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Rise Of The Gig Economy – How Investors Can Take Advantage of It?

If you already spend thousands of dollars in the gig economy over the past few years, why not consider investing in it also?

The Covid-19 pandemic has impacted us in ways we never saw coming, both good and bad.

While some businesses suffered huge losses as lockdown measures were implemented globally, others that were quick to move online (or were already online) were less impacted. Some businesses even benefitted.

On an individual level, some of cheered the freedom of being able to work from home while others complain about ‘zoom fatigue’.

For better or worse, the Covid-19 pandemic has brought about changes and accelerated  new trends that we as investors can watch for; one such trend is the rise of the Gig Economy.

In this article, we’ll discuss what is the Gig Economy and the opportunities it presents for investors.

What Is The Gig Economy?

If you’ve ever taken a Grab Hitch ride, you’re already contributing to the Gig Economy.

The Gig Economy is typically associated with independent contractors or some form of freelance or part-time work where workers are not employed full-time. Examples can span from freelance graphic designers, make-up artist, photographers, food delivery riders to teaching tuition even.

This growing trend of taking up side gigs was already taking place long before the pandemic. The idea of having ‘side hustles’ is also increasingly popular among the younger population.

Over the past 10 years (before the pandemic), the US saw 6 million more gig workers added to the workforce and this trend can also be observed here in Singapore as well as more Singaporeans take on freelance work. With platforms like Grab and Deliveroo, it’s also easier for people to take on jobs that doesn’t require the commitment that is naturally expected from a full-time role.

The Covid-19 Pandemic Has Accelerated The Gig Economy

With the Covid-19 pandemic, the Gig Economy has gotten quite a boost. Flexible working arrangements has allowed more employees to take up freelance work to supplement or boost their income while some businesses saw increased need for gig workers. The rising number of food delivery drivers amidst the pandemic is a good example of this accelerated trend. With remote working (or at least flexible working) likely to become a norm as we move forward out of this pandemic, the Gig Economy is poised for growth.

According to Statista, the gross volume of the Gig Economy is projected to hit $455.2 billion in 2023, a CAGR of more than 16% from 2019.

Opportunities For Investors

So how can investors take advantage of this rising trend? Well, the easiest way is to own businesses that are already riding on this secular trend.

Here are some possible companies to look at.

Editor’s Note: These are not investment recommendations from us but used merely as examples of companies that could benefit from the rise of the Gig Economy. Deeper research is required, and information presented should not be used as a basis for investment decisions.

The most direct beneficiaries are marketplaces facilitating the Gig Economy.

Earlier this month, Upwork (UPWK), a US-listed company which runs a marketplace platform connecting businesses and freelancers reported its 2021 Q1 earnings, with Gross Service Volume (GSV) growing 41% year over year and revenue growing 37% over the same period. This also represents the 3rd consecutive quarter where the company saw accelerated growth year over year.

Over the past 3 years, revenue has grown at a CAGR of 22.6% although the company is still not profitable yet as it continues to invest heavily into growth. However, gross margins have been expanding which is a good sign of a path to profitability as scale builds up. The company is also cash flow positive.

Despite the recent tech sell-off, UPWK is up more than 300% since the start of 2020.

An even more spectacular picture can be seen with rival company Fiverr (FVRR) which runs a similar marketplace platform. In its recent quarter, the company reported revenue doubling year over year and management also expressed confidence in the year ahead, raising 2021 guidance by more than 10 percentage points.

Over the past 3 years, revenue has grown at a CAGR of 54%.

From the company’s recent presentation, Fiverr shared a projected addressable market of $115 billion, demonstrating large room to grow despite its already strong growth for the past 3 years.

Having only IPO-ed in mid-2019, the company remains unprofitable but just turned cash flow positive last year.

The stock is up more than 600% since the start of 2020.

Valuations for these companies however look on the more overstretched end especially for Fiverr as price-sales multiple stretches above 28, a pretty high bar for growth expectations.

Read Also: Why Do Some Companies Like Grab Prefer Listing Through SPAC Merger And What Should Investors Know About The Process?

Like other key secular growth trends of digitalization, e-commerce and fintech, the rise of the Gig Economy is one that has benefitted from the pandemic and will likely continue to thrive in the new world as we gradually recover from this global crisis.

These are opportunities that we as investors can continue to keep our eyes on.

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