Fiverr - Q2 2024

Transcript

Operator (participant)

Good morning, and thank you for standing by. Welcome to the Fiverr Q2 2024 earnings conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be the question-and-answer session. To ask a question during the session, you need to press star one one on your telephone keypad. You will then hear an automated message advising your hand is raised. To withdraw a question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to our first speaker today, Jinjin Qian. Please go ahead.

Jinjin Qian (Head of Investor Relations)

Thank you, Operator, and good morning, everyone. Thank you for joining us on Fiverr's earnings conference call for the Q2 that ended 30 June 2024. 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 statement can be found under the risk factor section in Fiverr's most recent Form 20-F and other filings with the SEC.

During this call, we'll be referring to some key performance metrics and non-GAAP financial measures, including adjusted EBITDA, adjusted EBITDA margin, and free cash flow. Further explanation and a reconciliation of each of the non-GAAP financial measures to the most directly comparable GAAP measure is provided in the earnings release we 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.

Micha Kaufman (Founder and CEO)

Thank you, Jinjin. Good morning, everyone, and thank you for joining us.

Our Q2 results demonstrate continued strong execution and the resilience of our business. Both revenue and adjusted EBITDA came in above the midpoint of our guidance as we continue to expand customer wallet share and improve monetization.

We are committed to driving profitable growth and delivering shareholder value in a fluid environment. I'm pleased to report that we have completed the $100 million buyback program announced in April. We remain highly confident about the long-term opportunity of our business and believe our strong cash flow and strong balance sheet allow us to invest in our business while returning capital to our shareholders. I'm very excited to be here today. It has been an incredibly busy and fulfilling few months at Fiverr, culminating in the announcement of our summer product release last week.

I want to thank our entire team for their hard work. The level of energy and dedication, especially in the last few weeks, reminded me of Fiverr's early days when we were just a small startup. Fittingly, we are starting up a number of new ventures as we look to take our business to the next level.

First is the expansion of Fiverr to enable freelance hiring capabilities. With the introduction of a professions-based catalog and the ability to initiate time-based transactions and contracts, we are enabling businesses to hire long-term freelancers who act as part of the team with ongoing tasks and goals. This is not an area we competed historically, but as we increasingly go upmarket and lean into complex service categories, it becomes essential to round up our offering.

We believe it will significantly expand our direct addressable market, allowing us to open up top-of-funnel specifically for traffic with long-term hiring intentions. It will allow us to capture more of our customers' overall freelance hiring budget. The expansion of Fiverr to a multi-solution platform that enables long-term hiring is also an important message to our community. In an environment where AI seems to have the potential of upending many professions, the line between human services and AI-generated services is blurring.

The professions-based catalog puts talent at the center of the marketplace experience. To our buyer community, it underscores our value proposition in connecting them with the best human talent around the world for authentic creative work. To our talent community, the mission of Fiverr since day one has always been to bring them opportunities and empower their success, and the commitment has not changed in the face of AI.

It is our passion and responsibility to help talent navigate the changing landscape, discover their skills, and translate them into a career. Earlier this month, we unveiled our first-ever breakthrough achievement recognition to celebrate freelancers who have achieved significant earning milestones on Fiverr. It is extremely rewarding and inspiring to see people making $1 million or even $5 million throughout our platform by just doing what they love. Whether you are a musician, or a scriptwriter, or a Shopify expert, and no matter where you come from, it is all possible on Fiverr.

The second theme of our summer product release is deepening the integration of Neo, Fiverr's AI tool, throughout the marketplace experience. As Gen-AI applications quickly shift consumers' internet behavior and expectations, we want to stay ahead of the curve to build a more personable experience on Fiverr.

At the same time, tests and data in the past six months have shown that not everyone prefers the outright chatbot experience when it comes to shopping. So our strategy for Neo is to incorporate it as an assistant throughout the funnel to help customers when friction arises. For search, Neo provides the guidance you need to navigate Fiverr's massive catalog of services and talent, and it is trained to understand customers' past transactions and preference to provide the most relevant recommendations.

When it comes to project briefing, having Neo is like having a strategist by your side. It transforms customers' ideas into a structured brief document that not only looks good but also delivers better business results. Neo can also help customers write more detailed reviews faster by generating content based on transactions and providing language assistance. We are in the early innings of unleashing the full potential of AI in our marketplace, and we believe it will be a multi-year tailwind for us to drive product innovation and growth.

