FVRR - Fiverr: ChatGPT Is A Threat

Summary

• Most investors are worried about the impact ChatGPT will have on Microsoft or Google.
• These companies have the ability to buy into the AI revolution.
• Fiverr needs to grow revenue and expand margins just to become profitable.
• ChatGPT likely won't help those efforts in the long run.

The media has been covering ChatGPT with a mix of awe, skepticism and concern. Many articles have highlighted the model's impressive ability to generate human-like text, pointing out its potential for use in chatbots, virtual assistants, and other applications. Some have even gone as far as to call it a "game changer" for the field of natural language processing.

Before we go any further. I have to come clean about something. I didn't write the paragraph above. Instead, I asked ChatGPT "write me a description of how the media is covering ChatGPT" and that is what it responded with.

Over the past several months, the media and investor attention on ChatGPT grows. Most of the attention is focused on Google ( GOOG ) ( GOOGL ) and Microsoft ( MSFT ), as both are likely to want to be seen as a leader in the AI revolution.

It makes sense, Google and Microsoft have a lot to gain - and even more to lose if either company doesn't successfully capture some or a significant portion of the AI workflow.

Whether or not ChatGPT makes Google or Microsoft another tech dinosaur like Yahoo! or IBM ( IBM ) certainly remains to be seen. But considering each company has billions of dollars to throw at it, we're in the first round of a 12 round prize fight.

It's really the companies on the edge that likely get disrupted first. Especially one's with operating margins that are already negative. Can Fiverr ( FVRR ) really expand margins when ChatGPT spits out near perfect blog posts, code, and things I would buy a Fiverr gig for?

Before we decide if ChatGPT is a Fiverr killer or potentially a game changer for the gig workers who will become more productive because of it, let's take a look at where Fiverr stands today from a financial perspective.

Yes, Fiverr has been able to increase revenues on a nine-month basis by almost 17% year/year. However, Operating losses increased 42% and that includes stripping out a $27.6M impairment loss.

Cash flow from operations doesn't paint a better story. Despite some growth in revenues, operating cash flow actually declined year/year on a quarterly and nine-month basis.

Q4 guidance doesn't look particularly exciting either. Single-digit growth at best, with the potential to fall flat on the low-end. Analysts aren't particularly bullish on revenue growth either, with low single digit growth being the consensus for the next several quarters.

Essentially Fiverr needs to reaccelerate revenue growth and/or expand its margins to improve its operating cash flow.

It's certainly possible Fiverr gig workers become exponentially more productive because instead of actually manually writing out a 500 word blog post or Python script by hand, they use ChatGPT to do the heavy lifting for them.

If Fiverr gig workers become more productive, more gigs are completed and Fiverr can generate higher revenues.

It's also possible many business owners who were going to Fiverr for 500 word blog posts and Python scripts just log into ChatGPT and expand their own margins by cutting out a gig worker.

While the latter isn't going to happen overnight, after Google and Microsoft throw a few billion dollars at AI, the capabilities are likely only going to get more advanced and easier to access.

This creates an existential threat to Fiverr's entire business. If cheap and easy access to AI automation becomes the norm, many tasks gig workers perform will become obsolete.

Additionally, if it's cheap and easy to allow AI to perform a similar task as a gig worker, it becomes difficult for Fiverr (and the gig worker) to increase pricing.

For a company that needs to increase revenues and margins, ChatGPT likely isn't going to help.

Conclusions

In the shorter term, ChatGPT will likely help gig workers become more productive with mundane tasks they might have used to do by hand. Longer term, AI will become more advanced, useful, and ubiquitous - meaning mundane tasks previously done for $5 - $10 dollars won't be required. Fiverr is not generating profits today and if $5 dollar type gigs are being replaced by AI, it's unlikely significant profits will follow. I would avoid Fiverr until it becomes more clear how this technology replaces the need for such tasks.

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