Upwork – 2020 Q4 Earnings Results
2020 Q4 Earnings Results
In February 2021, Upwork announced its 2020 Q4 and full year financial results. The year 2020 has been an eventful year with the pandemic causing huge disruptions to both life and businesses, forcing people to survive, adapt and thrive in a new normal. In this new era, businesses have to quickly digitalise and support remote work. It is interesting to see how Upwork, being at the forefront of a global push towards remote working, and a leader in enabling remote work, had performed.
The year-on-year Q4 results help to shed some light if Upwork managed to benefit from the push towards remote working in this potential new normal. Meanwhile, the year-on-year full year results help us to understand what impact the pandemic has made on Upwork, especially during the depth of the crisis from February to May 2020 when businesses were forced to close.
Below are our 16 main points from the earnings release and call, including important comments on the future strategies and competitive advantages of the company at the later part of this update!
Gross services volume (GSV) has increased by 33% year-over-year to $728 million from Q4 2019 to Q4 2020; and increased by 21% year-over-year to $2.5 billion from full year 2019 to full year 2020. GSV from clients acquired before Q4 was up 30% and GSV from clients acquired before 2020 was up 27%, as existing and new clients deepened their usage of Upwork to build, operate, and grow their companies. This is Upwork’s best year-over-year growth performance in GSV or revenue since going public, and was driven by the aggressive execution during the pandemic to support remote work.
Total revenue grew 32% year-over-year to $106 million from Q4 2019 to Q4 2020; and grew 24% to $374 million from full year 2019 to full year 2020. Marketplace revenue grew slightly faster at 34% year-over-year to $97 million from Q4 2019 to Q4 2020; and grew 26% to $338 million from full year 2019 to full year 2020. Managed service revenue grew slower at 15% to $9 million from Q4 2019 to Q4 2020; and grew 10% to $35 million from full year 2019 to full year 2020.
Total 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 17% or 6,460 to 145,400 from Q4 2019 to Q4 2020; with gross new core clients in the quarter growing faster at 36% year-over-year, and net additions of core clients growing even faster at 64% year-over-year. The client acquisition was fuelled by Upwork’s aggressive plan for growth in SEO, SEM, mobile and international. New clients from SEM grew 86% year-over-year in Q4, and 50% for the year as a whole. Upwork has also benefited from tuning their marketing programs around lifetime value, as the new clients that were acquired in Q4 spent over 10% more per client than new clients in the same quarter of the previous year. Upwork plans to double down on this winning strategy in 2021 and will increase their SEM spend to drive additional new customers to Upwork.
Overall take rate in the fourth quarter was 14.6%, a slight decrease from 14.8% in Q3. This slight decrease was driven primarily by a higher percentage of revenue being earned in the lower pricing tiers due to clients spending more with their freelancers, as well as changes Upwork has made in Connects to improve liquidity by better balancing the number of job posts and proposals.
Gross margin expanded two percentage points year-over-year to 73% from Q4 2019 to Q4 2020, and expanded one percentage point year-over-year to 72% from 2019 full year to 2020 full year.
Clients spend retention increased from 100% in Q3 to 102% in Q4, as the spending strength of clients acquired in 2019 and earlier performed well. On this high retention in Q4, the CEO Hayden commented that “Our business typically experiences a seasonal slowdown starting in November and peaking in the last two weeks of the year. This year, the seasonal slowdown was virtually non-existent, which we had not assumed in guidance. In addition to particularly strong acquisition and quarter-over-quarter retention, this atypical seasonality was a key driver behind the revenue beat in the fourth quarter. We hypothesize that this was due to COVID and COVID-related restrictions reducing holiday travel and social gatherings and increasing the amount of work that was being done during this period relative to prior years. We wouldn’t anticipate this atypical seasonality to repeat in 2021.”.
For the remaining points, check out our Multibagger Research Series at https://moneywisesmart.com/MultibaggerResearch/
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