Earnings beat can’t stop Upwork share price drop

Upwork’s share price fell in after-hours trading on Wednesday, despite it beating analyst expectations on Q4 earnings and revenue. Forward guidance came in below analyst expectations, denting investor confidence. Upwork has also launched a full-time employee hiring expansion.

- Upwork shares fall on underwhelming guidance despite double beat in Q4.

- Company announces full-time employee hiring solution.

- The SoFi Be Your Own Boss ETF gains 32% year-to-date.

Upwork’s [UPWK] share price fell by more than 10% in after-hours trading on Wednesday, despite a fourth-quarter (Q4) earnings and revenue beat, as full-year performance and forward guidance both fell short of analyst expectations.

Upwork’s share price closed 33.5% up for the year on Wednesday, although the stock had fallen 45% over the preceding 12 months.

The decline following the earnings announcement marred an otherwise positive week for the company. On Monday, Upwork announced a major expansion to its product offering, to support companies hiring full-time employees.

Dave Bottoms, general manager of marketplace at Upwork, said the move aimed “to provide customers the flexibility to choose the work arrangements that best fit their needs”.

Investors greeted the announcement positively, with Upwork’s share price gaining 4.5% on the day.

Earnings beats and an expanding market

Upwork’s total revenue for Q4 increased 18% year-over-year to $161.4m, 1.3% above the 159.3m consensus forecast among analysts polled by Refinitiv. Upwork reported non-GAAP EPS of $0.04 for the quarter, a 225% improvement year-over-year from a loss of $0.05 per share, and a 175% beat of analyst forecasts of a $0.03 EPS loss.

For the full year, Upwork’s total revenue increased 23% to $618.3m, scraping past analyst expectations by 0.4%. Annual losses widened by 200% to $0.06 per share, but beat analyst expectations of a $0.12 loss per share by 150%.

Upwork provided revenue guidance for Q1 2023 of $157m to $160m, shy of the $166.66m that analysts were expecting, according to Investing.com. Upwork also expects to make an EBITDA loss of $8m to $11m for the quarter.

Full-year revenue guidance was set at $690m to $705m, again shy of analyst expectations, which currently stand at $720.22m. However, the company reiterated that it was committed to achieving profitability in 2023, with EBITDA guidance of $15 to $20m for the year.

Upwork’s full-time work offering will allow companies and freelancers to trial a “contract-to-hire working relationship”.

Trials of the new feature conducted by companies since the start of the year have led to 40,000 such vacancies being posted on the Upwork platform. The new offering will also expand Upwork’s existing suite of tools for managing and paying full-time employees.

Piper Sandler analyst Matt Farrell reiterated an ‘overweight’ rating of Upwork’s shares following the announcement, saying that the move extends Upwork’s end-to-end capabilities beyond competitors in the space, and opens up a larger addressable market for the company.

Freelancing set to grow

Global macroeconomic conditions were unfavourable for online hiring platforms during the second half of 2022. Upwork’s shareholder letter said the company had observed “corporate caution during budgeting and planning cycles” during Q4, as it had in Q3. This led to “softer client acquisition and retention trends” across Upwork’s customer base.

Notwithstanding Upwork’s move into full-time hiring, however, there are signs that freelance working is on the rise. A recent report from FlexJobs showed that greater autonomy was steering more workers towards freelancing careers.

“At the same time,” said Sara Sutton, founder and CEO of FlexJobs, “companies are more willing to rely on freelance professionals to fill talent gaps.”

An August report from 360 Research Reports estimated the global freelance management platforms market will be worth $3.4bn in 2021, and that it will grow at a CAGR of 18.1% until 2027. By then, the report estimates, the market will be worth $9.2bn.

Funds in focus: SoFi Be Your Own Boss ETF

The SoFi Be Your Own Boss ETF [BYOB] offers “exposure to companies involved in the revolutionary shift towards flexible work through a free-market system of freelancers and shared resources”. As of 14 February, the fund’s top holdings are Shopify [SHOP], Block [SQ] and UiPath [PATH], while Upwork is further down the list with 1.94% of assets under management. The fund has fallen 29.6% in the last 12 months, but has gained 32.4% year-to-date.

Analysts polled by Refinitiv yielded a median 12-month price forecast of $17.00, a 22% potential increase from the 15 February close. The high target of $28.00 implies a 100.9% upside, while the most pessimistic forecast of $13.00 anticipates that Upwork’s share price could fall 6.7% over the coming year.

Out of 11 analysts offering ratings on Upwork, three rated it ‘buy’, five ‘outperform’ and three ‘hold’.