Good morning and thank you for standing by. Welcome to the Fiverr Second Quarter 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. Please be advised that today's conference has been recorded. I would now like to hand the conference over to our first speaker today, Jinjin Qian. Please go ahead.

Thank you, operator, and good morning, everyone. Thank you for joining us on Fiverr's earnings conference call for the second quarter that ended June 30, 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 statements can be found under the Risk Factors 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 investors.fiverr.com. And now I'll turn the call over to Micha.

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 sheets 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 freelancer 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 a team with ongoing tasks and goals. This is not an area we competed in historically, but as we increasingly go upmarket and lean into complex service categories, it becomes essential to round up our offerings. 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 also 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 to upend 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 that 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 through our platform by just doing what they love. Whether you are a musician or scriptwriter or 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 GenAI 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 an 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 preferences 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’ll 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 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 video, 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.

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 bps 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 continued 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 that we intend to use to increase shareholder 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 shareholder 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 today, 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 note that we are starting to see stabilizing and improving trends in simple services. As we mentioned in prior quarters, we believe the low-end transactions within the simple service 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 buyers were 3.9 million, down 8% year-over-year, and overall GMV decelerated in Q2. Both were impacted by a slowdown in traffic that started in June as the strength we saw in the earlier part of the year proved to be more of a pull-forward rather than a sustainable turn of trends. These trends serve as a reminder for us that we are still in the middle of a macrocycle, 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 potentially rainy days ahead. As we enter into the second half 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 programs such as Promoted Gigs and Seller Plus continued 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 to $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 AutoDS create additional growth catalysts. In terms of underlying drivers, we now expect active buyers 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 the full year 2024 to be in the range of $69 million to $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.

Thank you. And now we're going to take the first question from Ron Josey from Citi. Your line is open, please ask your question.

All right. Thanks for taking the question, guys. So I want 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 in it. And as we also think about the product, I’d love to hear more from a professional-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 macrovolatility, the pull forward early in the year and then June, July comments. Was this just a change that happened in June, July and as interest rates maybe come down? Any insights on maybe when we might see some stability here? Thank you.

Good morning, Ron. Thank you for your questions. I'll address them in order. The first question was about the product release, specifically regarding Neo. As I mentioned earlier, the potential for integrating AI to enhance our products is virtually limitless, and we're just beginning to explore this. Our initial experiments with Neo as a personal assistant within the Inbox provided valuable insights into customer usage and its impact on conversion rates. This has enabled buyers to complete tasks more efficiently, resulting in higher conversion rates. The goal is to expand Neo beyond the Inbox and integrate it throughout our platform. We are rolling this out gradually to ensure we can assess its accuracy and performance. Essentially, Neo acts as a personal assistant across the experience, helping customers search more effectively and accurately pinpoint their needs, leading to better matches. Additionally, Neo is context-aware, allowing users to ask questions about specific pages they are viewing, which aids in decision-making. In terms of briefing, if customers have a pre-made brief, they can upload it, and we enhance it further. If not, Neo's underlying technology assists in creating a more effective brief, which in turn connects clients with a more suitable pool of talent. This is a significant aspect of our summer release, and we are pleased with its progress. Scaling new technology takes time, but we are in the process of gradually extending access to more customers. The second question was about the profession-based catalog. We’ve transitioned from being solely a marketplace for predefined services to focusing on talent and skills. Many customers don’t search for specific services but rather seek specific talent. Therefore, we developed a new catalog that emphasizes skills and professions rather than singular services, enabling more natural matches between customers and talent. Coupling this with new contracting options, like hourly rates, enhances user engagement with talent on our platform. Your last question concerned the macro environment. As Ofer indicated, we've experienced some volatility in June, and the overall macro conditions remain difficult for SMBs, impacting hiring sentiment. Notable statistics include the small business index, which is at its lowest in a decade, and job openings down 7% year-over-year, with a 17% decline specifically in the tech sector. Staffing hours for professional roles are also down 7% year-over-year, showing a slight deterioration from last year. Overall, the hiring market is not at its strongest moment. In June, we noticed a slowdown in top-of-funnel traffic on our platform. This is more visible in terms of active buyer impact than in spending per buyer, which has been growing robustly in double digits. Our efforts to penetrate upmarket are producing results, though we see increased volatility in larger projects, which is a new development. This suggests that what we are experiencing cannot be classified as a steady trend; the market seems rather volatile. Some fluctuations are seasonal, while others relate to AI trends and broader macroeconomic factors. Nonetheless, while larger projects are exhibiting volatility, simpler projects show greater stability compared to the earlier months. We wanted to highlight these observations, but it's premature to label them as trends at this stage.

