Upwork’s Q2 2020 financial results demonstrate resilience amid COVID-19, but investors want more

Upwork, the online freelancer marketplace and workforce solution provider, released its Q2 2020 financials. The results reflect that the company has shown resilience in the COVID-19 pandemic to date. And management views the current shift to remote work and the need for a more flexible workforce as positive leading indicators for the business.

But investors appeared to be less optimistic. After Tuesday’s close at $17.50 on the Nasdaq, the share price opened down today at $16.11. Upwork’s share price increased from $13.90 on July 30 to $17.50 at the close of trading yesterday (Aug 4). At the time of publication of this article, shares were trading down around $15.22.

The following summary information was provided in Upwork’s press release:

• Gross services volume (GSV) increased by 12% year-over-year to $582 million
• Revenue grew 19% year-over-year to $87.5 million
• Marketplace take rate was 13.7%, up from 12.9% a year ago
• Gross margin remained unchanged year-over-year at 71%
• Net loss was $11 million compared to a net loss of $2.5 million in Q2 2019
• Adjusted EBITDA showed a loss of $1.2 million compared to positive adjusted EBITDA of $1.2 million in Q2 2019

Upwork’s GSV rose to $582 million, an increase of 12% over Q2 2019. GSV in Q1 2020 (last quarter) $559.5 (so the 4.1% increase over the consecutive quarters in 2020 was not very conspicuous).

Upwork’s revenue grew to $87.5 million, a 19% increase over Q2 2019, in part due to a rise in marketplace take rate to 13.7% in Q2 2020 compared to 12.9% in Q2 2019. The Q2 2020 revenue of $87.5 million exceeded the guidance ($79 million to $81 million) provided by the company with the Q1 2020 results.

At the same time, total operating expenses rose to $73.1 million in Q2 2020, a 32.7% increase from Q2 2019. The largest and fastest-growing operating expense category was sales and marketing (including advertising), which grew by 40.7% over Q2 2020 (the company has continued to invest heavily over the past year in the category, but it has imposed a hiring freeze on sales reps and is restructuring advertising spend and messaging in light of the changing market).

For Q3 2020, revenue guidance was provided as $89 million to $91 million. Management also noted positive adjusted EBITDA would not be achieved in 2020.

Spend Matters has been tracking Upwork and other online work/services platforms for some years now, and now we are monitoring how these platforms perform and evolve in the COVID-19 environment. One big question is whether enterprises will increasingly turn to a platform like Upwork for contingent workers and as a broader infrastructure for managing and compliantly paying their distributed workforces, etc.

Look for additional Spend Matters analysis over the remainder of the year and in 2021.