Fiverr (FVRR -1.89%) was one of the hottest stocks heading into 2021. The freelance marketplace was up over 60% year to date (YTD) in February, hitting $336 a share. However, since then, the stock has floundered and is now down almost 50% from all-time highs. In addition, investors have gotten more pessimistic about the company after management's guidance for the third quarter came in below expectations.

Even though guidance was lowered, Fiverr continues to grow its business at a rapid rate. So does this sell-off present a buying opportunity?

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Q2 results

In the second quarter of 2021, Fiverr generated $75.3 million in revenue, up 60% year over year. This growth was impressive, especially considering that it was compared to Q2 2020, when revenue grew 82% from 2019. Active buyers hit 4 million in the quarter, up 43% year over year, and spend per buyer grew 23% to $226.

Moving down the income statement, gross margin came in at 83.4% in Q2, up from 83.1% in Q2 of 2020. Since Fiverr is investing heavily for growth, it is not yet showing strong levels of profitability. But these high gross margins should indicate to investors that the company can have robust net profit and free cash flow margins once the platform matures. 

New product rollouts

Fiverr is rapidly rolling out new features to its users, which constitute the buyers and sellers of freelance services on its marketplace. On Aug. 12, it launched Seller Plus, a subscription service for sellers on the Fiverr platform. It costs $29 a month and offers advanced support, faster payment clearance, customer engagement tools, and other services for top sellers. Seller Plus is a brand new offering, but it will hopefully keep more freelancers on Fiverr, which in turn will maintain a better selection for buyers to spend money.

On the buying side, Fiverr launched a subscription product called Fiverr Business which targets its large corporate customers with flat monthly rates and additional support features. In Q2, Fiverr Business was 5% of Fiverr's overall revenue, which is only three quarters after the product was launched. 

Lastly, Fiverr announced partnerships with Salesforce and Wix to get more qualified talent onto the Fiverr marketplace. Both companies are doing specific training to get freelancers up to speed for their specific platforms. This can benefit Fiverr by getting a higher quality selection in its marketplace. 

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Valuation is still high

Even with the stock down almost 50% from all-time highs, Fiverr trades at a steep valuation. In the Q2 report, management guided for $280 million to $288 million in revenue for 2021. If it can hit $284 million, the stock trades at a forward price-to-sales ratio (P/S) of 23.4 based on a market cap of $6.66 billion. If the business can keep growing revenue at a 60% clip, then this valuation could come down rather quickly. But don't get fooled by the recent price drop -- Fiverr stock is still expensive. 

Now, investors shouldn't shun Fiverr just because the stock looks expensive. Spending on online freelance platforms is projected to hit $6.7 billion in 2025, which would be much more than the $2.35 billion spent in 2018. If you believe Fiverr can capture a lot of this growth, then it could be smart to own shares here. If not, it's probably best to stay away from Fiverr stock for now.