We came across a bullish thesis on Upwork Inc. (UPWK) on The Finance Corner’s Substack by Kostadin Ristovski, ACCA. In this article we will summarize the bulls’ thesis on UPWK. UPWK Technologies, Inc. share was trading at $10.12 as of Sept 16th.
A close-up of a hand holding a laptop, showing the user navigating their Upwork platform dashboard.
UpWork (UPWK) is poised for long-term success within the rapidly growing freelance gig economy. Three major tailwinds underline its growth potential: the rising preference of Millennials and Gen Z for work-life balance, flexibility, and autonomy, combined with their tech-savvy nature, means that the freelance population will continue to grow at a rate of 4% per year. Additionally, the educational landscape has shifted, with a variety of platforms such as YouTube, Udacity, and Coursera offering digital skills that make it easier for people to enter freelance roles. Companies, meanwhile, benefit from cost savings and quicker time to market when hiring freelancers compared to traditional recruitment. Freelancers offer companies access to a global talent pool, and public reviews help ensure quality hires.
UpWork is a market leader, serving 868,000 clients as of Q2 2024, and grows at the same pace as the freelancer population. Its competition, such as Fiverr, plays in a different space, focusing on smaller projects. Traditional recruitment agencies and job boards have struggled with growth, while UpWork has thrived due to its large, diverse user base. UpWork’s real competition lies in the outdated way of doing business, which is rapidly evolving.
Financially, UpWork has seen significant revenue growth, expanding from $300 million in 2019 to $740 million today, driven by new initiatives like contract initiation fees, subscription services, and the “Connects” economy. This has led to margin expansion, with gross margins growing from 71% to 76%, and operating margins improving from -6% to +7%. In the first half of 2024, the company posted $41 million in net profits, with excess cash being used for share buybacks, reducing outstanding shares by nearly 4%.
Despite a 15% revenue growth in Q2 2024, the stock is trading at a P/E ratio of 15, suggesting a market cap of $1.25 billion, which appears low given the company’s continued growth and margin expansion potential. A discounted cash flow analysis places the fair value at $13.6 per share, double the current price of $9.4, presenting an attractive opportunity for long-term investors.
Upwork Inc. is also not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 28 hedge fund portfolios held UPWK at the end of the second quarter which was 31 in the previous quarter. While we acknowledge the risk and potential of UPWK as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than UPWK but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.