Could Fiverr International Become the Next Amazon?

Fiverr International (FVRR 3.74%) was one of the hottest growth stocks of 2020 and 2021. The Israel-based gig economy marketplace's shares closed at a record high of $323.10 on Feb. 12, 2021 -- up by a whopping 1,439% from its IPO price of $21 on June 19, 2019.

At the time, Fiverr's business was firing on all cylinders as the pandemic drove more companies to make use of remote freelance workers. But its growth pace cooled off as the pandemic's social-distancing phase passed, and the macroeconomic headwinds of the past two years drove many companies to rein in their spending on freelancers.

Fiverr bears also claimed that generative artificial intelligence tools like ChatGPT could reduce the market's long-term demand for freelance workers in certain fields, and rising interest rates popped the company's bubbly valuation.

Image source: Getty Images.

That's why Fiverr's stock now trades at about $29. But could it bounce back in a warmer macro environment and disrupt the labor market in the same way that Amazon (AMZN 3.43%) disrupted the retail sector?

Will Fiverr's growth accelerate again?

Fiverr's revenue increased by 45% in 2018, 42% in 2019, and 77% in 2020. The number of active buyers on the site rose from 2.0 million at the end of 2018 to 3.4 million at the end of 2020.

Those dazzling growth rates convinced the bulls to put a high premium on Fiverr's stock. At its peak, its enterprise value hit $11.45 billion -- or 38 times the revenue it generated in 2021.

But Fiverr couldn't maintain that premium valuation as behavior gradually reverted toward pre-pandemic norms. In 2022 and the first nine months of 2023, its year-over-year growth in active buyers, annual spend per buyer, and total revenue slowed to a crawl.

Data source: Fiverr.

Fiverr forecast that its revenue would rise 6% to 8% for the full year, and analysts' consensus expectation is for 7% growth. However, analysts expect its revenue to rise by 13% in 2024 and 17% in 2025 as the macro environment improves and the gig economy expands again. Those are pretty high growth rates for a stock that's trading at just 3 times next year's sales.

According to Business Research Insights, the global gig economy could still expand at a compound annual growth rate (CAGR) of 16% from 2021 to 2031. If Fiverr matches Wall Street's expectations and continues to grow its revenue at a CAGR of 16% from 2025 to 2030, it could generate about $1 billion in revenue in 2030.

Fiverr currently faces a cyclical slowdown, but its take rate (the percentage of each transaction it retains as revenue) is still climbing. The company's tighter spending also boosted its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margins to double-digit percentage levels over the past year.

Data source: Fiverr.

Fiverr's guidance range for its 2024 adjusted EBITDA margin has a midpoint of 16.3%, and analysts expect that margin will expand to 21.3% by 2025. The company is also expected to generate stable profits on a generally accepted accounting principles (GAAP) basis in 2024 and 2025.

But can it become the next Amazon?

Fiverr still has plenty of room to grow, but three issues will likely prevent it from becoming a game-changing growth stock in the category of Amazon.

First, Fiverr doesn't dominate the gig economy space in the same way Amazon dominates the e-commerce market. According to 6sense, Fiverr is the world's third-largest gig economy marketplace with a 14.9% market share. Upwork leads the market with a 25.7% share, while the invitation-only freelance platform OnSite ranks second with a 15% share. To become the "Amazon of gig workers", Fiverr would need to overtake Upwork -- and that could be difficult when Upwork is already generating twice as much annual revenue as Fiverr.

Second, the shift to gig economy workers isn't as seismic as Amazon's disruption of brick-and-mortar shops with its online marketplaces. Fiverr and Upwork are good places to hire extra help, but they probably won't ever fully replace direct job listings. Some companies could also prefer to automate certain tasks with AI tools instead of hiring more freelancers.

Lastly, Amazon subsidizes the expansion of its lower-margin retail business with the profits from its higher-margin cloud infrastructure business, Amazon Web Services (AWS). AWS is now the world's largest cloud infrastructure platform and Amazon's core profit engine. It's doubtful Fiverr will launch a comparable secondary business to support the growth of its gig economy marketplace.

Simply put, Fiverr might not ever become the "Amazon of freelance workers." Even so, it looks undervalued relative to its growth and could still be a great long-term play on the gig economy market.