AI And Stiff Regulation Will Hinder Gigs Yet Reveal Value

Key Takeaways

• Elevated competition and cautious SMB spending may limit revenue growth despite Fiverr's push into higher-value services and strong demand for AI-related offerings.
  
• Platform evolution and international expansion face hurdles from regulatory risks and overreliance on commoditized gigs, constraining long-term margin and revenue gains.
  
• AI-driven job displacement, macro headwinds, competitive pressures, and regulatory hurdles threaten Fiverr's growth as it pivots to higher-value services and international markets.

Catalysts

Operates an online marketplace worldwide.

• While Fiverr is well-positioned to benefit from the ongoing acceleration of workforce digitalization and the global shift toward remote and flexible work, its reliance on SMBs, which remain cautious amid persistent macroeconomic volatility, could continue to suppress marketplace revenue growth for longer than expected.
  
• Although surging demand for AI-related services and rapid category expansion have driven higher spend per buyer and positioned Fiverr as a destination for complex projects, the increasing adoption of artificial intelligence and automation may erode demand for simpler, lower-value gigs, potentially capping transaction volume and impacting topline revenue over time.
  
• Despite Fiverr's successful expansion into higher-value verticals such as digital marketing, programming, and managed services, intensifying competition from both established and niche freelance platforms could pressure take rates and margins, especially as larger customers demand more sophisticated solutions.
  
• While investment in AI-driven platform personalization and seller-buyer matching has led to operational efficiencies and contributed to margin improvements, growing regulatory hurdles around labor practices and digital privacy-particularly in key global markets-may drive up compliance costs and limit Fiverr's ability to scale earnings internationally.
  
• Although Fiverr's recurring revenue streams from value-added services like Seller Plus and AutoDS are showing robust growth, the company's ability to fully capitalize on the gig economy's normalization is constrained by challenges in evolving its platform beyond commoditized services, risking stagnation in average order value and slower long-term revenue and margin expansion.

Fiverr International Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Fiverr International compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Fiverr International's revenue will grow by 6.3% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 4.3% today to 9.9% in 3 years time.
• The bearish analysts expect earnings to reach $50.0 million (and earnings per share of $0.72) by about August 2028, up from $18.2 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 27.3x on those 2028 earnings, down from 46.5x today. This future PE is lower than the current PE for the US Professional Services industry at 27.4x.
• Analysts expect the number of shares outstanding to grow by 4.03% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.04%, as per the Simply Wall St company report.

Fiverr International Future Earnings Per Share Growth

Risks

• The ongoing displacement of simple and entry-level freelance jobs by artificial intelligence tools is reducing lower-value transaction volumes, which limits growth in Fiverr's core marketplace revenue and adds risk to sustaining overall revenue levels.
  
• Macro uncertainty and ongoing cautiousness among small and medium-sized business customers are resulting in flat or low single-digit declines in marketplace gross merchandise volume, posing a challenge to accelerating top-line revenue and earnings growth in the long-term.
  
• Fierce competition from established and emerging freelancer platforms pressures Fiverr to increase its investment in product innovation and marketing, which could erode net margins and constrain future earnings.
  
• Fiverr's international expansion and upmarket strategy could be hindered by increasing regulatory complexity related to gig economy labor practices and cross-border data compliance, potentially resulting in higher operating costs and muted revenue growth from new geographies.
  
• The transition toward more complex, higher-value marketplace offerings and managed services, while reducing exposure to low-growth segments, brings execution risk if Fiverr cannot successfully attract and retain high-quality experts and large enterprise clients, thereby limiting growth in average order value and overall revenue expansion.

Valuation

• The assumed bearish price target for Fiverr International is $25.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Fiverr International's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $44.0, and the most bearish reporting a price target of just $25.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $503.3 million, earnings will come to $50.0 million, and it would be trading on a PE ratio of 27.3x, assuming you use a discount rate of 10.0%.
• Given the current share price of $22.88, the bearish analyst price target of $25.0 is 8.5% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.