This Stock Skyrocketed 750% in 2020. Here’s Why

Freelance gig economy stock

Author: Tim Phillips

January 22, 2021

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It’s often said that the economy and the stock market dance to different tunes. For example, even if the economy is doing poorly it doesn’t mean the stock market will follow suit. And vice versa.

Last year, that theory was proved correct beyond a doubt. As the global economy plunged into recession amid the Covid-19 pandemic, stocks in the US hit all-time highs.

As long-term investors, though, we want to identify the megatrends that are taking place in our world and ride on these winners.

In 2020, one strong-performing business that saw its stock price surge nearly 750% was Fiverr International Ltd (NYSE: FVRR), an online marketplace operator for digital freelance services.

Connecting the freelance world

Founded in 2010 by Israeli Micha Kaufman, Fiverr went public in the middle of 2019.

Simply put, Fiverr is riding on the “work-from-anywhere” phenomenon that has been gaining traction for years but truly exploded in 2020.

By connecting buyers and freelancers, businesses of all sizes that need specific services are now able to outsource them to a talent pool that is global in nature.

Now available in seven different languages, Fiverr has built a platform that is transparent on pricing and aims to bring an e-commerce approach to the world of digital-services-on-demand (see below).

Fiverr business model

Source: Fiverr International investor relations presentation, October 2020

A classic example of the “network effect”, Fiverr has been benefitting from more businesses and freelancers joining its platform over the past few years.

The company takes a service fee of 5% from buyers for any orders over US$20 while it also charges sellers 20% of the transaction value.

Fiverr has shown a consistent ability to scale as its platform has gone from 1.8 million active buyers in 2017 to 3.1 million at the end of the third quarter of 2020.

The company is also building out additional paid products on its platform, such as a subscription-based content marketing platform and a business management software service for freelancers.

Solid fundamentals

Although many companies had an amazing 2020, in terms of stock price performance, Fiverr particularly stood out.

Yet this was backed up by its fundamentals too as the company accelerated revenue growth from 43% year-on-year in the fourth quarter of 2019 to a whopping 88% year-on-year (with sales of US$52.3 million) in the third quarter of 2020.

On the margin side, the numbers look equally impressive. With Fiverr’s GAAP gross margin coming in at stonking 83.4% in its latest quarter, the company has also narrowed its GAAP net loss to US$0.5 million.

What’s even more encouraging is that Fiverr’s platform is going upmarket – in that buyers are not only interacting more with the platform but, more importantly, are also upping their spend (see below).

Fiverr buyer spend

Source: Fiverr International investor relations presentation, October 2020

Watching competitors

There’s no doubt that Fiverr has been successful so far in attracting both businesses and freelancers. However, it also operates in an increasingly competitive space.

One of the other big global players in the space is Upwork Inc (NASDAQ: UPWK). The company also had a great 2020 – up 250% – but it lagged Fiverr, despite taking in more in sales, mainly because of its slower revenue growth.

Watching how the space plays out will be interesting but with the gig economy’s total addressable market (TAM) estimated to be US$115 billion the opportunity is clearly big enough for multiple freelance platforms to thrive long term.

 

Disclaimer: ProsperUs Head of Content Tim Phillips own shares of Fiverr International Ltd.

About the Author: Tim Phillips

Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth. He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be. In his spare time, Tim enjoys running after his two year-old son, playing football and practicing yoga.