Stock Story -
Online freelance marketplace Upwork (NASDAQ:UPWK) reported results in line with analysts' expectations in Q2 CY2024, with revenue up 14.5% year on year to $193.1 million. On the other hand, next quarter's revenue guidance of $181.5 million was less impressive, coming in 6.8% below analysts' estimates. It made a non-GAAP profit of $0.17 per share, improving from its loss of $0.03 per share in the same quarter last year.
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Upwork (UPWK) Q2 CY2024 Highlights:
- Revenue: $193.1 million vs analyst estimates of $193 million (small beat)
- EPS (non-GAAP): $0.17 vs analyst expectations of $0.23 (24.7% miss)
- Revenue Guidance for Q3 CY2024 is $181.5 million at the midpoint, below analyst estimates of $194.8 million
- Gross Margin (GAAP): 77.3%, up from 75.8% in the same quarter last year
- EBITDA Margin: 21%, up from 8.5% in the same quarter last year
- Free Cash Flow of $33.54 million, up from $2.99 million in the previous quarter
- Gross Services Volume: 868,000, up 46,000 year on year
- Market Capitalization: $1.43 billion
Formed through the 2013 merger of Elance and oDesk, Upwork (NASDAQ:UPWK) is a freelancing platform where businesses and independent professionals connect to get work done.
Gig EconomyThe iPhone changed the world, ushering in the era of the “always-on” internet and “on-demand” services - anything someone could want is just a few taps away. Likewise, the gig economy sprang up in a similar fashion, with a proliferation of tech-enabled freelance labor marketplaces, which work hand and hand with many on demand services. Individuals can now work on demand too. What began with tech enabled platforms that aggregated riders and drivers has expanded over the past decade to include food delivery, groceries, and now even a plumber or graphic designer are all just a few taps away.
Sales GrowthUpwork's revenue growth over the last three years has been solid, averaging 19.4% annually. This quarter, Upwork reported mediocre 14.5% year-on-year revenue growth, in line with analysts' expectations.
Guidance for the next quarter indicates Upwork is expecting revenue to grow 3.3% year on year to $181.5 million, slowing from the 10.8% year-on-year increase it recorded in the comparable quarter last year. Ahead of the earnings results, analysts were projecting sales to grow 10% over the next 12 months.
Usage Growth As a gig economy marketplace, Upwork generates revenue growth by expanding the number of services on its platform (e.g. rides, deliveries, freelance jobs) and raising the commission fee from each service provided.
Over the last two years, Upwork's gmv, a key performance metric for the company, grew 4.8% annually to 868,000. This growth lags behind the hottest consumer internet apps.
In Q2, Upwork added 46,000 gmv, translating into 5.6% year-on-year growth.
Revenue Per GmvAverage revenue per gmv (ARPG) is a critical metric to track for consumer internet businesses like Upwork because it measures how much the company earns in transaction fees from each gmv. This number also informs us about Upwork's take rate, which represents its pricing leverage over the ecosystem, or "cut" from each transaction.
Upwork's ARPG growth has been strong over the last two years, averaging 9.8%. The company's ability to increase prices while growing its gmv demonstrates its platform's value, as its gmv continue to more each year. This quarter, ARPG grew 8.5% year on year to $222.50 per gmv.
Key Takeaways from Upwork's Q2 Results We struggled to find many strong positives in these results. Its full-year revenue guidance missed analysts' expectations and its GMV fell short of Wall Street's estimates. Overall, this was a weaker quarter for Upwork. The stock traded down 10.9% to $9.33 immediately following the results.
