Fiverr International Ltd. (FVRR, Financial) witnessed remarkable growth during the Covid-19 pandemic, capitalizing on the surge in remote work and freelancing as businesses grappled with cost pressures and layoffs. The gig economy, once propelled by the unprecedented events of 2020, now stands at a crossroads. While Fiverr's growth trajectory has been impressive, with exponential growth in its user base and services offered, it has faced a challenging year in the stock market, losing almost 17% of its market value so far in 2023. Although tech stocks have made a soaring comeback, Fiverr has remained under pressure because of the deteriorating investor sentiment toward companies that benefited from the surge in work-from-home arrangements over the last few years.
Impact of economic landscape and remote work challenges
Fiverr's recent struggles in the face of decelerating growth can be attributed, in part, to the prevailing economic landscape of 2023. While higher interest rates have cast a shadow over many sectors, the downturn in Fiverr's fortunes actually began in February 2021. At that time, skeptics among investors and analysts raised doubts about the sustainability of Fiverr's rise, characterizing it as a result of a temporary health crisis rather than a long-term economic trend. In hindsight, these skeptics appear accurate as Fiverr now grapples with the challenges resulting from the economic reopening, supply chain disruptions, and higher interest rates.
Mobility restrictions in 2020 coincided with mass resignations, with employees reevaluating their work-life balance and seeking opportunities for remote work or flexible arrangements. While these new work models and added benefits enticed many back into the workforce, they presented operational hurdles for companies. Maintaining effective communication and collaboration among distributed teams became a formidable challenge, complicating task coordination and feedback sharing. Additionally, remote work posed risks to data security, employee productivity, and well-being, as individuals contended with distractions, isolation, and potential overwork.
Shift back to in-office work and its impact on Fiverr
In response, some companies have been eager to end remote work arrangements, asserting that productivity, collaboration, and employee engagement suffer without the physical office. This shift has been facilitated by a cooling labor market, which has reduced workers' bargaining power. Fortune reported a substantial 60% of employees have returned to the office full time, with younger workers, in particular, grappling with burnout in hybrid or remote setups. Employers acknowledge this issue, with 65% recognizing the challenge of balancing time effectively and 30% believing that office workers spend excessive time on personal activities during working hours.
Fiverr's financial performance mirrors these broader economic shifts. In the second quarter of 2023, the company reported revenue of $89.4 million, reflecting a year-over-year growth of 5.1%. This represents a notable deceleration from the 13% year-over-year growth witnessed in the second quarter of 2022. Other metrics further underscore the company's slowdown, with active buyers (up 0.3%) and spend per buyer (up 2%) registering tepid increases compared to previous periods.
Impact of AI
Beyond these economic factors, investors are also expressing concerns about the rise of generative artificial intelligence, which has demonstrated the capability to disrupt traditional roles. However, it is important to note that AI will not entirely replace all roles, and new opportunities may arise in response to these technological advancements. In fact, data from Indeed reveals a remarkable surge in job postings related to generative AI, with an almost 250% increase on its platform from July 2021 to July 2023. Further, LinkedIn's June survey of executives suggests a continuing rise in demand for AI freelance experts. Approximately 44% of U.S. executives expressed their intentions to expand the utilization of AI technologies in the next year, with 47% anticipating enhanced productivity as a result. During the second quarter, Fiverr expanded its offerings by introducing over 20 new AI-related services categories, including Voice Synthesis & AI to deliver voice-related solutions and Chat Conversation Scripts offering customized, high-quality scripts to enhance customer chatbot interactions.
Return-to-office policies and their impact
The post-pandemic push for a full return to office work has yielded mixed results for employers, with some facing the unexpected consequence of losing valuable talent. A recent comprehensive report encompassing 9,500 employers and 6,650 employees across 17 global markets has shed light on this evolving workplace dynamic. According to the findings of this report, 42% of companies that mandated a return to physical office spaces reported higher-than-expected attrition rates. Even more concerning is that 21% of these companies witnessed the departure of key personnel as a direct result of their return-to-office policies. The repercussions extend further, as 29% of companies that enforced mandatory office returns now find themselves grappling with recruitment challenges.
