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Long-Term Buy And Hold: Upwork

Aug. 06, 2019 2:47 PM ETUpwork Inc. (UPWK)SHOP, RHI, MAN, HSON, FVRR, SHOP:CA15 Comments
Catalyst Capital profile picture
Catalyst Capital


  • Strong network effects make Upwork a buy and hold.
  • Multiple levers to pull for substantial long term revenue growth.
  • Severely under-monetized revenue model masks long-term growth opportunities.
  • Disruptive business model vs traditional contract recruiters.
  • Recent pullback is an excellent entry into a long term secular growth trend.

Upwork (NASDAQ:UPWK) operates the largest online global network that helps businesses find and work with freelancers and reduce inefficiencies inherent in the global market for sourcing talent for job openings.

In the event you live under a rock, there's a seismic shift going on with the way people work. Improvements in technology have enabled a massive talented global workforce in hundreds of industries to connect and work with companies ranging from small business owners to large global enterprises seamlessly online in a matter of minutes. This is disrupting massive industries and a large part of this work is being done on one platform: Upwork.

Upwork's business model makes it easy for businesses to find workers for open jobs, be it short term projects or longer term contract assignments. According to McKinsey “online talent platforms are increasingly connecting people to the right work opportunities and by 2025 they could make up $2.7 trillion in global GDP.”

Upwork believes that "the total global gross services' volume (or GSV) opportunity for our platform was approximately $560 billion in 2017". Meanwhile, in the 12 months ended June 30, 2018, the Upwork platform enabled $1.56 billion of GSV across 2.0 million projects between approximately 375,000 freelancers and 475,000 clients in over 180 countries. As a percentage of the total market, Upwork currently has a 0.3% market share. And if McKinsey is correct, this global opportunity could increase 5X over the 8 years from 2017 to 2025. The total addressable market is many multiples larger than Upwork's market share.

Upwork sits at the epicenter of a huge secular shift in the way people work and these are what we believe to be many inherent inefficiencies in the employment sector, as well as sector pain points and secular tailwinds all playing into what we think is going to

This article was written by

Catalyst Capital profile picture
We seek outperformance by focusing on companies with significant near term drivers of value, or catalysts. None of our articles should be construed as investment advice. We may sell our positions at any point in time. Do your own research.

Analyst’s Disclosure: I am/we are long UPWK. 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 (15)

Ammar Muhammad profile picture
good read. I have some questions. You have assumed that UPWORK with have margin of around 20-25% in 5 years but if you looks at the historic net income. It is not improving at all. what makes you think that in 5 years the net income will be up so much?
Catalyst Capital profile picture
Look at the trend in gross margins over the past few years.

R&D will drop to mgmt's long term projections of 12-15% of revenues vs over 20% now. That should at 7 to 10% to net margins.
I could not agree more. Best piece I have read on here in a while. super LONG upwk
Catalyst Capital profile picture
Solid earnings, nice beat on both the top and bottom line. Some crabapples in here talking about taking business offline and people bolting because they have to pay $0.15. Try using the service. The penalty for bringing business offline and getting caught is a permanent suspension from the platform. Would you risk that?

Growth in enterprise clients of 300% seems to me like enterprises and larger businesses are migrating to Upwork in droves, quite the opposite of the picture that some posters and authors here seem to be painting.

This growth in new clients will drive top line revenue growth substantially over time. As I said in my article, they're under-monetizing these clients in an effort to make the platform and network effects too strong to ignore. The industry norm is to charge 30 to 40% placement fees to fulfill contract jobs in what is a completely opaque and inefficient market. After they have thousands of businesses / enterprises on the platform then they can gradually increase rates and reduce their R&D and S,G&A expenses and the company will be a cash cow

The future is a mobile contract workforce whose profiles, reviews, and prior work history are all there for everyone to see, all powered by Upwork. They're the faraway leader in this space and its a trend that will last for decades. CTSH, INFY, MAN, RHI better get their house in order because Upwork's business model is upsetting the apple cart.
08 Aug. 2019
Upwork recently made a policy change to start charging to apply for jobs, aimed at getting the lesser rated (aka new member freelancers) off their platform. However, what they did not consider is the higher end freelancers get hired directly by clients eventually, leaving the bulk of their talent as new members. It is causing a huge uproar and those new members are leaving for other free to use platforms. Considering Upwork is the latest name in a line that started successfully, made policy changes that lead to failure so they rebrand, rinse, repeat I don't see why anyone would invest in it. I'll be surprised if it is still going under the name Upwork, with the same management, in a years time.
ok good they are leaving since those free platforms will not survive.FIVERR is loosing money at alarming rate.His CEO was not able to answer questions properly or even pause for few minutes in earnings call.We will see who wins the race.UPWK is a monopoly.
Any idea how and when will they make profits? It seems impossible at this rate.
Users don’t have to make transaction through a platform
Good article. But market thinks short term. If they miss, market may read into it that churn among enterprises (not core but everyone else) is high. Or product isn’t that valuable to enterprises. We’ll see!
Catalyst Capital profile picture
The Enterprise initiative really hasn't even gotten going. They just launched an initiative 2 weeks ago aimed at bringing enterprises and agencies together on Upwork.
Catalyst Capital profile picture
+300% growth in enterprises clients. Me thinks no churn
Lazarus Advisors profile picture
Good article. Starting to kick the tires on it myself. Any idea why it's down 10% today? Maybe FVRR earnings?
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