If You Invested $5,000 in Fiverr in 2019, This Is How Much You Would Have Today

Fiverr International (FVRR 3.74%) has taken investors on a wild ride since its public debut on June 19, 2019. The Israel-based gig-economy marketplace priced its initial public offering (IPO) at $21, and its stock opened at $26 before ending its first trading day at $39.76.

That was a massive gain, and Fiverr's rally continued throughout the buying frenzy in growth and meme stocks in 2020 and 2021. On Feb. 12, 2021, its stock closed at its all-time high of $323.10. But today, it trades at about $24.

Image source: Getty Images.

In other words, a $5,000 investment in its IPO would have blossomed to nearly $77,000 before withering back to about $5,700 today. The same investment in a simple S&P 500 index fund would have grown to more than $7,400 during the same period. Let's see why Fiverr lost its luster and underperformed the market by such a wide margin.

Why did the bulls abandon Fiverr?

When Fiverr went public, it dazzled investors with its explosive growth and early-mover's advantage in the expanding gig economy. The pandemic then lit a fire under its business as more people took on freelance and remote jobs.

Fiverr's revenue rose 45% in 2018, 42% in 2019, and 77% in 2020. Its number of active buyers (the businesses looking to hire) grew from 2 million at the end of 2018 to 3.4 million at the end of 2020.

When the stock hit its all-time high in February 2021, its enterprise value reached $11.5 billion, 39 times the revenue it would go on to generate in 2021. That nosebleed valuation made it an easy target for the bears as its growth cooled off and rising interest rates drove investors toward more conservative investments.

How ugly was Fiverr's slowdown?

Over the past two and a half years, its growth in active buyers, annual spend per buyer, and total revenue slowed to a crawl.

Data source: Fiverr. YOY = Year over year.

That slowdown was initially caused by difficult comparisons to its growth spurt during the pandemic. But throughout 2022, many businesses reined in their spending and hired fewer freelance workers to cope with the tougher economy.

As the company grappled with those challenges, the rise of generative artificial-intelligence (AI) platforms like ChatGPT cast dark clouds over its future. The bears believe AI will eventually replace a lot of gig-economy jobs and throttle Fiverr's long-term growth. It insists it can keep pace with that shift by adding more AI-related fields to its marketplace, but that strategy might not fully offset its decrease in human workers across other fields.

Fiverr expects its revenue to rise 6% to 8% in 2023 as the economy stabilizes, but that would still represent its slowest growth rate since its IPO. Upwork (UPWK 3.40%), a larger gig-economy marketplace that generated roughly twice as much revenue as Fiverr in 2022, expects its revenue to rise 8% to 9% in 2023. It's usually not a promising sign when an underdog is growing slower than a market leader.

Is there a silver lining?

Fiverr's top-line growth is unimpressive, but its take rate (the percentage of each transaction it retains as revenue) continues to rise as it expands its value-added Promoted Gigs and Seller Plus programs. During its latest conference call, chief financial officer Ofer Katz said it was "seeing healthy growth and adoption from both programs."

Data source: Fiverr.

That rising take rate and its cost-cutting measures boosted its margins in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to double-digit levels in the first half of 2023. It expects its adjusted EBITDA margin to more than double year over year to a midpoint of 16% in 2023, and eventually reach 25% over the long term. It also squeezed out a slim profit on the basis of generally accepted accounting principles (GAAP) in the second quarter of 2023.

Is Fiverr a contrarian buy?

With an enterprise value of $1.3 billion, Fiverr now looks reasonably valued at four times this year's sales and 22 times its adjusted EBITDA. By comparison, Upwork trades at two times this year's sales and 31 times its adjusted EBITDA.

But Fiverr probably won't attract a lot of bulls again until the economy improves, the AI fears fade, and its top-line growth stabilizes. It's a stock to keep an eye on, but I wouldn't call it a contrarian buy until more green shoots appear.