Lastly, I want to say a few words on the acquisition of AutoDS. For us, the deal is strategic for a number of reasons. Fiverr was founded on the belief that everyone should have the opportunity to find financial independence. The creator economy is the epitome of this community, and competitively, we have a strong foothold in this segment.

We are passionate about continuing to support and empower this community. Like the Fiverr millionaires that I've mentioned earlier, there is something emotionally gratifying in witnessing and contributing to their amazing stories.

Secondly, while dropshipping is not exactly a new business, with the rise of fast fashion e-commerce sites like Temu and SHEIN and the continued strength of social media, we are seeing dropshipping-related categories experiencing tremendous growth on Fiverr. That includes Shopify development, e-commerce management, video ads, and UGC videos, to name a few. We believe the deal can create many synergetic opportunities for us to lean into growth.

Lastly, in alignment with our expansion to a platform play, we are taking the opportunity to fold in a new subscription-based revenue stream with strong synergy and growth potential. This will add to our value-added product portfolio, which includes Promoted Gigs and Seller Plus, and further strengthen our business's overall financial profile. To wrap up, we are expanding our business from a simple marketplace to a complete freelance talent platform for businesses of all sizes.

We are also diversifying our business model to capture customers' freelance spending and provide them with multiple value-added products and software solutions. We continue to operate at the highest level of discipline to drive consistent margin expansion and free cash flow generation. We are committed to profitable growth, robust free cash flow, and a disciplined capital allocation strategy that aims to deliver long-term shareholder value. With that, I'll turn the call over to Ofer, who will share some financial highlights.

Ofer Katz (President and CFO)

Thank you, Micha, and good morning, everyone. We delivered another strong quarter of results. Revenue for Q2 was $94.7 million, up 6% year-over-year, above the midpoint of our guidance. Adjusted EBITDA was $17.8 million, near the top end of our guidance and representing an adjusted EBITDA margin of 18.9%. Importantly, adjusted EBITDA margin increased by 180 basis points year-over-year, which underscores our commitment to driving steady, measurable operating leverage. We remain confident in our ability to achieve a 25% long-term adjusted EBITDA margin in the next three years.

We also continue to generate impressive cash flow. Operating cash flow was $21 million, up 11.9% year-over-year. Free cash flow was $20.7 million, representing a 12.5% year-over-year increase and a free cash flow margin of 21.8%. This results in a strong balance sheet, which we intend to use to increase shareholders' value through a prudent capital allocation strategy.

As Micha mentioned, we have completed the $100 million share buyback, which was authorized in April, and we are committed to optimizing our capital allocation strategy to deliver shareholders' value. Over the next three years, we expect to continue growing free cash flow generation with a CAGR in the mid-teens. There are multiple ways we can get there, but as I often say, we always model based on what we know. Based on our line of sight to date, we expect to achieve this through steady revenue growth, continued margin expansion, strong free cash flow generation, accompanied by active share count management. Unpacking our Q2 results, we continue to see our strategy of going upmarket work really well, with Spend Per Buyer showing a robust growth of 10% year-over-year.

We also see AI continuing to have a net positive impact on our business. It is important to know that we are starting to see a stabilizing and improving trend in Simple Services. As we mentioned in prior quarters, we believe the low-end transactions within the Simple Services categories were getting impacted the most.

As the mix shift within those categories improves towards the higher end, we believe the overall durability of those categories shall improve over time as well. There are also certain metrics in Q2 that didn't perform as strongly as we had anticipated. Active Buyer was $3.9 million, down 8% year-over-year, and overall GMV decelerating Q2. Both were impacted by a slowdown in traffic started in June, as the trend we saw in the earlier part of the year proved to be more of a pull forward rather than a sustainable turn of trend. These trends serve as a reminder for us that we are still in the middle of a macro cycle where higher inflation and interest rates impact the immediate cash flow of small businesses, erode their confidence in spending as they try to preserve more cash and delay large projects for potential rainy days ahead.

As we enter into the H2 of this year, we are expanding our product portfolio both organically and inorganically to create additional growth catalysts, as Micha covered extensively in his remarks.

