Q4 2023 Upwork Earnings

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I am bullish on Upwork’s upcoming Q4 2023 earnings. My forecasts are based on the following assumptions.

  • I expect the shift to flat fee, ads monetisations and the increase in price of connects in 2023 to have aided the take rate growth just like in Q3 2023.

    Total revenue growth was the result of take rate expansion driven by strength in our ads products and our move in 2023 to a simplified flat fee pricing structure," CFO Erico Gesert had said in the earnings call.

    However, the full benefits of the flat-tier fee will start showing up in Q1 2024 when freelancers who paid 5% fee will start moving to 10%. As a result, the management guidance for Q1 2024 will be the most important item in the earnings release.

  • Upwork’s take rate has been growing sequentially since Q1 2022.

  • SMBs who are the majority spenders in Upwork are stable.

  • Upwork has topped its upper management guidance in the past four quarters.

  • The number of project catalogs at Upwork is growing.

  • The large number of users in the platform enables Upwork to reliably execute its products and forecast their impacts. Hence, their expectations for ad monetisation tools to aid the take rate in the quarter could be reliable.

Some of the risks to the Q4 earnings include;

  • Wage growth is still declining.
  • Macroeconomic conditions could still be a drag on the GSV.
  • The management changes carried out in 2023 could affect business performance in the quarter.
  • Client-freelancer relationships that were looking forward to a 5% fee may have started leaving the platform.

If these things get worse, Upwork’s Q4 2023 revenue could come in between $170 and $175 million (growth of 5-8%). Though, I view such a scenario as highly unlikely.

N/B:

  • I also expect Upwork’s management to give a positive guidance for Q1 2024 due to reasons mentioned above. I expect Q1 2024 revenue guidance to come in between 187 million and 191 million (+17% at the midpoint). Below are analysts’ estimates and management guidance for Q4 2023;

    Management Guidance (Revenue): 175-180 million.
    Management Guidance (Non-GAAP EPS): $0.16-$0.18.
    Analysts’ estimate (Revenue): 178.4 million
    Analysts’ estimate (Non-GAAP EPS): $0.17
    Analysts’ estimate (GSV): 1.04 billion

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