Upwork – 2021 Q3 Earnings Results
Upwork, a company we have followed since 2019, reported its 2021 third quarter financial results on 27 October 2021. On the face of things, they are impressive results, however, revenue growth slowed and margins would likely remain under pressure for longer than anticipated as the company rolls out new features and spends aggressively on sales and marketing in an effort to maintain the leadership position they hold. As a result, the stock reacted with a sharp 11% sell-off the following day.
Here are our key points from the results!
Gross Services Volume (GSV) grew by 38% Y/Y to $904m. The company also saw the number of Active Clients grow 25% Y/Y to 752k, and GSV per Active Client grew 12%.
Revenue grew slower than GMV (due to lower overall take rate) at 32%, from $128m to $301m, driven by both the marketplace revenue that grew 34% from $268m to $338m and revenue from managed services that grew 19% Y/Y.
Marketplace take rate fell 60 bps y/y to 14.2%, though held flat Q/Q.
The move lower was driven by the higher growth rate of Marketplace revenue growth vs. managed services revenues. Managed services revenues have a 100% take rate.
The Marketplace take rate also fell to 13.2%, from 13.6% in 3Q’20. As clients and freelancers develop longer lasting relationships and spend more money on the platform, the Upwork fee declines with the tiered service fee structure, generating a lower take rate.
However, the company’s recently established Enterprise, Project Catalog, and Talent Scout programs all have higher overall take rates. As these segments continue to grow this should help offset the tiered step down of take rate for traditional relationships going forward.
Gross margins held constant Y/Y at 73% contributing $93.2M of GAAP Gross profit, as the company’s platform continues to hold impressive margins.
Operating expenses for the quarter were $101.5m, or 79% of revenue, higher than the 76% in the prior year.
R&D increased from 22% to 24% of sales. As a reminder the long-term target is 15%-20%.
Sales and Marketing spend decreased slightly from 35% to 34%, well above the long-term goal of 20%-25%.
G&A increased from 19% to 20% also well above the long term goal of 8%-10%.
For the remaining points of this earnings summary, check them out at our Multibagger Research Series (linked below).
For our free analysis of other high quality companies, check them out at our free Research Series (linked below).
For our summary analysis of the company, check out the video below.
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