Upwork (UPWK): What do Financial Pros Know We Don’t?

On an average day, 1-2 financial pros search for Upwork (UPWK).

From May 11 to May 14, that number jumped to ~95 per day. So far, we couldn’t find any particular news catalyst.

Considering that no other staffing company stock or job site like Fiverr (FVRR) sees anywhere close to that kind of search volume, we had to look into the company for this edition of The Spill.

Upwork’s’ Business

Years ago, there were about half a dozen freelance job websites where contractors and businesses could math up for project work.

Since Upwork’s purchase of Elance in 2013, their merger in 2014, and rebranding to Upwork in 2015, there’s really only two companies left: Upwork and Fiverr.

Upwork boasts over 10 million freelancers and 5 million clients. The company estimates a total market opportunity of $1.3 trillion.

Upwork runs a pretty simple business model: they take a cut of each payment on their platform, currently at 10% across the board.

However, they’re expanding their platform to become a total business provider as shown below:

Source: Upwork Investor Relations Q1 2023

Yet, they haven’t been able to profit, though they generate positive cash from operations.

The latest earnings report showed slowing growth, a key selling point for investors.

Source: Upwork Investor Relations Q1 2023

Financials

Source: Stock Analysis

Every year, Upwork’s managed to push revenues higher by +20% except 2019.

Yet, it was a bit disappointing only to see a modest uptick in 2021 after the pandemic.

However, with higher spending per client, the company’s gross margins improved dramatically these past several years.

Yet, operating and profit margins grew worse. This was largely due to SG&A expenses expanding from 43.7% of revenues in 2016 to nearly 60.0% today.

This comes as the company faces more competition from smaller outfits and the inability to keep clients from working together outside its platform.

Valuation

Source: Seeking Alpha

Given the lack of earnings, Upwork can’t be valued by most traditional measures.

However, the price-to-sales ratio vives us a decent idea of the company’s potential relative to other competitors like Fiverr.

The biggest problem we see is the excessive price-to-cash flow ratio.

If the company needs to spend to keep its clients on board, then its product isn’t sticky enough.

Growth

Source: Seeking Alpha

While Upwork’s revenue growth has been impressive, it’s tough not to look at Fiverr and ask why they can’t generate more cash.

More established staffing agencies like KForce (KFRC) don’t have the same kind of growth, which doesn’t bode well for the more holistic Upwork vision.

Profitability

Source: Seeking Alpha

Speaking of cash, at a gross operational level, it’s fairly ridiculous to see Fiverr generate 4x more cash with half the revenues.

Our Opinion 3/10

While Upwork’s stock is down quite a bit, we still wouldn’t be buyers.

Management hasn’t signaled any intentions of improving profitability, instead focusing on growth at all costs.

In the end, we think that will cost them dearly.

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