason is the gap between talent and businesses in terms of adopting freelancers. As evident in our recent back to work survey, businesses lag behind freelancers in terms of willingness to embrace remote work and flexibility in engagement.
This is why we see smaller businesses ahead of larger businesses in terms of utilizing freelancers for a much bigger portion of their talent needs. That said, we believe large businesses are getting there. The recent news around Amazon's $8 billion annual cost of employment attrition just illustrates the urgency and necessity of a change in talent strategy. All of this is to say that we are in the right place in the right time, and we expect significant tailwind for our business. Now, the strong flywheel inherent in Fiverr's business model will allow us to benefit from those tailwinds much more than others. You have witnessed the significant uplift in scale we experienced during the COVID cycle. I am super proud that we were able to hold on to most of those gains. Active buyers were 4.2 million, nearly double what we had three years ago.
Spend per buyer grew over 60%, and take rate grew 340 basis points. This speaks to the loyalty of our buyer base, their increasing need for digital transformation, Fiverr's increasing wallet share, as well as us extending our role in the value chain. We are going to continue investing in our flywheel during this economic downturn, building product, improving supply, and delighting our customers, so we will be in a stronger position to take advantage of the rebound. The last thing I want to highlight is our progress on Fiverr Business, the vision we have there and the innovations we are making. We are going to significantly speed up the bottleneck in business adoption that we talked about earlier. We are not building another staffing business to help you hire a contractor, developer, or product manager.
Rather, we want to provide businesses with the simplicity and nimbleness to engage with freelancers without the overhead of onboarding, contracting, time tracking, and compliance. Think of the difference between leased data centers versus a cloud computing solution. You'll have much faster setup, much lower management overhead, and much more scalability and flexibility. We are already seeing many mid-sized companies using Fiverr's solution extensively today. Our cover story in the shareholder letter highlights how the head of a creative studio at a gaming company utilizes Fiverr as a content generation hub, leveraging services across voice-over, 3D animation, video projects, and banner ads design. It's amazing to see how much productivity and efficiency Fiverr can bring to his team. This is one of the many examples that give us the confidence and ambition to extend those tools to every business.
We are investing in many areas, including increasing brand awareness among business customers, building partnerships, and educating potential customers on use cases, improving our product across matching transactions, communication and productivity tools, and lastly, expanding our supply into more specialized skill sets with demonstrated industry experiences. There is a lot to do, and there is no better timing than now to dig deeper and relentlessly focus on building out these innovations. I'll wrap it up today with advice I received when I was a young entrepreneur. There are only two ways to fail a start-up. You either run out of money or you give up. We are probably a long way from what you would consider a young start-up, but I think in many ways the advice still applies. The scale we have and the strong cash flow we enjoy will allow us to build towards long-term sustainable growth.
Our passion, commitment, and excitement toward the future are absolutely unwavering. With that, I'll turn the call now to Ofer who will walk you through our financial highlights.
Thank you, Micha, and good morning, everyone. We delivered strong results in Q3 across all metrics. Revenue of $82.5 million came in at the top end of our guidance, representing year-over-year growth of 11%. Adjusted EBITDA was $6.6 million above the top end of our guidance, with an adjusted EBITDA margin of 7.9%. We were able to improve our marketing efficiency, strengthen our product focus to drive conversion and retention, and continue to make progress growing up market. All of this benefited from the realigned focus in our core marketplace and Fiverr Business. The cost optimization exercise we did in July also paid off, allowing us to improve organizational efficiency as a whole and accelerate our trajectory towards long-term adjusted EBITDA margins target of 25%.
Our adjusted EBITDA is also indicative of the strong cash flow we generate, and together with the healthy balance sheet, it demonstrates the strength of our business and provide us with a strong financial position to pursue long-term growth opportunities. Active buyers was 4.2 million, up 3% year-over-year. We are encouraged to see active buyers count stabilize, especially given the large cohort size we acquired in the past two years, as well as the macro headwinds that we are facing today. The resilience of our active buyers reflects the strong cohort behavior in our marketplace. Even in an uncertain environment like now, Fiverr provides an essential platform for SMBs to execute their digital strategy with speed and cost efficiency unmatched anywhere else. We also had strong execution on the new buyer growth front. We saw improvements in marketing efficiency.
