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Recently, Barchart’s content partner The Motley Fool presented an argument that as a play on the gig economy, freelance marketplace operator Fiverr (FVRR) represented a superior investment over competing platform Upwork (UPWK). Fundamentally, both companies cater to the burgeoning gig economy. But is one freelancer network that much better over the other?
According to the aforementioned Motley Fool article, Fiverr takes the lead in terms of key performance metrics. Perhaps most significantly, Fiverr represents a growth machine. For example, its 2022 sales jumped 78% above the same figure from 2020. At the same time, free cash flow more than doubled. Notably, on a trailing-12-month basis, Fiverr’s revenue growth stands at 144.2% while Upwork’s growth comes in at 93.85%.
In addition, Fiverr’s platform benefits from strong business dynamics:
Meanwhile, the company keeps launching new services, such as the Fiverr Enterprise platform. Fiverr boasts 4.3 million active service buyers, far ahead of chief-rival Upwork's 827,000 active clients. And the company achieved this client growth while also charging a 30% take rate -- the percentage of fees, compared to the total value of services performed. By comparison, Upwork's take rate has never been higher than 16%.
While Fiverr does seem to make a compelling case for itself, it might be wrong to dismiss UPWK stock completely.
UPWK Stock Courts Favor as a Speculative Bet
Admittedly, FVRR stock presents tough competition. Even from a cursory look at the charts, FVRR makes a strong case for itself. On a decent session on Wall Street on Tuesday, FVRR managed to climb up nearly 6%. So far this year, shares have returned 6.7%, providing some confidence that the gig economy narrative may pan out.
On the other side, UPWK stock actually enjoyed the conspicuously better performance on the June 13 session, gaining a hair under 8%. However, the year-to-date read is where the wheels come off, with UPWK shedding more than 13% of equity value.
Nevertheless, for speculators, Upwork may be the more appealing prospect because it theoretically enjoys greater room to run. In addition, rumblings in the derivatives market appear to favor UPWK stock.
Following the June 13 close, UPWK stock represented a highlight in Barchart’s screener for unusual stock options volume. Specifically, total volume reached 6,255 contracts against an open interest reading of 34,115. Further, the delta between the Tuesday session volume and the trailing one-month average metric came out to 527.38%. Drilling down, call volume hit 4,816 contracts against put volume of 1,439.
To be sure, a single day’s action in the derivatives market shouldn’t define an entire investment thesis. However, market participants also shouldn’t ignore UPWK stock outright because it shares the same fundamentals as rival FVRR.
According to Business Research Insights, the global gig economy reached a valuation of $355 billion in 2021. Further, analysts at the thinktank believe that the segment will expand at a compound annual growth rate (CAGR) of 16.18% between 2022 to 2028. At the culmination of the forecast period, this sector could command a valuation of $873 billion.
As the Motley Fool remarked, “[t]he business opportunity of the gig economy is large, growing, and deeply inspiring. This market has room for plenty of long-term winners.” And while it views Fiverr as the likely winner, UPWK stock may still rise on the same relevancies.
Similar Financial Profiles
As stated earlier, Fiverr represents a growth machine. Nevertheless, this descriptor doesn’t really differ from that undergirding UPWK stock. In 2022, Upwork generated $618.3 million in revenue, up 65.5% from the $373.6 million posted in 2020. Certainly, Fiverr has the edge at 78% up for the same comparison. Still, it’s not a night-and-day difference.
Moreover, both companies struggle with profitability. In 2022, Fiverr incurred a net loss of $71.5 million. For Upwork, this loss amounted to $89.9 million. While the magnitude varies, at the end of the day, we’re talking about two companies that, for now, eschew profitability for the sake of growth.
In all fairness, Fiverr consistently stands in the black regarding free cash flow; the same cannot be said about Upwork. Another distinguishing factor is that from a utility standpoint, Upwork freelancers apparently complain bitterly about the lack of quality clients and low-paying contracts. It’s possible that the company could use a better vetting process for prospective clients.
However, this complaint could also be a distinction in a positive sense. Even for gig workers, everybody needs to start from somewhere. Perhaps Upwork can fill out the lower end of the gig economy spectrum (that is, the group of lower pay but higher volume opportunities), while Fiverr can dominate the upper and necessarily rarefied end.
Ultimately, if you’re seeking a long-term holistic portfolio targeting the gig economy, you probably can’t go wrong with either.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
