So I think in the interest of time, we're going to get going on our next (you're going to go right here) on our next session. It's my pleasure to have the team from Fiverr here at the conference with a special chat with Micha Kaufman. Thank you so much. It's good to see you again, always. But I think to set the stage, and I feel like I asked you this whenever we get the opportunity to do this, maybe tell me a little bit about the journey the company's been on and the evolution of what you're trying to build for the company. Because it has changed a lot in the last 12-18 months. And I think with the advent of AI, you've been very much at the forefront of trying to move the company, the platform, the product in a certain direction.
So why don't you just reflect a little bit on the journey you've been on, and then we'll get into the pathway forward as we progress?
So essentially, if you look at the history of the company, we started as a marketplace for very distinct, discrete customer services. Most of them were micro-services or very small services. And that was a part of our go-to-market strategy. Started with micro-businesses, SMBs. And over the years, we started extending the capabilities of the marketplace and then turned the marketplace into a full-fledged platform. And in recent years, what we've been doing is really taking this model that we pioneered where people can just come online with their name, just go through a browse, through a directory or a marketplace of services, and just want to place an order. As we were starting to go upmarket, we realized that in some cases, the marketplace is a great solution.
In other cases, where there's more complex types of projects and needs where you need orchestration, sometimes you need assembly because it's complex and multi-talent, then we needed additional tools, and in recent years, we've introduced this business suite of tools, and in recent quarters, we've reported that the portion of the cohort of larger businesses that are actually coming to do more with the platform is increasing dramatically, and I think that this went very well with what was happening with AI starting two and a half, three years ago, where the microservices, some of them are no longer needed because they can be automated, but at the same time, you need very high-skilled people that know how to use AI to do things.
And so we've been focusing more on that and more on ensuring that we build these AI solutions, these technologies into our platform so that they're integrated in the workflows of the professionals that are actually delivering these projects. That portion of our business has been growing very nicely. We keep reporting, and you see some verticals mostly around technology and marketing and workflows, agent development, and so forth, growing 10x. So this is really changing the function. And we're using AI to build a better platform as we do it so that we can provide better value, better turnaround time for our customers. Everybody wants to integrate AI. Every business wants to take these new tools to their maximum. And this is why they're coming.
So from our perspective, it's also changing the type of supply that we have on the platform to bring more of these AI-native techniques that can actually help organizations to the transformation much more effectively.
Okay. So I'm going to filibuster for a second because I think we're going to swap out your microphone. Yes. Okay. So I'm going to filibuster while we do that. And maybe reflect backwards again before we go forwards because there was initially a very negative reaction to AI with respect to how the economy would evolve around freelancers and this type of work. And I think the narrative in many ways has evolved over the last few years. Tell me about what you're most excited about to put AI to work across the platform and the products when you think about the incremental drivers of growth going forward.
Yeah. I think that there is some kind of awakening from the early thoughts around AI. And so one, there's this realization that while AI gives everybody these superpowers to be more efficient, to do more, to do faster, it's not really creating any competitive edge because everybody has AI. So if everybody has AI, no one has an advantage. And so the advantage always goes back to the people that actually take use of it. The most incredible thing that you see being created with AI is not AI. It's the people that actually use AI in the most creative ways and the most effective ways. The other part is every organization says that they're doing the transformation to AI, but in most organizations, this means providing ChatGPT to their employees. This is not the usage of AI, okay?
And so to really integrate AI into how companies, how organizations work, you need people that can actually orchestrate this. And I think that what a lot of organizations realize is that the amount of AI natives that every organization has internally is very, very small. And so these types of skills are very sought. So that's where we're concentrating. So we've done the same with our team, making sure that we're optimizing the way we work across the organization, the way our legal department works, the way our financial department works, the way we do customer care, the way we develop and write code. And we see a tremendous opportunity in actually helping other organizations do this because we have all this talent on the platform. And the other part is the fact that because of AI, many more people in our organization are building more things.
So on the one hand, it creates more issue of signal to noise because everybody's building but who's going to know about the things you're building? So they need to market it. But also those who are building stuff, at some point, get stuck. So you can do no-code. You can build maybe 60%, 70%, 80% of what you want with no-code. At some point, you're going to get a cloud database authentication issue. And if you don't know what that means, you're done. And so even helping companies, helping organizations finish their builds is another huge opportunity for us. So these are areas where we've been investing a ton.
