Can Fiverr Stock Double With the Gig Economy Boom?

Online freelance service platform Fiverr (NYSE:FVRR) was one of the original bastions of the gig economy. Started in 2010, the company became famous for its simple $5 online jobs that spanned a wide range of creative and professional services.

Today, Fiverr has grown into a serious platform for higher-value tasks but the company’s shares have performed much less well.

Going public in 2019, FVRR shares initially traded at $21 but by 2021 the stock got swept up in the growth stock craze that sent shares of most tech companies rocketing wildly upward. At its highest point, Fiverr traded at over $320 per share. Now, shares exchange hands for less than 10% of that number.

Given the mismatch between share prices and the company’s performance and the ongoing boom in the gig economy, Fiverr is an extremely interesting stock. Can FVRR shares regain upward momentum or will it continue to generate losses for shareholders?

What’s Happening in the Gig Economy?

The gig economy has seen massive growth in the last few years, rising from a total of about $204 billion in 2018 to $455 billion last year.

Though much of the growth during this period came about as a result of the unusual circumstances in the 2020-21 period, the burgeoning trend in the gig economy isn’t expected to abate anytime soon. By 2028, the number of freelance workers in the United States is expected to reach over 90 million, up from about 76 million this year.

While much of this ecosystem centers on tasks like ride-sharing and product delivery, a large portion of it is also made up of the skilled, white-collar jobs typically offered through Fiverr. As with the gig economy at large, this segment is still seeing rapid growth.

How Well Is Fiverr Performing?

Much like the gig economy as a whole, Fiverr has enjoyed strong growth in recent years. In 2019, the company’s revenue totaled $108 million. As of June 30th of this year, trailing 12-month revenues totaled $374 million, more than triple what the company was generating just five years ago.

Fiverr also became reliably profitable during this time, though the first full 12-month period of profitability wasn’t achieved until the end of 2023. As of the end of Q2, the company’s trailing 12-month net income was $12 million.

In Q2, Fiverr’s continued growth was moderate but steady. Revenue rose 6% year-over-year to $94.7 million, even as the number of active buyers on the platform fell by 8% compared to the year-ago period. The fact that Fiverr posted positive revenue growth amid this decline in buyers is attributable to the fact that the remaining buyers increased their average spending by about 10%.

The real story, though, was in net income per share. In Q2 of 2023, Fiverr reported diluted earnings per share of a single penny. This year, that number had risen to $0.09 per share. Free cash flow also increased by 12.5% year-over-year, another signal of fundamental improvement for the freelance platform.

Looking to the future, Fiverr is expected to hold steady where growth is concerned. Management expects full-year revenues of between $383 and 387 million, a slight increase from the current trailing 12-month total.

The management team is also looking to expand available services into much more specialized and lucrative niches. Recently, for instance, the company announced that it would add financial services to its list of available white-collar service jobs. Businesses will now be able to hire accountants, analysts and even freelance CFOs through the platform.

This shift toward higher-value gigs has helped Fiverr derive progressively more value from its buyer base. As of Q2, average spending per buyer reached $290. Though the minimum price of a Fiverr gig remains at $5, this higher spending reflects the increasing presence of high-dollar jobs on the platform.

Is Fiverr Undervalued?

It’s fairly clear that the growth of the gig economy provides growth tailwinds growth for Fiverr. Whether the stock will double as a result depends to a high degree on if it is fairly valued today. Fiverr shares currently trade at about 11x the trailing 12-month EPS of $0.29. This figure is actually quite low, especially for a company that is still managing to achieve a positive growth rate.

Combined with a 2.7x price-to-sales ratio, this suggests that FVRR may well be undervalued. The price-to-cash flow ratio of 51.7x somewhat tempers this argument for substantial undervaluation.

Looking to analysts’ price targets, the median price for FVRR in the coming 12 months is $32 per share, representing a gain of 22.5% from the last price of $26.12.

Given that even the most bearish forecast puts the stock at $25 and implies a loss of less than 5%, it seems that Wall Street sees much more potential upside than downside in Fiverr’s case. All things considered, Fiverr appears to be either fairly valued or moderately undervalued.

Can Fiverr Stock Double?

Fiverr stock is unlikely to double based on the consensus of 21 analysts who have a price target of $31.50 per share.

With the gig economy still growing, Fiverr’s revenues increasing and a reasonable valuation, there is a decent argument that FVRR may well double over a longer term.

The stock’s modest price multiple to earnings likely means that shares will move higher as earnings move higher. If earnings double from their presently low but rising levels, therefore, it seems reasonable to suppose that FVRR shares could more or less follow suit.

Investors need to keep in mind that there’s little certainty when it comes to Fiverr. The stock has been wildly overvalued in the past, and the market has clearly soured on it in subsequent years. Bears are quick to point out both the company’s slow revenue growth rate and its extremely high stock-based compensation, both of which could exert downward pressure on share prices. AI is also a long-term risk for Fiverr, as an increasing number of low-value tasks could eventually be replaced by inexpensive AI tools.

Macroeconomic trends, however, seem to be on Fiverr’s side. If the company can continue to add new and valuable services to its platform while continuing to expand its earnings, the stock seems to be priced with a decent amount of room to run. Furthermore, AI has yet to demonstrate much in the line of job-killing capabilities. Though Fiverr carries its fair share of risks, the stock could be worth buying for growth investors who are bullish on the future of the gig economy.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.