Productivity trends and employee preferences
These findings challenge the narrative that flexible work arrangements, such as remote and hybrid setups, negatively impact productivity. Data from the Bureau of Labor Statistics in the United States reveals a different story. Employee productivity showed an impressive increase of 4.4% in 2020 and a substantial 2.2% in 2021, before experiencing a slight dip in 2022. However, in 2023, labor productivity has rebounded, growing by 3.7% during the second quarter and showing a 1.3% increase compared to the previous year.
Even when companies manage to convince their employees to come back to the office, they may find that the once-cherished five-day work week is a thing of the past. The majority of employees now express a clear preference for hybrid work models. A recent Bankrate survey of over 2,000 U.S. adults found that approximately 68% of full-time workers support a hybrid work schedule, which includes at least one day of remote work and the remaining days in the office.
Fiverr's study on work preferences
In line with these shifting preferences, Fiverr conducted a global study involving 9,129 workers, both employees and freelancers. This study, conducted in partnership with Censuswide, offered insights into the widespread appeal of flexible work arrangements and the growth of the freelance workforce, which is projected to comprise 50% of the U.S. workforce by 2030.
Notably, the survey found that 32% of workers prefer the option to work from home or select their workplace each day. Baby Boomer employees were particularly inclined toward flexible or remote work, with 40% favoring either working from home or choosing different locations based on their daily needs. In contrast, Millennials and Gen X respondents exhibited a lower preference for this type of flexibility, at 29% and 32%, respectively. A significant 76% of respondents who indicated dissatisfaction with their current work setup attributed it to being required to spend more time in the office than they would prefer.
Financial performance and future projections
Despite these evolving workplace dynamics and relatively slow revenue growth, Fiverr has managed to reduce its operating and net losses significantly. The company is benefiting from the complex factors reshaping the modern world of work, where retaining talent, accommodating flexible arrangements and optimizing productivity are critical challenges for companies to navigate. The company now estimates revenue growth of 8% to 12% in the third quarter.
International Expansion
Fiverr's strategic vision remains firmly fixed on international expansion, with a keen focus on key European markets, including the U.K., Germany and France. These countries present growth opportunities for the platform, and each boasts unique dynamics within the freelancing landscape.
In the case of France, Fiverr stands as one of the most popular hubs for freelancers in Europe. The nation hosts an estimated 3.2 million professionals who engage in full- and part-time freelancing, a remarkable 10% of the European Union's 33 million-strong freelancer community. According to the National Institute of Economic Statistics and Studies, France is home to approximately 3 million part-time or full-time freelancers and independent business owners. Notably, self-employment accounts for 13% of the French workforce, with a higher prevalence among men at 15.6% compared to women at 9.5%. Statista data further highlights the prosperity of the freelancing sector in France, with tech freelancers commanding average daily rates surpassing 500 euros, underscoring the economic vitality of this segment. The United Kingdom, on the other hand, boasts a freelancer population exceeding 4.2 million individuals.
Further, over the past three decades, the number of freelancers in Germany in professional services has experienced a remarkable tripling, climbing from 0.5 million to 1.5 million. This growth trajectory has been unwavering and persisted through 2022, indicating the trend shows no signs of slowing down. Despite a lower unemployment rate and a more traditional approach to work culture, Germany has also witnessed a surge in freelancers. Data from the Federal Statistical Office reveals a 30% increase in freelancers over the past decade, signaling a paradigm shift in how work is structured and organized in the country.
For Fiverr, these thriving freelancing ecosystems represent a meaningful opportunity to tap into the evolving dynamics of the gig economy in these nations.
Investment takeaway
Considering the prevailing market sentiment, Fiverr presently offers an attractively valued investment opportunity. The evolving landscape of the gig economy, shaped by the transition from traditional office work to post-pandemic remote and flexible arrangements, is set to drive increased demand for gig workers. This shift redefines the gig economy, enabling individuals to pursue their passions while offering their talent to companies. Despite ongoing challenges, Fiverr maintains a strong financial position, with growing revenue and narrowing losses. As the frontrunner in the gig economy and with strategic expansion in key growth markets, Fiverr seems well-positioned to reward shareholders handsomely in the long run. Although short-term challenges are likely to limit the upside potential in the foreseeable future, long-term-oriented investors may find this pullback to be a good opportunity to invest.
