Hourglass Journal - Microcap Strategy, $FVRR, & Travel Announcement
“You can’t be normal and expect abnormal returns”
Weekly Watchlist Stock
Fiverr International - FVRR 0.00%↑
Fiverr recently came back onto my radar recently - this was a stock I’d checked out in early 2021 when it was over $300/share, and while I found the company itself pretty attractive at the time, I couldn’t stomach the valuation and decided to pass on the stock.
And I’m glad I did, because shares have collapsed more than 90% since the peak craze, and now sit at just $26/share. The company itself is the leading provider (by a long-shot) of a marketplace for freelancers and clients looking for freelance services.
The traditional model for finding freelancers was long, painful, and inconsistent in its results. With Fiverr, freelancers (“sellers”) have access to a wider range of potential customers and income, while companies requiring freelance services (“buyers”) have access to a huge catalogue of potential services that freelancers on the platform provide, with consistent pricing, transparency, and results.
Essentially, Fiverr is a PaaS - product as a service - with huge network effects. As more freelancers join the Fiverr platform, buyers get access to a wider range of skills and services in the catalogue. With more skills come more buyers, and with more buyers come more freelancers.
The platform becomes inherently more valuable with each customer added, and Fiverr has quick payback periods on customer acquisition costs that should help to provide operating leverage and margin expansion over the next several years.
To that degree, it’s still very much in an investment period to acquire those customers - the company has negative EBITDA, net, and operating margins, as well as negative returns on capital. But with margins and capital efficiency metrics all improving, it’s at least trending in the right direction. Revenue growth has slowed substantially, but that’s likely more a result of lower demand for freelance services in the current macroeconomic environment, especially from SMBs.
I think Fiverr is a really enticing opportunity with lots of growth opportunity ahead:
With valuation multiples now sitting at attractive levels (2x EV/S),
A significant lead over competitors that offers a competitive advantage through strong network effects
Significant potential for margin expansion as more buyers & sellers are added to the platform over the coming years.
A couple week ago now, Kevin atwrote an excellent piece analyzing the unique investing strategy of Paul Andreola. Andreola focuses on the very narrow investing landscape of the under-appreciated Canadian microcap space.
Kevin’s article goes over the edge that Andreola has by focusing on this market and its differences from the U.S. or international microcap spaces, the discovery cycle that lies at the foundation of how and when Andreola invests, and finally how he manages his portfolio and decides to sell.
The article is incredibly well-written and offers some amazing insight into a lesser known investor’s recipes for success. Check it out and give Kevin a follow below for weekly articles that are both thorough and engaging.
What’s New at Hourglass
Dentalcorp - A Company Worth Smiling About
Podcast - Episode XXIII
The most recent episode of the Hourglass Investing Podcast was on Dentalcorp, one of my higher conviction value/price correction plays that operates in the Canadian small-cap sector.
I wrote about this article in mid-November, but the episode is a chance to get into Dentalcorp’s acquisition flywheel, business model, and the reasons behind its valuation in around a 20-minute episode. I think it’s a decent overview of the business in a much shorter and more digestible format than the deep dive, but if you’re interested in knowing more about the company then you can find everything you need to know here.
Give it a listen and drop your thoughts on the episode or on Dentalcorp in the comments on your podcast platform of your choice!
My most recent deep dive came out just before Christmas and actually was a company I was thinking about quite a bit as I did my Christmas shopping: Global-e Online. Global-e provides the infrastructure for consumer brands to provide better online shopping experiences to its international customers while maintaining brand loyalty and improving traffic conversion rates.
Beyond the improved shopping experience for shoppers in more than 200 locations around the world, converting to Global-e’s platform makes a ton of strategic sense for direct-to-consumer brands, too. The partnership provides revenue and traffic conversion growth while reducing the fiscal and opportunity costs associated with building + maintaining online shopping infrastructure and logistics networks.
The deep dive dives into Global-e’s partnerships with Meta & Shopify, the business model and the advantages for both shoppers and merchants. I cap it off with a dive into the executive team, the balance sheet, and the industry growth and opportunity.
It’s a really unique company and opportunity in a massive market, and I think the business has a lot of potential even at current (somewhat ridiculous) valuations - at least over the long-term and with lots of patience towards volatility.
Check it out here.
A Quick Announcement
I’m hitting the road and doing some traveling over the next 4 months, in and around Central America mostly. I’ll still be doing writing, research, and podcasts for you all, but don’t be surprised if the odd thing comes out a day or so late (and just to prove my point, this weekly journal is a day late). Thanks all for your patience, I’ll be working hard to keep things up to the same (or better) standard of quality even if the timing is occasionally off.
Thanks for reading! Subscribe below to get weekly newsletters, podcast episodes, and the occasional deep dive sprinkled in, too!