Okay. I want to follow up on this idea, though, because you interjected it before as well. This idea of the gigs that you're seeing on the platform, how differently are trends tracking when you think about complex gigs versus non-complex gigs and how AI might be affecting that mix over time as well?
Yeah, so we talked about this before, and I said that what we're seeing from our data is that the areas where we're seeing technology displace manual work is mostly in the very simplistic types of services. Now, we give this example because it's easy to understand. Up until, I don't know, three, four years ago, removing backgrounds from photos has been something that you had to manage, so you had to hire a VA to do it. Today, you don't, but the removal of backgrounds has been very low skill always, and these were services that were mostly sold for, I don't know, $10, $20 bucks, so these are the areas where you see technology replacing stuff much, much faster, but it's creating a whole host of other professionals that didn't exist three years ago.
People that are designing specialized AI agents that didn't exist, or people that help optimize workflows using AI that didn't exist as well. So we're seeing the pace of these more complex, more nuanced, more high-skilled services growing much faster than the simple tasks are being displaced. Plus, the simple tasks are low AOV anyway. So for us as a business, AI is a positive effect more than it is a negative effect.
Understood. I wonder if you can provide any progress update on Fiverr Go, an initiative you launched, how it continues to scale? What do you think this might mean in terms of opening up wider pockets of addressable market for the platform over the longer term?
Yeah. So the idea of Fiverr Go was to start experimenting with integrating and providing tools that impact the way our freelancers work to make AI more integrated in the way they do work on the platform. So just as a reminder, one of the things that makes Fiverr very unique is the fact that it's not just matchmaking, but it's actually the platform on which the work is being done. Anything from finding and matching to contracting, to invoicing, to payment, to communication, to delivering work on the platform, to tracking revisions all the way up until the service is done and rendered on the platform, and so we saw this opportunity of actually creating these highly specialized tools for our community so that they don't need to use multiple tools as their workflows because we can integrate those tools into the platform.
This has to do with the way they create, but also has to do with the way they communicate. We take a lot of the back office admin of running, prioritizing work all the way to actually how they fulfill the work. We've seen that once we do this, first and foremost, our customers are getting much better and much faster service and turnaround. This increases conversion. We've introduced these tools that are changing the game for freelancers. They're reducing the type or the portion of work that they don't like doing anyway, which is answering the same questions that they've answered 400 times again to a new customer. Just the fact that they're always concerned about missing the next opportunity. They keep their alarm on when they go to sleep if they have a new notification.
And no, they don't need to do that. We have an agent that does all of that work for them. So this has been going super well. We've seen more impact actually on the higher quality supply because they get this. And they get that, essentially, at the end of the day, it gives them better ROI. And so they use it. And we do the same with generative AI into how we can use generative AI to help them deliver much more professional work and do it much faster. So Fiverr Go has been the beginning of a very long journey that we have in plan. And actually, the other part that makes this very interesting is when you build a company over 15 years, you build this tech stack that becomes your legacy operating system.
At some point, when technologies make this leap, you have the opportunity to actually start building things from the ground up, so instead of building stuff into your existing tech stack, you can actually build new technology and then integrate it into how you work, into how your product is set up, and Fiverr Go was the first real experiment that we've done with doing that. And I think that one of the most exciting things for me, and this was my project, was this allows you to get back into startup mode and really build stuff super, super quick. Yes, it does require more of an AI-native team to do it, but this has been one of the most exciting things for me, sleeping on the floor of my office for months, which sounds terrible, but for me, that's kind of my element.
That's the part that I love in my job.
Understood. Okay. I do want to talk a little bit about macro because you guys have been talking about some of the headwinds that the business has been facing for quite a while. And it seems like what it really translates into is type of client growth and type of client budget. So maybe just level set for what you're seeing in the macro and what distinctions or elements of that you want to call out depending on type of client, type of spend.
Yeah. So first of all, if you look at professional staffing, and this is public indexes that the U.S. government provides, we see there that professional staffing is a little bit depressed. It's been minus 15%, sometimes minus 20%. So mid-teens, negative for the past two years or so. If you look at our GMV, our GMV is around zero, which means that we're offsetting on a minus 15%, which is not easy in it of itself. This creates two opportunities for us. One is it gives us more supply because there's more people that are looking for opportunities. This is great because it allows us to be pickier on who do we want to join the platform. And so this gives us a massive buffet of talent that comes to us. The other thing that we've done is we really started focusing more aggressively on larger types of customers.
