Gig Economy Growth Helps Upwork Soar

According to a study published last September, more than a third of the American workforce is working freelance amid the pandemic. They add $1.2 trillion to the US economy, a number that has grown 22% over the year. The increased unemployment due to the pandemic has accelerated this growth. Upwork (NASDAQ: UPWK) recently reported its fourth-quarter results that saw stellar growth as well.

Upwork’s Financials

For the fourth quarter of the year, Upwork’s revenues grew 32% to $106.2 million. Marketplace revenues grew 34% to $96.9 million. Managed services revenue grew from $8.1 million last year to $9.3 million. Net income increased to $0.9 million for the year compared with a loss of $5.5 million reported a year ago. On an adjusted basis, net income was $0.06 per share compared with a net income of $0.03 last year. Analysts were looking for revenues of $97.34 million for the quarter with a net loss of $0.05 per share.

Among key metrics, Gross services volume (GSV) increased 33% to $727.7 million. Marketplace take rate grew to 13.5% from 13.3% a year ago.

For the full year, Upwork reported a 24% growth in revenue, ending at $376.6 million. Adjusted loss per share grew from $0.15 a year ago to $0.19 for the year.

For the current quarter, Upwork expects revenues of $107-$109 million. For the full year, it expects revenues between $460 and $470 million. The market had forecast revenues of $102.02 million for the quarter and $364.81 million for the year.

Upwork’s Product Upgrades

Recently, Upwork announced the early global launch of its Project Catalog, a curated collection of predefined projects that customers are able to browse through and purchase. The Catalog offers additional opportunities for both businesses and independent professionals to allow them to work together instantly on its work marketplace. Clients are able to leverage its curated collection of predefined, fixed-price projects to solve their urgent work needs. The catalog contains more than ten thousand projects spread across 300 work categories.

Given the growing remote working conditions, Upwork recently entered into a collaboration with Zoom. As part of the tie-up, it has integrated its marketplace with Zoom’s video and voice communication tool to provide customers with a seamless and secure communications experience. As Upwork customers leverage Zoom, the integration will enhance their overall work experience.

Upwork’s Competition

The current pandemic has driven a bigger workforce to remote working options. Organizations are now willing to hire freelance professionals who can work from anywhere. But Upwork is not the only player offering freelance professional services. Other platforms are competing with Upwork by offering lower fees, a wider variety of professionals, and quality projects that have already been screened. Rival Fiverr, for instance, allows any kind of job listing and charges 20% of the project fee as its commission. The more gigs a professional gets, the higher Fiverr rates the professional, thus increasing their chance of getting selected for a project. Freelancer is a closer rival to Upwork that allows professionals to bid for work in return for a fee ranging from $5 to 10% of the transaction. Then there is the UK-based PeoplePerHour that has a tier-based fee model and only allows those professionals to join its community whose skills are genuinely needed by organizations. The gig economy is here to stay and companies like Upwork will need to continue to improve their product offerings to stay relevant in the market.

Upwork’s stock is currently trading at $51.43 with a market capitalization of $6.3 billion. It was trading at a 52-week high of $60.44 earlier this month and had fallen to a 52-week low of $5.14 in March last year. in October 2018 it had listed at $15 at a valuation of $1.5 billion. Prior to the listing, Upwork had raised $170 million in funding from investors including Kleiner Perkins Caufield & Byers, New Enterprise Associates, Stripes Group, Pequot Capital, Citigroup, Focus Ventures, T. Rowe Price, Sigma Partners, Benchmark, Globespan Capital Partners, DAG Ventures, and SV Angel.

Disclosure: All investors should make their own assessments based on their own research, informed interpretations, and risk appetite. This article expresses my own opinions based on my own research of product-market fit, channel execution, and other factors. My primary interest is in product strategy. While this may have bearing on stock movements, my writings tend to focus on long-term implications. The information presented is illustrative and educational, but should not be regarded as a complete analysis nor recommendation to buy or sell the securities mentioned herein. I am not a registered investment adviser and I am not receiving compensation for this article.

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