Upwork NASDAQ: UPWK is a expertise agency that operates as a web based market, connecting freelance employees and unbiased contractors with employers. In 2024, the inventory worth is down 29% as a result of fears that AI will remove many freelance jobs. Now, most analysts masking the inventory have a purchase score on it. Let us take a look at Upwork’s enterprise strains and up to date monetary outcomes. We’ll additionally discover fears about AI hurting the freelance work mannequin and provides an outlook on the agency.

Detailing Upwork’s Enterprise Mannequin and Income Era 

On its annual filing, Upwork calls itself “the world’s largest work market.” It measures this utilizing gross providers quantity (GSV). GSV represents the overall quantity these seeking to rent (purchasers) spend on the agency’s choices, plus charges charged to these on the lookout for work (expertise). The agency enabled $4.1 billion of GSV in 2023, 94% of which got here from the USA.

The first type of income era is by deducting a share of the expertise’s pay. The corporate normally deducts 10% from the contractor’s fee.

The corporate has two choices directed at purchasers: Market and Enterprise. Market offers purchasers entry to the positioning’s primary hiring options. Enterprise supplies bigger purchasers with extra sources to assist scale their enterprise utilizing development and cost-efficiency methods. They assign devoted billing, account administration, and enterprise analytics groups to purchasers to drive these methods.

Two different necessary factors of notice: In Might 2023, Upwork fired 15% of its employees, principally in its gross sales division, and its principal competitor is Fiverr NYSE: FVRR.

Upwork Q1 2024 Earnings: EPS and Income Beat, Shares Unstable Regardless of Sturdy Metrics

Upwork released its Q1 2024 earnings on Might 1, 2024. It beat on each earnings per share (EPS) and income.  EPS got here in at $0.13, two cents above estimates. Income got here in at $191 million, $5 million above estimates. The share worth surged, climbing by nearly 9% in a single day. But, optimism shortly pale. By the following week, the acquire disappeared, and since that launch, shares have dropped by 11%. GSV grew 1%, and income grew 19% from the final yr.

Nonetheless, the agency’s “take fee” is probably the most encouraging metric. The agency supplies this practice metric, which is outlined as the overall income divided by the overall GSV, with minor changes. The take fee exhibits the margin the agency brings in on the worth that its purchasers generate. The take fee for Q1 was 18.9%, which elevated 2.9% from the earlier yr. It is a massive growth within the firm’s margins, which may be very encouraging. The corporate additionally elevated the variety of lively purchasers on the platform from the earlier yr by 5%.

Upwork Ought to Overcome Gen-AI Headwinds

Seeing Upwork’s dramatic worth drop over the past yr is considerably puzzling. The share worth is up solely 6% from Aug. 2, 2023. The S&P 500 is up 22% over the identical interval. That is regardless of the agency truly changing into worthwhile since then, reporting constructive earnings over the past three quarters. The inventory traded at a lot larger ranges in 2022 when its earnings had been destructive. Shares are down 52% since July 4, 2023. This is because of issues about generative AI’s impact on the corporate, which has pushed its shares down whereas driving the market up.

Opinions about how AI will have an effect on the freelance work mannequin range. AI will minimize many roles that require low-skill and repetitive work. A current research confirmed that because the introduction of Open AI’s ChatGPT, job postings for “automation-prone” freelance work dropped 21%. This was notably pronounced in writing, coding, and picture creation. Nonetheless, the remaining jobs required larger ability ranges and paid freelancers extra. Though many roles can be misplaced, different jobs with totally different ability units ought to substitute them.

Whereas issues about Gen-AI are comprehensible, Upwork’s current outcomes don’t lie. It doesn’t make sense for the agency to be buying and selling at over 50% lower than when it was severely unprofitable. The agency exhibiting its capacity to extend its take fee considerably and enhance lively purchasers within the face of Gen-AI headwinds makes this much more head-scratching. Analysts agree. The typical worth goal of analysts masking the agency that up to date their rankings since Q1 earnings is available in at $17.50, implying a 66% upside.

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