Our seller monetization program, such as Promoted Gigs and Seller Plus, continues to show strong growth momentum, and the addition of AutoDS will further strengthen our overall take rate. We believe these efforts will keep us on track to deliver the targets we set at the beginning of the year. For the full year 2024, we are raising the bottom end of our guidance and now expect revenue to be in the range of $383 million-$387 million, representing year-over-year growth of 6% to 7%. We are seeing the volatility in June continue into July, and we anticipate Q3 revenue growth to be relatively muted. We expect Q4 revenue growth to improve as the continued product development and the addition of the AutoDS create additional growth catalysts.

In terms of underlying drivers, we now expect active buyer to decline slightly, more than we previously anticipated, and spend-per-buyer to continue growing at a robust pace. We now expect the take rate to increase by approximately 250 basis points as we continue to expand our value-added product portfolio. For Adjusted EBITDA, we expect full year 2024 to be in the range of $69-$73 million, representing an Adjusted EBITDA margin of 18.4% at the midpoint. We are confident that we can continue making steady and consistent progress on our Adjusted EBITDA margin to reach 25% by the end of 2027. With that, we'll now turn the call over to the operator for questions.

Operator (participant)

Thank you. Dear participants, as a reminder, if you wish to ask a question, please press star one one on your telephone keypad and wait for a name to be announced. To withdraw a question, please press star one one again. Please stand by, we'll compile the Q&A rules, so this will take a few moments. Now we're going to take the first question, and it comes from the line of Ron Josey from Citi. Your line is open. Please ask your question.

Ronald Josey (Managing Director and U.S. Internet Analyst)

Great. Thanks for taking the question, guys. So I wanted to ask about the product and then maybe a little bit more about just broader visibility. So on the product, look, I think it's really fascinating the expansion to a broader marketplace with the hiring platform. And so specifically, Micha, I wanted to hear a little bit more about the benefits of Neo as it relates to conversion rates and then insights on overall launch plans to have it fully integrated. And as we also think about the product, I'd love to hear more from a professions-based catalog just how you see demand and supply evolving on the marketplace over time as you bring everything together and become more of that hiring and marketplace platform.

And then just a little more details on the macro volatility, the pull forward early in the year, and then June-July comments. Was this just a change that happened in June-July, and has interest rates maybe come down? Any insights on maybe when we might see some stability here? Thank you.

Micha Kaufman (Founder and CEO)

Good morning, Ron. Thanks for the questions. I'll try to take them by order. So the first one was, I think, about the product release and specifically about Neo. So essentially, I think, as I've said in my opening comments, the possibility of actually using AI to make our product better is pretty much endless. And we're in the very early stages of doing that. And the experimentation that we've done with Neo as a personal assistant within the inbox, which was the first version of doing it, taught us a lot about how our customers are actually using it and how it improves the conversion in briefing. It allows buyers to complete, and it leads to higher conversion as a result. And so the idea here is that we're graduating Neo to get out of the inbox and essentially being integrated in all of our experience.

Right now, it's being rolled out gradually because we want to test its accuracy and performance. But essentially, you can find it as a personal assistant throughout the experience. So it allows customers to search better, to be more accurate about their needs, and as a result, get much higher quality match. But it also has awareness about where it exists. So if you're looking at a specific page, you can ask it questions about that page. So it helps people make decisions and get to what they're looking for better. The same goes with the integration in briefing. If customers have a brief pre-made, then they can just upload it, and we help make that brief even better. But if they don't, then the technology that is behind Neo actually helps them write a better, more accurate brief.

And again, as a result of that, get matched with a much more specific cohort of potential talent that can do the job. So essentially, it's a big part of our summer release. We're very happy on how it's progressing. As a new technology, as we scale it up, it takes a little bit of time. But we're in the process of gradually opening this up for more customers. Second question was about the profession-based catalog. So essentially, one of the things that happens in this idea of graduating from a marketplace to a platform is historically, Fiverr was just a marketplace for pre-defined services. But those services are being offered by professionals. And we've noticed that a lot of our customers, when they search for something, they do not necessarily search for a specific service, but they do search for a specific talent.

As a result of that, we created a new catalog that is very much focused on talent, skills, professions rather than specific services. Again, it allows customers to be more naturally matched with that talent. If you connect this with new contracting forms, like the possibility of paying based on hourly rates, then that completes or upgrades, enhances the platform and the possibilities of customers to actually engage with talent. I think your last question was about what we're seeing with macro. I think, as Ofer mentioned, we've seen some volatility during June. First, macro environment continues to be challenging in terms of SMBs and the sentiment of hiring. I think that there's a few stats that are worth calling out here. We have the small business index that continues to linger at the lowest levels in a decade.

