Upwork:Quarterly Results/2023 Q2

Return to: Earnings Season:2023 Q2

See also: Upwork 2023 Q2 Release | Upwork | Upwork: Jobs posted in the Platform | Upwork: Product Developments

Results

Here is a summary of the earnings results.

• Revenue grew 7% y/y to $168.6 million, beating management upper guidance of $164 million(+3.57%).
• Upwork raised its revenue guidance for 2023 to $665-$675 million from $655-$670 million given in Q1 2023.
• Adjusted EBITDA in the quarter was $14.4 million versus $1 million mid-point guidance given by the company in Q1 2023.
• Upwork also raised its FY2023 adjusted EBITDA guidance to $50-$55 million from the initial $36-$40 million.
• GSV was down 1% y/y due to strong comparisons in the past two years as well client marketplace changes implemented in April 2022.
• It said that it expects to generate positive cash flow going forward.

Summary of earnings call

You can find our brief summary of the earnings call in MindMap.

Here is a detailed summary of the earnings call.

Clients and GSV insights

• Active clients grew 2% y/y to 822,000(MR).
• Growth in active clients was driven by y/y increase in retained clients, partially offset by flat growth in new clients(MR).
• Retained clients were up 4% y/y(Q&A).
• Client acquisition was down less than 1% sequentially(Q&A).
• Active client number is a trailing 12-month number(Q&A).
• One of their enterprise clients moved to managed service contract in Q2; hence the two will grow in aggregate in Q3(Q&A).
• Expects GSV to be pretty much steady during the remainder of the year due to lapping of strong quarters. But this does not contemplate the changes to the macro environments(Q&A).

Cost-saving measures

Throughout the quarter, Upwork identified and implemented additional cost-saving measures, which include(MR);

• Additional reduction of brand marketing costs.
• Deprioritize lower return investment vendor expenses and consulting projects.
• Reassessed hiring plans so as to focus on most important strategic initiatives.

Upwork hopes to continue identifying areas of efficiency while continuing to invest in growth areas(MR).

Expects cost-savings measures undertaken to yield incremental benefits in second half(MR).

AI

• One of their most important growth areas is generative AI(MR).
• AI was the fastest-growing category in H1(MR).
• Generative AI job posts grew 10x while searches grew 15x compared to Q4 2022(MR). But the numbers are based on a smaller base(Q&A).
• OpenAI is using Upwork talent to support its innovation and growth, and this created an opportunity for Upwork to help its customers gain access to Upwork talent(MR).
• Clients are saying they need talent to implement the AI solutions and are willing to pay a premium for those talent(Q&A).
• Wages for generative AI jobs are 50% more than other jobs in the marketplace(Q&A).
• Generative AI category is not causing any negative impact on other job categories(Q&A).
• Demand for generative AI talent is occuring across business sizes, small businesses, medium and large(Q&A).
• GSV contribution by generative AI is small(Q&A).
• Upwork is talking with other generative AI providers who have clients who need generative AI talent.

Numbers, Insights, Strategy

• Total revenue growth was primarily driven by pricing changes in April 2022 as well as monetization strategies related to connects and contract initiation fee introduced in the quarter(MR).
• Operating expenses declined 4% in Q2 due to cost-saving measures initiated(MR).
• Non-GAAP R&D expenses declined 24% y/y while sales and marketing, G&A and transaction losses declined significantly(MR).
• Raised revenue guidance due to the success of its simplified pricing structure and other monetization improvements(MR).
• Still plans to exit the year approaching 15% EBITDA margin(Q&A).
• Q4 EBITDA margin tends to be higher than Q1 EBITDA margin(Q&A).
• Making pretty good returns on their cash balances due to high interest rates(Q&A).

Enterprise business

• Enterprise business added new clients like Mastercard, R.R. Donnelley, and Las Vegas Sands(MR).
• Hired Zoë Diamadi as our new General Manager of Enterprise(MR).

Macro environment

• compared to Q1, they did not see any changes in terms of how clients are navigating the macro environment(Q&A).
• Enterprise clients are still showing sales cycle elongation, some are cautious with the budget(Q&A).
• Updated guidance does not contemplate any changes to the macro environment(Q&A).

Sales and Marketing

• Their enterprise sales execution improved throughout the quarter(Q&A).
• Their revenue per account manager was up 100% q/q while productivity in the land team was up 13% q/q, with only one month operating under the optimized model(Q&A).

