Artificial intelligence (AI) has been a hot topic lately. According to Google data, search interest in AI is at an all-time high. From social media to advertising at large-scale events, promoters are touting the benefits of AI for both businesses and consumers.
The hype has sent stock prices soaring in many stocks exposed to AI growth. However, one stock is still undervalued. That's because many investors don't understand how much the company stands to benefit from the rise of technology.
Not your average AI stock
Few investors today would quote this. fiber (FVRR 4.32%) As an AI stock. On the surface, the company is a freelancer platform, matching creators with companies and consumers who need work. In this respect, business is doing very well. Since the company's initial public offering (IPO) in 2019, its revenue has consistently increased, and the company has gone from burning cash to generating positive free cash flow.
Under the hood, Fiverr appears to be creating a true platform. In other words, the company created a foundation for outsiders to build upon. This type of business model can be very lucrative.
consider meta platform. The company owns a variety of valuable technology platforms, including Facebook and Instagram, but what's fascinating is that most of the value is generated by the users themselves. In this way, Meta has hundreds of millions of people contributing free content to its products. As a platform business, Meta can scale bigger and faster than a business that relies solely on its own employees.
Fiverr’s workforce platform works similarly. The company itself has only 739 employees, but millions of buyers and sellers actively use its platform. Do you need website design, video game development, or voice over acting skills? You can do it all with Fiverr.
Today, many experts are talking about how AI could replace workers for many creative and administrative tasks. But what is underappreciated is how AI can enhance the current skills of workers. This is where Fiverr is looking to profit.
In a very direct way, Fiverr stands to benefit from the rise of AI. Because Fiverr can provide AI technology to parties that might not otherwise use it. For example, its platform has hundreds of AI developers who can build custom solutions for businesses and consumers. Anyone can use Fiverr's platform to build new ChatGPT applications, design deep learning models, or simply streamline their business.
Fiverr has built AI directly into their service, so you can also benefit from it. Platforms generally need powerful algorithms that can match users with desired content. For example, meta should deliver relevant content to users. Otherwise, users will leave the platform. For Fiverr, you need to effectively match buyers and sellers. The better you do this, the more powerful your platform will become.
In August, Fiverr introduced Fiverr Neo, which uses neural networks. It's a virtual assistant that works directly with buyers and sellers to quickly and accurately match them with trading partners. Instead of browsing through pages and pages of profiles, Fiverr users can now simply fill out a few prompts and let the AI ​​do the heavy lifting of finding their matches.
Fiverr stock is a bargain
Fiverr is directly exposed to the rise of AI through its ability to meet the growing demand for AI developments and its matching algorithms, which will only get stronger over time. So why are stocks trading at such cheap valuations?
Based on sales, the stock is trading at its lowest level in years. In fact, the stock price is about the same as it was in 2019, when Fiverr went public. what happened?
Fiverr's current woes aren't due to a decline in business. As mentioned earlier, revenue continues to increase every quarter. The problem is that the market is overestimating past growth rates.
During the pandemic, when companies were rapidly transitioning to remote work, Fiverr saw a huge influx of business, even doubling its revenue in one year. The market immediately drove up the stock price, valuing it at an astonishing 56x.
But as sales growth began to slow, this expensive valuation plummeted. Growth during the pandemic hasn't been a permanent trend for Fiverr.
But after years of declining growth rates, that trend is finally reversing. Last quarter's revenue increased more than 12% year-over-year. Meanwhile, Fiverr continues to generate positive free cash flow, allowing it to invest heavily in research and development to fuel future growth. Last quarter, approximately 25% of revenue was reallocated to research and development.
Fiverr isn't a classic AI stock, but there are several ways it can benefit from the rapid adoption of AI technology. At a bargain price, it's worth considering for growth investors.
Randi Zuckerberg is a former head of market development and spokesperson at Facebook, sister of Meta Platforms CEO Mark Zuckerberg, and a member of the Motley Fool's board of directors. Ryan Vanzo has a position at Fiverr International. The Motley Fool has a position in and recommends Fiverr International and Meta Platforms. The Motley Fool has a disclosure policy.