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Shares of Fiverr International (NYSE: FVRR) rallied following a better-than-expected second-quarter earnings update. Even as the stock is still down more than 90% from its pandemic-era all-time high, the latest trends suggest signs of an emerging turnaround.

The freelancer marketplace is capturing renewed growth momentum and improving profitability. The potential that the company has finally cracked the formula for sustainable success is great news for investors.

Here are three reasons Fiverr International stock could make a good addition to your portfolio.

1. Strong fundamentals with a solid start to 2024

Fiverr reported second-quarter earnings per share (EPS) of $0.58, up from $0.47 in the prior-year quarter. Revenue of $94.7 million was above the upper range of prior guidance, also representing a 6.3% year-over-year increase.

A major theme for the company has been the focus on up-market and premium services. Even as the 3.9 million active buyers on the platform are down by 8% from last year, the average spend per buyer climbed by 10% to a record $290. This is important as it indicates the cohort of loyal users is increasing engagement within the marketplace, reaffirming its value proposition.

Fiver's seller monetization programs allow for more flexible service options such as recurring subscriptions, which has translated into higher activity. Fiverr's take rate of 33% this quarter, measuring the proportion of total transaction value the company recognizes as revenue, improved from 30.7% in Q2 2023.

Fiver has translated that dynamic into significant free cash flow , reaching $20.7 million in Q2 and $92 million over the past year. The company is using that trend toward a new $100 million share repurchasing authorization that projects confidence in the outlook.

Overall, Fiverr appears to be successfully managing a still volatile environment for small businesses and the gig economy.

2. An earnings and free-cash-flow runway

The Q2 results were good enough for Fiverr to revise its full-year outlook higher. The company now expects 2024 revenue growth between 6% and 7%, up from a prior 5% to 7% range estimate. Similarly, the company tightened the 2024 adjusted EBITDA forecast to $69 million to $73 million, compared to the previous $70 million midpoint guidance.

The expectation is that as the platform scales, steady growth alongside efforts to control costs and generate efficiencies will add to the earnings and free cash flow.

In terms of accelerating growth, Fiverr is seeing traction with its NEO artificial intelligence tool as an integrated customer assistant within the marketplace to facilitate the transaction process. The company is also betting on Fiverr Pro to professionalize more offerings with increasingly complex service categories.

The ability to continue executing a strategy centered on core strengths should be a tailwind for the stock.

3. The valuation may be too cheap to ignore

The biggest reason to buy shares of Fiverr may be its dirt cheap valuation. The stock is trading at just 14 times management's 2024 adjusted EBITDA guidance as an enterprise value-to-forward EBITDA multiple and 11 times its free cash flow over the trailing 12 months.

In my view, the stock is simply undervalued, with the market not yet giving Fiverr enough credit for its steady growth and recurring profitability. A few more quarters with strong results will help confirm the positive financial trajectory and support an expansion in the valuation multiples momentum going forward.

A bullish call on Fiverr International

I believe shares of Fiverr deserve a buy rating. The attraction here is the compelling value in a unique tech leader, well-positioned to grow and consolidate market share.

The main risk to consider would be the possibility that economic conditions deteriorate, forcing a reset of earnings expectations. Ultimately, the stock can work for investors with a long-term time horizon within a diversified portfolio.

Before you buy stock in Fiverr International, consider this: