The job market is changing. Most of us are familiar with the labor shortage, and how professionals are prioritizing free time for less pay over 12-hour office days with lucrative salaries.
The job market actually started changing prior to COVID-19. Corporations have gradually reduced their headcounts as industries have become more specialized. Companies these days tend to outsource much of their tasks to contractors/freelancers with a specific set of skills.
Data provided by the Freelancers Union consolidates the argument; the Union predicts that 50.9% of the U.S. job market will be freelance workers by the year 2027.
The changing labor market presents opportunities for intermediaries such as Fiverr (FVRR) and Upwork (NASDAQ:UPWK) to scale their companies. I am bullish on both stocks.
Fiverr
Fiverr is a worldwide marketplace. The platform allows service providers to sell their services to willing buyers at agreed-upon prices.
Fiverr beat its Q2 revenue estimates after posting $75.3 million in revenue, which is a 59.7% year-over-year improvement. Active users grew by 43%, spend per buyer increased by 23%, and the take rate was up by 80 basis points.
Key financial metrics indicate that the stock is on a good wicket. Levered free cash flow and working capital have grown over the past year, both beating sector benchmarks.
Analysts expect EPS to increase 143.8% by December 2023, conveying optimism regarding the shareholder value trajectory.
Wall Street remains optimistic about the stock, with four unanimous Buy ratings. The average FVRR price target of $220.50 suggests 5.9% upside potential.
Upwork
Upwork is similar to Fiverr, but is considered to be geared towards professionals who are qualified for larger tasks with longer durations, whereas Fiverr outsources smaller and more manageable tasks.
Needham analyst Bernie McTernan recently upgraded Upwork to a Buy with a $57 price target. According to McTernan: "optimizing of SEM/SEO in '19, a sales force realignment in '20 to focus on enterprise and adding more products like the successful launch of Project Catalog in 1Q21" are reasons why he finds the stock's risk-reward attractive.
Upwork posted second-quarter revenue of $124.2 million, which is a 41.9% year-over-year improvement. Q3 guidance has been upgraded, with revenue now anticipated to come in between $125 million and $127 million, versus a previous estimate of $124.5 million. Adjusted EBITDA between $4 million and $5 million is also expected.
Wall Street thinks the stock is a Strong Buy, with an average price target of $67.50 being set, based on four unanimous Buys. The average UPWK price target represents 31.5% upside potential.
Final Word
The industry's growth will support both these stocks, as they've established themselves as key players early on.
The significant determining factor going forward is what they end up doing with their cash.
Disclosure: At the time of publication, Steve Gray Booyens had a long position in FVRR.
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