Equities performed well over the past few years, but that will be cold comfort to Fiverr 's (NYSE: FVRR) shareholders. The tech company has seen its shares plunge by a whopping 90% in the past three years -- an abysmal performance by almost any metric. One could argue that investors should cut their losses, while those on the outside looking in had better stay far away from this stock. However, there is more to the story. There are excellent reasons to pick up Fiverr's shares on the dip, especially for patient investors. Let's discover what the company has to offer.
FVRR data by YCharts.
Helping power the gig economy
Fiverr benefits from an important trend: more people are looking for freelance work to generate supplemental income, match their unconventional lifestyles, enjoy the freedom it affords, or for some other reason. That suits employers' needs as well. Hiring freelancers is relatively quick and cheap compared to hiring full-time employees entitled to a host of benefits. However, finding qualified people isn't always easy. And for those workers looking for freelancing gigs, finding potential employers to market their skills to can be challenging.
That's where Fiverr comes in. The company's platform allows freelancers to create customized pages to market to potential employers, who also have access to ratings, reviews, samples, and other things that make it easier for them to pick the best candidate for the job. Everyone wins. Fiverr went public in 2019. Due to the pandemic, the company's business soared in 2020 and 2021, but things have slowed down considerably over the past two years, a familiar trend on Wall Street. Though revenue is still (mostly) moving in the right direction, growth rates have plummeted.
FVRR Revenue (Quarterly) data by YCharts.
On the other hand, Fiverr is now profitable. The company aggressively cut expenses and costs despite its top line not growing nearly as fast as it used to. That's a great sign for investors. If Fiverr's revenue growth accelerates and returns even near its pre-pandemic levels, the company's profits will soar. That's especially the case since Fiverr's gross margins remain excellent.
FVRR Gross Profit Margin (Quarterly) data by YCharts.
Why has the company not been profitable, with gross margins typically in the neighborhood of 80%? Like many relatively small companies, Fiverr had to spend a small fortune (by its standards) on sales and marketing expenses to get the word out about its business. The trajectory of the company's total expenses matches that of its sales and marketing costs in the past few years, almost to a T.
FVRR Sales and Marketing Expense (Quarterly) data by YCharts.
Translation: Fiverr has managed to turn in a profit partly because it's doing a better job of containing that category of expenses.
A long runway for growth
According to some projections, the gig economy will expand at a compound annual growth rate of about 16% through 2031. This trend will benefit Fiverr and other companies that help match companies with gig workers. Some specific developments are also providing a tailwind for the company. One is artificial intelligence (AI), the new big thing every company wants a part of. However, many do not have the budget that the largest and most prominent players in the AI industry have. Fiverr's platform is a potential solution for smaller businesses that can find AI experts on the website without breaking the bank.
According to the company's management, demand for AI services is growing faster than the rest of the business. As the company's CEO Micha Kauffman said:
AI continued to have a net positive impact on our business, as complex services continue to grow faster and represent a bigger portion of our business. Demand for AI-related services remained strong, as evidenced by 95% year-over-year growth in [gross merchandise volume] from AI service categories. Chatbot development was especially popular this quarter as businesses look for ways to lean into GenAI technology to better engage with customers.
Elsewhere, in a recent report, Fiverr surveyed 501 finance executives who spoke about a shortage of workers, including experts in AI and fintech , as a key industry challenge. Most of them are relying on freelancers to fill the gap. Here's the broader point: As long as there is a need for skilled, flexible workers, a platform like Fiverr will have a role to play. Considering the reputation it has already built, not to mention the company's network effect , there is an excellent chance that it will remain one of the leaders in the field for a long time.
In short, Fiverr is down but not out. Buying the company's shares right now could lead to superior returns.
Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Fiverr International. The Motley Fool has a disclosure policy .
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