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Fiverr: Explosive Growth with a Bright Future

Fiverr has climbed 678% this year. In this analysis, we examine if the growth can continue in the short-term and also post-COVID.  Specifically, our research shows that Fiverr is leading its industry and outpacing its primary competitor, Upwork.  We look into why this might be and what the future could look like.

Background:

Fiverr’s platform transforms the traditional freelancer staffing model into an e-commerce-like transaction.  The company’s model is known as a Service-as-a-Product (SaaP) offering, where sellers can list their services in over 300 different categories and buyers can easily find and purchase these services with the click of a button.  Fiverr’s platform is a key engine in the rapidly growing gig economy, which is a free market system based on flexible, temporary, or freelance jobs.      

Massive Global Opportunity

US freelancers contributed $1.28 trillion to the American economy in 2018, a number nearly equal to the total GDP of Spain. While the gig economy was already a vast industry poised for explosive growth, the seismic trends toward remote work and more flexible working models brought about by the COVID-19 pandemic has accelerated the growth trajectory. 

Prior to the COVID-19 pandemic, the gig economy was growing 3x faster than the traditional workforce.  This trend has strengthened rather than diminished as the COVID-19 outbreak has provided a powerful tailwind to the gig industry. The gross volume of the gig economy is projected to reach $455B in 2023, a number that now seems conservative in the age of digital transformation.

The percentage of US workers participating in the gig economy is estimated to increase to 43% by the end of 2020.  Currently, about 64.8 million people freelance in the US, a number that is projected to grow to 90.1 million by 2028.

The question is what percentage of those gig economy workers will Fiverr be able to address.  A report containing 2018 data conducted by Mastercard shows that 40% of the total global gig economy workers in 2018 were involved in transportation based services such as Uber, Lyft, DoorDash, Instacart, etc.  This is an area of the market that does not apply to Fiverr. 

The data indicates that in 2018, there were 9.4M gig workers involved in professional services, which is the sector of the gig economy that Fiverr targets.  The professional services sector of the gig economy was projecting strong freelancer network expansion, with the number of gig workers involved expected to nearly double to 18.1M by 2023.  With Fiverr’s growth rate doubling in 2 quarters this year, it is evident that these projections have been pulled forward by an unexpected surge in demand.  

Note: PFRS – Professional Services       Source: Mastercard

There is a growing demand for gig workers in many companies, including major US companies.  Data according to a 2020 study conducted by Intuit shows that 80% of major US companies are planning to employ freelance labor at some point in the future.  This is good news for Fiverr, as buyers who spend over $500 annually now represent over 57% of their core marketplace revenue.     

Even bigger than the demand for companies seeking freelance labor is the number of individuals globally open to freelancing.  Workers, especially younger ones, seem to prefer freelancing over full-time employment because of the flexibility and independence it provides. 

Over 70% of FlexJobs freelance survey respondents identified a better work-life balance as the main reason they look for jobs in the gig market.  According to a MetLife study, more than 90% of Americans would consider freelancing or independent contracting work. 

In India and Mexico, 97% of people are open to freelance, contract, temporary, or independent work. In general, countries with a greater percentage of younger workers favor these alternative working models. 

Upwork’s research on gig economy trends shows that 42% of people aged 18-34 are engaged in independent work. By 2025, millennials will make up 75% of the world’s workforce. When we consider the fact that young people freelance more than any other generation, and are more interested in freelancing in the future, this suggests a very bright future is ahead for the gig economy.

Fiverr’s Market Leading Position

This data points to a positive future for Fiverr, as the internet has played a huge role in the freelancing industry and the growth of the gig economy. Payoneer’s Freelance Income Report shows that more than 70% of all freelancers find projects through gig websites.  Fiverr is positioned as the premier digital freelancing marketplace based off its tremendous topline revenue growth and user growth.  Global internet and engagement trends from Alexa show Fiverr’s site currently ranks 195th in traffic and engagement over the past 90 days.

Source: Alexa

Fiverr’s ranking has improved 102 spots over the past 90 days and is near its peak levels. 

In comparison, Fiverr’s biggest competitor, Upwork, ranks 592nd in global internet traffic and engagement over the past 90 days and has improved 59 spots. 

The Fiverr app is currently ranked 39th in “Business” on Apple’s app store and 26th on Google Play, while Upwork’s app is ranked 136th and 123rd respectively. 

Over the last 6 months, total visits to Fiverr have remained steady near 60M daily, ranking 520th globally.  

