Many thought that remote work was a temporary pandemic trend, and that workers would flock back to the office when it was safe to do so. But it isn't playing out that way. Today, the vacancy rate of office real estate in America is climbing, and new office construction starts are plummeting. It seems that remote work is here to stay.
So what companies could benefit from this? Fiverr International (FVRR 5.31%) immediately comes to mind. The company operates a digital marketplace where workers, which Fiverr calls "talent," can sell their services, and individuals and enterprises can purchase them.
The stock was a big COVID-19 winner, but has fallen 90% from its highs. However, once Wall Street figures out that remote work is here to stay, the stock could see a revival.
Fiverr is fishing for whales
Most know Fiverr as a freelancing marketplace, which is still a huge piece of the company today. But Fiverr has steadily and progressively gone upstream, catering to larger buyers that spend more money. It makes sense. Fiverr, which generates revenue by taking a percentage of each transaction on its platform, will make a lot more money from a company spending hundreds or thousands of dollars versus an individual buying a logo gig for $50.
Fiverr has spent on building its tools to accommodate enterprise clients, including pre-screening talent, software tools to manage hired tasks, and more -- Fiverr's spend per buyer has grown from $170 in 2019 to $262 in 2022. Fiverr stands to benefit as one of the few known digital talent marketplaces (along with Upwork) and could benefit as enterprises lean into remote work and sourcing talent from the internet.
Some may view a potential recession as a headwind for Fiverr, which could be true as it could impact small businesses and other organizations Fiverr works with. However, it might also be a positive for the company's long-term direction if a recessionary market incentivizes companies to seek new talent sources (like Fiverr) to cut back on spending. It's much more efficient to hire freelance talent for a project than to bring an employee on, train them, and repurpose or fire them once the job is done.
Massive market opportunity
Don't underestimate the greenfield growth ahead of Fiverr. Management estimates its addressable market at $247 billion in the United States alone. But Fiverr is internationally focused, arguably due to its roots in Israel. The company is pushing into non-English speaking countries and operates in seven languages today.
There are an estimated 334 million companies in the world. The cool thing about freelancing is that the target audience is almost limitless. Fiverr's marketplace offers services perfect for the solo entrepreneur running an online store or the massive enterprise needing a team of workers to create an ad.
FVRR Revenue (Quarterly YoY Growth) data by YCharts
Yes, revenue growth has slowed dramatically following COVID-19. It looks like a hangover after pulling forward business during the pandemic and the resulting high comparable sales data it created. On a positive note, Fiverr's revenue hasn't shrunk, and that's potentially lost on some. Analysts believe Fiverr's mojo will return, estimating revenue could surpass $700 billion by 2027, more than double its trailing-12-month revenue.
Shares look very appealing here
Fiverr's stock exploded during the pandemic, but has collapsed 90% from its high. Today, there's a strong argument the stock is a bargain. If you value the company on its free cash flow, the stock trades at a price-to-free-cash-flow ratio (a price-to-earnings ratio with cash profits) of just 48. Remember that the company is still young and has just started generating cash flow in recent years.
FVRR Price to Free Cash Flow data by YCharts
It's a reasonable assumption that Fiverr will continue growing free cash flow faster as revenue grows more quickly than business expenses. PepsiCo trades at a similar free-cash-flow multiple, but is a slow and steady, mature company. The market might not realize Fiverr is as cheap as it is until revenue growth picks back up, but watch out when it does.
If you have the patience to see that through, Fiverr could be a stock worth considering. It's not easy to find quality companies with enormous growth opportunities, let alone at cheap valuations. If you think Fiverr checks those boxes, the stock is arguably a screaming buy today.
