This Small-Cap Stock Could Ride the AI Tailwinds to Market-Beating Returns. Time to Buy?
Once hailed as a beacon of success in the early days of the pandemic, Fiverr International (NYSE: FVRR) has seen better days. The company’s stock has plummeted, currently sitting 93% lower than its peak in February 2021, casting doubt on its potential for long-term investment. However, the recent downturn in Fiverr’s fortunes, primarily due to fears that artificial intelligence (AI) might supplant the jobs its freelancers offer, seems to be a premature verdict on its future prospects.
Fiverr operates as a marketplace for freelance services, facilitating connections between those seeking services and those providing them. The platform not only makes transactions easier by handling payments, correspondence, and troubleshooting but also ensures a smooth experience for both buyers and sellers, earning a fee from each transaction for its services. The demand for freelancing experienced a significant boost during the COVID-19 pandemic as lockdowns forced many businesses to operate remotely, subsequently propelling Fiverr’s growth. But as the world has started to open up, Fiverr’s explosive growth has cooled off, though its revenues have steadily grown, albeit at a slower pace.
Nevertheless, Fiverr has reached several key milestones in recent years, including becoming free cash flow positive in 2020 and achieving GAAP profitability shortly after. The company has managed to increase its take rate, indicating its continued value proposition to its users and suggesting potential pricing power.
As AI technologies become more prominent, concerns have been raised about their impact on Fiverr’s business model. Critics argue that AI could reduce the demand for freelance services offered on Fiverr’s platform. However, Fiverr’s management has countered these concerns by highlighting the new opportunities AI has brought to the platform. Notably, the demand for AI-related services on Fiverr surged by 95% year-over-year in the first quarter, with 10,000 AI experts offering their services to integrate AI technologies into various businesses. Moreover, the average spending per buyer has continued to grow, demonstrating Fiverr’s ability to scale its offerings to more complex and lucrative projects.
Looking at the bigger picture, Fiverr’s pivot towards facilitating more complex work underscores the platform’s long-term viability. By catering to larger companies and enterprise-level customers, Fiverr is positioned to capture a more significant portion of the market, ensuring its relevance in a rapidly evolving digital economy.
The investment case for Fiverr is further bolstered by its potential for renewed revenue growth. Analysts project that Fiverr’s revenue will grow at a steady pace in the coming years, with profitability amplifying the positive impacts of top-line growth on earnings. Additionally, Fiverr’s current valuation suggests a significant upside, trading at a forward P/E ratio of under 10, which could mean substantial gains for shareholders as the company’s financials improve.
In conclusion, while Fiverr has faced challenges, the company’s solid financial foundation and strategic positioning amidst the rise of AI technologies suggest a bright future ahead. For investors willing to look beyond the current fears surrounding AI’s impact on freelancing, Fiverr presents a compelling investment opportunity with the potential for market-beating returns.
