In this article, we will be taking a look at the 10 best gig economy stocks to buy.
The Rise of the Gig Economy
The pandemic era has been heralded as one of the most profitable periods for gig economy stocks, as more and more people started picking up remote work opportunities through online platforms looking to connect service providers with clients. But even before then, the gig economy has been a vital part of the market since, at any point in time, there will be a massive cohort of people who simply want to be their own boss – the pandemic just made it easier for these types of people to shine brighter.
Post-pandemic, as people began to realize that it was, in fact, possible to work from home, gig economy companies were able to hold on to their profits. Even after the return to offices, many individuals have decided to stick with remote work opportunities provided to them by well known online platforms. According to Michael Morton, Senior Analyst at MoffettNathanson, a major part of the reason why gig economy stocks have been performing well in the market this year is that investor perceptions about these businesses are changing. Previously, investors were less inclined to go for gig economy companies because they used to focus too much on growth and not enough on profitability. However, Morton believes that companies are changing this approach to make it the opposite now – the focus on profitability is now overruling that on growth.
Secular Tailwinds and Risks for Gig Economy Businesses
Morton believes that well-known gig economy businesses in the ride-hailing and food delivery spaces are promising enterprises that are set to benefit from secular tailwinds. The biggest tailwind for such businesses is their expansion into large, untapped, addressable markets. While there will be a degree of risk attached to these new endeavors as the big gig economy players start to pursue these opportunities aggressively with high levels of investment, there is room to argue that these investments will be for the overall benefit of the businesses that do tap into markets that have gone ignored so far – think Southeast Asia, India, Latin America, and Africa.
Another risk that some people see for gig economy businesses is in the regulatory domain. Morton believes that the services these companies are providing to consumers are important enough to necessitate a cooperative attitude from regulatory bodies across the globe, seeing as they not only offer what are now considered essential services but also provide a means of generating supplemental income for their workers. At the same time, most of your bigger gig economy players with operations in up to 70 countries have also shown the capability of working with a variety of regulatory landscapes.
These factors have been working wonders in terms of alleviating investor concerns surrounding gig economy stocks, a development that is leading to more investors being convinced to buy into these businesses. As a result, the popularity of these stocks is only going up, which is why we’ve compiled a list of some of the best gig economy stocks to buy now.
Photo by Peggy Anke on Unsplash
Our Methodology
We sifted through ETFs and online rankings to compile an initial list of 20 gig economy stocks. We then selected the 10 gig economy stocks with the highest number of hedge funds holding stakes in them, as of Q2 2024. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
Best Gig Economy Stocks To Buy
10. Fiverr International Ltd. (NYSE:FVRR)
Number of Hedge Fund Holders: 19
Fiverr International Ltd. (NYSE:FVRR) is a human resource and employment services company based in Israel. It operates an online marketplace where freelancers can sell their services to a wide variety of clients.
Many investors have turned away from Fiverr International Ltd. (NYSE:FVRR) post-pandemic as the remote work spree has died down. However, this company remains an attractive gig economy player because of its capital-richness, which has enabled Fiverr International Ltd. (NYSE:FVRR) to indulge in significant share buyback programs, allowing the company to increase the value of its remaining shares in the market. For instance, in the second quarter, company management announced the completion of their $100 million buyback program.
For the second quarter, Fiverr International Ltd. (NYSE:FVRR) saw its revenue rise 6% year-over-year to $94.7 million, above the midpoint of its guidance. Operating and free cash flow were also up by 11.9% and 12.5% year-over-year, respectively. These figures highlight the strength of Fiverr International Ltd.’s (NYSE:FVRR) balance sheet, through which it is able to deploy an optimal capital allocation strategy while ensuring the return of shareholder value.
AI is also expected to have a net positive impact on Fiverr International Ltd. (NYSE:FVRR), according to company management. Overall, management expects revenue for the full year 2024 to grow by 6%-7% year-over-year.
We saw 19 hedge funds long Fiverr International Ltd. (NYSE:FVRR) in the second quarter, with a total stake value of $90.5 million. Engine Capital was the largest shareholder, holding 814,294 shares.
Baron Funds mentioned Fiverr International Ltd. (NYSE:FVRR) in its fourth-quarter 2023 investor letter:
“Fiverr International Ltd. (NYSE:FVRR) is the leading two-sided online freelance marketplace, offering a platform that connects businesses with freelancers across a variety of functions, from web design to digital marketing, computer programming, and inventory management. The stock has been weak due to a complex macro environment driving small businesses, who represent the majority of Fiverr’s buyers, to cut down on freelancing spending. This recent trend was exacerbated by investor fears that Generative AI (GenAI) would disrupt various freelancing jobs. While we agree that some freelancing functions are more exposed to artificial intelligence (AI) disruption than others (logo design for example), we believe Fiverr’s diverse platform as well as new incremental demand from AI-related work, would minimize the potential negative impact from GenAI. In our view, macro conditions are behind the recent deceleration in the company’s revenue growth. However, the fact that growth decelerated at the same time as GenAI adoption began gaining steam, created a bearish narrative for the stock. In our view, Fiverr’s current stock price overly discounts that risk and offers an extremely attractive risk-reward equation for long-term investors. Over 20% of the company’s market cap is in net cash, the stock is trading at approximately an 8% free-cash-flow yield, and management continues to make rapid progress on margin expansion; EBITDA margins are expanding from 7.2% in 2022 to 16.3% in 2023 based on the company’s mid-point guidance.”
9. Upwork Inc. (NASDAQ:UPWK)
Number of Hedge Fund Holders: 28
Upwork Inc. (NASDAQ:UPWK) operates a work marketplace that connects businesses with independent professionals and agencies. It is based in San Francisco, California.
This gig economy company has also been delivering growth so far this year, with revenue in the second quarter reaching $193.1 million, up 15% year-over-year. The profitability for Upwork Inc. (NASDAQ:UPWK) this quarter was its highest ever, as evidenced by a GAAP net income of $22.2 million. The company managed to generate such profitability despite macroeconomy challenges.
The biggest challenge Upwork Inc. (NASDAQ:UPWK) has been facing is the deceleration in the number of clients seeking workers on their platform. In the second quarter, this number fell by 6% sequentially, and Upwork Inc. (NASDAQ:UPWK) expects this type of trend to continue for the rest of 2024.
Despite this, Upwork Inc. (NASDAQ:UPWK) is continuing to leverage its intrinsic ability to shape-shift to wherever the market demand for skills is. The company is currently focusing on making itself the preeminent destination for AI talent and work while also improving customer productivity, engagement, and work outcomes in its products by incorporating AI-powered features and user experiences within its operations. Through such adoptions, Upwork Inc. (NASDAQ:UPWK) is expected to continue to perform well throughout the remainder of this year.
There were 28 hedge funds long Upwork Inc. (NASDAQ:UPWK) in the second quarter, with a total stake value of $247.3 million. Ancient Art (Teton Capital) was the most prominent shareholder, holding 7,339,684 shares.
