Fiverr International (FVRR 1.00%) chose an interesting time to become a publicly traded company. The online marketplace for freelancers started trading in mid-2019, about nine months before the official start of the COVID-19 pandemic. The outbreak created strong demand for Fiverr's services, leading to its share price soaring in 2020 and early 2021. However, the company has been southbound pretty much since. Still, there are good reasons to invest in Fiverr's stock, especially for investors whose time horizon extends to five years and beyond. Let's consider some of those reasons.
Massive progress on the bottom line
Fiverr experienced at least two significant issues once its pandemic-related boom came to a screeching halt. First, top-line growth slowed considerably. Second, it remained deeply unprofitable. Even in a normal environment that's a bad combination for any company. Fiverr could have pursued a "growth at all costs" strategy, pouring money into efforts to improve revenue growth without caring about what these initiatives would do to the bottom line.
However, management went in a different direction. Fiverr opted for a more disciplined approach, choosing instead to carefully manage and even cut expenses and costs. As a result, the company turned in an annual net profit in 2023 -- a first in its relatively short tenure as a publicly traded company. Fiverr's net earnings per share last year was $0.09, compared to a net loss per share of $1.94 reported in 2022.
Reporting green on the bottom line should help the company's stock market performance, provided it can address its sales growth issues.
Plenty of whitespace in the industry
Last year, Fiverr's revenue came in at $361.4 million, roughly 7% higher than in 2022. Here's how that compares to previous years.
FVRR Revenue (Annual YoY Growth) data by YCharts
Can the company bounce back? Certainly, considering there should be plenty of room to grow in the industry. Fiverr makes it easier for freelancers to advertise their services to potential customers, which includes individuals who may need help completing a big project or companies that have recurring work in a field for which they don't want to hire a full-blown employee. Everyone involved in these transactions wins.
Freelancers need work, but building a website from scratch and doing marketing work is challenging. Fiverr's platform helps them save time since it is where people already looking for the kinds of services they offer go to find professionals. Businesses benefit from having skilled contractors they can call upon without going through the typical hiring process. They also avoid having to grant benefits employees are entitled to by law, from an hourly minimum wage to paid time off.
According to some estimates, roughly 51% of the U.S. workforce (86.5 million people) will be freelancing by 2027. That number was at 62.2 million in 2019. Not all freelancers do the kind of work that can be advertised on Fiverr, but the general growth of the gig economy is great news for the company. And though it does have some competitors, Fiverr benefits from the network effect: The value of its platform increases with use.
Businesses prefer having a large number of potential contractors to hire, so the more of them join Fiverr, the more it will attract these companies looking for talent. The same works on the other side of the equation: Freelancers want plenty of choices. Fiverr's network effect should allow it to grow its ecosystem over the long run. That, combined with the long runway for growth in the industry, should enable Fiverr to improve its top-line growth and start delivering solid financial results again.
The company sees a $247 billion addressable market. So, despite poor stock market performances over the past couple of years, Fiverr's improving bottom line, its network effect, and the opportunities available in its market make it a solid tech stock to buy and hold through 2034.
