Shopify (SHOP -2.37%) and Fiverr International (FVRR -2.00%) both challenge the status quo for selling goods and services. Shopify's e-commerce services enable smaller merchants to set up their own online stores, process payments, fulfill orders, and manage their marketing campaigns without joining a crowded online marketplace like Amazon. Meanwhile, Fiverr is a gig economy marketplace that hosts hundreds of categories of writing, coding, media, marketing, and design jobs.
Shopify and Fiverr both saw their stocks hit all-time highs during the buying frenzy in meme and growth stocks throughout 2021. But as of this writing, Shopify and Fiverr trade about 64% and 91%, respectively, below those frothy levels.
Both stocks lost their luster as investors fretted over their slowing growth in a post-pandemic market. Rising interest rates exacerbated that pressure by driving investors away from higher-growth tech stocks.
Image source: Getty Images.
Should investors buy either of these stocks as a turnaround play before the next bull market starts? Let's take a fresh look at their near-term challenges to decide.
Shopify's post-pandemic slowdown could be ending
Shopify's revenue surged 86% in 2020 and grew 57% in 2021 as the pandemic drove more merchants to open online stores and more customers to shop online. Its adjusted net income also jumped 1,332% in 2020 and rose 66% in 2021.
But in 2022, Shopify's revenue only grew 21% as its adjusted net income plunged 94%. Its growth cooled off as the pandemic passed, and it ramped up its spending to expand its lower-margin Shop Pay and logistics businesses. Its acquisitions of 6 River Systems and Deliverr -- which were both aimed at expanding its logistics network -- also crushed its operating margins. That combination of slowing growth and rising costs drove a lot of bulls away from Shopify.
However, Shopify's revenue rose 25% year over year in the first quarter of 2023, and the company unexpectedly announced it would sell its entire logistics division to Flexport in exchange for a 13% stake in the private company. It also plans to lay off approximately 20% of its workforce to complement that divestment and stabilize its operating margins.
Analysts expect Shopify's revenue to rise about 20% this year as its adjusted EPS soars 675%. That stable outlook suggests it's reached the trough of its cyclical slowdown. Despite all those improvements, Shopify still faces intense competition from other similar services like Amazon's "Buy with Prime" buttons for independent merchants, Adobe Commerce, and BigCommerce -- and all that pressure could erode its pricing power and squeeze its gross margins.
Fiverr's growth is still decelerating
Fiverr's revenue surged 77% in 2020 and rose 57% in 2021 as the pandemic drove more people to accept freelance and contract work. It also turned profitable on an adjusted basis in 2020, while its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) increased 152% in 2021.
But in 2022, Fiverr's revenue and adjusted net income only rose 13% and 7%, respectively. In 2023, it expects its revenue to rise a mere 5% to 8% -- but it expects its adjusted EBITDA to roughly double as it reins in its spending.
As Fiverr's growth cools off, it faces longer-term concerns about ChatGPT and similar generative artificial intelligence (AI) services displacing a wide range of freelance jobs. CEO Micha Kaufman tried to allay those concerns during the company's latest conference call by saying that it doesn't "anticipate AI development to displace the need for human talent." Instead, Kaufman suggested the AI boom will drive a growing need for more freelance AI work for humans -- such as "verifying and editing" AI-generated content.
Fiverr also recently launched a dedicated AI services category for those positions. However, Fiverr's growth could stay sluggish for the foreseeable future -- and it still faces intense competition from similar freelance platforms like Upwork.
The valuations and verdict
Shopify and Fiverr's valuations cooled off a lot after their steep drawdowns. Shopify trades at 11 times this year's sales, while Fiverr trades at just 3 times this year's sales. Meanwhile, Shopify is pricer because brighter days seem right around the corner, while Fiverr seems cheaper because its downturn could easily last for at least another year.
I wouldn't rush to buy either of these stocks right now. But if I had to pick one, I'd definitely buy Shopify because it's growing faster, it's making tough calls to streamline its business, and it shouldn't be disrupted by the rise of generative AI platforms.
Fiverr could remain a top destination for gig economy workers, but I'm not fully convinced it's immune to the generative AI revolution -- which could easily disrupt a wide range of jobs across the writing, coding, media, and design industries.