Some of the work we did in pushing social and influencer channels, as well as more granular campaign optimization contributed to the efficiency gain. We also saw a nice uplift in traffic following our launch of the new brand campaign, Team Up, in August. Lastly, I think coming out of the peak summer travel season provides some uplift for September and October activities. Spend per buyer for Q3 was $262, up 12% year-over-year, as we continue to make progress in growing up-market. The number of buyers that spend over $10,000 annually grew over 50% year-over-year. We continue to round up our offering on Fiverr Business. This includes our continuous investment in the quality of our business supply, iteration on the product, and building targeted marketing funnels. This quarter, we also started rolling out some value-added services for our business customers.
Project Partner is such an example that removes not only critical friction in our customer experience, but also creates additional revenue opportunities for Fiverr. Take rate for the quarter was 30% in Q3, representing a year-over-year expansion of 160 basis points. This is consistent with our long-term strategy, where we believe our take rate will be sustainable with the modest upside over time, driven by value-added services. Promoted Gigs continue to expand its exposure on the marketplace, which now includes recommendation, carousel, and mobile app listings. Seller Plus implemented a two-tier pricing model this quarter in order to expand adoption and allow more sellers to take advantage of the advanced tools in the program. Now, let's turn to guidance.
For the fourth quarter of 2022, revenue is expected to be $79.8 million-$85.8 million, representing year-over-year growth of 0%-8%. Adjusted EBITDA is expected to be $7 million-$8 million, representing an adjusted EBITDA margin of 9% at the midpoint. For the full year of 2022, we expect revenue to be in the range of $334 million-$340 million, representing year-over-year growth of 12%-14%. Adjusted EBITDA is expected to be in the range of $22 million-$23 million, representing an adjusted EBITDA margin of 6.7% at the midpoint. Our Q4 and updated full-year revenue guidance are largely consistent with our previous outlook in August.
We do not have a revision on the macro assumptions underlying the Q4 guidance, and given the continued macro uncertainty, we think it's prudent to provide a guidance range that is a bit wider than our typical Q4 guidance. The Adjusted EBITDA guidance reflects our continued discipline and commitment to accelerate the pace toward our long-term Adjusted EBITDA target of 25%. To close, I want to say that Fiverr is in a much stronger financial position compared to when we went public over three years ago. We are three times larger in terms of revenue, with a strong Adjusted EBITDA profitability and improvement of over 23 percentage points, and we enjoy strong cash flow and a healthy balance sheet. We believe that the macro headwinds we are facing are temporary in nature.
I am confident that we are well positioned to navigate through this macro cycle, and we as a company are making prudent and smart investments to capture the exciting opportunity of shaping the future of work. With that, we'll now turn the call over to the operator for questions.
Thank you. We will now start today's Q&A session. If you would like to ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two. Our first question today is from Doug Anmuth from JP Morgan. Your line is now open.
Thanks for taking the questions. Micha, you talked about getting more sales to existing buyers and saw spend per buyer up 12% in the quarter. Can you just talk about your efforts there? Perhaps that includes growing up-market as well. I guess just thinking more on a macro perspective, you talked about seeing a macro pressure early, perhaps as early as March. If you look back, freelancing has come back somewhat quicker in the past. Are you seeing any signs of pickup there or signs that perhaps greater supply could help drive some more demand as well? Thanks.
Hey, good morning, Doug. Yeah, thank you for the question. First on the spend per buyer, what we've seen is we saw an opportunity to do more acquisition in the later part of the quarter. Those cohorts haven't had the opportunity-
This is why we've seen a slightly higher number than expected on the active buyer and a slightly lower on the spend per buyer. It is just because of that. For marketplace commissions, what we've seen is essentially, as of about June, we started seeing some stabilization in the market, which actually continues into this quarter into October. I think that the first signs. Again, you mentioned that we were one of the first to see that pretty early on. The first signs that we're seeing now is we're seeing probably above usual trends on the supply side. This is very typical. Usually supply comes first.
That is a result of both, the layoffs, which I think is just going to drive our supply much more meaningfully in the next few quarters if the current layoffs continue to happen. Because a lot of the people that were laid off, unlike before, are facing with other companies that are in freeze, which means that some people are gonna find themselves without option, and I think that, you know, Fiverr is a very viable and a great option for them. We're starting to see that on the supply side. At some point, it's going to happen on the demand side. In my opening remarks, I did emphasize the fact that this is a sequence. It's a matter of timing. It takes time for that cycle to happen.
