For the last number of years, Fiverr has been considered a promising idea for long-term investors interested in the digitalization of the freelancing industry.
However, looking back over the last two years since August 2022, the shares have depreciated by approximately 25%. Tech layoffs, a more severe-than-anticipated post-COVID impact, higher-than-expected rates, and advancements in AI have contributed to this decline.
However, signs indicate that the market may have bottomed out. The economy appears stronger than anticipated, layoffs have decreased, and Fiverr is focusing on increasing spending per buyer through complex services and an up-market strategy
Fiverr’s Last Two Years’ Performance
As mentioned, Fiverr has significantly underperformed expectations over the past two years. In August 2022, the company was initially projected to achieve a 22.3% CAGR in revenue over the next two years. However, the actual revenue CAGR for FY21-23A was only 10.2%, well below estimates.
Growth in Gross Merchandise Volume (GMV) also fell short, primarily due to stagnant active buyers and lower-than-expected spend per buyer. Adjusted for inflation, the real value of transactions (GMV) ordered through the platform declined during the FY21A-FY23A period.
Factors Behind Underperformance
- Digital Freelancing Adoption: Transitioning businesses from traditional staff to digital freelancers has proven challenging due to cultural and psychological barriers.
- Moving Up-Market: Fiverr’s customer base, previously skewed towards one-time basic services, has shifted with declining demand post-COVID, emphasizing the need to target larger corporate clients.
- Macroeconomic Conditions: Despite strong overall macroeconomic indicators, challenges persist within the tech and startup sectors, impacting Fiverr’s growth rates.
- AI Impact: While Fiverr management asserts AI has had a positive net effect on GMV, the actual impact remains unclear amid declining demand for basic services and the platform’s predominantly one-time service customer base.
Fiverr’s Long-Term Narrative
Despite recent setbacks, the long-term outlook for Fiverr remains positive. The digital freelancing industry continues to grow, driven by ongoing digitalization and increasing acceptance of freelance work.
Despite short-term disruptions from AI and other factors, Fiverr’s technology-agnostic approach positions it to adapt and thrive over time.
Revisiting Fiverr’s Valuation
- Total Addressable Market (TAM): Estimated at $239 billion globally, with Fiverr’s current market share at 0.5%, indicating substantial growth potential.
- Projected Growth Rates: Forecasting GMV growth at approximately 15% CAGR over the next decade, driven by increased spend per buyer and client base expansion.
- Long-Term Operating Margins: Expected to improve steadily to 22.5% over revenue, reflecting scalability and operational efficiency.
- Balance Sheet: With a healthy net cash position of around $200 million as of Mar 24, Fiverr is well-positioned to manage future operational needs without additional funding requirements.
A Balanced Risk Reward Portfolio
While Fiverr has faced challenges in recent years, its core narrative remains compelling. The digital freelancing industry continues to evolve, and Fiverr’s strategic initiatives position it well for long-term growth.
Despite short-term volatility and AI disruptions, Fiverr offers a balanced risk/reward profile for investors interested in capitalizing on the expanding freelancing market.
Therefore, for long-term investors with a diversified portfolio and confidence in digital freelancing’s future growth, Fiverr represents an attractive investment opportunity at the current valuation levels.
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I’m Jackson Hartwell, a writer who specializes in dissecting current business events. I’m dedicated to providing you with clear and concise insights into the world of politics, making it easier to understand the latest news and developments.