You have the job openings that are down 7% year-over-year. In the tech sector, specifically, they're down 17% year-over-year. You have professional staffing that is tracked through staffing hours that is also down 7% year-over-year, which is slightly worse than it was a year ago. All in all, when you think about the hiring space, the hiring space is not seeing its brightest moment right now. In addition to that, what we've seen during June was some slowness in top-of-funnel traffic across the platform. I think that from a metrics perspective, it's more visible in terms of impact on active buyers and less on spend-per-buyer. Spend-per-buyer has been growing pretty aggressively, double-digit. The efforts that we're doing in going upmarket continue to pay off.

And from a category perspective, we're seeing some more volatility among larger projects, which is something new. And I think that this tells more than anything else that what we're seeing is something that we can't call a steady trend. Right now, the market is a little bit volatile. Some of it is seasonality. Some of it is AI in some categories. Some of it is just macro. But in reality, we see among larger projects, we've seen some more volatility. And at the same time, we're seeing some more stability on simple projects, which is slightly different than what we've seen in the first few months. So we're just calling out those facts. It's hard to call them a trend at this point. Thank you, Micha. Very helpful.

Ronald Josey (Managing Director and U.S. Internet Analyst)

Thank you.

Operator (participant)

Thank you. Now we're going to take our next question. The question comes from Bernie McTernan from Needham & Company. Your line is open. Please ask your question.

Bernie McTernan (Senior Analyst)

Great. Thanks for taking the questions. Maybe just to start, I'd love to dive into AutoDS a little bit more and just learn maybe what capabilities that the acquisitions bring that you didn't have before for its customers and probably most importantly, how it's supposed to impact the financials in the H2 of the year. Then I think based on the commentary of the take rate being up 250 basis points this year, it implies GMV down year-over-year in the H2 of the year. Just wanted to make sure I was triangulating that right.

And then I know it's early, but how to think about if we should be expecting, in your view, a reacceleration in 2025 or not, or just given the comments of the 2027 targets involving strong revenue growth, just maybe the puts and takes and getting there in terms of your thoughts in terms of the ability to continue to expand the take rate, how M&A could play in that, but also importantly, GMV growth?

Micha Kaufman (Founder and CEO)

Good morning, Bernie. Thanks for the questions. So AutoDS, essentially, I think as we said in the opening comments, dropshipping is a category that has been on Fiverr for many, many years. And we've been witnessing a lot of growth in this category. I've been saying in previous quarters that Fiverr has identified a number of faster-growing categories in which we intend to double down. And in some cases, it's double down organically, and in some cases, there's an opportunity for inorganic growth as well. So we had a very sizable community of people that are either dropshipping or offer services related to dropshippers. And what we're doing with the addition of AutoDS is expanding this space also into the software solution. So that allows us to really double down and accelerate. AutoDS is practically in the software space related to dropshipping, is the number one player in the world.

It's a fast-growing company. We love the team. It's extremely synergic with our business for a number of reasons. It allows us to double down on dropshipping, e-commerce, social media, user-generated content, and video categories, which is, as I've said, some of the fastest-growing categories on Fiverr. It's a community that we know very well and feel very strongly about. And I think competitively, it allows us to extend our offering and grow this further and also add to the value chain by providing more products for them. It's a community that is in many ways rooted in Fiverr's origin. And we're very passionate to empower them. We talked about this idea of the Fiverr Millionaire Award. And this connects really to self-made people, people that have built their businesses and are able to grow it.

And lastly, I think it creates a diversified revenue stream, adding its subscription base, which is another step towards making our business not just a marketplace, but also a platform that provides freelancers with software solutions on top of access to opportunities.

Ofer Katz (President and CFO)

I think the second part of the question relates to take rates and impact on financials. I would start by saying that we are happy and proud to end Q2, both consensus, both for revenue and EBITDA. And with the confidence to reiterate the guidance for the year, both on revenue with a slight increase in the bottom range and reiterating the EBITDA. And I think this takes into consideration the fact, and Micha, I refer to what Micha said earlier about June and July weakness resulting in weak joining of new buyers, of active buyers, compensated both by spend-per-buyer, growing on double-digit and take rate extension.

think that looking at Spend Per Buyer, Spend Per Buyer has robust growth because we're investing in going upmarket for some time. It's a maturity of investment with the add-on of the summary list, hourly rate features that we didn't have before, a loyalty program. Those types of features allow us to double down on the community with a bigger wallet and increase the engagement relationship experience to a new level. The second part that compensates on the Active Buyer is the Take Rate. Take Rate has expanded over the last few years with new features that we have added alongside the marketplace. We're going all the way back with the Promoted Gigs and then Seller Plus. I think the AutoDS falls into the same bucket, allowing our community to further utilize our offering to make money.