Sometimes companies would cut back on freelancers first because it's variable expenses, and it's easier to cut on that than on full-timers. Over time, as they need to meet their goals, the go-to people are also gonna be freelancers. We're going to see that cycle coming in. At this point, what we're seeing is stabilization. This is why I think we provided the guidance that we provided. There's still a lot of uncertainty, which I think all of you have seen from many of the earnings in this season. There's a lot of uncertainty. It's very hard to predict how Q4 is going to play out and then, you know, how that would be dragged or not into next year.
Essentially I think that we're gonna be the first or one of the first to see that rebound. This is what I've stressed. We've seen that during COVID, and I think we'll see that again. There is something very important to stress, which is, you know, we were considered during COVID to be one of the COVID beneficiaries, but this was not a coincidence. We benefited from it because of the investments that we've done pre-COVID. Everything we've done with going upmarket, the investments in catalog, geo expansion, and all of that, were areas where we benefited tremendously during COVID. This is exactly what we're doing now. We expect to be set up extremely well to enjoy that rebound.
Very helpful. Thank you, Micha.
Our next question today comes from Brad Erickson from RBC Capital Markets. Please go ahead.
Thanks. Maybe just a follow-on to that last comment. You know, you talk about the accelerated supply coming to the marketplace. How much unfulfilled demand would you say is on the platform where you think there's an appetite to buy, but they're just not able to find the freelancer that they want for whatever reason? I guess the question is, could you add additional percentage points of growth upcoming if you are able to just improve utilization beyond just active buyer growth and spend per buyer? Thanks.
Thank you, Brad, and good morning. In terms of unfulfilled demand, I think that this is kind of a moving target. The reason is that the more we fill the supply side, the more we fill it with more professional offerings and supply, the more we fill it with those who can actually perform more sophisticated and larger projects, so is the demand for that. If there's an offering, we know how to match it with demand. I would like to think that when we look at matching and unfulfilled demand, it's pretty stable. Meaning that the more supply we have, the more demand we can track to it.
Essentially the size of the catalog and the variety in the catalog allows us to have a relatively, I think small degree of unfulfilled demand, and demand grows with supply. I said so before, supply comes first. When we bring supply, when we open new categories, demand comes most of it organically, very, very fast. Through our marketing machine, we know how to bring additional demand to it.
Got it. Thanks. Just to follow up, take rate obviously continues to go up. Where are you, would you say, on ad load for Promoted Gigs? I guess, should we just generally maintain that trajectory here going forward? Any reasons why, you know, take rate would increase faster or slower, as a function of either Promoted Gigs or other value adds you're including in there? Thanks.
Thank you. We're very happy with how promoted gigs is growing. I think we've alluded to that. We talked about this in previous quarters, and we said that there is ample room to grow into. This actually trickles down into take rate. A lot of what you've seen the take rate is that. It's promoted gigs, and it's the added value services that we offer that more buyers and sellers are enjoying. We do believe that there's a pretty long runway to build into with these products. This is why we always say that there's always this modest room for improvement on the take rate, and I think we've demonstrated very consistently over the past few quarters that this is the case.
Got it. Thanks.
Our next question comes from Marvin Fong from Piper Sandler. Please go ahead.
Thanks, guys. Congrats on the really strong execution here in this uncertain environment. For my first question, taking a step back, it's been a couple of months now since the cost realignment actions. What are some of the biggest takeaways you have from those efforts, either on execution, culture, product momentum? Anything there would be helpful. Thanks.
Hey, Matt. Good morning. Thanks for the question. I think, you know, we were one of the first companies to actually do cost saving and improving the cost efficiency. Obviously, we've seen a very positive outcome out of it. I should note that we haven't seen the full extent of that improvement. Given the fact that when, for example, you do cutbacks, when you do layoffs, there's severance that is being paid. It's not fully, you know, it doesn't trickle down into the P&L. Over time, you enjoy, quote-unquote, this more.
Everything that we've done in terms of focusing on our core business without neglecting the strategic investments that we're doing, but really focusing on the money-making parts of our machine, improving them, improving the way we do customer acquisition and our continued focus in high-value buyers, larger buyers, the focus on Fiverr Business. All of that has obviously been contributing both on the growth side and definitely on the efficiency side, on the EBITDA side and cash side.
All in all, I think that from that perspective, obviously we're very happy with the outcome, and I think it brought us to a good place where it also will allow us to accumulate cash so we can be opportunistic when the market rebounds or shows signals where there's opportunity to go back into growth. That is going to give us a lot of ammunition to actually do that very effectively.
