Gig-Economy Stock Upwork Beats Wall Street's Q1 Estimates

Gig-economy stock Upwork NASDAQ: UPWK skidded after reporting better-than-expected first quarter. 

Temporary and freelance work was already gaining momentum before the pandemic, and doesn’t seem likely to let up, after job losses in 2020 and widespread changes to the economy.

Nonetheless, stocks like Uber NYSE: UBER, Lyft NASDAQ: LYFT, Fiverr NYSE: FVRR, Etsy NASDAQ: ETSY and DoorDash NYSE: DASH are all consolidating.

There are a few reasons for the current declines. First, investors are cognizant of high valuations for these growth stocks trading at high multiples. In addition, broader markets are wobbly, with the Nasdaq Composite has been declining recently and the S&P 500 flat this week.

Of course, these companies have different business models, and have been affected differently by the pandemic. Notably, Uber and Lyft are seeing sharp revenue declines and a continued lack of profitability. Meanwhile Etsy, Fiverr and DoorDash are seeing growth in revenue, and Etsy and Fiverr have been profitable. 

Upwork, too, has posted profits since 2019, although analysts expect an earnings decline this year, to $0.01 per share, down 80% from 2020. 

The company, whose online platform connects businesses with freelancers in 180 countries, reported earnings of $0.03 per share on revenue of $113.6 million. Results topped estimates of a $0.04 per share loss on revenue of $108.9 million.

Revenue growth accelerated in the past three quarters. 

Earnings Up, But Still Operating Loss

Year-over-year sales growth was 37%, while the profitable quarter was an improvement from the year-earlier loss of $0.03 per share. 

Even so, higher expenditures on sales and marketing, general and administrative costs and research and development resulted in an operating loss. 

Investors on Wednesday were not pleased with the continued shaky standing when it comes to profitability. In addition, a sky-high price-to-earnings ratio of 737 is likely scaring off some potential buyers at the moment, although growth investors often look the other way if they see big potential in a company. 

However, the company guided toward another earnings beat in the current quarter, on revenue in a range between $119 million and $121 million. For this year, the company expects sales between $480 million and $490 million, higher than Wall Street’s consensus estimate of  $467 million.

In the earnings call, CEO Hayden Brown addressed qualitative aspects of the company’s approach to gig work.  

“The New Way We Work”

“Regardless of their comfort levels before the pandemic, companies now know they can build and grow their businesses faster and with greater efficiency by incorporating remote talent,” she said. “Freelancers are joining companies’ teams to do critical work that goes beyond old freelancer stereotypes, challenging the traditional notions of who participates in a high-performing workforce. We're in the midst of a tectonic shift in how work gets done, and there's no going back. The new way we work is defined by opportunity not constrained; flexibility not restricted by four office walls; and trusted relationships, not rigid employment contracts.”

As part of the earnings report, Brown announced a new Upwork initiative, designed to better connect companies and freelance workers. Brown characterized the marketplace as a  "complete ecosystem" allowing freelancers numerous ways to contact hiring firms. Upwork is also introducing talent recruiters who can assist companies with the hiring process. 

Upwork also unveiled new branding and a marketing campaign with the theme of “Up we go.” 

The stock has been declining for two-and-a-half months, dropping 41.5% from its February 24 high of $63.88. The current consolidation is sloppy, with wide price swings, indicating some disagreement between buyers and sellers about where shares should be priced. 

The stock moved higher intraday, retracing most of its loss, ending the session at $40.97, down $1.97, or 4.59%. 

The intraday rally is a possible signal that investors are scooping up shares at a bargain price. Watch for an upside trend to continue, preferably in heavy volume as institutional investors resume buying.