Upwork:Quarterly Results/2023 Q3

Return to: 2023 Q3 Shareholder Letter | Upwork:Quarterly Results | Upwork:Quarterly Results/2023 Q2 | Earnings Season:2023 Q3

See also: Upwork: Main Insights from Jobs Posted in Upwork Platform | Upwork: Product Developments | Upwork: Conferences

Results

• Upwork posted impressive Q3 results; revenue of $175.7 million (+11% y/y) exceeded management upper guidance ($165 million-$170 million), adjusted EBITDA and EPS of $31.2 million and $0.12 also topped management upper guidance of $14 million-$17 million and $0.09-$0.11, respectively.
• Upworks profit margin rose to 9% from -16% a year ago while net cash from operating activities rose to $37 million from $10 million in Q3 2022.
• However, Upwork’s GSV of $1,030 million was flat Q/Q and Y/Y due to “lapping” of strong quarters.
• Upwork raised their full-year 2023 revenue guidance and adjusted EBITDA to $680 million-$685 million and $67 million-$71 million from $665 million-$675 million and $50 million-$55 million, respectively.
• The company is guiding Q4 2023 revenue of $175million-$180 million and non-GAAP EPS of $0.16-$0.18 versus analysts estimates of $172.7 million (+7% y/y) and $0.16, respectively.
• Upwork said its existing clients continue to spend at a higher level compared to new clients, and as a result, GSV per active buyer fell 1% y/y to $4,906.
• The company said it will repurchase outstanding common shares of up to $100 million.

Earnings call

See also: Full Q3 2023 Earnings Call Notes Mindmap

Main Insights

• CFO Erica Gessert said they haven’t seen any material improvement in macro environment in Q3, and macro trends continue to be uneven and difficult to predict, sometimes changing month over month though hours per contract are up slightly Q/Q and up 10% year-over two-year trends.
• They expect EBITDA margin to fall to 15% in Q4 from 18% in Q3 due to reduction in long-term investments in favour of short-term projects such as AI in Q4.
• They have a small number of team members in Middle East and don’t anticipate the conflict to have any noticeable impact to the business since GSV from the region is negligible.
• CEO Hayden Brown said small business clients are the ones leading the pack in terms of performance.
• CFO Erica Gessert said they expect additional growth from price structure to happen in first half of 2023 but they are not breaking out the exact dynamics.

Management Guidance and Analysts Estimate

Management Guidance

• Here is the management guidance for Q3 2023 and full year 2023.

	Q3 2023						FY2023
Key Items	Lower-Point	Y/Y Growth	Mid-Point / Consensus	Y/Y Growth	Upper-Point	Y/Y Growth	Lower-Point	Y/Y Growth	Mid-Point / Consensus	Y/Y Growth	Upper-Point	Y/Y Growth
Revenue	$165 million	4.0%	$167.5 million	5.6%	$170 million	7.2%	$665 million	7.6%	$670 million	8.4%	$675 million	9.2%
Adjusted EBITDA	$14 million		$15.5 million		$17 million		$50 million		$52.5 million		$55 million
non-GAAP diluted EPS	$0.09		$0.10		$0.11		$0.36		$0.38		$0.39
Shares outstanding	142 million		143 million		144 million		136 million		138 million		140 million

• Management expects to generate positive free cash flow going forward.

Analysts Estimate

	Q3 2023				Q4 2023		FY2023
Key Items	Consensus/ average	Y/Y Growth	Up revisions	Down revisions	Consensus/ average	Y/Y Growth	Consensus/ average	Y/Y Growth	Up revisions	Down revisions
Revenue (yahoo finance)	$168.3 million	6.1%			$172.7 million	7.0%	$670.5 million	8.4%
EPS (yahoo finance)	$0.10				$0.16		$0.37
Revenue (Seeking Alpha)	$168.1 million	6.0%	7	1			$670.2 million	8.4%	9	0
EPS (Seeking Alpha)	$0.10		6	0			$0.37		7	0

Analysts Opinions

Job Openings

• UBS initiated coverage of Upwork with a price of $13 and a neutral rating. The firm said that even though Upwork has a large total addressable market, its Volume continue to decline alongside declining job listings. However, the analyst added that the decline in job listings has started to moderate. UBS expectations of Upwork are in-line with the Street, which they say “seem reasonable given the uncertainty.”

