The U.S. had approximately 57 million people working as freelancers in 2017. This metric is expected to increase to a staggering 86.4 million by 2027, making up the majority (51%) of the U.S. workforce, according to an estimate from the Freelancers Union. This forecast is not a surprise given the rise of remote working, which has been driven by technology improvements and was accelerated by the pandemic. Organizations are also valuing a more flexible workforce, given the uncertain economic climate.
Most freelance workers will probably still search for gigs on their own or by utilizing networking skills, but for investors, there are still two stocks to play this growing market: Upwork (UPWK, Financial) and Fiverr (FVRR, Financial), which are platforms where freelancers in search of work can match with employers offering gigs. They basically do the same thing, but is one of these stocks a better investment than the other? Let's take a look.
Business comparison
Fiverr (FVRR, Financial) had a first mover advantage in the freelance platform industry, as it was founded in 2010, three years before Upwork (UPWK, Financial) in 2013. However, that advantage didn’t last long as Upwork has since scaled at a much faster rate. Upwork reported $161.4 million in revenue for the fourth quarter of 2022, which was much higher than Fiverr's $83.1 million for the same period.
Therefore, it seems that Upwork is the market leader nowadays. There are other competitors in the space such as Toptal, Jooble and even Amazon’s Mechanical Turk. However, these companies are not public.
Another metric we can analyze is estimated website traffic. Fiver had ~61.1 million website visits in February 2023. This was surprisingly higher than Upwork, which had 46.5 million for the same month, according to Social Genie Digital's data. Perhaps there is a lot more “window shopping” on Fiverr as opposed to Upwork, or maybe the gigs posted on Upwork tend to pay more compared to those on Fiverr.
Both websites have strong direct traffic at over 70% each, which is testament to the strong brand each has built. This is a positive sign, as it means the companies will not need to spend as much on paid advertising in order to acquire customers.
Financial analysis
Upwork reported ~18% revenue growth to $161.4 million year over year for the fourth quarter of 2022. Fiverr reported $83.3 million in revenue, which increased by just 4.3% year over year. Therefore, Upwork doesn’t just have substantially higher revenue, it is also growing faster.
Breaking down product differences, according to my research, it is pretty clear both are similar platforms offering similar services. The differences honestly appear to be minor, but in my personal opinion, from a user experience and web design perspective, I think Upwork feels a little more professional and slightly less “spammy" than Fiverr. This could be one reason why we are seeing lower conversions for web traffic on Fiverr.
The “Business” or “Enterprise” part of the platforms are the most lucrative parts, as big deals with major brands can result in a huge revenue boost. In this respect, Fiverr works with major brands including Unilever (UL, Financial), L'Oreal, Myheritage and many more, but Upwork's brand partnerships look to include more prestigious names such as Microsoft (MSFT, Financial), Airbnb (ABNB, Financial) and even the Nasdaq.
In terms of active buyers, Fiverr reported 4.3 million active buyers in its latest quarter, which increased by just 1% year over year. Surprisingly, this metric was over four times greater than Upwork's active buyers, which were 814,000 as of 2022. One reason for this could be that Upwork's active buyers are spending much more compared to Fiverr's. Fiverr's average spend per buyer is just $262, whereas Upwork’s average gross service volume per client is closer to $5,000. However, I personally think different measurements of "active buyers" may also be a contributing factor. In terms of the commissions the platforms take, Fiverr takes a blanket 20%, while Upwork's commisssion scales between 10% and 20%.
Profitability, margins and balance sheet
Both Upwork and Fiverr has struggled with profitability. Upwork reported a net loss of $92.6 million for the full year of 2022 at a -14.98% operating margin. This is substantially worse than Fiverr, which reported a net loss of $36.3 million at a -10.79% operating magin. Upwork is investing more aggressively for growth even on a proportional margin basis. Some investors would say this is more risky given the current macroeconomic environment. However, I think now is a great time to scale and capture market share before others, given the business can afford it. Enterprises or larger organizations tend to be stick customers by nature, and thus once Upwork signs up a major player, they are unlikely to leave.
Moving on to the balance sheet, Upwork has $686.6 million in cash and short term investments as of the fourth quarter's end compared to total debt of $581.9 million. Fiverr on the other hand reported $462 million in cash and short term investments vs. $462.2 million in total debt. Therefore I think both companies have a strong balance sheet, with Upwork's slightly stronger from a cash perspective.
Valuation
Upwork trades at a price-sales ratio of 2.18, which is 68% cheaper than its five-year average. This is also cheaper than Fiverr, which trades at a price-sales ratio of 3.92.
Final thoughts
Both Upwork and Fiverr are fantastic companies which are poised to benefit from the growth in the freelancer economy. From both a growth and a valuation perspective, I believe Upwork is the clear winner in terms of which stock is the better long-term investment prospect. Upwork beats Fiverr on almost every category. Now I do expect both stocks to be volatile in the short term due to the macroeconomic environment and their lack of profitability, but in the long term, the freelancer economy is poised to continue its growth.
