Upwork 2021 Q1 Earnings Results
On 4 May 2021, Upwork announced its 2021 Q1 financial results. Upwork has seen 2 quarters of accelerated year-on-year growth, with revenue retention rate shooting up quarter-over-quarter from 102% to 106%, which was the fastest acceleration in the last 5 years. This was a result of the COVID-19 pandemic pushing the rapid acceleration of freelancing adoption by companies big and small across the globe. The pandemic has changed work forever, permanently shattering prior discomfort with remote work, the biggest impediment to online freelancer adoption.
Companies now know they can build and grow their businesses faster, and with greater efficiency by incorporating remote talent. 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. Upwork is in the midst of a tectonic shift in how work gets done. It would be interesting to see if the accelerated growth extends to the third quarter and beyond.
Here are our 14 key points from the earnings release and call, including the company’s comments on its changed identity and industry runway!
Gross services volume (GSV) increased by 41% year-over-year to $787 million from Q1 2020 to Q1 2021, marking it the third consecutive quarter of accelerating year-over-year growth for Upwork.
Revenue grew 37% year-over-year, from $83 million in Q1 2020 to $114 million in Q1 2021. The marketplace revenue grew faster at 40% year-over-year, from $75 million in Q1 2020 to $105 million in Q1 2021. Managed services revenue grew slower at 6% year-over-year, from $8.4 million in Q1 2020 to $8.9 million in Q1 2021.
Core clients (which refer to clients that have spent in aggregate at least $5,000 since the start and also had spend-activity during the last 12 months) grew by more than 7,000 to 152,000, approximately 61% more than the increase achieved in Q1 2020. New clients grew by 55% year-over year from Q1 2020 to Q1 2021, making it Upwork’s fourth consecutive quarter of accelerating growth rates. The number of new Enterprise clients signed has also grown more than 40% quarter-over-quarter from Q4 2020 to Q1 2021.The growth was a result of Upwork’s focused marketing strategy that was put in place last year. The SEM-acquired new clients grew by 113% in Q1 2021, while meaningfully lowering Upwork’s cost per acquisition (therefore improving effectiveness and profitability). Upwork expects to see further growth and optimization across SEM, SEO, mobile, and international.
The number of customers spending more than a million dollars over the trailing twelve months was up 15% quarter-over-quarter from Q4 2020 to Q1 2021, and the number of customers spending over one hundred thousand dollars in the trailing twelve months was up 27% year-over-year from Q1 2020 to Q1 2021. Sales cycles have also been shortening with Standard deals down significantly, to around three months, and Compliance deals averaging around six months. Given these strong signals, Upwork is considering increasing investment as early as Q3 2021.
Client Spend Retention increased from 102% in Q4 2020 to 106% in Q1 2021, the fastest acceleration in the last 5 years. Clients acquired in Q4 2020 have also increased spend by 9% in Q1 2021, the highest quarter-over-quarter growth in spend retention in the last 5 years. This increase in client spend retention is very positive for the business. For those of you who have watched the valuation videos of Upwork in our Multibagger Bagger Research Series, you would have known that client spend retention is a big driver of the value of the company. Having a sustainable client spend retention that is higher by a few percentage points has a big upward impact on Upwork’s value, as the existing cohort becomes much more valuable with higher revenue and free cash flows retained.
For the remaining points, check out our Multibagger Research Series at https://moneywisesmart.com/MultibaggerResearch/.
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