By having said that, we anticipate that the integration of the community will take some time, and then the benefit of the AutoDS will fall into the take rate with much of the opportunity ahead of us. You asked about 2025 and 2027. I think that we put some timeline to the 25% EBITDA in 2027. This is based on the assumption that we continue to grow and continue to improve EBITDA. I think that's what we've been doing ever since. There is no step function or hockey stick. It's just about continuing to do what we are doing and make sure that the fundamentals continue to work.

Ronald Josey (Managing Director and U.S. Internet Analyst)

Great. Thank you both.

Operator (participant)

Thank you. Now we're going to take our next question. The question comes from Jason Helfstein from Oppenheimer & Co. Your line is open. Please ask your question.

Steve Roman (Company Representative)

Hi, this is Steve Roman on for Jason. So just one question on the consolidated take rate. So where do you see the ceiling on take rate over time, kind of long-term, as you kind of look towards that 2027 target or the 2027 targets you put out today? Thanks.

Micha Kaufman (Founder and CEO)

Yeah. Hey, Jason. Thanks for the question. So essentially, if you think about the two parts of take rate, there's the transactional portion of it. And then there's the added value services and products that we offer to our community. The transactional portion of it hasn't really changed. And the growth that we're seeing is coming from the value-added products. So we haven't cut this. For as long as we can continue generating products that our community loves using and thinks that they're worth spending, we'll continue doing that. And we have quite a few in the pipeline. And therefore, we haven't cut it. And the transactional portion has pretty much remained the same. So that's how we're thinking about this.

Steve Roman (Company Representative)

Great. Thank you.

Operator (participant)

Thank you. Now we're going to take our next question. The next question comes from the line of Doug Anmuth from JPMorgan. Your line is open. Please ask your question.

Doug Anmuth (Head of U.S. Internet Equity Research)

Great. Thanks so much for taking the questions. I just wanted to talk more about the summer product release first, the hiring of long-term freelancers. Micha, maybe you can just talk about what you've seen here in terms of demand from buyers just as you've built this product and kind of the drivers behind it, and then how we should think about monetization. Is it still project-based, or is there a different revenue structure there? And then Ofer just on the full year outlook, maybe you can just talk a little bit more about what drives the confidence in the 4Q revenue acceleration. Thanks.

Micha Kaufman (Founder and CEO)

Morning, Doug. Thanks for the question. So the summer product release, as we go upmarket and as we become more for our customers, they can envision doing more with us.

In some cases, when you think about the predefined catalog of services, in some cases, it's very hard for customers to define their need in the format of a well-defined service with a beginning and an end. In some cases, when they need to hire talent, all they know is that they need a highly qualified graphic designer for three months because they have a variety of projects.

Some of them, they're not even aware of what their specifics are, but they know that they have a lot of pressure right now, and they need talent for the next couple of months. When that is the case, the best way of doing that is not necessarily going through the gig or services catalog, but rather to find the right talent and engage in an ongoing arrangement, which is why we created this mechanism.

Now, it's not competing with the services because when you know exactly what you need, and that is well-defined, and it has a beginning and an end, it's very easy for our community. They're very accustomed to providing the transparency and clarity of having a predefined scope of work where you know how long does it take and exactly how much it's going to cost. But these are the more viable tasks, the more viable ongoing projects. And so both the community from the supply side and the demand side have been asking for this.

And we're happy to get to the maturity of extending our marketplace into this platform idea that really allows multiple ways of engaging with talent and multiple ways of contracting and paying to talent. So we just launched it. The community is highly, highly excited about this. Obviously, we're seeing a lot of transactions coming into the system already. But since it's been about a week, there's no numbers that we can talk about at this point.

