Stock Analysis & Ideas

Upwork Stock: Does Wall Street See Better Days Ahead?

Upwork (NASDAQ: UPWK) shares have gained some momentum since the company announced robust Q1-2022 results and an upbeat Q2-2022 outlook on April 27. However, the gig-economy marketplace stock is still down 35% year-to-date due to macro headwinds and the shift to value stocks from growth stocks. 

Investors were also spooked when Upwork withdrew its guidance in March, following its decision to suspend all business operations in Russia and Belarus by May 1. Ukraine accounted for about 6% of the company’s 2021 revenue, while Russia and Belarus together contributed nearly 4%.

However, Upwork has now reinstated its full-year revenue outlook to $590 million-$610 million, compared to the previous outlook of $620 million to $630 million.

Upwork is an online marketplace that connects businesses with freelancers. As of the end of Q1-2022, the company had about 793,000 active clients, up 16% year-over-year.

Financial Snapshot

Upwork’s revenue grew 24% year-over-year to $141.3 million in Q1-2022, with Marketplace revenue rising 24% to $129.4 million and Managed Services revenue increasing 33% to $11.9 million. The company beat analysts’ consensus revenue estimate of $136.3 million. 

Gross Services Volume (or GSV), a key metric that indicates the total amount spent by clients and users, grew 27% to over $1 billion.

Despite the top-line growth, Upwork swung to an adjusted loss per share of $0.03 compared to an adjusted EPS of $0.03 in Q121. Higher sales and marketing expenses impacted the company’s profitability. That said, analysts were expecting a bigger adjusted loss per share of $0.14.

Overall, Upwork witnessed strong momentum in Q1 of 2022. It signed 32 new enterprise clients. Also, clients that spent $1 million or more in the trailing 12 months grew 57% year-over-year.

The Ukraine-Russia conflict had a $1 million revenue impact on Upwork in Q1 2022, and given the suspension of its activities by May 1, the company expects the impact to be greater in Q2 of this year. Overall, Upwork predicts Q2-2022 revenue to be between $147 million to $151 million, with the midpoint of this guidance reflecting a 20% year-over-year growth.   

Wall Street’s Take

Commenting on the Q1-2022 results, Stifel Nicolaus analyst Scott Devitt noted that Upwork “navigated the uncertain operating and macro environment well in 1Q, and made solid progress driving increased GSV/Active Client, investing behind the Upwork brand, and adding new Enterprise clients while setting the foundations for improved profitability over time.”

Devitt raised his Q2-2022 and full-year estimates and reiterated a Buy rating, with a price target of $30.

Further, Upwork scores a Strong Buy consensus rating based on eight unanimous Buys. The average Upwork price target of $34.13 suggests 54.2% upside potential from current levels.  

Conclusion

Wall Street analysts are highly optimistic about Upwork’s long-term prospects and the ability to capture additional business in the freelance marketplace space. The company’s investments in enhancing its platform and creating more visibility are expected to boost its revenue. 

Further, Upwork scores 8 out of 10 from TipRanks’ Smart Score Rating System, suggesting that it is likely to outperform the overall market.

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