I know you aren't providing 2023 guidance right now, but as we think about big picture product themes or macro dynamics, how are you just thinking about the major tailwinds and headwinds as we move over the next couple of quarters here? Thanks.
Hey, this is Ofer. I think you know, as you said, we're not providing guidance at this point of time. There is a lot of uncertainty ahead of us, you know, both you know, mainly in terms of economics and geopolitics yet to be seen. You know, I want to touch on two items. The first is EBITDA, which we have control and plan to maintain this path for long-term EBITDA. We plan a meaningful upside next year in terms of EBITDA. Again, you know, despite the fact that this is not a time to talk about guidance, we do feel confident with our ability to improve EBITDA next year.
The second comment on my end is more on the long term. Given where we are in terms of number of active buyers, but also spend per buyer, we feel there is an opportunity. It's a blue ocean ahead of us. Not only on the SMB and little bigger organizations. We have much to accomplish, and we think that once this economic circumstances stabilize and get better, I think that Fiverr would be one of the companies to enjoy significant uplift in growth, both in terms of active buyers and spend per buyer and top line growth. We are very positive, and I think we navigate pretty well during this uncertain period.
That's kind of the best guidance that we can provide for the next few quarters. To augment on what Ofer said on the product side, I think that when we look at it, there's really two areas. Where one is the core business, where we continue to improve top of funnel efficiency, improve conversion, retention. There's a lot to do in a true e-commerce marketplace. There's a lot to improve there. That also contributes to an even higher and stronger flywheel effect. I think that in a slowing macro environment, you know, it really gives us an opportunity to look more inside and find those growth opportunities. The other area is really Fiverr Business.
I mean, it's really continuing to build that machine, identify the customers that should be moved into Fiverr Business so we can give them a great service, and we can also improve their engagement. A lot of exciting work there. I think on our side, one of the great signs is when we look at the top of our funnel, we have enough customers. We have enough customers that Fiverr Business is a perfect fit for. It's really optimizing that idea of identifying those segments and driving them into Fiverr Business where they spend many multiple times what an average customer spends on Fiverr. Thank you.
Thanks, guys. Congrats again.
Thank you.
Our next question today comes from Andrew Boone from JMP. Your line is now open.
Hi, guys. Good morning, and thanks for taking my questions. You talked about stability within cohorts within the letter. tROI remains healthy at, I think, a 90% payback period this last quarter. Can you just shed some additional light on what you're seeing in terms of existing buyer spend and just the consistency there versus past quarters? Then I'm curious about the personal consumption of Fiverr. The letter, I think, mentioned 75% plus of buyers come to Fiverr for business purposes. What's the other side of that? Can you talk about the minority spend that is personal? What are people buying, and is there an opportunity to lean into that? Thanks so much.
Hey, thanks Andrew, thanks for the question, and good morning. On cohort behavior, I think that the message now is very consistent with what you've heard in previous earnings, which is we're seeing cohort behavior being better than pre-pandemic. It is not as good as the height of the pandemic, but it is not going back to the levels of pre-pandemic. Essentially we're seeing good cohort behavior. When you see macro headwinds, macro influences everyone. It influences new business and repeat business, but essentially the loyalty of our customers is not being hurt. When they have a need, they come to us. That's kind of our view on cohort. Second question was on business consumption versus private.
Remember that, you know, every person who comes to purchase something, let's say you wrote a book and you want someone to edit that book or illustrate that book or, I don't know, you do a private project for your family or a friend. That is your personal persona, but you also work somewhere. We've seen a lot of overlap of either people that are business buyers, but then they sometimes use the platform also for personal needs, that could be whatever, a hobby or something else.
We've seen the other situation, which is someone would, you know, start by coming in because they, I don't know, they compose music in their free time, but get exposed to the, you know, variety, the infinite catalog that we have, and then become a business buyer over time. We pointed out this because we thought that this was a interesting point to share.
Great. Thank you.
There are no further questions at this time. I'll hand you back over to Micha Kaufman for closing remarks.
Thank you, Drew, and thank you everyone for joining this morning. We look forward to seeing you in one of the conferences or to speak in person, and see you next quarter. Thank you. Have a great day.
That concludes today's Fiverr Q3 fiscal 2022 earnings conference call. You may now disconnect your line.