In recent months, the stock market has not been kind to high-octane growth stocks. One of the hardest-hit tickers in this safety-craving market correction has been freelance-services specialist Fiverr International (FVRR -4.03%). Its stock is now trading at more than 65% below February's all-time highs.
On top of being a richly valued highflier, Fiverr is also widely seen as a direct play on the coronavirus pandemic. I think that's a big mistake, though, but it opens the door to a fantastic buying opportunity at reduced share prices. Let me show you what I mean.
Image source: Getty Images.
The gig economy is here to stay
The COVID-19 health crisis surely accelerated the rise of the gig economy, where freelancers and contractors are taking over tasks formerly assigned to some company's in-house employees. However, the pandemic didn't start that trend, and the gig economy will remain long after we finally beat the pandemic.
I think of Fiverr as a more general version of hyper-specialized freelance services such as Uber and DoorDash. Those companies have been the poster children of the gig economy for a few years, moving people and goods around in vehicles owned and operated by freelancers.
There's no reason why Fiverr wouldn't be able to compete directly with the ride-sharing and local-delivery giants. Some enterprising Fiverr clients already offer these services without the support of a tailor-made mobile app for that purpose. Others are eager to help you build a website or app to support your own local-delivery or cab service.
If you think that sounds silly, you'll find that some of these entrepreneurs come with high ratings from dozens of satisfied customers. Somebody out there is taking advantage of Fiverr's freelancer platform to kick-start their own local-delivery business.
And that's just one small example. Fiverr's platform offers solutions for myriad situations, though mainly in the category of white-collar jobs. You're more likely to find a web designer or a Russian translator than a construction worker or a plumber here -- so far. To me, the absence of local and physical freelance services spells out a massive growth opportunity that will be explored when the current focus on digital services starts running into saturated markets.
DoorDash is worth nearly eight times as much as Fiverr right now, and Uber's market cap is more than 13 times Fiverr's size. Yet I see a larger target market for the freelancing generalist, leaving the company lots of headroom for business growth.
A small slice of a massive market pie
Freelancers accounted for $1.2 trillion of economic activity in 2020, according to a study by Fiverr rival Upwork. Most of these gigs were managed offline, leaving Fiverr with just $190 million of total revenue last year. This year, management expects full-year sales to land near $294 million -- a 55% year-over-year increase.
Don't forget that 2020 was the year of massive growth in the freelancer market that was supposed to fade out as vaccines and other tools helped us battle the pandemic in 2021. Well, Fiverr's sales rose 42% year over year in November's third-quarter report. Call me crazy, but I don't think that's a sign of a game-changing slowdown.
On the contrary, it's a healthy business flexing its growth muscles for the long run that lies ahead. At the same time, market makers view Fiverr as a pure-play bet on the short-term effects of the pandemic, giving the stock a dramatic haircut.
That combination of incredible growth prospects and falling stock prices makes me downright greedy. So this is a great time to pick up Fiverr stock for the long haul.
