Fiverr is a fascinating company. It’s one of the most well-known micro-gig marketplaces in the world. Fiverr has signed partnerships with major brands and celebrities, including Ikea, Red Bull, and Conde Nast. The company also just announced a deal that will see its services integrated into Amazon Alexa. As of last year, there were over 200,000 sellers on the platform with more than 1 billion gigs uploaded. Nevertheless, even with all these positives, investors should probably avoid Fiverr stock for a number of reasons. Here are five red flags to consider before buying Fiverr stock:
Fiverr Is a Dark Horse in a Marketplace That’s Shifting Towards Voice
Voice-first solutions are becoming increasingly prevalent, with recent estimates suggesting that voice could be a $41 billion market by 2022. While it’s difficult to say if this is the case for every industry, it certainly makes sense for micro-gig platforms that are largely transaction-related. One thing to note is that Fiverr’s main selling point is that it is accessible from any device, anytime, anywhere. Users can complete tasks from their computer or phone, and Fiverr’s services are even available on Alexa. However, voice is an increasingly important part of the equation. Fiverr has a solution for this, too, allowing users to order tasks using their voice via Amazon Alexa. However, as an industry shifts towards voice, Fiverr’s success is less certain. Voice-first solutions will mean that customers will be less inclined to browse and search through Fiverr’s category pages to find the right service.
Fiverr Has Suffered from High Customer Churn and Continues to Struggle with It
Fiverr has seen a high churn rate, and the company continues to struggle with it. Although churn rates are expected to be high on a micro-gig platform, they are significantly higher than expected. In fact, Fiverr’s churn rate is higher than all of its competitors, including Upwork and Freelancer. Annual churn rates, which include both new and existing customers, have been between 20% and 25% over the last few years. While it’s hard to state an ideal churn rate, it’s clear that the current rates are not sustainable for Fiverr. Fiverr has been trying to reduce churn in a number of ways. For example, the company has made it easier for customers to save their payment information. However, it’s unclear if these efforts are actually helping. For example, Fiverr recently reported that its churn rate for Q4 2018 was 20%, just a little lower than the historical average.
Fiverr is Dependent on Ad Revenue, Which Poses a Risk
Most micro-gig platforms are reliant on two sources of revenue: transaction fees and ad revenue. Fiverr is no exception, with ad revenue making up roughly two-thirds of the company’s total revenue. One thing to note is that transaction fees are more stable than ad revenue, which is notoriously unstable. Although transaction fee revenue doesn’t fluctuate as much, it’s comparatively small compared to ad revenue. That said, ad revenue is extremely important for Fiverr’s long-term success. Fiverr’s ad revenue is tied directly to the number of monthly active users (MAUs). This makes sense, since Fiverr’s ad revenue comes from selling ad space to third-party advertisers.
Fiverr’s Biggest Problem Is Finding New Talent
Fiverr has struggled to onboard new sellers. The platform’s organic growth has been heavily dependent on bringing in new sellers. Although Fiverr has seen some success in this area, it has been less than ideal. In part, this is because of the high churn rate mentioned above; churn means that Fiverr loses current sellers and struggles to keep new ones. However, there is also a lot of competition in the micro-gig marketplace, which makes it difficult to onboard new sellers. This is certainly true for Fiverr’s biggest competitor, Upwork, which has seen a huge increase in sellers since its acquisition by GoDaddy in 2015. Indeed, even though Fiverr is a much larger platform, it has not seen a comparable increase in users.
Final Thoughts: Should You Buy Fiverr Stock?
In conclusion, Fiverr is a fascinating company. It’s one of the most well-known micro-gig marketplaces in the world. Fiverr has signed partnerships with major brands and celebrities, including Ikea, Red Bull, and Conde Nast. The company also just announced a deal that will see its services integrated into Amazon Alexa. However, even with all these positives, investors should probably avoid Fiverr stock for a number of reasons. Fiverr is a dark horse in a marketplace that’s shifting towards voice, it has suffered from high customer churn and continues to struggle with it, it is dependent on ad revenue, which poses a risk, and it’s biggest problem is finding new talent.