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:
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.