Investing in an IPO involves risks, but Fiverr (NYSE:FVRR), which made its market debut in June, is proving to be worth it.

The company provides a software platform where companies can contract with independent workers for freelance jobs called gigs. It reported another successful quarter in November after posting year-over-year revenue growth of 42%. This performance followed equally impressive second-quarter revenue growth of 41%. 

Yet the stock's performance has not been as impressive. After climbing to a high of over $40 per share soon after its IPO, shares have steadily shed their gains and currently hover near the initial offering price of $21 as of this writing. Is now a good time to invest in Fiverr? Let's look at why it makes sense to take the plunge.

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Image source: Getty Images.

What powers its revenue growth 

Fiverr only has two public earnings reports under its belt, but the company's consecutive quarters of revenue growth are no fluke. It generated $75.5 million of revenue in 2018, up 45% from the prior year, showing the company's consistent double-digit growth trend that has continued this year.  

Fiverr earns its revenue by charging fees for each gig. Consequently, its third-quarter growth was fueled by its significant base of 2.3 million buyers spending more per gig, up 15% year over year, and a 16% increase in buyers actively using the platform, including the expansion of its business into the German market. Fiverr's presence in Germany is just getting started, and management is looking to expand into other German-speaking markets.  

Fiverr implemented initiatives to drive up the amount spent per gig, and these efforts have been paying off. For instance, its algorithms that recommend repeat buys and cross-category purchases were improved, and in July, it launched Fiverr Studios, platform capabilities that help freelancers come together to collaborate on a project. Gigs performed by a Fiverr Studios team cost seven times more than standard gigs.  

Growth over profit 

As is often the case with young companies growing at this pace, Fiverr is still not profitable. Management is unsurprisingly prioritizing growth over the bottom line. Given its spending on the German market as well as the development of new capabilities such as Fiverr Studios, these investments make sense and are delivering results for the company.

In the third quarter, Fiverr exceeded even the high end of its revenue guidance (a range of $25.5 to $26.5 million) by delivering $27.9 million. As a result, Fiverr raised its full-year guidance to between $105.5 million and $106.5 million, which would spell growth of about 40% over 2018.  

Moreover, when comparing the first nine months of this year with the same period in 2018, Fiverr actually managed to cut costs so that its net loss was down to $26.1 million versus $30.2 million last year. This is impressive considering this year includes extra expenses related to the company's IPO as well as its acquisition of ClearVoice, an online marketplace where businesses hire freelancers for marketing-related gigs. In addition, CEO Micha Kaufman reiterated management's commitment to reaching profitability, and progress on the bottom line year to date illustrates the company is on track.

Fiverr is also in a recession-resistant industry. The gig economy actually expanded during the Great Recession. With concerns of another recession on the horizon, when it hits, Fiverr is likely to be less affected than other businesses.

The Foolish finale

Fiverr's keys to success will be the continued growth of its buyer base and the annual spend per buyer. The company plans to continue attracting new buyers through marketing and international expansion. Its ability to increase spend per buyer will come from the growth of Fiverr Studios and initiatives like bundling categories of higher-paying gig work together to create a higher-cost package, which it did for video games, e-commerce, and architecture.  

Factoring in the company's strong track record and its early successes moving upmarket, Fiverr is showing off all the elements of a successful business, and although it will take some time to get there, it's on a steady path to profitability, making now a good time to invest.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.