Fiverr International's (FVRR 0.25%) story is now familiar on Wall Street. The gig economy specialist saw its business and stock price experience a significant boom early in the COVID-19 pandemic. But the factors that led to increased activity on its platform have slowed, leading to lower revenue growth and a stock price in free fall for the better part of two years.
Fiverr's shares are down by 88% since July 2021. Still, there is much to like about the company's business, especially for those investors focused on the long game. So let's consider why Fiverr could be an outstanding buy-and-forget stock.
An increased focus on efficiency
Even when its revenue was growing rapidly in 2020 and 2021, Fiverr was not consistently profitable. But at least investors could ignore the red ink on the bottom line then since its top line was so impressive. Now that its revenue is not increasing nearly as fast, the market is punishing Fiverr accordingly. The good news is that management has focused on cutting costs and driving greater efficiency.
These initiatives seem to have paid off when looking at Fiverr's first-quarter results. The company's revenue increased by 1.5% to almost $88 million. However, the company's cost of revenue and operating expenses declined, leading to a net loss per share of $0.11 compared to the net loss per share of $0.46 reported in the prior-year quarter.
The company pledged to remain focused on efficiency so that investors can expect more of the same in the coming quarters. Another vital aspect of Fiverr's business is worth mentioning, namely the company's margins.
FVRR Gross Profit Margin data by YCharts.
Gross margins in the neighborhood of 80%, which Fiverr has been able to pull off over the past three years, are extremely attractive. As the company cuts operating expenses, it should be able to reach sustained profitability, but only if its revenue growth can rebound. Let's look into why we can expect that to happen eventually.
The gig economy is just getting started
Fiverr has built a popular platform connecting freelancers to businesses looking to hire someone to perform professional services quickly. The company had 4.3 million active buyers as of the end of the first quarter, an increase of 0.3% year over year. But the gig economy isn't just some pandemic trend that will fade eventually. Instead, freelance work has grown in popularity in recent years.
For instance, while overall job growth in the U.S. economy was 1.1% between 2010 and 2020, freelance job growth was at 15%; by then, there were 59 million people who took part in the gig economy in the country.
It's not surprising that more workers are switching to this option. It grants people flexibility and greater control over their schedules. The 9-to-5 model does not fit a lot of people's lifestyles. Businesses also benefit since hiring freelancers who aren't entitled to benefits and paid time off is faster and cheaper than getting employees on board.
As one of the leading companies in this niche -- and having already developed a reputation -- Fiverr should continue to attract more businesses and freelancers. Fiverr's website serves another critical purpose: It saves freelancers the trouble of doing a lot of marketing themselves. Creating a website full of samples of your work from scratch to attract potential customers is harder than posting the same samples on a website where people will come looking for the services you provide.
Meanwhile, Fiverr's platform increases in value as more people join since more businesses attract more workers and vice versa. This competitive advantage is another reason to expect Fiverr's user base and revenue to continue on the right path.
Worth the wait
Will Fiverr beat the market in the next year? Given the challenges it faces and the difficult economic conditions, probably not. But over the next decade, that's a different story. The gig economy is expanding rapidly, which will eventually trickle down to Fiverr's top-line growth.
And while some worry that the rise of AI chatbots like ChatGPT will be a problem for Fiverr since it could replace a lot of the jobs that are advertised through its platform, the company reported that AI-related gigs have increased tenfold in the past six months alone.
Management believes AI will be a net benefit for Fiverr, not a net negative. Meanwhile, with the company's cost-cutting measures and high gross margins, profitability should come well before the end of the next decade. Thanks to these dynamics, Fiverr is well-positioned to reward patient investors through the next 10 years and perhaps well beyond that.
