UPWK & FVRR

I have been lurking for a while here, learning what growth stocks are being discussed and focused on.

Thank you to Saul and the community for providing an amazing place to learn. The silent mentoring is really great. I hope to one day be able to contribute even a fraction of what I’ve taken.

Last year I purchased a token position in UPWK. I will often do this because it makes me focus on learning more about the business.

For those that aren’t familiar with UPWK, they are a marketplace for freelancers, I believe the largest. What interested me in learning more about the company is because I used some of their services in a business I own and the experience was great. I saw momentum building in the “gig economy” and Upwork seems to be catering to a large white-collar segment or office work.

Upwork basically creates revenue by matching a business that needs work done with a gig worker that is capable of providing the service and then charging a fee taken from the gig workers pay. The buyer of the service pays a small monthly fee.

My initial thought was that Upwork could create a moat around network effect, by having the largest number of freelancers available in one place; that’s what drew me to them as a client when I needed services. I also thought the TAM would be huge because the amount of freelance work being done in the world must be a very large number and only getting larger.

After personally using their services, I discovered a flaw. I hired a programmer that was really good and charged me a very reasonable rate (thumbs up). The problem was, the relationship eventually moved off the Upwork platform and he just started to work freelance for me directly when needed. So, how was Upwork supposed to benefit from this relationship? Moving the relationship off Upwork wasn’t even intentional, we just started communicating through skype video and it happened organically in time.

I basically lost interest in the stock/business because the revenue dropped below 20% so I didn’t think the business had the tailwinds needed to become a monster winner.

The stock dropped from the mid-20s to almost $5 near the bottom of the pandemic low.

In May, I happened to see an interview with the CEO on CNBC and started to think about the business again:
https://www.cnbc.com/video/2020/05/11/upwork-ceo-pandemic-hi…

I also noticed the company beat revenue expectations last quarter with 21.5% growth. Still not stellar but an acceleration from the previous quarter.

In the CNBC Interview, the CEO Hayden Brown said their website had record visitors to the website in late April.

The stock price has run up a little since their earning report, from a low in the 5s to currently in the 12s.

Revenue growth at 22% is still not enough to persuade me to buy but I noticed something else. Their quasi-competitor in the white-collar gig work space, Fiverr had a big acceleration in stock price the last few months and is growing revenue at 44%

FVRR is trading at a P/S of 16.41 and UPWK is trading at a P/S of 4.28
FVRR GM is 79% and UPWK GM is 71%.

My thinking is that covid-19 has caused an acceleration in growth for white-collar gig workers and this may start to show up in UPWK’s business in their next quarterly report.

Expectations for UPWK are really low at the moment because their business execution hasn’t been stellar. I always try to keep a close eye on businesses that may have a huge jump in business execution because there is potential for huge multiple expansion.

I don’t see myself buying a real position in UPWK until I see evidence of big revenue acceleration but I just thought I would put this out to the community to get your thoughts. I like to find businesses that are turning the corner in revenue growth but still trade at value in terms of P/S to their peers.

This is my first real post in this group. If this type of content is not appropriate or in-line with the goals of the group, please let me know and feel free to delete.

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After personally using their services, I discovered a flaw. I hired a programmer that was really good and charged me a very reasonable rate (thumbs up). The problem was, the relationship eventually moved off the Upwork platform and he just started to work freelance for me directly when needed. So, how was Upwork supposed to benefit from this relationship? Moving the relationship off Upwork wasn’t even intentional, we just started communicating through skype video and it happened organically in time.

This is an issue where capacity can’t be dedicated to the app. If you look at AirBNB, the unit can’t be double booked making it difficult for owners to take direct bookings while also being listed.

But I used an App that was AirBNB for dogs to find a dog sitter. After finding a good dog sitter, all future bookings were done over WhatsApp as she is not limited to 1 dog. She can still take my booking as well bookings over the app.

I think any app like this needs to solve how not to get cut out of the transaction after making the initial connection.

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FVRR has been at the top of my shortlist for some time now. Strong revenue growth at 44%, strong gross margin 80%, improving profitability metrics, modest EV/R relative to many other SaaS companies presently around 13, and impressive recent strength/performance even when stacked against some of the board favorites. It is almost exactly 1 year post IPO now, so there is a good amount of public data available for it as well. I think it’s an interesting and large market and one that I think will continue to grow, as we transition increasingly to the cloud and look to e-commerce for products/services. In general terms, the company offers its platform that enables sellers to sell their services to buyers in a multitude of different product categories. I’m curious if this stock has been discussed in further detail in the past?!

After personally using their services, I discovered a flaw. I hired a programmer that was really good and charged me a very reasonable rate (thumbs up). The problem was, the relationship eventually moved off the Upwork platform and he just started to work freelance for me directly when needed. So, how was Upwork supposed to benefit from this relationship? Moving the relationship off Upwork wasn’t even intentional, we just started communicating through skype video and it happened organically in time.

I want to provide a small update regarding the above-quoted thought.
After digging a lot deeper on UPWK, it seems evident the company is VERY aware of this issue and is now focused heavily on managing the onboarding and offboarding" process of their talent.

Here is an interesting statement from their Q120 report:

https://investors.upwork.com/news-releases/news-release-deta…

“Upwork also made it easier for clients to centrally manage both their Upwork and non-Upwork contractors and agencies on our platform so that they can take advantage of our global payroll and Work Protection products, which enable businesses to classify and pay independent professionals compliantly in over 160 countries.”

Upwork also announced an interesting partnership two day ago:

https://www.upwork.com/press/2020/06/29/upwork-teams-with-ci…

“Citrix Workspace is a unified, secure, and intelligent work platform that transforms the employee experience by organizing, guiding, and automating all activities people need to do their best work.”

With Citrix Workspace, employees are more productive and engaged, while IT receives more visibility and control for simplified management, security, and compliance. And in using the solution alongside the Upwork Talent Solution, companies can:

1. More easily access a wide range of proven, expert professional talent.
2. Utilize best-in-class secure remote infrastructure to rapidly onboard (and offboard) independent professionals and agencies.
3. Provide independent contractors and agencies with secure, reliable access to company tools and resources by easily provisioning needed apps or complete managed desktops from any device.
4. Reap the benefits of a flexible, pay-as-you-go model.

Basically, UPWK is creating a platform where they can gain better control of their talent base.

Here is a SA article written today on the collaboration with Upwork and Citrix:

https://seekingalpha.com/article/4356458-upwork-powered-citr…

This was the point I felt was the most important:

Upwork’s future: the Uber for work?
Aside from the immediate revenue-share benefits of the Citrix partnership (details on the financial impact of the product are not yet clear), what’s even more important for the Upwork bullish thesis is that this type of product tilts Upwork toward the direction of becoming an “Uber for work”.

At present, Upwork is focused on hiring alone. Once the worker is hired, it’s up to the hiring company to manage onboarding and provisioning access for the new employee (which, as Citrix noted, may be the barrier for many companies in hiring remote workers in the first place). The Citrix partnership gives Upwork end-to-end control over the hiring lifecycle, for the first time. This new product basically gives hiring managers the ability to hire a worker on-demand, set them up with the tools and access they need to work, and offboard them when the job is done.

With the concepts of remote work and independent contractors becoming more and more normalized this year thanks to the pandemic, the future for on-demand work is bright, and Upwork is leading that charge alongside Citrix.

Last quarter, GMs increased 260BP to ~72%, YoY, which displays some good momentum in the business.
I’m still paying close attention and looking forward to next Qs results. I just wanted to give the an update on my thoughts and what I learned.

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