Fiverr International Ltd. (FVRR) Earnings

Management highlights

### Overall Strategic Direction - Fiverr is undergoing a structural, multi-quarter transformation from a transaction-oriented freelance marketplace to a trusted end-to-end platform for high-value, long-duration projects. AI is automating low-value simple tasks, so the company is intentionally shifting upmarket to work where human expertise, project orchestration, and accountability are irreplaceable. - The shift is driven by growing untapped demand for projects that integrate AI into custom business workflows, where the execution gap continues to widen as foundational AI models grow more powerful. ### Strategic Pillar Progress - **Upmarket shift validation**: TTM growth in clients completing projects over $1,000 was 13% YoY, with 34% YoY growth in programming and tech and 25% YoY growth in graphics and design for these projects. AI-related demand is strong: demand for AI user-generated content video ads surged 265% YoY, search volume for AI voice agents jumped 49%, AI mobile app development rose 92%, and AI website development grew 39%. - **Matching infrastructure upgrades**: The company is building out a proprietary knowledge graph to capture nuanced client, talent, scope, and order intent. Early testing shows new live talent skill extraction resolves 58% of conversation skill mismatches (a top cause of high-value order cancellations), and a new graph neural network matching model reduced cancellation rates by 7% in initial tests. - **End-to-end fulfillment platform**: Phase 1 of a new standardized fulfillment layer (designed to proactively safeguard project success) is now live in production. It currently delivers 91% quality verification precision across 84% of completed projects in testing, providing real-time project health telemetry to mitigate friction before completion. - **Targeted demand growth engines**: Advanced semantic onboarding and corporate KYC tools are now live to capture deep corporate client data and route demand to top-performing talent. A new dedicated discovery campaign targeting e-commerce TikTok Shop merchants (including Amazon FBA and Shopify merchants) launched in June to attract high-value buyers. ### Capital Allocation Framework - Prioritize funding organic transformation investments to support the upmarket shift, maintain strategic and financial flexibility amid AI-driven industry disruption, and evaluate shareholder value creation opportunities including share repurchases. - The company ended Q2 with $308.5 million in cash and investments and generated $13.6 million in free cash flow in the quarter. Full-year 2026 free cash flow is expected to be lower than the prior two years, with a continued focus on maintaining profitability and disciplined cost management.

Guidance

- Management revised full-year and Q3 2026 guidance downward to reflect observed AI-related demand and traffic headwinds that have continued into Q3, plus ongoing weakness in AI-exposed low-value categories and declining services revenue. Management now expects the meaningful financial impact of the company's upmarket transformation to take at least six quarters, starting from Q3 2026, to materialize. - Q3 2026 revenue is expected to be $80 million to $88 million, representing a 26% to 18% year-over-year decline. Adjusted EBITDA is expected to be $8 million to $12 million, with a 11.9% adjusted EBITDA margin at the midpoint. - Full-year 2026 revenue is expected to be $356 million to $372 million, representing a 17% to 14% year-over-year decline. Adjusted EBITDA is expected to be $52 million to $62 million, with a 15.7% adjusted EBITDA margin at the midpoint. - Management confirmed it will prioritize R&D investment to support the transformation while maintaining cost discipline, profitability, and positive free cash flow through the transition period.

Segment performance

Total Q2 2026 revenue was $97.8 million, a 10% year-over-year decline driven by compression in low-value transactional work accelerated by AI adoption. 1. Marketplace segment: Revenue was $63.1 million, down 15.5% year-over-year, accounting for 65% of total revenue. Active buyers fell 22% year-over-year to 2.7 million, with transaction volume down 10%+ YoY for most projects under $1,000; writing and translation saw a 24%+ decline. Spend-per-buyer increased 15.6% YoY due to the ongoing mix shift to high-value projects. As of Q2, projects valued at $1,000 or above represented 15% of completed projects' trailing twelve month (TTM) gross order value, with programming and tech and graphics and design growing over 25% YoY on a TTM basis for these high-value projects. 2. Services segment: Revenue was $34.6 million, up 2% year-over-year, accounting for 35% of total revenue. Growth decelerated from last quarter, with deceleration expected to continue through H2 2026, leading to a double-digit full-year decline. Weakness is driven by softening demand from influencer campaigns and dropshipping, as well as lower performance for Fiverr Ads and Seller Plus, alongside broader marketplace traffic and demand headwinds.

Risks & headwinds

- Ongoing and accelerating compression of low-value transactional work driven by rapid LLM adoption, which is outpacing the current growth rate of high-value work, masking the strength of the upmarket segment in headline financial results. - Broader traffic and demand headwinds driven by LLM integration into traditional search (specifically Google's Gemini integration), which has reduced organic and paid click-through volumes from search, Fiverr's largest historical traffic source, and increased customer acquisition costs. - Continued LLM model advancements and new product launches from AI providers that could further compress demand for low and mid-value freelance work, and extend the transition timeline or increase the magnitude of revenue declines before the upmarket shift delivers net positive growth. - Slower-than-expected adoption of the platform's new high-value product and matching features, or slower-than-expected onboarding of specialized high-end talent, which could delay the financial benefits of the transformation. - Deceleration of services revenue driven by broader marketplace weakness, which will negatively impact overall revenue and profitability through the second half of 2026.

Analyst Q&A

• Q: What factors underpin the 6-quarter timeline for the transformation, and how have recent LLM updates contributed to current demand weakness? /

  A: The extended timeline reflects current observed demand and traffic headwinds that management expects to continue, and the time required to deploy tested platform upgrades at full scale. While Fiverr has already restructured to operate as a smaller, faster organization, the shift to high-value work requires fundamental platform changes that take time to roll out. The most impactful recent LLM-related headwind has been Google's integration of Gemini into search results, which reduces overall click-through volume to external sites like Fiverr, creating direct pressure on traffic. (267 chars)

• Q: What milestones can be tracked to measure transition progress, and is Fiverr's talent pool prepared to deliver high-value AI integration projects? /

  A: Key progress signals include wide deployment of the new knowledge graph matching infrastructure (which already resolved 58% of skill mismatches in testing) and the phase 1 fulfillment layer (which already delivers 91% quality precision), plus scaled rollout of new targeted go-to-market channels such as the TikTok merchant campaign that delivered an 8% conversion lift in testing. Fiverr is actively cleaning low-demand low-skill talent from the marketplace to improve discoverability, and quickly onboards new specialized high-skill talent to meet demand for custom AI workflow integration projects. (409 chars)

• Q: How can Fiverr be confident that further LLM breakthroughs will not continue to erode demand even after the 6-quarter transition? /

  A: Fiverr still stands by its core thesis that freelancers are highly adaptable to AI-driven market shifts, and that demand for skilled AI implementation work will grow over time. Currently, the compression of low-skill work is happening faster than the emergence and scaling of new high-skill demand, which creates near-term revenue pressure, but the underlying growth trends in high-value work are strong. Businesses will eventually require custom AI integration to stay competitive (similar to how website development became a required capability 30 years ago), and this demand will outpace the ability of general-purpose LLMs to serve these needs on their own. (412 chars)

• Q: What mix of high-value ($1K+) projects is needed to offset low-value declines, and is the company pursuing M&A to accelerate the transformation? /

  A: There is substantial room for growth, as the average current buyer spend is $368, so even a modest shift in mix toward higher-value projects will deliver significant revenue growth over time. Management confirms the company's top priority is internal investment in the platform transformation, with no material M&A plans currently. Fiverr will remain opportunistic on M&A, but will focus on running a lean organization while advancing internal product and go-to-market changes. (310 chars)