And the reason is that if you look at macroeconomics, because of the high interest rate and the inflationary environment, that portion of macro influences SMBs more than established businesses. And the reason is SMBs need to borrow money to grow. And borrowing money is just more expensive. And so they're having a harder time. Established businesses have to grow, but they have returned capital. So while they're a little bit more cautious than usual, they need to continue investing. So we've shifted a lot of our attention in acquiring these businesses. These businesses are more expensive to acquire. But yet, at the same time, even in their first transaction, they spend much more. Their lifetime value is much higher, and their ROI is great. And so what we've done is we've shifted our focus. And you can see this on our active buyers.
Active buyers is shrinking a little bit because we're investing in buying more expensive types of customers. If you look at spend per buyer, spend per buyer is growing really fast. The reason is that that cohort becomes bigger, becomes larger within the entire cohort of our customers.
So maybe the natural follow-up is if you've got this level of engagement in enterprises and you've got some strategies that are continuing to move you up market in a better macro environment, how should we be thinking about mix of SMBs and enterprises? Not to put you on the spot, but just what does that mean for the business if you get an actual healthier macro environment overall?
Our assumption, given the 15 years of history, is in a better macro, you're just going to see much higher growth. And the reason is that the majority of our customers are coming to us organically. And so if you see some improvement on the SMB side, the majority of them are free. It's just free business for us. So you should see an increase in active buyers coming from that portion. And we can always go buy, I mean, we're generating a lot of free cash flow. So essentially, if we see opportunities to grow, we'll invest. And on the other segments, the other segments do business even now. So if there's a better macro, then we should see an increase in that portion of the business as well.
I think Fiverr has been super sensitive to macro, and we've been calling out macro ahead of most companies because the customer base of Fiverr is so large. We can actually call those trends. Right now, we're still not seeing it. I don't know if the Fed is going to decrease interest rates. Is that going to immediately translate? But give me a call. I'll let you know, and I don't know if it's going to be enough.
We'll talk in early November about that.
But it is sensitive enough. So if we do see interesting trends that we can call trends that are not just short spikes here and there, I think that we're going to be able to talk about this. It's going to be a much more convenient environment for us for growth. And again, it should be said that as a company, we are prioritizing growth. This is what we're here for because there's a huge market capture, and we're doing it very efficiently. I mean, we're now growing double digits while providing 20% EBITDA and generating a lot of free cash flow. So we have the tools to maximize growth if the opportunity is there.
Got it. So maybe two follow-ups here. In terms of that upmarket strategy, if you were to see that type of recovery, do you still think there'll be a more large customer, large enterprise mix dynamic that will play out? Are there lessons learned from moving up market that you think sustain for the longer period of time?
Absolutely, yes, and by the way, even if macro doesn't change, the larger that cohort is within our business, we are going to go back to growth because that segment is growing, and the larger it becomes, the more impactful it is on the overall growth, so absolutely, yes, and because we're the most highly trafficked platform in our space, what we've identified, and we talked about this before about we're getting better and better at actually capitalizing on it, is that we have a ton of these businesses coming to us organically, and it's just the ability to identify these customers as fast as possible.
Because we're a platform and still the majority of business is being generated on the marketplace side, we realize that the faster we do KYC on our customers, on traffic that comes to us, the better we can route the right customers to the right solutions that we provide. And so a lot of the customers that we've called out in letters to shareholders, like a publishing company that comes to us because they need to edit hundreds of books, these types of customers we've been able to entertain because we've identified them very early in the process and diverted them into a much more white-glove service that can actually run complex projects for them. So it's very easy. So the better we become at identifying these customers early on in the cycle and ensuring that we route them to the right solution, the more we can capitalize on it.
So these are definitely key learnings that we're taking with us regardless of how macro turns out.
Okay. And are there specific areas? I know you've talked about a few, but are there specific use cases driving the strongest traction in sort of complex high-value projects today? Is it all AI implementation, or are there other areas?
I mean, look, largely if you think of Fiverr as a platform, you can find experts in every aspect of a business, from the very initial stages of a business. That could be a new business or an existing business, which is ideation, consulting, whatever, to the second phase, which is building, to the third phase, which is marketing, to the fourth phase, which is growing. And so you see this across the board. And we've seen specific categories in which we've seen booming. We've seen that across not just AI-related, which is agent design or data or workflows. We've seen that in areas like dropshipping. We've seen that in areas like book publishing. So there's a mix of different verticals that are experiencing natural growth.