Thank you, Micha. Very helpful.

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

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 or for its customers and probably most importantly how it's supposed to impact the financials in the second half of the year. And 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 second half of the year. So 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, re-acceleration in 2025 or not, or just given the comments of the 2027 targets involving strong revenue growth, just maybe the puts and takes in 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?

Good morning, Bernie. Thanks for the questions. So AutoDS, essentially I think as we said in the opening comment, 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 doubled 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 the market base, but also a platform that provides freelancers with software solution on top of access to opportunities.

I believe the second part of your question concerns the take rate and its effect on our financials. First, I want to point out that we are pleased to conclude Q2 exceeding expectations for both revenue and EBITDA. We are confident in maintaining our annual guidance, with a slight increase in the lower range for revenue, while reiterating our EBITDA target. This reflects the fact that, as Micha mentioned earlier, although we experienced some weaknesses in June and July, which led to lower growth in new active buyers, this has been offset by a significant increase in spending per buyer and an expansion in our take rate. Our spending per buyer has shown strong growth as we have been investing in moving upmarket for some time now. This growth stems from our maturing investments, including enhancements to our service offerings such as hourly rate features and our loyalty program, which are all aimed at fostering deeper community engagement and improving user experiences. Additionally, the other compensating factor from our active buyers is the take rate, which has grown over the past few years due to new features added alongside our marketplace, starting with Promoted Gigs and Seller Plus, and incorporating AutoDS, all designed to empower our community to earn more. We expect that the integration of the community will take some time, leading to an increase in our take rate as we explore our future opportunities. You inquired about 2025 and 2027; we are targeting a 25% EBITDA by 2027 based on our expectation of ongoing growth and improved EBITDA. We have been consistently working towards this goal, focusing on maintaining our fundamentals without abrupt changes.

Great. Thank you both.

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

Hi, this is Steve Rolman 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.

Hey Jason. To address your question, there are two components to the take rate: the transactional part and the value-added services and products we provide to our community. The transactional part has remained stable, and the growth we are observing comes from the value-added products. We have not scaled back on this. As long as we can keep producing products that our community values and finds worth their investment, we will continue to do so. We have a number of offerings in development, and thus, there has been no reduction. The transactional portion has stayed relatively unchanged. That’s our perspective on this.

Great. Thank you.

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

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 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.

Good morning, Doug. Thanks for the question. So, the Summer Product Release, as we go up markets 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 it takes and exactly how much it’s going to cost. But these are the more variable tasks, the more variable 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.

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. And from a product 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 super funnel traffic. Historically we haven't competed in this area at all, so there's definitely a potential to drive additional GMV uplift in the second half. 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. And the sum all is a nice exit rate for this year.

Got it. Thank you both.

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

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.

Good morning, Andrew. Thank you for the question. To start with AI, it continues to have a positive impact on us. We are noticing stabilizing and improving trends in simple services. In the past, we mentioned that AI primarily affects low-ticket jobs, and we are seeing improvements in the overall mix of projects. The shift is towards higher-end skills. After several quarters, this trend is reflected in our data. For instance, the writing and translation sector shows the largest AI impact, with traffic in that vertical improving by 10 percentage points in year-over-year growth rate from Q1 to Q2. Meanwhile, complex services continue to grow faster than simple and neutral categories, although their growth rate has moderated recently due to the volatility noted in June and July. With the opening of our professions catalog and hourly contracts, we anticipate new growth opportunities, especially in the complex services categories. Additionally, we have over 700 categories, which means our exposure to specific categories is limited, and seasonal spending trends in categories are typical in our business. Currently, complex services account for about 30% of GMV, while simple services make up roughly 20%. I would caution against labeling the fluctuations observed in June and July as a trend, as it’s difficult to pinpoint stable patterns. Conditions change throughout the year for various reasons, so we should wait before categorizing them as a trend. Regarding the transition to a platform, over the past couple of years, we've evolved from a gig marketplace with clearly defined services and set pricing to a multi-solution platform where our customers can engage with talent in various ways based on their needs. We aim to match solutions with the appropriate requirements. Our developments with Fiverr Pro, Fiverr Enterprise, project management, success management, and the inclusion of agencies have all contributed to creating a platform with multiple solutions for our customers. Additionally, we provide software solutions catering to specific needs for both our sellers and buyers; AutoDS is part of this. As I mentioned earlier, dropshipping is a rapidly growing segment for us. By integrating the community and software solutions from AutoDS, which addresses the full range of dropshipper needs, we can leverage synergies to support our dropshippers as well as our freelancers. This collaboration enhances our ability to provide freelancing and creative solutions for dropshippers who may have software but require assistance in managing and scaling their businesses. Overall, this approach is highly synergistic.