Pricing Change

• The change that they have rolled out has gone extremely smoothly so far(Q&A).
• That is, they haven't notice any negative impact on clients of all sizes(Q&A).

Internal changes

• Hayden Brown is excited about where they are after the internal changes they made in Q1(Q&A).
• She said that the energy and enthusiasm in their current structure and leadership couldn't be better(Q&A).

Management Guidance and Analysts Estimates

Management Guidance

Q2 2023

Key Items	Lower-point	Y/Y Growth	Mid-Point	Y/Y Growth	Upper Point	Y/Y Growth
Revenue	$161 million	2.61%	$162.5 million	3.57%	$164 million	4.53%
Adjusted EBITDA	$0 million	0%	$0.5 million	0.5%	$1 million	1%
Non-GAAP diluted EPS	$0.00		$0.01		$0.02
Shares outstanding	135 million		136 million		137 million

FY2023

Key Items	Lower-point	Y/Y Growth	Mid-Point	Y/Y Growth	Upper Point	Y/Y Growth
Revenue	$655 million	5.99%	$662.5 million	7.20%	$670 million	8.41%
Adjusted EBITDA	$36 million		$38 million		$40 million
Non-GAAP diluted EPS	$0.24		$0.36		$0.48
Shares outstanding	140 million		142 million		144 million

Analysts Estimates

Yahoo Finance

Q2 2023

Key Items	Yahoo Finance	Y/Y Growth
Revenue	$162.57 million	3.62%
EPS	$0.00

Q3 2023 and FY2023

Key Items	Q3 2023	Y/Y Growth	FY2023	Y/Y Growth
Revenue	$165.75 million	5.3%	$661.32 million	7%
EPS	0.09		0.26

Seeking Alpha

Q2 2023

Key Items	Q2	Y/Y Growth	Upward revisions	Downward revisions
Revenue	$162.54 million	3.60%	1	8
EPS	-$0.00		0	5

FY2023

Key Items	FY23	Y/Y Growth	Upward revisions	Downward revisions
Revenue	$661.33 million	7.01%	0	10
EPS	0.26		6	0

Analysts Commentaries

Matt Farrell, Piper Sandler

• Raised Upwork price target to $13 from $10 and kept overweight rating.
• "Despite the uncertainty persisting for the vertical marketplaces, trends for the most part have been better than feared," he wrote.

Marvin Fong, BTIG

• Lowered price target to $13 from $15 and maintained buy rating.
• "AI will continue to be an overhang in the "knowledge" space, and while the firm's work continues to suggest that a neutral or even positive net impact on freelancing from AI is possible, nothing can be ruled out as the technology evolves," he wrote.

Jimmy Monaco, Seeking Alpha

• Upwork is undervalued.
• Competition( low barrier to entry risk).
• The only company in the space that has monetized both ends of its business.
• Between Q3 2019 and Q1 2023, talent revenue as a percentage of total revenue declined from 61% to 53% and client revenue as a percentage of total revenue is almost reaching parity with talent revenue.
• Upwork can gain more active clients like Fiverr(4,263,000).
• Enterprise opportunity: Enterprise growing 21% faster than marketplace business and its clients show more stickiness.
• New pricing may hurt customer and freelancer retention($4.95 contract initiation fee and removal of reducing tier).

Competitor expectations and results

Direct Competitors

Fiverr

Results

Here is a summary of the main insights;

• Revenue grew by 5.1% y/y to $89.4 million versus management mid-point guidance of $89 million(+5% y/y), driven by growth in spend per buyer and increase in take rate.
• Spend per buyer grew 2% y/y to $265 in the 12 months ended June 30,2023. Fiverr expects spend per buyer to increase in the second half of the year.
• Its Q2 2023 adjusted EBITDA was $15.3 million versus $13 million guided by management.
• Fivver raised its 2023 revenue outlook to $358.0 - $365.0 million from $355.0 - $365.0 million.
• It also raised its 2023 adjusted EBITDA guidance to $56.0 - $60.0 million from $48.0 - $56.0 million

Management Guidance

Key Items	Q1 2023	Y/Y Growth	FY2023	Y/Y Growth
Revenue	$89 million	5%	$360 million	6.5%
Adjusted EBITDA	$13 million		$52 million

Analyst's estimate

Key Items	Q1 2023	Y/Y Growth	Q3 2023	Y/Y Growth	FY2023	Y/Y Growth
Revenue	$89.15 million	4.90%	$90.6 million	9.8%	$361.12 million	7%
EPS	$0.09		0.14		0.24

Indirect Competitors

• When it comes to insights for Upwork, Ranstad seems to be the most preferable company compared to Manpower Group. This is because Ranstad's business model is fully inclined towards outsourcing unlike Manpower Group that has three business models that offer different services.

