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Companies that soared in value by facilitating gig work and online hiring during Covid-19 lockdowns are putting a new focus on profitability amid a slowdown in growth, as workers return to the office .
The world’s largest freelance digital websites, Fiverr and Upwork, are trading at less than a fifth of their pandemic peaks. Meanwhile, annual venture capital funding for digital recruiting and outsourcing companies has plunged by more than two-thirds since 2022, according to figures from PitchBook.
“When you experience incredible growth during a period of time like the pandemic. . . there is an overlapping effect,” said Micha Kaufman, CEO of Fiverr. “If you move quickly, you’ll see slower growth later.”
As a result, Fiverr ($853 million) and Upwork ($1.43 billion), which offer online marketplaces for everything from ghostwriters to virtual assistants to software developers, are pushing to demonstrate profitability to investors.
“In this environment, we know we must remain focused on our profitability goals,” Upwork CEO Hayden Brown said at an investor conference in September.
These platforms have sought, in particular, to increase their “take rates” (the amount of money they make on each transaction) to offset an overall decline in the number of individual services being bought and sold.
Both sites have increasingly promoted subscription-based services and premium listing placements, leading Fiverr to report a record “take rate” of 33 percent in the three months through June. Upwork’s rate was 18 percent, also a record for the company.
“These were companies that grew at all costs during the pandemic,” said Bernie McTernan, an analyst at Needham & Company. “Now, as growth has receded, they’ve really focused on driving margins.”
They have also pushed for high-profile clients and larger projects, with new features aimed at fostering long-term relationships with commercial clients.
Fiverr launched a new hourly payment option in July, in addition to its previous task-based payment system, to allow vendors with a premium subscription to “tackle larger, long-term, ongoing projects.” The company said its new features were part of a transition from a “service-based marketplace to a recruiting platform.”
Brown said Upwork was pushing to promote new “value-added services” and subscription programs, including access to its AI chatbot, with the goal of reaching a 35 percent profit margin by 2029.
But despite reporting their first net profits since going public last year, shares of both Fiverr and Upwork remain down.
“Those vendors experienced such spectacular growth, and received so much attention immediately after the pandemic, that anything less seems like a shock to them and their investors,” said Rania Stewart, an analyst at Gartner.
Private companies face a similar battle to demonstrate the sustainability of their post-pandemic business models.
Venture capital funding for digital recruiting and outsourcing companies more than tripled between 2020 and 2021, according to PitchBook, before falling back below pre-pandemic levels in 2023.
He rise of AI It has also spooked some investors, who believe that tools like ChatGPT could take jobs away from freelancers and hurt revenue on platforms like Fiverr and Upwork, according to McTernan.
Both Brown and Kaufman insisted that AI, at least for now, was helping to expand their businesses. Brown said Upwork was seeing an influx of demands for freelancers to add “the human layer” on top of AI-generated results that are “not yet ready for prime time.” Kaufman argued that, so far, AI was only replacing “small, cheap work.”
But the biggest challenge might be less technically advanced.
Online work-concert Platforms continue to compete with staffing companies and traditional office workers, and Fiverr’s Kaufman acknowledged that the pandemic-era work habits that fueled his company’s growth in 2020 and 2021 hadn’t been as durable. as expected.
“It’s hard to change people’s minds,” he said. “Work is just one of those very old systems that are hard to change.”