Thank you.

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

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 3 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?

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

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

Oh, good. So, at first, maybe you know something I don't know. But I think we laid off the capital allocation priorities in the shareholders' letter. Pretty extensive. I will name it now, but again, there'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. So we have a little bit over $700 million of cash and cash equivalents. And this is after we have completed the $100 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 plan to continue and seek 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. As we look forward, we're pretty positive and confident from a 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 of 14% in free cash flow for the next three years and a similar trajectory for free cash flow per share.

Thanks. And maybe just one more. You mentioned, you know, 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.

Yes, when we look at moving up market, it enables us to pursue significantly larger projects that are inherently longer-term and similar to ongoing freelancer hiring. This has several implications. Firstly, it increases our top-of-funnel traffic by allowing us to target more relevant keywords. As we enhance our professional catalog, we can also engage with keywords related to specific skills rather than just services. Additionally, it improves conversion by allowing buyers to search for talent and start time-based contracts without needing to define full project scopes, which leads to ongoing engagements. These types of engagements were previously absent for Fiverr. From a competitive perspective, we believe most opportunities still exist offline, rather than within specific market bases or platforms, and are often found in directories or traditional forms of engagement. We see a significant opportunity in bringing this offline activity online, which is why it’s crucial for us to invest in creating opportunities around relevant top-of-funnel keywords to drive new business traffic to Fiverr.

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

Hi, good morning. Thanks for taking my questions. Just a couple for me. Just so curious on the volatility fall in June and continuing in 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 like 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. I'm 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 leading into these types of services to grow their businesses even more, that'd be helpful. Thanks so much.

Thanks, Marvin. That’s a good 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 the 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 touches our existing customers. Actually, if you think about it and you look at cohort behavior, actually we’re seeing cohorts behave better than before. And I called that in previous earnings and that hasn’t changed. Meaning, that newer cohorts are spending more on their first purchase, first month, first quarter, first year, and we’re seeing those trends. So 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. And yes, it is impacting SMB more than that. I think the second part of your question was about Promoted Gigs and Seller Plus. Yes, they’re doing well. As I mentioned in the previous earnings call, we provided more details on the growth numbers, and there’s a positive outlook for continued growth in both of these programs. That remains true. Sellers are very eager to join, and some of these programs are not available to everyone. The reason they appreciate these products is that they generate more income and increase value, transparency, and analytics for their businesses. We continue to develop more opportunities for them to benefit from it, including Promoted Gigs, expanding real estate, and Seller Plus. In our Summer Release, we discussed initiating a Kickstarter program designed to offer additional support to newer sellers, helping them sell more quickly and grow their businesses. There is a lot of potential ahead, and we have not yet realized the full possibilities of these programs.

Thanks a lot, Micha and Ofer. Appreciate it.

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

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 free cash flow generation potential, but it feels that the model brings us to GAAP profitability by the end of this year and every quarter going forward. So we'd love to get your take on that. And then in terms of this June, July trends, I know a lot has been asked and you've 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?

I'll take the first part on the GAAP. As we usually take and guide on long-term EBITDA and free cash flow, less on GAAP, but we have turned into GAAP profitability already, so that's a good news. And 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 the 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 2025. We now gave it a timeline of 2027, free cash flow, follow EBITDA. And I think that now that we are GAAP positive, I think we'd see improvement in GAAP income profitability over the next two quarters.

And the next question about June and July trends. So it should be said, I 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 potentially impacts on the second half of the year. Hence, the updated color around active buyers. At the same time, spend per buyer take rates 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 seem to progress on decisions about the interest rates and the outcome of the election in the U.S. So obviously, we're not prophets and it's very hard to know, but since we've taken 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.

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

Thank you, Nadia, for moderating the call today, and 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.

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