Upwork: Facing Increasing Macroeconomic Challenges

1 year ago

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All happiness depends connected courageousness and work.”― Honoré de Balzac

Today, we put Upwork Inc. (NASDAQ:UPWK) successful nan spotlight. It has been a chaotic thrust for shareholders since nan institution came nationalist astir 5 years ago, pinch nan equity providing a information travel since its debut. The institution reported 4th fourth net aft nan doorbell connected Wednesday providing a caller group of information points. An study follows below.

Company Overview:

Upwork Inc. is headquartered successful Santa Clara, CA. The institution has developed and operates activity marketplace that connects businesses pinch various independent professionals and agencies.

This level provides entree to talent pinch various skills specified arsenic income and marketing, customer service, information subject and analytics, creation and creative, web, mobile, and package development, etc. This marketplace besides enables customers to streamline workflows, specified arsenic talent sourcing, outreach, and contracting. This institution was previously known arsenic Elance earlier changing its sanction to Upwork successful 2015. The banal presently trades astir $14.00 a stock and sports an approximate marketplace capitalization of $1.8 billion.

Fourth Quarter Results:

Yesterday, Upwork posted its 4th fourth numbers. The institution had a non-GAAP profit of 4 cents a share, 7 cents supra nan consensus. Revenues roseate 18% connected a year-over-year ground to astir $161.5 million, somewhat supra expectations. Non-GAAP gross profit roseate to 75% of wide revenues from 73% successful nan anterior twelvemonth period. Adjusted EBITDA income was a affirmative $1.1 million, a antagonistic adjusted EBITDA of $3.3 million.

Unfortunately for shareholders, these numbers are astir apt nan champion they will spot successful a while. Management reduced first-quarter 2023 gross guidance to betwixt $157 cardinal and $160 million. This would beryllium a 12% year-over-year summation astatine nan midpoint but down importantly from nan maturation achieved wrong Upwork's conscionable posted 4th fourth results. Leadership besides projected, FY income betwixt $690 cardinal and $705 million. This would beryllium 13% year-over-year maturation astatine nan midpoint. Expectations from nan expert organization called for a statement of 17% income maturation for nan upcoming fiscal twelvemonth erstwhile this guidance was conscionable lowered. Management stated it was lowering guidance because of 'current macroeconomic situation and related trends successful our business'. Finally, guidance sees an adjusted EBITDA nonaccomplishment of betwixt $8 cardinal and $11 cardinal successful 1Q2023 but does expect affirmative adjusted EBITDA for nan afloat fiscal year.

Analyst Commentary & Balance Sheet:

Over nan past 3 months, each aft 3rd 4th results, 8 expert firms including Citigroup and Needham person reiterated Buy/Outperform ratings connected nan stock. Of note, astir half had downward value target revisions. Price targets proffered ranged from $14 to $24 a share. RBC Capital chose to support its Hold standing and $15 value target.

So acold 3 expert firms person maintained Buy ratings connected UPWK since 4th fourth net posted pinch value targets successful nan $17 to $18 range.

Approximately 4 percent of nan outstanding float successful nan shares is presently held short. Insiders were predominant but mostly mini sellers of nan shares passim 2022. Several sold conscionable complete $700,000 worthy of shares collectively successful nan 4th quarter. One insider sold conscionable complete $3,000 worthy of equity successful January successful nan only insider transaction truthful acold successful 2023.

Upwork ended nan 3rd 4th pinch astir $675 cardinal successful rate and marketable securities against conscionable complete $560 cardinal successful semipermanent debt. Fourth 4th information points are not disposable yet but should beryllium similar.

Verdict:

The existent expert patient consensus anterior to 4th fourth numbers posting had nan institution losing 12 cents a stock successful FY2022 arsenic revenues emergence conscionable complete 22% to $616 million. They projected Upwork will break into nan achromatic hardly successful FY2023 connected income maturation successful nan precocious teens. Obviously, those 2023 projections will beryllium adjusted complete nan coming days and weeks, based connected caller guidance guidance.

I deliberation Upwork is simply a canary successful nan ember excavation erstwhile it comes to nan U.S. jobs market. While we saw a blowout January BLS Jobs study to commencement disconnected February, it is important to support successful mind a fewer things. First, nan unemployment complaint is ever a lagging economical indicator. Second, location were myriad 'seasonal' and yearly adjustments wrong this jobs report. In addition, nan 517,000 jobs created were astir 5 times arsenic galore arsenic were successful nan January ADP Jobs study that came retired 2 days prior. Finally, location has been immense uptick successful layoff announcements complete nan past mates of months, particularly successful technology. This will apt beryllium a awesome headwind to Upwork for nan astir if not each of 2023.

I took a mini position via covered call orders precocious past twelvemonth erstwhile nan banal was adjacent a 52-week debased astir 10 bucks a share. That position is trending to expiring successful nan money successful mid-April. Upwork is simply a well-run institution that should proceed to use complete nan agelong word from nan detonation successful nan virtual workforce.

That said, nan institution faces expanding macroeconomic challenges successful nan quarters up arsenic nan Federal Reserve tries to engineered a 'soft landing'. Upwork is besides improbable to profitable now until FY2024. If nan banal retests nan $10 area again, I will astir apt adhd a fewer shares to my liking successful nan company. However, I americium not expanding my holdings present astatine these levels arsenic nan institution navigates done an progressively uncertain economy.

Without ambition 1 starts nothing. Without activity 1 finishes nothing. The prize will not beryllium sent to you. You person to triumph it.”― Ralph Waldo Emerson

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