Israeli Company Fiverr Lets Its Freelancers Share in the IPO Glory

The online marketplace invited 13 of them to help ring the opening bell last week. Its CEO says its community has a better deal than Uber drivers

Fiverr management on the first day of Fiverr trading on the New York Stock Exchange, June 13, 2019.
Fiverr

Ringing the opening bell for a company about to start its first day of trading is an old tradition on the New York Stock Exchange. The CEO on stage above the trading floor has the eyes of hundreds of traders for a few seconds and garners huge media attention.

In the case of Fiverr, the Israeli company whose online platform matches freelancers with employers, its founder and CEO, Micha Kaufman, did something unusual last Thursday when it began trading on the NYSE: Crowded on stage with him were 13 buyers and sellers of Fiverr’s services.

The 13, some of Fiverr’s most veteran users, were flown from around the world not only as a way of saying thanks for helping to make the company what it is, but to show the world the diversity of the Fiverr community. The entrance to the NYSE building on Wall Street was festooned with a banner designed by Fiverr community designers with the motto: “Doers take Wall Street.”

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Fiverr serves as a marketplace for freelancers who offer services such as copy editing, logo design, voice-overs, social media management and translations to mainly small and medium-sized businesses and individuals.

Founded in 2010 by Kaufman and Shai Wininger (who has since moved on to found the online insurer Lemonade), Tel Aviv-based Fiverr originally required freelancers to charge a fixed fee of $5 for their work. The company changed the policy four years later to allow freelancers to charge whatever they wish.

For Fiverr the celebratory debut kept on going. The shares had been priced in the IPO at $21 each. They opened their first day of trading at $26 and ended at $39.90. They dropped 21% on Friday to $31.49, but that still added up to a two-day gain for shareholders of 50%.

Barron’s magazine, the bible of stock market investors, said Fiverr’s IPO and that of two other tech companies last week brought back memories of the dot-com boom market.

“Over the past few days, there has been an out-of-left-field revival for the IPO market. Three very different kinds of tech companies came public this past week—and the market went gaga for all three. It felt giddy, like a 1999 flashback,” the magazine said.

The $21 IPO price for Fiverr was above the $18-20 range investors had expected, which on the one hand, gave a big public relations boost to the company but, on the other suggests the underwriters did a poor job of pricing the issue.

Fiverr sold 17% of its shares to the public in the IPO, which valued the company at $650 million. Its market cap as of Friday was $1.2 billion, which means that Fiverr could have raised nearly twice as much capital with the same dilution, money that could be have been used to finance future growth.

If Fiverr had been valued at $800 million for the IPO, which is what the company had been aiming for originally, that would have put an additional $35 million into the company’s coffers and given Wall Street investors a nice return on the first day of trading.

The one-day rally benefitted a few investors who bought into the IPO and saw their stock jump 90% in a few hours. Fiverr’s insider shareholders and the employees with stock options had to sit on the sidelines and watch, because they are barred from selling their stock for the next six months.

Sources involved with the IPO said the underpricing of Fiverr was due to a drop in the share price for Upwork, a company widely seen as a Fiverr rival. Upwork has 3.5-times the revenue and three times the cash flow of Fiverr, but a string of disappointing earnings reports has cut its share price by a third from its February peak and its $1.6 billion market cap is only a third more than Fiverr’s today.

Fiverr hoped investors would compare it with Etsy, an online marketplace where craftspeople and small businesses sell their wares. Etsy has a market cap of $8 billion four years after its IPO. It has doubled its sales since the 2015 and became profitable two years ago.

However, when Etsy went public, its IPO was regarded as a failure. The shares fell 50% on the first day of trading and over the next nine months lost 75%. They finally turned higher and today Etsy is considered a very successful consumer brand. Fiverr can only hope to match that performance one day.

At the time of its IPO, Etsy had 1.4 million active sellers and nearly 20 million buyers and has losses for $54 million for the year. By comparison, Fiverr had 255,000 active freelancers in the first quarters and 2.1 million buyers. Its revenues grew 45% in 2018 to $75.5 million, but its losses nearly doubled to $36 million.

Fiverr is part of the gig economy like Uber and Lyft, which has come under criticism for creating low-paid, unstable employment with few if any social benefits, even if they open up global markets to small businesses.

But Kaufman says Fiverr freelancers are different from Uber drivers because they are skilled professionals and can set their own prices.

“I think that if you have a market that pushes for bidding, then definitely, yes, there’s a downward pressure,” he told the high-tech industry website TechCrunch on Thursday. “In a market where freelancers get to define their own scope, timing and price, you see the opposite trend. What we’re seeing is freelancers all around the world making more and more money very year. It’s a counterintuitive, or countercyclical rather, race to the top.”

After the company came under fire for an ad campaign that touted its freelancers’ willingness to make sacrifices to perform their jobs, Fiverr began to offer instructional videos for freelancers under the name Fiverr Elevate on topics such as savings, managing cash, taxes and pensions to help them make the best of their business income. It also bought the U.S. startup And Co with a portfolio of online tools to help freelancers manage their businesses.