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The coronavirus pandemic has led to the normalization of the work-from-home culture and many organizations have found it as a good cost controlling mechanism that doesn’t hamper employee productivity levels. Due to this condition, the gig economy got a major boost. Gig websites give people the opportunity to make additional income while they were working from their homes and some also started finding it more appealing as they could set their own schedules and follow their respective passions.
A study by DaVinci Payments found the gig economy had 23 million additional participants in 2019 while in 2020 it grew by 33% representing 93 million US adults earning about $1.6 trillion compared to the 70 million adults who earned $1.2 trillion in 2019. As the gig economy is getting more and more popular here are two stocks that can help investors book their share of profits from this rising trend.
Upwork is an America-based freelancing company that provides multiple organizations and individuals a common platform to connect and conduct their businesses. The company has had an amazing staying power and strength within the industry and going by the current prospects it seems it can easily maintain its market position over the next couple of years as well. Upwork has benefited a lot from the pandemic as more and more people started taking part in gigs and thus giving the stock the much-needed momentum. In the past year, the Upwork stock had gained a whopping 208% and about 37% this year so far.
Upwork has one of the most advanced technology offerings for enterprises and its vast network spans over 180 countries bringing under its umbrella millions of freelancers. Over 50% of the Fortune 500 companies use its platform which even includes big names like Microsoft, Airbnb, Budweiser, and many more. Additionally, the company also enjoys higher diversity and resiliency due to its famous digital staffing mechanism.
One of the major competitive advantages Upwork has above other gig websites is its business model. The company’s hybrid business model efficiently captures every opportunity available across the market. It also offers employers and freelancers the most comprehensive product offerings and is quite well-positioned to meet both advanced and normal needs based on market supply and demand. Because of these today, Upwork has the largest work marketplace in terms of Gross Service Volumes (GSV) and usually undertakes most of the largest and biggest transactions of the gig economy. Over the past year, the company has successfully grown its TTM GSV by 50% and currently holds a $3.6 billion run rate.
The most common problem the gig platforms usually face is they fail to retain their customers. As a result, quite often they miss their intended revenue targets. Upwork on the other hand has successfully retained most of its clients. Earlier this year the company had hit a 130% client spend retention and in the second quarter this year, the same reached a 115% mark up from the 106% recorded in the same period of last year. Also, apart from that in the second quarter of this year, the company has added 30 new big Enterprise clients and increased the enterprise client’s spending by 13% compared to the last quarter.
Upwork stock is currently showing an upward acceleration in terms of revenue growth and positive cash flows and it is expected to grow further in the coming days with the growth of the gig industry.
Fiverr is an Israel-based online marketplace for freelancers. Just like Upwork this one also provides a common platform to the business organizations and freelancers located across the world. Two years back while coming up with its IPO, the company already had a domestic market opportunity worth $100 billion and on a global level, this addressable market size was many times larger. Also, post the COVID-19 pandemic the company’s market opportunity has increased manifold times.
The freelance market is still new and has a lot of space for accommodating multiple winners. However, Fiverr is all set to become a market leader. Despite facing tough competition from rivals like Upwork, the company has neutralized the intense competitive force with its huge sales growth and sector-leading gross margins and has collected a revenue of $252 million over the past four quarters.
Fiverr believes that it can gain more customers by improving its services further. So, rather than resting on its growing pile of past laurels the company is investing heavily into technologies and services that will ensure its consistent business growth in the coming days. Moreover, it is also preparing for the future by focusing more on strong innovational aspects and superior marketing programs. In the last year, it had spent around 30% of its gross profits on R&D while sales and marketing costs accounted for about 64%.
Fiverr’s management intends the revenue growth might slow down as post-pandemic consumers are travelling more and spending lesser time online, yet looking at its unique business model and the massive business opportunity it can be well inferred that the company can still create value for its investors, despite the near-term challenges. So, considering the huge growth prospects and the fact that the Fiverr stock is deceptively cheap right now, it can be one of the best investment options in the current times.
Many investors still believe that the growth of the gig economy is totally dependent on the coronavirus pandemic. But that is not correct as both remote working and freelancing are here to stay and freelancers who have once used a particular platform is definitely not going to forget about it when the pandemic will come to a closure. Moreover, freelancing allows financial flexibility and companies fundamentally built around the freelancing model have just started popping up. Therefore, investors must not shy away from venturing into this new growing industry and can add any of the above-mentioned stocks to their portfolios based on their own preferences.