Upwork – 2021 Q2 Earnings Results
On 29 July 2021, Upwork announced its 2021 Q2 financial results. The second quarter marks Upwork’s fourth consecutive quarter of accelerating year-over-year growth in GSV (+50%) and revenue (+42%). Upwork continued to execute strongly against their plan and operate at record levels, as businesses of every size across the globe, continue to embrace freelancers.
At the same time, Upwork continues on their path of innovation this quarter with the launch of Talent Scout, which offers businesses hands-on recruiting assistance, without the expensive price tag of a traditional staffing agency, following the successful introduction of Project Catalog earlier this year. Upwork expressed they will continue to innovate, scale, and increase awareness of their work marketplace as they transform from a single product company to a multi-product company to capture an even larger part of the $1.3 trillion market opportunity.
Here are our 13 key points from the earnings release and call!
Gross services volume (GSV) increased by 50% year-over-year, from $582 million in Q2 2020 to $876 million in Q2 2021.
Revenue grew 42% year-over-year, from $88 million in Q2 2020 to $124 million in Q2 2021. The marketplace revenue grew faster at 46% year-over-year, from $78 million in Q2 2020 to $114 million in Q2 2021. Managed services revenue grew slower at 7% year-over-year, from $9.1 million in Q2 2020 to $9.7 million in Q2 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 year-over-year by approximately 21%, or 28,000 to 162,000 in Q2 2021. Quarter-over-quarter, it grew by about 7%, from the 152 thousand in Q1 2021.
Client spend retention accelerated to 114% in Q2 2020, from 100% one year ago, and 106% a quarter ago. Client spend retention is a big driver of the value of the company. Having a client spend retention that is higher by a few percentage points has a big upward impact on Upwork’s value, if that retention rate remains at that level for many years, as the existing cohort becomes much more valuable with higher revenue and free cash flows retained. It would be important to track the client spend retention and determine if it is a temporary boost due to COVID-19, or it can be sustained over time. Unfortunately, Upwork will not be sharing the core client and client spend retention metrics moving forward, as mentioned in the June 2021 Investor Day. However, Upwork will start disclosing its annual cohort performance data annually, starting from Q4 2021. We will see what that metric entails when it comes to that quarter.
Active Clients, defined as those clients who had spent activity during the 12 months preceding the date of measurement, increased by 27% year-over-year to approximately 725,000 Active Clients in Q2 2021. The GSV per active client grew approximately 8% year-over-year or $4,200 in Q2 2021.
The overall take rate decreased from 15.0% in Q2 2020 to 14.2% in Q2 2021. This was primarily due to Marketplace revenue (which has a decreased take rate this quarter) growing faster than Managed Services revenue (which has a 100% take rate). Marketplace take rate decreased slightly to 13.2% in Q2 2021, from 13.7% in Q2 2020. This was due to the initial client cohorts following the start of the COVID-19 pandemic growing into higher value clients, and their increase in spend with particular freelancers resulted in a higher mix of freelancers at the lower rates of our tiered service fee structure. Another key driver was the success of changes to the Connects initiative, which drove up revenue and GSV, but resulted in slightly lower revenue as a percentage of GSV year-over-year. In short, clients are spending more, but those spending have lower take rates.
For the remaining points, check them out at our Multibagger Research Series at the link below. https://learn.moneywisesmart.com/courses/multibagger-research-series/lectures/34046955
For our summary analysis of the company, check out the video below.
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