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% resulting from fears that AI will eradicate many freelance jobs. Now, most analysts protecting the inventory have a purchase ranking on it. Let’s 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 Technology 

On its annual filing, Upwork calls itself “the world’s largest work market.” It measures this utilizing gross companies quantity (GSV). GSV represents the full quantity these trying 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 america.

The first type of income technology is by deducting a proportion 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 provides purchasers entry to the positioning’s primary hiring options. Enterprise gives bigger purchasers with extra assets to assist scale their enterprise utilizing progress and cost-efficiency methods. They assign devoted billing, account administration, and enterprise analytics groups to purchasers to drive these methods.

Two different vital factors of be aware: In Might 2023, Upwork fired 15% of its employees, largely in its gross sales division, and its fundamental competitor is Fiverr NYSE: FVRR.

Upwork Q1 2024 Earnings: EPS and Income Beat, Shares Risky 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 rapidly 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 12 months.

Nevertheless, the agency’s “take price” is essentially the most encouraging metric. The agency gives this tradition metric, which is outlined as the full income divided by the full GSV, with minor changes. The take price reveals the margin the agency brings in on the worth that its purchasers generate. The take price for Q1 was 18.9%, which elevated 2.9% from the earlier 12 months. It is a massive enlargement within the firm’s margins, which could be very encouraging. The corporate additionally elevated the variety of lively purchasers on the platform from the earlier 12 months by 5%.

Upwork Ought to Overcome Gen-AI Headwinds

Seeing Upwork’s dramatic worth drop during the last 12 months 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 turning into worthwhile since then, reporting constructive earnings during the last 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 differ. AI will reduce 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 significantly pronounced in writing, coding, and picture creation. Nevertheless, the remaining jobs required larger talent ranges and paid freelancers extra. Though many roles shall be misplaced, different jobs with totally different talent units ought to change 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 skill to extend its take price considerably and enhance lively purchasers within the face of Gen-AI headwinds makes this much more head-scratching. Analysts agree. The common worth goal of analysts protecting the agency that up to date their scores since Q1 earnings is available in at $17.50, implying a 66% upside.

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