Ofer Katz (President and CFO)

Yeah. The second part, Doug, of the question was about the confidence in Q4 revenue. I think the confidence is based on what we are seeing, products that we have released, and numbers of potential spend-per-buyer growth and active buyer. I think that the current guidance implies more muted growth for GMV this year. From a prudent standpoint, we haven't taken into account any impact from product release. We do think that professional catalog and time-based contracts open up a whole new world with superfunnel traffic. Historically, we haven't competed in this area at all. So there's definitely a potential to drive additional GMV uplift in the H2.

So all in all, when we build a model based on what we see, we think that the add-on of the AutoDS later this year to our audience will have a positive impact on top of everything that we are doing internally. The sum all is a nice exit rate for this year.

Doug Anmuth (Head of U.S. Internet Equity Research)

Got it. Thank you both.

Operator (participant)

Thank you. Now we're going to take our next question. And it comes from the line of Andrew Boone from JMP Securities. Your line is open. Please ask your question.

Andrew Boone (Managing Director)

Good morning. Thanks so much for taking my questions. Micha, you've been fairly clear that AI has been a net positive. But can you talk about what you're seeing on the simple tasks and whether there's a path to underlying stabilization for those categories? And then secondly, as you transition from a marketplace into more of a platform with software solutions, how should we expect that to manifest going forward? It sounds like AutoDS is going to be operating independently. How do you think about the synergies? And then how do you build out more software solutions? And what's the obvious adjacencies that you're seeing there? Thanks so much.

Micha Kaufman (Founder and CEO)

Morning, Andrew. Thanks for the question. So starting with AI. So essentially, AI continues to be net positive for us. We're seeing stabilizing and improving trends on simple services. We mentioned in the past that AI is impacting low-ticket size jobs mostly. So we continue to see improving trends on simple overall mix of projects. So the overall mix of projects shifts towards higher-end skills. Now, several quarters in, we are actually seeing that in our data. So for example, writing and translation as a vertical is the vertical with the biggest exposure to AI impact. In Q2, we're actually seeing traffic in that vertical improved 10 percentage points in terms of year-over-year growth rate compared to Q1. And on complex services, they're still growing much faster than simple and neutral categories.

But the growth rate has moderated recently due to the volatility that we've been speaking about in June and July. That said, with us now opening professions catalog and hourly contracts, this will open up new funnels and create growth opportunities, especially for Complex Services categories. And remember that we have over 700 categories. So our exposure to specific categories is relatively low. And seasonal trends in categories spend are a regular thing in our line of business.

When we think about the overall mix, Complex Services is in the mid-30s of GMV, and Simple is about 20%. I would be careful about calling anything we've spoken about on June and in July a trend because it's very hard to see stable things. Things seem to change over the year. And as I've said, there's many reasons why that is. I would wait before we can actually call it a trend.

The second question was transition to platform. Okay. So essentially, when you think about the progression, the way we have developed over the past couple of years, we started from being a gig marketplace where there's very well-defined services with timing and price associated with them, and people can just come in and order. Over the years, we've been offering a long list of or a multi-solution building a multi-solution platform where our customers can actually engage in a multitude of ways with the talent on the platform depending on their needs. And what we're trying to do is we're trying to fit the solution with the right need.

What we've been doing with Fiverr Pro and Fiverr Enterprise, what we've been doing with project management, success management, the addition of agencies into the platform, Fiverr Pro, now the professions, and the hourly-based contracts, all of that completes a platform with multi-solutions for our customers' needs. On top of that, we have software solutions for specific needs. That could be either our sellers or our buyers, depending on the solution. AutoDS is a part of this. As I was saying at the beginning, dropshipping is a very lively, well-growing category for us.

By adding not just the community of AutoDS, but their software solution, because this is what they are, they're a platform that solves all the needs of dropshippers, we're able to enjoy those synergies, offering software to our dropshippers and our freelancers, and offer freelancing solutions and creative solutions for dropshippers that have the software but need help in managing their stores and growing their businesses. And this together makes it highly synergic.

Andrew Boone (Managing Director)

Thank you.

Operator (participant)

Thank you. Now we're going to take our next question. The question comes from the line of Matt Farrell from Piper Sandler. Your line is open. Please ask your question.

Matthew Farrell (Senior Research Analyst)

Thanks, guys. Impressive free cash flow generation in the quarter, and congrats on completing the buyback. For the $300 million of free cash flow over the next three quarters, should we be thinking about all of that being deployed in some way, just given where your balance sheet is today? And is the preference for continued buybacks or more M&A?

Ofer Katz (President and CFO)

Matt, should I assume you meant three years, $300 million or?

