America is quickly becoming the land of the on-demand workforce. Estimates vary, but a 2017 Bureau of Labor Statistics report found 55 million people in the United States were a part of the "gig economy." This was notably larger than other studies, as it included all workers using non-traditional work arrangements for their primary source of income or additional income from a "side hustle."
A recent ADP study used a narrower interpretation, but found that independent workers at businesses jumped 15% from 2010 to 2020. Despite the definition differences, studies confirm the on-demand economy is booming. However, it's wrong to believe this is all due to COVID-19; while the pandemic increased adoption, the trend preceded 2020 and will continue once America returns to normal.
The best way to take advantage of this trend is to invest in companies like Uber Technologies (UBER 1.72%) that operate on this model, or in companies that are enabling individuals to make money from non-traditional work output, like Etsy (ETSY 8.22%) and Upwork (UPWK 1.35%).
Stop calling Uber a taxi company
Make no mistake, the pandemic has been horrible for Uber's primary business model. In the third quarter, revenue in its critical mobility segment decreased by 53% from the prior year. Despite that, shares are on a tear this year, up 70% year to date. So why is Wall Street so bullish on Uber? It's likely due to the fact Uber grew delivery and freight revenue 125% and 32%, respectively, during this period. This quarter's revenue from delivery (mostly via Uber Eats) exceeded revenue from mobility.
I expect Wall Street has surmised Uber is more than a taxi company, it's an on-demand shipment platform. We're in a world where the shipping ecosystem has been under significant strain, particularly at the critical last-mile level, and one where major retailers like Target and Walmart are increasingly treating their stores like fulfillment centers. It's likely not long until Uber finds a way to significantly monetize its host of on-demand drivers beyond food delivery.
Etsy is small business personified
Small business peer-to-peer sales platform Etsy has been on a tear since it hit the public markets in 2015, providing a return of greater than 1,000% on its IPO price of $16. Shares are up 300% in 2020 alone, as many sellers and buyers have flocked to the site for additional income, buying or selling everything from face masks to lawn chairs.
Despite that, there's reason to believe the company will continue to reward long-term investors. First, the financials are mostly supportive, with revenue and net income up 102% and 210%, respectively, for the nine-month period ended September versus the year prior. On a quarterly basis, however, net income jumped 520% over the prior year, which indicates the company is delivering on its goal of profitable growth.
Etsy continues to provide a sticky experience for buyers: Of the 138 million customers who have ever purchased on its site, half made at least one purchase in the last year. With that kind of traffic, sellers will continue to utilize Etsy's site as a side hustle, or as their primary source of income.
Upwork's high-skilled platform is finally getting Wall Street's attention
A common misconception is that gig and contract work is entirely low-skilled labor. On-demand jobs run the gamut and also include high-skilled services like graphic design, software development, accounting, and technical writing. Many of those who provide these services are sourcing new opportunities on skills-based freelance marketplace Upwork.
Investors appear to finally understand the company's business model. After the company went public in 2018 at a price of $15 per share, shares languished below that figure for nearly all of 2019. However, the pandemic sent the stock into overdrive and it's now up 250% in 2020 alone.
Despite the strong return, the stock has a market capitalization of only $4.5 billion and will be a critical piece of the long-term shift to on-demand talent sourcing. I'd keep this name on your watch list and buy when Wall Street loses its appetite for pandemic-related stocks.