Fiverr International (FVRR -2.00%) is a leading player in gig-labor marketplace services and has seen big valuation swings since going public in June 2019. The company's stock now trades down roughly 33% from market close on the day of its initial public offering, and the stock is off a staggering 92% from its lifetime high.
One green flag suggests that the company could bounce back and deliver strong returns for patient investors, but there's a crucial red flag that investors need to consider before taking the plunge. If you're considering adding shares of the gig labor specialist's stock to your portfolio, read on to see whether Fiverr stock is a worthwhile buy right now.
Green flag: Flexibility to pursue the gig economy opportunity
Fiverr's gig labor marketplace enjoyed surging demand as the coronavirus pandemic temporarily shut down offices and funneled workflows into digital channels. While the company has mostly seen these tailwinds evaporate, it's been well positioned to navigate these business shifts and adjust to macroeconomic pressures that are currently shaping its environment.
The gig labor specialist's non-GAAP (adjusted) earnings before interest, taxes, depreciation, and amortization (EBITDA) came in at $24.4 million last year, but the company foresees strong growth for the metric despite a fairly weak sales growth outlook. While the company expects sales to increase between 4% and 8% this year, it anticipates adjusted EBITDA will come in between $45 million and $55 million -- good for annual growth of approximately 105% at the midpoint.
Fiverr has an asset-light business model that should help it navigate an economic downturn and position itself to benefit when conditions become more favorable. The company has, probably wisely, cut back on sales and marketing spending when the overall market environment is less favorable for growth initiatives, and it may have opportunities to pursue more aggressive expansion as macro pressures ease.
According to research published by Market Reports World, the annual value of the gig economy is projected to grow from roughly $414 million in 2022 to $919 million in 2028. Hiring on a gig or longer-term contract basis offers businesses the chance to cut a variety of expenses, and it's possible that Fiverr's operational flexibility will allow it to navigate macroeconomic challenges and go on to enjoy stronger demand.
Red flag: AI is set to be a game changer
While the macroeconomic pressures facing Fiverr will likely lessen at some point, the rise of artificial intelligence (AI) is just heating up. There's no end in sight for the disruptive impact of these emerging technologies.
OpenAI's ChatGPT chatbot has already proven to be capable of generating high-quality writing, and the company's Dall-E image-generation service can also be used for creating visuals. Some image- and video-creation services are already even more advanced, and it's virtually certain that generative AI capabilities will continue to improve as new updates and services are rolled out.
Rather than turning to workers on Fiverr for writing or image-generation services, businesses might instead turn to ChatGPT, Dall-E, and other generative AI technologies for their needs. AI technologies will certainly create some opportunities and advantages for workers and buyers on Fiverr's platform, but the overall dynamic here does not look favorable.
Some other companies are already reportedly feeling the squeeze from generative AI tech.
For example, despite posting sales and earnings results that topped the market's expectations, Chegg saw its stock plummet after the company reported that the rising popularity of ChatGPT was hurting its ability to add new users. In response to the adverse impact from ChatGPT, the online education services specialist opted to withdraw its performance guidance for this year. Investors reacted by dumping the company's stock, and Chegg's share price is now down roughly 42% since the company published its Q1 results.
Fiverr could face similar challenges in the near term, and long-term impacts from the rise of generative AI could be even more devastating.
So is Fiverr stock a smart buy right now?
Fiverr played a key role pushing the gig economy forward, but it looks like content creation and other freelance labor services are set for massive upheaval. Generative AI poses a huge threat to the company's business model, and the rate at which these technologies are progressing and being adopted could rapidly close Fiverr's growth opportunities.
The gig labor specialist appears to be at high risk of disruption from ChatGPT and other AI services. Investors should probably steer clear of the stock until Fiverr demonstrates it can remain relevant as AI-generated content and services become increasingly ubiquitous.
