Israeli company fiber international (FVRR -2.10%) We provide an online marketplace for freelance workers. If you need document editing, custom artwork, or video editing, you can browse the services listed by freelancers on Fiverr's marketplace.
Alternatively, these services can be obtained from applications that use generative artificial intelligence (AI).
This is becoming a growing dilemma for Fiverr. Because the rise of powerful generative AI apps could completely upend Fiverr's business model. And, as the chart below shows, this perceived existential threat to the company's business is part of the reason why the company's stock has fallen to near all-time low (undervalued) valuations.
FVRR PS ratio data by YCharts
However, this is just a commonly spread story, which may or may not be reality. In fact, Fiverr's management team does not share the view that generative AI is an existential threat to their business. On the contrary, management believes this could be the catalyst for his growth in 2024. And it's not the only marketplace business to take this view.
How AI can drive growth
As of Q3 2023, Fiverr had 4.2 million active buyers, or people looking for freelancers to do work for them. But these buyers have jobs that suit them. The Fiverr platform is large and has a large number of listings. Finding the right freelancer at the right price is difficult.
AI can improve search results. In Q3, Fiverr launched Fiverr Neo. match From buyers to freelancers. Management says Neo is a “personalized recruitment expert who can help customers more precisely scope projects and match them with freelance talent.”
In theory, this would lead to better search results for buyers on Fiverr. And if buyers can get better search results, they're more likely to buy and come back when they need more freelance work in the future.
This is not a clever attempt by Fiverr to rewrite the narrative. Other marketplace companies are talking about AI in exactly the same way.
for example, Etsy (ETSY 2.06%) 's platform features 120 million products of handmade and customized goods, which is a lot to go through. But by using machine learning to identify the quality of listings, promote high-quality listings to the top, and make personalized recommendations based on data about buyers, the company aims to be the “next frontier of search.” He said he is working on it.
As another example, roblox (RBLX 0.68%) is a platform that offers a variety of virtual experiences and games. We're also working on improving content detection. In the third quarter of 2023, content recommendations increased by 85% year-over-year, consistent with accelerating revenue growth.
Roblox users are discovering more relevant content than ever before, so they're likely spending more and being more engaged. And that's the hope for Fiverr's AI efforts. The idea is that buyers will have a better platform experience, leading to more adoption and spending.
What does this mean for investors?
From an investment perspective, Fiverr is kind of stuck. The company is scheduled to report its full-year 2023 results on February 22nd, and management is projecting full-year sales growth of up to 8%, which is modest. And the bottom line is expected to be pretty close to the break-even point.
For this to be a good investment, Fiverr needs either better growth or better profitability, and ideally it has both.
This is why it's important to consider Fiverr's efforts to enhance its search functionality. If AI can be used to improve business performance, growth could accelerate.
This will be a focus when Fiverr reports its financial results and sets its financial guidance for next year.
Jon Quast holds positions at Etsy and Fiverr International. The Motley Fool has positions in and recommends Etsy, Fiverr International, and Roblox. The Motley Fool has a disclosure policy.
