What happened
Shares of Fiverr International (FVRR -0.96%) fell by 28.3% in May, according to data provided by S&P Global Market Intelligence. The freelancer platform's shares had initially registered a year-to-date gain but, after the sharp fall in May, are now 8.7% below their level at the beginning of this year.
Image source: Getty Images.
So what
Fiverr released its fiscal 2023's first-quarter earnings showing that growth was slowing even more as the pandemic recedes. Revenue increased by just 1.5% year over year to $88 million, a far cry from the 27% year-over-year jump recorded in the first quarter of 2022. The good news is that operating and net losses both shrank significantly, although Fiverr had yet to turn profitable on both metrics. On another positive note, free cash flow continued to head up, soaring by 93.2% year over year from $6.8 million to $13.2 million.
There were other indications of a significant slowdown in the company's business. Active buyers inched up by just 0.3% year over year to 4.3 million, in contrast to the 11% year-over-year increase a year ago. Spend per buyer edged up just 4% year over year to $262, slowing down drastically from the 17% year-over-year growth witnessed in the same period last year.
Investors are now fretting over the rise of generative artificial intelligence (AI), as evidenced by the stunning popularity of OpenAI's ChatGPT. Such large language models have demonstrated the ability to easily produce text, content, graphics, and computer code, potentially replacing many freelancer roles on Fiverr's platform. If this trend takes hold, it will mean that Fiverr's customers will rely less on its platform to recruit suitable freelancers, as generative AI can easily fulfill such tasks.
Now what
Fiverr has revised its full-year 2023 revenue guidance upwards to a 5% to 8% year-over-year increase. The company also believes that freelancing continues to migrate to the digital world as the majority still happens offline, thereby giving it a long-term edge as it maintains its position as the No. 1 freelance brand. Fiverr estimates it enjoys a total addressable market of $247 billion in the U.S. alone, and this market could be even larger if the company expands its services to overseas markets.
However, with generative AI coming into the picture, investors must carefully scrutinize its impact on Fiverr's business and growth as certain freelancer jobs become obsolete. Fiverr, along with other freelancer platforms, may find it tougher to attract customers with the same kind of ease it witnessed during the pandemic, and its total addressable market may shrink as more jobs get replaced by AI.
