This Stock Is Down -45% Despite Strong Q2 Earnings Report – Time To Buy?

Freelancing is becoming increasingly popular as more and more people realize they can use their skills to earn extra money on the side or even replace their 9-5 job.

Internet based freelancing-marketplaces such as Fiverr International (NYSE: FVRR) were early to seize the opportunity and build an entire business model around this.

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Based on recent research and statistics, 38% of 18–34-year-olds are already part of the gig economy with 44% saying that the gig economy is their primary source of income. In total, already 24% of Americans 18+ earn some form of income by working in the gig economy (Source: Edison Research).

These numbers are likely to increase further at a fast pace and Fiverr themselves said that the domestic market opportunity alone within the US is worth a staggering $100 billion in annual sales.

Now, if the company is so great, why has the stock sold off 45% from its all-time high, especially after a smashing Q2 earnings report?

We do think there are 3 main reasons for this:

  • Buying pressure was likely exhausted after the stock had put in a massive 1500+% growth in less than 12 months following the outbreak of the pandemic in March 2020. There were simply not enough buyers to sustain such a move and exhaustive moves are often followed by sharp declines, something we teach our students Trading Masterclass how to spot, prepare and benefit from scenarios like this.
  • Fiverr initially got a strong boost from the pandemic with people being locked up at home. Many simply chose to put their time in lockdown to good use to earn money via freelancing instead of watching movies or playing games. With vaccines being rolled out globally and lockdowns coming to an end, it’s only natural for people to want to spend more time outside and with friends/family instead of being confined in their home. This has temporarily affected Fiverr negatively.
  • Whilst the Q2 earnings report was great, the company lowered guidance for the rest of the year. Fiverr is affected by seasonality as is, but the pandemic further amplified this effect.

Overall, based on the company’s overall success so far, aggressive expansion model and massive growth market and growth potential, we think this sell-off in the stock offers a great opportunity to acquire Fiverr shares at a solid discount.

Technical Analysis

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Despite strong Q2 earnings, the stock price of Fiverr has fallen 45% since it’s all-time-high in February this year. Current price action suggests there might potentially more downside to come short-term.

Long-term however, price is approaching a strong area of support which we think is a good location to start acquiring a long-term position in the company.

Option Positioning

Currently there are 41K calls and 30.1K puts. While there are not a lot of option trades and volume on the stock, what is of note is 45% of those options are rolling off this Friday, which leads us to believe a pullback is in order, and then the option positioning favors gains after.

FULL DISCLOSURE: Chris Capre currently has no stock or option position in FVRR. If you’d like to learn more about Chris’s trades and positions, you can get access via the Trading Masterclass where he shares his live trades, further investment ideas and daily market analysis.