Privately held artificial-intelligence (AI) company OpenAI created a product called ChatGPT. And public interest in AI is booming because of recent advancements with this product. Suddenly everyone wants to know more about AI and how to get rich from the innovation.
Public companies are also hopping onto the AI-trend bandwagon. But freelance marketplace Fiverr International (FVRR +2.44%) is jumping onto the trend due to a genuine need. Consumers are increasingly coming to its platform with AI in mind, and the company is making platform changes to accommodate.
NYSE: FVRR
Key Data Points
An unprecedented jump in public interest
AI isn't anything new. But interest in AI from the general public is exploding higher.
On Jan. 24, Fiverr launched new AI categories on its platform. According to the press release, searches for AI-related freelance services were up 1,400% in the previous six months. Therefore, this isn't merely a cheap attempt to insert itself into a buzz-worthy conversation. To the contrary, there's real demand for AI services from Fiverr's user base.
Newly launched categories include AI art creation and AI text proofreading, which clearly are two hot trends. It can be tricky to generate AI art because new users don't always know how to give effective inputs to AI applications, which is where freelancers come in. Moreover, freelancers are offering to proofread texts written by AI applications like ChatGPT.
OpenAI's product is in the news because Microsoft reportedly invested $10 billion in the company earlier this month as part of its ongoing partnership. Armed with that kind of cash and partnered with a player of Microsoft's caliber, one can imagine that OpenAI's capabilities are poised to take a big leap forward in the very near future, potentially creating an even stronger AI trend tailwind.
What this could mean for Fiverr stock
Fiverr stock is down nearly 90% from its all-time high. And the reason is its valuation. At its peak, the stock traded at a price-to-sales (P/S) valuation over 50. Now it trades with a P/S of just 4.
FVRR PS ratio data by YCharts
Whether it was overvalued at its peak or undervalued now isn't my main concern. Instead, here's the point: Slower-growth companies warrant cheaper valuations than high-growth companies. And Fiverr's valuation is rightly down because growth has fallen off a cliff.
Specifically, Fiverr ended the third quarter of 2022 with 4.2 million active buyers -- people who have purchased something from Fiverr's freelancers within the past year. For perspective, that's the same amount of active buyers it had at the end of the second quarter and at the end of 2021.
On the one hand, Fiverr is retaining its pandemic-fueled growth, which is encouraging. But on the other hand, the company has spent $134 million on sales and marketing in 2022 but has the same number of active buyers as it had at the start of the year.
In the risk-factor section of its filings with the Securities and Exchange Commission, Fiverr says, "Achieving growth in our community of buyers and freelancers may require us to increasingly engage in sophisticated and costly sales and marketing efforts that may not result in additional users." That certainly seems to sum up Fiverr's last three or four quarters. You have to spend money to make money, and positive returns on that investment are never guaranteed.
It's far too early to know whether Fiverr's accommodation of AI trends will do anything for its business. Therefore, I wouldn't make any investing decisions based on the news. However, it does give investors something to watch, in my opinion.
If AI is a trend that keeps picking up steam, Fiverr could be opening its front door to new buyers by quickly making changes to its platform. And suppose the company starts gaining new buyers in the coming quarters. In that case, it might make Fiverr a stock worth buying, considering its valuation has fallen to attractive levels due to its lackluster growth.
