Which "Gig Economy" Stock is the Best to Buy?

January 18, 2022
By The Investing Insider Staff

Upwork Inc. (UPWK:NASD) and Fiverr International Ltd. (FVRR:NYSE) are revolutionizing the way people and businesses collaborate today.

These two companies have emerged as leaders in the gig economy, with millions of freelancers worldwide using them to make a living. Not only that, but these businesses are also addressing a variety of issues that employers and freelancers confront around the world.

Why is Freelancing Becoming Increasingly Popular?

A freelance job entails providing services to a person or company without the need for an employment contract or relationship.

Freelancers are self-employed persons who work in various businesses and provide various services. Some people work as freelancers full-time, while others use their freelancing enterprises to supplement their income.

In today’s economy, they serve a vital role for businesses.

For example, start-ups often have a limited budget.  As such, founders look for methods to decrease costs and locate services that are good value for money. In the same way, when it comes to creative design and development, start-ups typically look for better options than engaging an agency or forming an in-house team. In this situation, the creators have discovered the most cost-effective method of finding freelancers online.

The existence of a digital freelance marketplace not only provides start-up owners with a cost-effective alternative but also gives companies of all sizes access to a large pool of freelance professionals who have already worked with a variety of clients.

Source: Flexiple.com

Fiverr vs Upwork

The leaders in the freelancing marketplace industry haven't been in the spotlight for long, but they've already had a significant impact. Since the beginning of 2019, revenue at Fiverr has more than tripled while revenue at Upwork has nearly doubled.

The pandemic aided the growth, but the freelance industry was already benefiting from growth momentum.

The internet has enabled businesses and consumers to communicate with subject matter experts all around the world. They only need a marketplace to connect, which is exactly what Fiverr and Upwork have created. Today, they are among the most active and popular freelancing websites worldwide.

Business model comparison

Fiverr and Upwork have one main thing in common: they both offer a platform for freelancers and corporations to cooperate on digital services.

These platforms provide payment solutions as well as collaboration tools such as direct messaging, video calling, and so on. Fiverr and Upwork also generate revenue by charging fees to both customers and providers of services.

However, there are significant differences in how these businesses approach their target markets.

  • Upwork is organized in such a manner that freelancers must bid on tasks offered by businesses. In contrast, Fiverr operates in the opposite direction, requiring freelancers to create a "gig" and wait for potential buyers to contact them. Therefore, Fiverr prioritizes freelancers, while Upwork favors businesses looking for labor.
  • Upwork is “selective” in terms of freelancers that it lists on its platform—each freelancer must compulsorily verify himself before he could be listed, while anyone can freelance on Fiverr. This step has pros and cons.  While it may enable Fiverr to grow faster by way of ease of signup, it enables Upwork focuses more on the quality of work being done on its platform.
  • Upwork assigns a mediator to every dispute between sellers and buyers, whereas Fiverr prefers that freelancers and businesses resolve their disputes among themselves in most cases. However, Fiverr promotes discussions between businesses and freelancers to avoid disputes from taking place.
  • Fiverr provides a one-of-a-kind alternative for freelancers to market their gigs on the platform by competing for placement on the top page for certain search terms. On Upwork, it is solely based on the algorithm.
  • Fiverr focuses more on short-to-medium term projects, while Upwork focuses more on long-term contracts. This is why Fiverr has more transactions than Upwork.

Financial and operational overview

In 2020, Fiverr reported a net loss of $14.8 million, while Upwork reported a $22.9 million loss. Upwork reported overall revenue of $373.6 million, compared to Fiverr's revenue of $189.5 million.

As a result, Upwork is currently nearly twice as large as Fiverr.

However, Fiverr is growing at a quicker rate than Upwork. In 2020, Fiverr's revenue increased by 77%, while Upwork's revenue increased by 24%. One of the primary reasons for this is Fiverr's rapid growth in market share.

A brief examination of these companies' operating metrics suggests that Fiverr is growing more efficiently. Fiverr generates most of its revenue from transaction fees and service fees. Its take rate, or the percentage of each transaction it retains as revenue, rose from 26.7% in 2019 to 27.1% in 2020. Fiverr also has a user growth rate of 41% compared to 25% of Upwork. Moreover, Fiverr also has a lower churn rate at 30% vs. 42% of Upwork.

It would be very interesting to watch out for the 2021 numbers once they are released. Several analysts believe that 2021 was the “formal” beginning, and this decade will belong to the “gig economy.”

Which is the Best Stock to Buy?

As with many other tech stocks, both Fiverr and Upwork's stock prices have recently plummeted.

The marketplace for freelancing professional services is projected to be contracted for the rest of the year as more vaccinated people leave home and return to more normal work and leisure activities.

However, what's significant in the long run is that freelancing isn't going away. Freelancing provides financial flexibility for corporations as well as ultimate job flexibility for employees. We are only beginning to see companies completely formed on the freelance model. Rather than hiring full-time employees, small, agile start-ups will look out to simply contract out labor.

Currently, Fiverr is increasing its market share faster and is performing better than Upwork in most operating metrics.  As a result, it looks like it may be the better stock to buy today.

-Investing Insider Staff
This article is informational purposes only and is not investment advice.  See full disclaimer here
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