AI

• Roth MKM analysts believe AI could be a "significant tailwind" to gig sector platforms. 13% of business owners told them that they already hire freelancers for AI services, and 48% said they will highly likely hire freelancers for such services.

Competitor earnings expectations and results

Indirect Competitors

Randstad

• According to Reuters, Randstad Q3 revenue missed estimates.
• CEO Sander van 't Noordende said in the earnings call that Europe, Latin America and Asia Pacific were their best perfoming regions while North America was impacted by tough domestic market conditions.
• Noordende added that the market trends seen in Q3 have continued into October and that looking ahead, "our markets continue to be defined by three prevailing trends. First, the scarcity of talent, second, clients seeking greater levels of support and of course digital."
• Randstad is cautious when it comes to economic conditions.
• Its CFO Jorge Vazquez said they had a strong quarter last year. " Please note that in terms of growth rate and comparables, last year was very, very strong. It was actually in record the strongest quarter of Randstad, which obviously will tint any comparison with this year. We've been seeing a normalization and obviously that has now an impact and so therefore sequentially is almost as relevant as year-over-year," he said.
• Launched Randstad Digital in August for global talent. They are excited in growth opportunities in this area.
• Noordende said wage inflation is coming down in U.S but higher in Europe.
• The business was impacted by existing clients hiring fewer people.
• Clients are now looking at how they can hire more efficiently and cost effectively; hence looking to hire in countries such as India and Latin America.
• In terms of volumes, they are seeing stabilization into Q4.

Key Items	Actual	Y/Y Growth	Estimate
Revenue	6.26 billion euros	-7%
EBITA	273 million euros	-17%	258 million euros

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	€6.46 billion	-6%	€6.52 billion	-2%	€7.0 billion	4%	€7.1 billion	12%	€ 6.9 billion	13%	€ 6.6 billion	20%
North America revenue	€1.38 billion	-14%	€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.

The Adecco Group

• “The macroeconomic environment is a little bit more challenging than it was, but we definitely see opportunities to continue to take share,” Chief Financial Officer Coram Williams told Reuters.

• "In North America, revenues were 8 percent lower, outperforming a challenging market. Autos and consumer goods were solid, while IT Tech and financial services were subdued," the press release read.
• Adecco Group revenue in October grew by 3% (organic), the same level as in Q3 2023.

Flexible placement performance in the past few quarters

• Flexible Placement deals with any staffing shortage eg due to illness and organisational recruitment freezes.
• Flexible Placement revenue accounts for 75% of total revenue.

Key Items	Q3 2023	Y/Y Growth	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 2021	Y/Y Growth
Revenue	4.5 billion euros	-2%	4.5 billion euros	-1%	4.4 billion euros	4%	4.7 billion euros	4%	4.6 billion euros	8%	4.52 billion euros	4%	4.2 billion euros	4%

About the Adecco Group

• The Adecco Group is a Swiss-French company that offers permanent placements, flexible placements and outsourcing across all sectors.
• 15% of its total revenue come from Americas while more than 70% comes from Europe.

Manpower Group

• "Our third quarter results reflect the challenging operating environment for recruitment and resourcing in North America and Europe. We continued to see solid demand across Latin America and Asia Pacific Middle East. While the current operating environment is difficult for our industry, we are confident in our ability to adjust to the existing reality while being ready to pivot quickly when the situation improves," Jonas Prising, ManpowerGroup CEO said.
• CEO Jonas Prising said in the earnings call that his conversations with clients and business leaders point to manageable headwinds in the short-term and limited visibility in the long-term.
• Prising added in the earnings call that what they have seen is clients holding on to their own workforce but cutting down on hiring through "our industry".

Key Items	Actual	Y/Y Growth	Estimate
Revenue	$4.68 billion	-2.6%	$4.71 billion
Adjusted EPS	$1.38		$1.34

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 Manpower Group

• 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%.