The gig economy isn't slowing down any time soon, and exposure to gig economy stocks can help round out a diversified portfolio. Year-end estimates suggest total gig economy volume will be approximately $455 billion in 2023, doubling what it was just five years ago. The factors contributing to the increase are clear. Remote work trends, side hustles, and the variety of side hustle opportunities available combine to make the gig economy increasingly competitive compared to traditional full-time employment paradigms.
However, not all gig economy stocks are created equal. Many gig work providers, platforms and intermediaries have a narrow competitive advantage. This is why differentiation is key when considering which gig economy stocks are best to invest in.
Upwork (UPWK)
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I know it very well Upwork (NASDAQ:UPWK) as a user and work intensively on the platform. From a freelancer's perspective, Upwork has many frustrating characteristics and management seems to make equally questionable decisions. But from a gig economy stock perspective, the company's market position as a freelancer/client is sacrosanct. Upwork has nearly 60% of the market share in the broader freelance market and tends to attract a higher-paid professional clientele than companies would like Fiverr International (NYSE:FVRR).
After the pandemic, as we entered a tighter economy and experienced the decline of the ZIRP era, Upwork managed to increase profitability to remain profitable. The company reported its second-ever profitable quarter in its most recent report, sending shares higher (though still well below all-time highs). Even better, the company's gross service volume has remained fairly stable since the start of 2021, suggesting that the company's value proposition remains viable even amid economic constraints.
The biggest hurdle for Upwork lies in the enterprise customer domain. Growth in the company's enterprise segment has slowed somewhat in recent months, which could indicate that the budgets of large companies do not easily support the work of freelancers or, more likely, that these companies are seeking talent independently. If Upwork can refocus its enterprise program to attract larger customers with greater retention power, the economy gig stock could skyrocket.
Uber Technologies (UBER)
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Uber technologies (NYSE:ABOVE), like Upwork, dominates its gig economy sector. While there is a healthy subset of full-time, dedicated Uber drivers, most of them (51%) use Uber as a gig economy tool and work less than 15 hours per week to supplement their regular income. The company should join this S&P 500, which is further evidence of the strength of the gig economy stock. The vast majority of analysts rate Uber stock as a “strong buy.” 32 out of 48 respondents gave it that rating and only two called it a “Hold” – none say it's worth selling right now. Likewise, analysts predict that Uber's annual profit will rise 68% over the next three to five years.
One analyst summed up the bull thesis well: “Uber is the largest company in the ride-hailing industry and the second largest in food delivery.” We expect both companies to perform solidly for the remainder of 2023 and into 2024 will develop as passenger numbers have now returned to pre-pandemic levels.”
Like Upwork, Uber's profitability fluctuated post-pandemic, but its recent rebalancing suggests its outlook is improving. Although the stock trades at a relatively high earnings multiple, it is undervalued if the analyst consensus bears fruit.
Airbnb (ABNB)
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The era of the professional Airbnb (NASDAQ:ABNB)-Host may be weakening, but that doesn't mean the gig economy stock will crash. Instead, the company's user base appears to be returning to its roots and using extra space as an alternative to more expensive hotels. Compared to other gig economy stocks, Airbnb faces significant headwinds. Specifically, a $10 million fine for misleading international customers about prices—they quoted their rental prices in U.S. dollars rather than local currency—could open the door to further scrutiny. But like other gig economy stocks, Airbnb's position in its niche is sacrosanct.
The company has a 20% market share of the overall vacation rental market, which is significant given the competition with traditional hotel franchises. At the same time, post-pandemic listing and booking rates increased significantly above the same levels as in 2019, showing that Airbnb skillfully navigated the difficult period and came out on top.
In the most recent report, Airbnb's revenue grew nearly 20% year-over-year, with gross booking value reaching 17% growth. Although this is due to the summer travel season, the upward trend is likely to continue during the current holiday season.
At the time of publication, Jeremy Flint did not hold, directly or indirectly, any positions in the securities mentioned. The opinions expressed in this article are those of the author and are subject to InvestorPlace.com's publication policies.
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