Matthew Farrell (Senior Research Analyst)

Yes, the $300 million over the next three years, yes.

Ofer Katz (President and CFO)

Oh, good. So I thought maybe you know something I don't know. But I think we laid out the capital allocation priorities in the shareholders' letter. Pretty extensive. I will name it now, but again, it's pretty extensive details in the shareholder letter. So the way we see the capital allocation goes from investing product to drive growth, that's something that we've been doing for a while and will continue to do because we think the time is ahead of us. There's a lot of opportunity to capture. The second goes to optimize balance sheet and cash flow generation. I think a quick look into our balance sheet today shows we have a little bit over $700 million of cash and cash equivalent. And this is after we have completed the $110 million buyback.

So this $700 million allows us a lot of flexibility and also making sure we have enough liquidity to pay off if needed the convert end of next year. And then if there is an opportunity for the value of the shareholders to do some more share buyback, if price is attractive, we may consider that. And lastly, it's M&A. We've been opportunistic in the past, and we plan to continue and seek for alternatives for us to grow inorganic by M&A. You need to take into consideration that on top of the $700 million, we are generating free cash flow every year, approximately $80 million. So that as we look forward, we're pretty positive and confident from cash flow standpoint. And I think we intend to strategize our cash usage with the goal of driving steady and consistent free cash flow per share in the next three years.

As we mentioned in the prepared remarks, with the current line of sight, we believe we can drive CAGR 14% in free cash flow for the next three years and a similar trajectory for free cash flow per share.

Matthew Farrell (Senior Research Analyst)

Thanks. And maybe just one more. You mentioned not competing in the new long-term freelancer category until the recent product announcement. First, is there a way to size how big this opportunity is relative to the part of the market that you've been going after historically? And second, do you have to change your go-to-market strategy at all to compete in this new area with what I would assume to be a different set of competition to some degree? Thanks.

Micha Kaufman (Founder and CEO)

Yeah. So I think when we look at this, as we go up market, this opens up the ability to have a significantly larger ticket size project that are by definition more longer term or resemble more long-term freelancer hiring. And as a result of that, that has a number of implications. One, it allows to increase the top of funnel traffic because it allows us to get into more relevant keywords. As we invest in the profession catalog, it allows us to exist also on keywords that have to do with specific skills and not only on services. And lastly, also on conversion, it provides a way for buyers to search talent and initiate time-based contracts without having full scope and as a result, get into a more ongoing engagement. These are the types of engagements that Fiverr wasn't a part of.

When you think about this competitively and what does it do to the market, we still think that the vast majority of opportunity is offline. It doesn't reside in specific marketplaces or platforms, but it is actually pretty scarce, widely spread either in directories or in offline ways of engagement. We think that this is where the opportunity is in bringing that offline activity to the online. This is why it is important for us to invest, again, to create this opportunity for top of funnel relevant keywords to create more opportunity for new business traffic coming into Fiverr.

Operator (participant)

Thank you. Now we're going to take our next question. The question comes from the line of Marvin Fong from BTIG. Your line is open. Please ask your question.

Marvin Fong (Director of Consumer & Technology Services)

Hi, good morning. Thanks for taking my questions. Just a couple for me. Just so curious on the volatility you saw in June and continuing into July. I know you said it was kind of across the top of funnel, but could you kind of speak to the larger businesses on your platform? I think in the past, you've referenced the TikToks and Deltas of the world. I mean, the larger organizations, are you also seeing this level of volatility, or is it isolated to SMB? And then secondly, I know you referenced in your shareholder letter that Promoted Gigs and Seller Plus continue to do well. Just wondering if you could just drill a little deeper on that.

I think in the past, you've given us some growth rates, but anything more you could share just on your view of that in the context of the choppiness we're seeing, freelancers leaning into these types of services to grow their businesses even more, that'd be helpful. Thanks so much.

Micha Kaufman (Founder and CEO)

Thanks, Marvin. Awesome question. So when we look at our larger customers, that segment is growing faster than the rest. So yes, when we think about macro, macro does influence smaller businesses more. It should be said, though, and we called out that, for example, one of the things that were surprising that volatility is that categories like programming and technology, which are always growing, were a little bit more volatile during that period of time. And again, I think I called out a number of statistics on professional hiring that I think are troubling and are saying that there is an impact of macro. That said, it is mostly top of funnel, meaning what you see is reduced levels of top of funnel traffic. Now, this doesn't necessarily touch our existing customers.