Randstad

Summary

Key Items	Actual	Estimate
Revenue	€6.46 billion	€ 7.30 billion
EBITA	€271 million	€ 260 million

• Randstad Q2 2023 revenue declined by 6% y/y to €6.46 billion, below analysts estimate of € 7.30 billion.
• EBITA topped estimates.
• Its North America(largest market) revenue declined by 14% to € 1.38 billion.
• "In North America, like in Europe by the way, I would say the market is normalizing," Randstad CEO Sander van't Noordende said in an interview.
• " The macroeconomic conditions remain challenging across our markets, and these conditions have continued into early July," CFO Jorge Vazquez said.

Performance in the last few quarters

Key Items	Q1 2023	Y/Y Growth	Q4 2022	Y/Y Growth	Q3 2022	Y/Y Growth	Q2 2022	Y/Y Growth	Q1 2022	Y/Y Growth
Revenue	€6.52 billion	-2%	€7.0 billion	4%	€7.1 billion	12%	€ 6.9 billion	13%	€ 6.6 billion	20%
North America revenue	€1.21 billion	-7%	€1.37 billion	6%	€1.5 billion	26%	€1.4 billion	27%	€1.3 billion	26%

About Randstad

• Ranstad is a Netherlands company founded in 1960 that helps people find jobs and advises clients on talent needs.
• In 2022, it secured jobs for 2 million people and offered advisory services to 230,000 clients.
• It is present in 39 countries, including North America.
• Randstad was one of the companies that benefited from Covid.
• Upwork lists Randstad as one of its indirect competitors.

ManPowerGroup

Summary

• "The RPO business is clearly feeling the effects of the slowing hiring environment from a permanent recruitment perspective," CEO Jonas Prising said in the earnings call.
• "As I mentioned last quarter, we are seeing slower hiring trends across the board with particular impacts in certain sectors in the U.S and Europe. Large tech enterprise companies have continued to substantially reduce headcounts. A trend that began in late 2022. We are also tracking softer commercial staffing demand due to decreased production in some manufacturing activities, " Prising said in the earnings call prepared remarks.
• "we saw mixed demand for staffing and weakened demand for permanent recruitment services in the U.S. and Europe," he added.

Performance in the last few quarters

Key Items	Q2 2023	Y/Y Growth	Q1 2023	Y/Y Growth	Q4 2022	Y/Y Growth	Q3 2022	Y/Y Growth	Q2 2022	Y/Y Growth	Q1 2022	Y/Y Growth
Revenue	$4.9 billion	-4%	$4.8 billion	-8%	$4.8 billion	-11%	$4.8 billion	-7%	$5.1 billion	-4%	$5.1 billion	4%
US revenue		-18%		-6%		-5%		38%		44%		46%
Manpower brand organic revenue in constant currency		-1%		-1%		-1%		1%		1%		5%

About ManpowerGroup

• Its Experis solutions provides employers with IT infrastracture while Manpower solutions provides employers access to contingent and permanent workforce.
• Its Talent solutions provide data solutions across talent life cycle.
• Manpower comrised 58% of its gross profit in Q2 while Experis comprised 25%. Talent Soultions comprised 17%.

GSV and revenue development of Upwork and Fiverr since the downturn began

	UPwork				Fiverr
	GSV	Y/Y Growth	Revenue	Y/Y Growth	Revenue	Y/Y Growth
Q2 2022	$1.046 billion	19%	$156.9 million	26%	$86.7 million	27%
Q3 2022	$1.027 billion	14%	$158.6 million	24%	$82.5 million	11%
Q4 2022	$1.030 billion	5%	$161.4 million	18%	$83.1 million	4.2%
Q1 2023	$1.003 billion	0%	$160.9 million	14%	$88 million	1.5%