Tech stocks have been hammered in 2021 and into 2022 partly because of concerns about inflation and interest rate hikes. Fiverr (FVRR 6.89%) has fallen mostly for a different reason, with these concerns accelerating its nosedive. The stock has dropped nearly 78% from its all-time high partly because of doubts about whether freelancing demand will remain high as the business world continues to exit pandemic lockdowns.
Fiverr -- which connects businesses with freelancers working remotely -- has consistently proven doubters wrong, with one of the strongest quarters being its recently reported fourth quarter. While things are moving back toward normal and businesses are bringing their workers back to the in-person office, Fiverr continues to see increasing demand from businesses. The company grew its customer base to 4.2 million active buyers, marking its highest-ever customer count. An active buyer is a businesses that has used Fiverr to find gig help in the past year.
As one of the leaders in the freelance platform space, Fiverr is poised to continue seeing success in this space as demand continues. I think Fiverr can keep thriving for the foreseeable future.
The demand is still high
A report by Orbis Research estimates that freelance platforms across the world will grow at a compound annual growth rate of 15.3% from 2021 to 2026. Fiverr is one of the main companies that will capture this growth as it's already shown its success. The company's buyers popped over the past year from 3.4 million to 4.2 million, representing growth of almost 24%. This shows that the demand is increasing even as the world emerges from pandemic lockdowns.
Additionally, the buyers are spending more on Fiverr. The average spend per buyer increased 18% year over year to $242 in 2021, and Fiverr's biggest spenders are growing even more. Customers spending over $500 now represent 63% of revenue and the number of customers who spend over $10,000 are growing at a faster rate than any other group of buyers.
This trend of bigger spenders growing faster than the average shows the heavy reliance on freelance work that some buyers have. This will result in the company seeing more consistent revenue figures while proving that the freelance industry is here to stay.
Fiverr is there to capitalize
Fiverr is making the most of an increasing number of buyers and rising spending per user by flexing its pricing power. The company has consistently increased its take rate over the past year, meaning that on each transaction, the company has been able to receive more revenue. The company increased its take rate to 29.2.% for the fourth quarter -- two percentage points higher than the year-ago quarter. This shows how sticky the company's product is for its buyers. Despite increased prices, these customers continue to go to Fiverr to find gig workers.
One of the ways that the company is improving its product is by investing heavily in creating a better experience for both freelancers and buyers. The company notably launched Fiverr Inspire in the fourth quarter, a catalog that allows buyers to browse freelancer work to determine which worker best suits their needs. The company has also made its services more valuable for its freelancers by offering free workshops and other learning sources that help gig workers succeed.
As a result of this, the company's revenue has exploded. Q4 revenue grew 43% year over year to $80 million. The company lost $65 million in 2021 because of its focus on investing in a better platform, but this should not be a major concern as it generated $35.5 million in free cash flow for the year, and it has over $192 million in cash and short-term investments to fuel investments for a long time.
An excellent opportunity
A growing user base that keeps coming back, combined with acceleration in the high-spending customer segment, could result in continued success. The company does face competition from other platforms like Upwork, but the fact is that Fiverr's platform is gaining steam much faster than Upwork.
Since 2019, Fiverr's revenue has grown almost 300%, compared to Upwork's growing just 108%. Upwork's revenue base is larger than Fiverr's, making it more difficult to grow revenue at such rapid rates, but Upwork's client base is just 771,000, compared to Fiverr's 4.2 million, and Fiverr is growing this base at a slightly higher rate: 23% year over year compared to 22% for Upwork in the fourth quarter of 2021.
With Fiverr shares sinking and revenue expanding, the company's valuation has gotten into value territory. Shares trade at less than 9 times sales, close to Upwork's valuation of 6 times sales, despite growing much faster. This value proposition, along with the company's expanding leadership in the industry makes now look like a great opportunity to buy shares of Fiverr.