As pandemic-related restrictions ease around the world, Fiverr International (FVRR), one of the leading freelancing platforms in the world, is experiencing lower-than-expected utilization rates.
Fiverr stock has declined a staggering 66% so far this year, which makes it one of the worst-performing growth stocks in 2022.
With people increasingly shifting to remote, hybrid, or freelance jobs, it would be reasonable to expect freelancing platforms to continue to grow in the next five years.
Fiverr is a prominent player in the gig economy, with a global online platform that connects professional service providers and customers in 550 categories.
I am bullish on the prospects for Fiverr given the massive growth potential ahead of the company.
What Makes Fiverr Stand Out?
Fiverr’s business soared in 2020 due to work-from-home mandates. The platform provided an opportunity for many individuals to earn consistent income at a time when big and small companies alike were continuing to lay off workers to cut costs and stay afloat. Fiverr stands out among its competitors in many ways.
First, the platform is based on an e-commerce model, allowing freelancers or sellers to create gigs that offer service-as-a-product. Each gig has a fee and a description of what the buyer can expect from the service provider for that price, giving buyers an easy way to choose the services they are looking for.
Second, Fiverr is no longer just a platform for side hustles. With consistent investment in the freelancer economy, the company is now able to provide freelancers with the tools and resources they need to earn a consistent income and establish their businesses.
Finally, unlike its competitors, Fiverr provides a simple marketability option within the platform and a community marketplace to assist new sellers in marketing their gigs, and landing their first sales.
Impressive Earnings Growth
Fiverr is still posting GAAP losses due to its massive expansion efforts, investments in improving user experience, and the development of new features. However, the company posted strong revenue growth, and an improved EBITDA margin of 4.5% for the first quarter of 2022.
The company’s financial performance was remarkable in the most recent quarter, with revenue growing 27% year-over-year to $86.7 million. The number of active buyers reached 4.2 million, marking an 11% year-over-year increase. The average amount spent per active buyer increased by 17% to $251.
The key thing to note here is Fiverr’s take rate, which was 29.6% in the first quarter, double the industry average. Repeat customers accounted for 61% of total revenue in the core marketplace in Q1, up from 55% and 59% in 2020 and 2021, respectively. Improved quality, catalog growth, and product innovation drove revenue retention in Q1 for the older cohorts — those who joined in or before 2018.
Fiverr’s international expansion continued, with non-English speaking countries accounting for around 30% of revenue in most recent quarters. There is a long runway for growth internationally. To capture this market opportunity, Fiverr is investing in both marketing and its product suite.
Growth Initiatives
Although hybrid work is expected to remain a key element of the post-pandemic world, investors are concerned about Fiverr’s ability to maintain the rapid growth it enjoyed during the pandemic.
However, many companies are embracing remote-working options, and allowing employees to rely less on local resources while outsourcing multiple operations and projects, making the case for Fiverr appealing. Even if the existing workforce returns to the office, the need for work to be outsourced will continue to grow.
Many businesses outsource short-term projects or hire freelancers for irregular work. This is where Fiverr’s biggest opportunity lies, and Fiverr has already taken steps to capitalize on this trend by expanding its enterprise solutions under Fiverr Business.
In business accounts, Fiverr provides a collaborative dashboard for multi-worker accounts as well as a dedicated success manager. The platform has clients of all sizes, including established brands such as Unilever Plc (UL) and Skechers (SKX).
To expand its operations, the company is also focused on acquisitions. Fiverr acquired Stoke Talent, a talent management platform that assists businesses in managing their freelancer workforce, last November.
Stoke’s platform includes tools for onboarding, paying, and managing budgets for freelancers. This acquisition enables Fiverr to expand from small and medium-sized businesses to larger enterprises that already have a freelancer workforce.
To improve user experience, Fiverr launched a new brand campaign in October named Something from Nothing, which included a series of videos and TV advertisements in the United States, United Kingdom, Germany, and Australia to promote its tools and resources.
The company also debuted Fiverr Inspire, a new personalized browsing experience that allows buyers to discover sellers based on previous projects and deliveries completed on the platform. This development is significant in maintaining and increasing Fiverr’s take rate, which is already higher than that of its competitors.
Fiverr might face cost pressure in the near term with rising inflation and changing work structure, but the freelancer economy is expanding. With the emergence of new industries such as Metaverse and NFT, Fiverr’s relevance continues to grow.
Wall Street’s Take
Based on the ratings of seven Wall Street analysts offering 12-month price targets, the average Fiverr price target is $41, which implies 0.6% upside potential from the current market price.
Takeaway
Fiverr, despite temporary challenges, is well positioned to grow in the long run. The company’s industry-leading take rate is a testament to its competitive advantages, and Fiverr seems attractively valued in the market today.
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