Shares of Upwork Inc. (UPWK) fell more than 12% in extended trading on Wednesday after the freelance platform reported a narrower-than-expected adjusted loss for the first quarter and revenue exceeded Wall Street expectations. However, the company reduced its guidance for the year, causing investor concern.
In the first quarter, Upwork earned $17.2 million, or 13 cents per share, reversing a loss of $24.7 million, or 19 cents per share, in the first quarter of 2022. On an adjusted basis, which excludes one-time items, the company lost 1 cent per share. Revenue for the period rose 14% year-over-year to $161 million.
Analysts polled by FactSet had expected the company to report a loss of 10 cents per share and revenue of $154.9 million. Despite the better-than-expected results, the company lowered its full-year guidance, with the CFO attributing the revision to changes in foreign exchange rates and more cautious expectations for revenue growth.
Upwork’s first-quarter results were driven by strong growth in its core business, particularly in North America, as the pandemic continues to fuel demand for remote work and freelancers. The company also benefited from its ongoing transition to a subscription-based model and investments in sales and marketing to drive growth.
The company reported that gross services volume (GSV) – the total amount freelancers earned on the Upwork platform – increased by 21% year-over-year to $817 million, reflecting robust demand for freelance talent across various industries. GSV, a key performance metric for the company, has been growing steadily in recent quarters as more businesses and freelancers turn to Upwork for flexible, on-demand work arrangements.
Upwork’s client base also grew significantly during the period, with the number of clients spending more than $5,000 annually on the platform increasing by 2,600, or 110% year-over-year. This growth in high-value clients underscores the increasing importance of Upwork’s platform for businesses looking to access skilled freelancers and scale their operations quickly.
Despite these positive trends, Upwork lowered its guidance for the full-year 2023, citing unfavorable changes in foreign exchange rates and more cautious expectations for revenue growth. The company now expects revenue for the year to be in the range of $695 million to $700 million, down from its previous guidance of $705 million to $710 million.
At the same time, it revised its adjusted EBITDA guidance to a range of $8 million to $12 million, from the prior range of $10 million to $15 million. As a result, the company’s stock price dropped in after-hours trading, reflecting investor concerns over the reduced outlook.
Despite the lowered guidance, Upwork CEO Hayden Brown remains optimistic about the company’s growth prospects, citing the ongoing market shift towards remote work and freelancing as key drivers. In an interview with MarketWatch, Brown noted an acceleration in overall hiring on the platform, with a focus on specialized skills in areas such as software development, marketing, and design.
Looking ahead, Upwork plans to continue investing in its marketplace platform and related products to enhance the user experience for both businesses and freelancers. The company has also expressed interest in exploring potential acquisitions and partnerships to expand its offering and reach new markets, although no specific deals have been announced.
In summary, Upwork’s first-quarter results exceeded Wall Street’s expectations, driven by strong growth in its core business and the ongoing demand for remote work and freelance talent. However, the company’s reduced guidance for the year weighed on investor sentiment, leading to a drop in the stock price in extended trading.
Investors should monitor Upwork’s progress in executing its growth strategy, including its transition to a subscription-based model and investments in sales and marketing to drive top-line results. Additionally, the company’s ability to navigate the changing macroeconomic environment, such as fluctuations in foreign exchange rates, will be crucial in determining its future performance and growth trajectory.
As the world continues to adapt to new work arrangements in the wake of the pandemic, the market for freelance talent and remote work platforms like Upwork is expected to grow. Therefore, despite the recent setbacks, the company’s long-term growth prospects remain promising, supported by ongoing trends in the global workforce and its strategic investments in its platform and services.
