Fiverr International (FVRR 3.74%) and Duolingo (DUOL 3.64%) both experienced accelerating growth in 2020 as the pandemic forced more people to stay at home. Many of those people picked up more remote jobs on Fiverr's online marketplace for gig workers, while others took language classes on Duolingo's app.
That robust growth, along with the buying frenzy in growth and meme stocks, lifted both stocks to their all-time highs in 2021. But today Fiverr and Duolingo trade about 90% and 20% below those record levels, respectively. Both companies faced slowing growth in a post-pandemic market while rising rates popped their bubbly valuations.
Image source: Getty Images.
Should you buy either of these fallen tech stocks today? Let's take a fresh look at their business models, growth rates, and valuations to find out.
Fiverr faces several threats
Fiverr's revenue grew 77% in 2020 and 57% in 2021 as more people accepted remote, freelance, and contract jobs, but only rose 13% in 2022 as the pandemic ended and the macroeconomic headwinds led many companies to hire fewer workers. It expects that slowdown to deepen with just 6% to 8% revenue growth in 2023.
Upwork, a larger gig economy marketplace that generated about twice as much revenue as Fiverr in 2022, expects its revenue to rise 8% to 9% in 2023. It's generally a red flag when the underdog is growing slower than the market leader.
Meanwhile, the rise of generative AI platforms like OpenAI's ChatGPT could represent an existential threat to Fiverr's future. If more companies start to replace human writers, designers, and coders with AI services, Fiverr's growth could stall. The company insists it will offset that pressure with new positions for AI-related fields, but it's impossible to tell if that shift can fully replace its potential loss of job openings.
On the bright side, Fiverr's take rates are still rising and it expects its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margin to more than double from 7.2% in 2022 to a midpoint of 16% in 2023. It attributes that expansion to layoffs and other cost-cutting efforts.
With an enterprise value of $978 million, Fiverr doesn't seem expensive at 17 times this year's adjusted EBITDA. But it will also likely remain cheap until it overcomes its macro, competitive, and AI-related challenges.
Duolingo sees a milder post-pandemic slowdown
Duolingo operates a freemium model, which offers free access to its app while providing ad-free access and additional perks to its paid users. It also provides an English proficiency test for non-native speakers as a stand-alone product.
The company's revenue rose 128% in 2020, 55% in 2021, and 46% in 2022. Its post-pandemic slowdown was exacerbated by a temporary suspension of its app in China that started in 2021, but it was allowed to return to the country's app stores last June.
Duolingo expects its revenue to rise 19% to 20% in 2023. Its growth is gradually cooling, but it doesn't face as many competitive or AI-related challenges as Fiverr.
Duolingo's simplified app still stands out in a market filled with complex online learning programs, and it's using generative AI as a tool to develop more content for its online courses.
Duolingo's margins are also expanding. Its adjusted EBITDA margin rose from negative 24% in 2021 to positive 3.6% in 2022, and it expects that figure to rise to a midpoint of 14.5% in 2023. Unlike Fiverr, that expansion won't be driven by layoffs. Instead, it attributes that growth to its improving scale and conversions of free users to paid users.
But Duolingo still isn't cheap relative to its growth. With an enterprise value of $6.2 billion, it's still valued at 83 times this year's adjusted EBITDA. That high valuation could limit its upside potential in this challenging market for growth stocks.
The winner: Duolingo
I wouldn't rush to buy either of these stocks right now, but it's easy to see why Duolingo fared better than Fiverr over the past two years. Duolingo is growing faster, it faces fewer competitors, and it will likely benefit from the growth of the AI market. Those three strengths should make it a better buy than Fiverr for the foreseeable future.