Source: SimilarWeb    

Total visits to Upwork have lingered in the 30M daily range, ranking 1,190th worldwide.  Additionally, Fiverr’s average visit duration is over 13 minutes longer than on Upwork, indicating that visitors are much happier using Fiverr’s platform.   

Over the past month, audience geography data from Alexa indicates that 29% of Fiverr’s visitors are from the US, 14% from Pakistan, and 13% from India.  Currently, Fiverr’s website ranks 9th in Pakistan and 92nd in India among global internet traffic and engagement over the past 90 days, signifying the truly global opportunity Fiverr is poised to address. 

In the UK, the gig economy doubled in size between 2016 and 2019 and now comprises 1 in 10 working age adults.  Fiverr’s presence in the UK is strong, as the app currently ranks 36th in “Business” on Apple’s app store and 26th in “Business” on Google Play.  In total, Fiverr is currently ranked as a top 100 “Business” app in 101 different countries on Apple’s app store and in 80 different countries on Google Play. 

Financials

With such powerful industry trends in play, Fiverr has excelled in its past couple quarters. In Q3, Fiverr accelerated its revenue growth rate to 88% YoY from 82% in Q2, and 44% in Q1

The implication here is that industry tailwinds have led to Fiverr doubling its growth rate in two quarters.  This was Fiverr’s 4th consecutive quarter of accelerating YoY growth.

Active buyers grew 37% YoY to 3.1M, after increasing 28% YoY in Q2. Spend per buyer reached an all-time high of $195, increasing 20% YoY.  Spend per buyer has increased annually every year since Fiverr initially launched, meaning 2020 will be the 9th consecutive yearly increase in the metric. 

In Q2, Fiverr turned adjusted EBITDA profitable for the first time, many quarters ahead of expectations.  In Q3, the company accelerated its profitability to $4.2M in adjusted EBITDA on an 8% EBITDA margin.  Management is expecting FY 2020 adjusted EBITDA profitability of $8.7M, marking an inflection point in the company’s history as they achieve FY profitability for the first time in their history. 

Fiverr raised its sales outlook considerably for Q4, now expecting $52.9M in revenue (+79% YoY).  For the full year, management is expecting $187M in revenue, a 75% annual increase.  It is very rare to see a company of Fiverr’s size ($6.3B) have that combination of growth and profitability, along with 84.4% gross margins and a sizable potential market to address.   

SaaS Model

In September, Fiverr launched a new platform called Fiver Business, which allows organizations to manage and collaborate across freelancer-powered projects.  This is Fiverr’s first venture into a subscription-based model, unlocking the potential for a predictable source of recurring revenue.  The goal is to connect organizations and freelancers so that businesses can seamlessly integrate freelancers into their existing workflow. 

Management was encouraged to announce in its Q3 Earnings Call that 50% of new registrations so far have invited other members to join their Fiverr Business account.  With that said, the recurring revenue will take some time as the company is offering it free for the first year after signup, after which it costs $149 annually for up to 50 users.  Fiverr management has described the offering as a “long-term initiative that is highly strategic to our business”.

Risks

The increased engagement of buyers on Fiverr’s platform has been one of the main reasons for the company’s outperformance recently.  However, many businesses looking for individuals to fill a need have sought freelancers because it is a more cost-effective approach than hiring new employees.

Fiverr, and the gig economy as a whole, has benefitted from high unemployment and low hiring numbers because companies are looking for ways to save money.  If companies need talent on a budget, freelancing becomes the most attractive option.

Similarly, with so many unemployed individuals looking for full time work, many have turned to freelancing for temporary income.  Retaining many of the buyers and sellers Fiverr added during the pandemic could prove to be difficult in a stronger labor market due to the potential pull-forward in demand.

Conclusion

Bill Gates recently predicted that 50% of business travel and over 30% of days in the office will go away even after the pandemic is over.  Companies like Shopify, Square, Twitter, Zillow, and more have already announced plans to allow their employees to permanently work from home. 

It is clear that the global trend towards remote work and digital transformation is permanent and will continue to be a long-term strategic investment for businesses of all sizes in the future.  Individuals and businesses alike are prioritizing freelancing more than ever before as both groups see the inherent value proposition.  While businesses covet frictionless access to a global talent pool, individuals increasingly want to choose the location where they work, the time in which they work, and what they do for work.  Fiverr offers the best product to address the growth of this market, as evidenced by the company’s industry leading growth numbers.    

DISCLOSURE: I am/we are long FVRR

Published inFinancial MarketsTech Stocks

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