What we're doing with these is we're doubling down on every aspect of the business that is growing. We're just doubling down on it.
So sticking with that theme of sort of doubling down, one of the other things we've talked about on public earnings calls would just be the continued scaling of Fiverr Pro. Talk a little bit about what you've learned there and sort of how we should be thinking about that as a contributor for growth, given the scale and size of some of those contracts.
Yeah. So essentially, Fiverr Pro was a part of the strategy of going up market and understanding that when you start working with larger types of businesses, their needs are much more bespoke and nuanced. And sometimes they require either super high-skilled people, and in some cases, it needs agencies or the orchestration of multi-talent to achieve a certain project. And so this was a part of this understanding that we need this highly vetted, highly qualified types of customers that we can pair with customers that are maybe slightly less budget constrained but are very much quality-oriented.
This was really building the supply side of it alongside the fact that this coupled with the more advanced types of tools that we offer to our customers, like project management or the ability to work with a professional to actually translate what you're looking for into a well-outlined brief or PRD, was there. We realized that unlike the gig portion of our business, that required a higher-skilled professional.
Okay. Understood. One of the other interesting areas has been the growth in services on the platform. You've built some of that. You've done some things to bring things in organically into the company as well. How should we think about where services sit today? What some of the key learnings have been and where you think that might go as a percentage of the business over the medium to long term?
Yeah. Look, we've identified the fact that because of our relationship with our customers, there is an opportunity not just to provide a solution for specific services but actually create tools around them, and this goes both to the demand side and the supply side, and this was a way for us to also diversify our business, and so that could be on the supply side by creating these highly specialized services and tools for our sellers, things like Seller Plus, which the high-quality sellers love because it helps them generate more business, and I should say that across all of the services that we offer to our community, the idea is it's value creation. If it doesn't create value, you can maybe convert someone, but they're not going to be retained.
It's really important that whatever service that our community doesn't matter if it's buyers or sellers, it needs to be ROI positive. It needs to generate more than you're actually spending on it. I've mentioned Seller Plus as an example for these specialized solutions that we have for the supply chain. We also identified the opportunity in areas where we see growth, like dropshipping as an example. Dropshipping spans across maybe 40 different categories. Because if you're in the dropshipping business, you need anything from specialized platform knowledge, whether that is Shopify or eBay or Walmart, whatever it is, to product research, to then product marketing, UGC, store management, personal assistance, whatever it is. We have about 40 different categories, and they're all growing very nicely. But at the same time, you say, "Okay, great.
So if we have that portion of the business, what tools are they using?" So for us, it was very obvious to say, "Okay, so if there's an opportunity to offer these specialized services, maybe there's an opportunity to actually combine them with SaaS solutions for dropshipping," which is why we've acquired AutoDS, which is Shopify's number one partner. And this is a really high-growing business. They provide the platform for dropshippers to manage their store, but it lacks the connection with services. We have the services but not the SaaS. So for us, it was an obvious way of actually combining the two businesses and actually creating something that grows even faster. We actually talked about this, and we began to integrate AutoDS, and we've introduced the Shopify store builder.
So now you have this combination of SaaS plus services, and we've seen that portion of our business growing faster than we anticipated, which is awesome.
Great. Okay. I know we only have a few minutes left. You referenced earlier the free cash flow you generate. You referenced earlier some of the buyback activity you've done in the last couple of years. Talk a little bit about the priorities for investing back in the business rather than other uses of capital, like returning capital to shareholders and sort of striking a balance between growth and investments and capital returns.
Yeah. So for us, and I've said that earlier, growth is number one. There's a massive market opportunity, and we think that this is even for returning value to shareholders, this is the best possible investment. So that's definitely number one. We do think about, I mean, and you said it, we want to constantly have authorization to continue buyback when it makes sense and do M&As. So sometimes you have great ways of actually innovating and creating additional business from within, and sometimes it's inorganic, much like the acquisitions that we've done before, which makes sense. And I think that this is kind of the priority. So it's growth. It's creating value to shareholders, and it's M&As.
Okay. All right. I think we're going to leave it there with a minute or two to go, but please join me in thanking Fiverr for being part of the conversation.