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More than a third of American workers are now part of the “odd-job economy,” which includes freelance jobs and independent contractors. This percentage could continue to climb as new job opportunities emerge on online platforms such as Fiverr (NYSE: FVRR) and Upwork (NASDAQ: UPWK).
Fiverr, which was founded eleven years ago, allows users to post or accept gigs that start at $ 5. Upwork, which merged two old platforms (Elance and oDesk) six years ago, connects businesses to freelancers.
Image source: Getty Images.
Fiverr went public in June 2019 at $ 21 a share, closed near $ 40 on day one, and is currently trading at around $ 230. Upwork went public in October 2018 at $ 15 a share, closed at around $ 21 on day one, and ultimately more than doubled to around $ 46 today.
Fiverr made bigger gains than Upwork, but we shouldn’t judge stocks by their past performance. Let’s take a fresh look at these two growing companies and see what the best overall investment is.
How do Fiverr and Upwork make money?
Fiverr generates most of its revenue through transaction fees and service fees. Its acquisition rate, or the percentage of each transaction it retains as revenue, fell from 26.7% in 2019 to 27.1% in 2020.
Fiverr generates around 70% of its market revenue in five countries: the US, UK, Canada, Australia, and New Zealand. Its platform offers more than 500 concert categories, including design, marketing and writing tasks.
Upwork generates most of its revenue from service fees for freelancers, which include transaction fees for payments and the sale of virtual tokens to bid on market jobs. It also charges its corporate clients fees for subscriptions and payroll services.
Upwork’s marketplace acceptance rate is significantly lower than that of Fiverr, but still fell from 13.1% in 2019 to 13.6% in 2020. Its market is divided into more than 70 categories and its freelancers are located in more than 180 countries around the world, although it has only a limited physical presence outside of the United States.
Which platform is growing the fastest?
The pandemic generated favorable winds for both Fiverr and Upwork as people relied more on remote work and freelance work opportunities.
Image source: Getty Images.
Fiverr’s revenue rose 77% to $ 189.5 million in 2020. It ended the fourth quarter with 3.4 million active buyers, up 45% year-over-year, its average spend per buyer increased 20% to $ 205.
Its adjusted gross margin increased from 81% in 2019 to 83.7% in 2020 thanks to strong revenue growth and higher participation rate, and it recorded non-GAAP net income of 10.4 million. of dollars for the full year, compared to a loss of $ 16.8 million. in 2019.
It also generated positive Adjusted EBITDA of $ 9.1 million, compared to a loss of $ 18 million in 2019.
Upwork’s revenue grew 24% to $ 373.6 million in 2020. Its GSV (gross service volume), which measures the total amount spent by its customers and users, increased 21% to $ 2.5 billion.
Its full-year gross margin increased from 71% to 72% thanks to its higher recovery rate and revenue growth. Its non-GAAP net income rose 11% to $ 6.1 million, and its adjusted EBITDA jumped 89% to $ 14 million.
These growth rates are impressive, but the two companies are not profitable by GAAP measures. Fiverr’s net loss fell from $ 33.5 million in 2019 to $ 14.8 million in 2020, but Upwork’s net loss fell from $ 16.7 million to $ 22.9 million.
Pink expectations
Fiverr predicts that its revenue will increase by 46-50% in 2021 and that its Adjusted EBITDA will increase by 98% to 131%. Wall Street expects its non-GAAP revenue and profits to grow 52% and 31%, respectively, this year.
Fiverr plans to continue expanding its reach into categories and overseas markets, and believes its participation rate will improve “modestly” as it rolls out new features for freelancers and incorporates its recent takeover of Working. not Working, a high-end market for creative talents.
Upwork expects its revenue to grow 23% to 26% in 2021 and has reiterated its goal of generating over 20% revenue growth over the long term. Analysts expect its revenue to grow 25% this year.
Upwork expects its Adjusted EBITDA growth to remain stable midway as it continues to expand, but analysts expect it to cut its non-GAAP losses per share this year .
But watch out for frothy ratings
Fiverr is trading at over 190 times forecast earnings and nearly 30 times this year’s sales. These high valuations could limit its upside potential, especially as higher bond yields cause a rotation from growth stocks to value stocks.
Upwork looks cheaper with 12 times this year’s sales, but it’s still more expensive than other tech stocks that generate comparable growth rates. Salesforce, for example, is expected to generate 21% sales growth this year, but is trading less than eight times more than expected.
Choose value over growth
Fiverr’s growth rates are impressive, but I don’t want to pay the wrong price for the right company in this volatile market. Upwork’s action doesn’t come cheap, but I think its better balance of value and growth will make it a safer game for the expanding gig economy this year.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.
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