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Inside Story Prompts A Question: Does Upwork Have Upside?

Jun. 05, 2019 7:48 AM ETUpwork Inc. (UPWK)LYFT, UBER5 Comments
Penn Little profile picture
Penn Little


  • Nasdaq takes a beating on Monday as "technology companies" face potential regulatory burdens.
  • Upwork places a significant emphasis on the importance of classification of employees but offers a stable of freelancers that are independent contractors.
  • A real-life example shows the hazards of utilizing Upwork's platform and the fallout that can ensue.
  • With Fiverr and other similar models emerging, the potential for profitability is placed in question.
  • Upwork's CEO is unloading stock and it doesn't appear that many are buying.

Regulation fears are looming large from Market Street to Wall Street. Monday's market losses, especially on the Nasdaq, were widely attributed to the concern surrounding regulatory windfalls facing so-called "tech companies" that catch attention as they grow. For instance, we discussed the "heavy duty" scrutiny ride-sharing companies face in New York City in a previous article regarding Lyft, Inc. (Nasdaq: LYFT). It seems to be only a matter of time before many tech companies will be reclassified to what they truly are, as the tax man will most definitely cometh.

Now, there's another sector that appears vulnerable: contractor stables like Upwork, Inc. (Nasdaq: NASDAQ:UPWK) and Fiverr. Both companies are dedicated to providing an online portal in which freelancers promote and advertise their services. The benefit of these platforms is the fact that a plethora of freelancers meet a smorgasbord of entrepreneurs and businesses with a variety of needs, albeit with a budget in mind. Upwork simply makes the match, scalps up to a 22.75% fee, according to Inc., and has yet to find a profit.

Like our ride-sharing friends, Upwork has undoubtedly seen a notable decline (in terms of market cap) since their IPO. Could this be predicated solely on the fear of a regulatory shoe dropping? Or is this the result of the regular problem of "big revenue/big loss" IPOs that have been the new San Francisco treat, as well as Wall Street?

Real-life inside experience with Upwork suggests that, aside from regulatory fears, customer service and liability avoidance present concerns. It's not challenging to argue that contracts are (in comparison to days of old) fat stacks of paper or never-ending PDFs. Handshakes no longer hold an underlying bond. The large stable of contractors that is Upwork appears no different than a large consulting firm like Accenture, KPMG, or any other stable of temporary expertise brought in for

[9/18/2017 9:39:16 AM] Penn Little: Operating Agreement review and opinion for a letter I need



This article was written by

Penn Little profile picture
Penn Little is an entrepreneur, researcher, investor, writer, and investigative journalist. Hailing from the small town of Springer, Oklahoma, Penn first began "investing" in the 5th grade, when his group won the 3rd place in a Dallas Morning News-sponsored stock picking contest. Penn has found a passion in his ability to expeditiously investigate companies as well as piecing together how they all contribute or are affected by multi-faceted macro trends. The dual understanding of finance and behavioral health led to the notable Acadia Healthcare series of articles in 2018/2019.He began working for a behavioral healthcare provider, Prescott House, Inc. in 2011. This was a result of his recovery from after struggling with behavioral health disorders and the consequences of his maladaptive behaviors resulting from unresolved trauma. Succumbing to these taught what he says are "the best lessons I ever learned." While not related to securities, Penn served 14-months in federal prison, for bank fraud when he was 23-years-old. He was ordered to pay around $300k in restitution, and while it took him eight years to do so, he settled the bill in 2016. While in graduate school, in his resurgence from the time of tough lessons: Penn became a partner in a start-up management consulting firm, beginning in 2013. Peak Consulting Partners focused on healthcare management and finance. A large non-profit acquired the firm in 2016, and it still thrives today, despite Penn moving on to his passion: investing. Now, a decade later, Penn has exited three start-ups. Before founding Bar Nothin' Capital Management, and then his research firm Bar  Penn was the Co-founder and Managing Partner of Crestview Capital Partners LLC. At Crestview, the firm he co-founded in 2014, Penn led the charge to improve outcomes in mental and behavioral healthcare by scaling quality care models in the arena of community counseling. He sold the company in 2017 to a global private equity firm. Penn serves as a contributor for Forbes as well. He has come to enjoy and find a passion for learning and writing about various verticles including energy and transportation.Penn is a proud graduate of Culver Military Academy in Culver, Indiana. Penn holds a B.A. from The University of Oklahoma in Norman, Oklahoma, where he studied Economics. He holds an M.B.A. in Finance from the University of Arizona's Eller College of Management in Tucson, AZ.Penn founded the Wilkinson-Dorrell Scholarship Program at The University of Oklahoma Foundation. While at Crestview, Penn also co-founded the Shatter Our Silence Initiative, to combat teen suicide in Northern Illinois. Penn loves to spend time with his nieces, Sacra and Emory (both 3) and nephew, Greer (1), as well as fishing in Kona, HI for Blue Marlin. He tries to keep his golf game in shape and is a loyal fan of his alma mater's Oklahoma Sooner football team.Disclosure: Katie Mikles (SeekingAlpha Contributor) and I are colleagues and partners from a journalistic and entrepreneurial standpoint as well as personal friends. We collaborate and research together, as many readers know, however, are expressing our own unique investment viewpoints.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (5)

Value Digger profile picture
Excellent article, Penn Little.

After the one in 1999, we are living the second dot-com bubble.

This tech bubble originates primarily from San Francisco this time.

But any bubble bursts sooner or later.
camiech profile picture
i love upwork as a Client! I have made as a small person, a huge company with very small budget and low cost! ... i am sorry to hear your story! i have had failures, but manymany success stories! they key here is to start small,,and ask "smart" questions to the applicants so you can check their knowledge!! i always hire the smartest answer, and the one that shows me is an expertise in the topic!
Rob Nokes profile picture
Research everyone you do business with regardless of where you hire them.
Always take baby steps when hiring someone and build trust over time.
Upwork is an amazing place to work with people.

My hope is that the CEO is selling his shares because he is leaving.
He did not know that the iOS App does not allow payments. He said I was inaccurate.
Rob Nokes profile picture
Note: Upwork for Mobile has been significantly improved in the last couple months.
Irationl profile picture
Using the same logic EBAY should have failed 20 years ago. Workers with no reputation will have to start small and cheap to build up 'real' reviews. Time will tell if Upwork will succeed or not due to many factors beyond your point.
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