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Small-Cap Confidential
Undiscovered stocks that can make you rich

August 5, 2021

Revolve (RVLV) beat expectations in Q2 but concerns that the story has been “as good as it can get” and that things will slow down in the coming quarters, in part due to Delta variant circulation curbing going-out activities, are hammering shares today (-20% at the worst, better now). All things considered the selling appears overdone and I expect a bounce in the coming days. How RVLV acts in the near future will determine its standing in our portfolio, but at the moment aggressive investors may want to step in to buy. Formally, we are maintaining at hold to see how this earnings report is digested over the coming days.

Fiverr (FVRR) and Revolve (RVLV) Drop After Earnings
Revolve (RVLV) beat expectations in Q2 but concerns that the story has been “as good as it can get” and that things will slow down in the coming quarters, in part due to Delta variant circulation curbing going-out activities, are hammering shares today (-20% at the worst, better now). All things considered the selling appears overdone and I expect a bounce in the coming days. How RVLV acts in the near future will determine its standing in our portfolio, but at the moment aggressive investors may want to step in to buy. Formally, we are maintaining at hold to see how this earnings report is digested over the coming days.

Details: Q1 revenue grew 60% to $228.9 million, beating by $29.7 million, while GAAP EPS of $0.42 beat by $0.20. Revenue in the quarter was up 41% as compared to the same quarter in 2019. As expected, sales were driven by customers going back out into the world and buying apparel and dresses. U.S growth was 59% while international was 63%. REVOLVE segment sales grew 49% to $188.8 million while FORWARD (the luxury brand) exploded by 151% to $39.8 million. Growth in FORWARD is especially exciting as it could be in the early stages and the brand is growing faster than many competitors. Active customer count grew 5% over Q1 2021 to 1.55 million, orders increased by 52% and average order value grew 25% to $255.

Supply chain challenges persist, and Delta poses a risk as it could curb going-out activities and events that are such a big part of the Revolve story. However, sales were still trending up near 40% as of the end of July. Management will continue to invest in the business.

There are sure to be varying opinions on this stock but for now we should continue to expect full-year sales growth just north of 40% with FORWARD growing much faster (maybe as much as 65% to 70%). Maintaining at hold. HOLD

Fiverr (FVRR) is getting hammered today (opened down 20%, down 25% now) after beating expectations but lowering forward guidance. This feeds directly into the biggest concern for the stock – that people are doing more outside the home and shifting away from online activity. Management confirmed this to be true saying, “… reduced online activity translates into more modest new customer cohorts and less activity for older cohorts.” It is interesting to note that some stocks are selling off this week because of concerns that Delta may drive people away from going-out activities and back into at-home activities, a trend that should, in theory, be beneficial for Fiverr. The stock is getting no love today, however. Downgrading to hold.

Details: Q2 revenue grew 59.7% to $75.3 million (beating by $440K) while adjusted EPS of $0.19 beat by $0.05. Most metrics were good. Active buyers grew from 2.8 million to 4.0 million, spend per buyer increased from $184 to $226 and the take rate increased modestly, from 27% to 27.8%. That’s the past. The killer was that management pulled in full-year guidance to a range of $280 - $288 million, well below consensus of $308.3 million.

It is temping to say this stock is dead. If there was little risk of Delta (and other variants) becoming a bigger problem this fall and winter we would likely sell our remaining stake and move on. However, the current infection trends suggest we are far from waving the all-clear flag when it comes to Covid-19. Let’s give FVRR a little time. I suspect that, if we do decide to move on, we’ll be able to get a better price if we’re a little patient. Moving to hold. HOLD