Actually, if you think about it and you look at cohort behavior, actually, we're seeing cohorts behave better than before. I called that in previous earnings, and that hasn't changed, meaning that newer cohorts are spending more on their first purchase, first month, Q1, first year. We're seeing those trends. It's less of a volatility of existing customers, and those larger customers that work with us, in most cases, only extend the scope of work that they do. Yes, it is impacting SMB more than that. I think the second part of your question was about Promoted Gigs and Seller Plus.

Marvin Fong (Director of Consumer & Technology Services)

Yeah, just like your value-added services and just stuff.

Micha Kaufman (Founder and CEO)

Yeah. Yeah. They're doing well. And I think I said in the previous earnings, when we gave a little bit more color in the form of actual number of growth, I said that there's a very nice road ahead for continued growth in both of these programs. And that continues to be the case, right? Sellers are very eager to get in. And obviously, in some cases, these are programs that are not open to all of them. The reason why they love using these products is it does create more income. It does create more value, more transparency, more analytics into their business. So we continue to create more ways for them to enjoy it in Promoted Gigs, increasing real estate in Seller Plus.

In part of the summer release, we talk about starting to build a Kickstarter program that would provide more value to actually newer sellers, meaning it will help them start selling much faster and help them grow their business. So there's plenty of road ahead, and we're not close to consuming the maximum potential of these programs.

Matthew Farrell (Senior Research Analyst)

Thanks a lot, Micha and Ofer. Appreciate it.

Micha Kaufman (Founder and CEO)

Thank you.

Operator (participant)

Thank you. The last question for today comes from the line of Rohit Kulkarni, Roth Capital Partners. Your line is open. Please ask your question.

Rohit Kulkarni (Managing Director and Senior Research Analyst)

Hey, thanks for taking my question. A couple of them, I guess looking ahead, it feels like GAAP profitability is not too far in the future for you guys. Maybe talk about once you turn GAAP profitable, how does that change your philosophy of running the business? I see you already have put out bullish kind of free cash flow generation potential, but just it feels that the model brings us to GAAP profitability by end of this year and every quarter going forward. So would love to get your take on that. And then in terms of this June-July trend, I know a lot has been asked, and you have shared quite a few things. Perhaps, again, asking you guys a hard question, what gives you confidence that this volatility does not linger into August and September? Any leading indicators that you would point us towards?

Ofer Katz (President and CFO)

I'll take the first thought on the GAAP. So as we usually speak and guide on long-term EBITDA and free cash flow, less than GAAP, but we have turned into GAAP profitability already. So that's good news. As we look into the future, we anticipate that the gap between the EBITDA and GAAP is going to decrease because of the share-based compensation that we are carrying from 2021. So that within 12 months ahead of us, what we anticipate is that the share-based compensation is going to be reduced from 18% of revenue as of now to 13%, which is pretty much in the range of the industry. And GAAP EBITDA will grow side by side with EBITDA. I think we set the EBITDA target, the long-term target to 25%. We now gave it a timeline of 2027, free cash flow, follow EBITDA.

I think that now that we are GAAP positive, I think we'll see improvement in GAAP income profitability over the next three quarters.

Micha Kaufman (Founder and CEO)

The next question about June and July trends. No, it should be said, as I've said, that it's hard to call them a trend. There is some volatility, and that volatility is something that the guidance takes into account. It does take into account that it's continuing into July and potential impact on the H2 of the year. Hence the updated color around active buyer. At the same time, spend per buyer per category going up, which we think is going to cover it. And I mean, volatility might be influenced also, as you think about how the year will continue to progress, on decisions about the interest rate and the outcome of the election in the U.S. So obviously, we're not prophets, and it's very hard to know.

Since we take into the guidance the possibility of this volatility continuing, but the confidence that we have on the spend per buyer and take rate, we believe that we're going to cover it.

Operator (participant)

Thank you, Rohit. Now, I would like to hand the conference over to your speaker, Micha Kaufman, for any closing remarks.

Micha Kaufman (Founder and CEO)

Thank you, Nadia, for moderating the call today. Thank you, everyone, for joining us. We're looking forward to seeing you in person very soon during the quarter. Thanks so much, and have a great day.

Operator (participant)

This concludes today's conference call. Thank you for your participation. You may now all disconnect. Have a nice day.