Posted on Friday, Oct 5th 2018
As per a recent Morgan Stanley report, freelance workers will account for nearly half of the US workforce within ten years, compared with the current 35% share. The shift in the workforce is attributed to changing demographics, increased digitization, and the adoption of cloud-based services. Earlier this week, Billion Dollar Unicorn Upwork (Nasdaq: UPWK) went public. It is still early days, but the stock appears to have done well so far.
Mountain View-based Upwork was founded after the merger of two freelance platforms Elance and oDesk. Elance was set up by Srinivas Anumolu, Sanjay Noronha, and Beerud Sheth as a marketplace for services. oDesk came about much later and was formed when Odysseas Tsatalos and Stratis Karamanlakis realized that they wanted to work with each other even though one of them was in the Silicon Valley, and the other in Athens. The two friends wanted to build a trustworthy platform that allowed workers to work from wherever they liked on projects that interested them. In 2013, the two freelance platforms merged to become Elance-oDesk.
Today, Upwork operates one of the largest online global marketplace that helps businesses find and work with freelancers. Its platform provides clients with fast, secure, and efficient access to talent across 5,000 skills, reducing reliance on staffing firms, recruiters, and third party agencies.
Upwork earns revenues by charging a commission on work awarded through its site from the employers and a sliding fee based on commission from the freelance workers. It has seen rapid growth over the past few years. It has helped deliver over $1.37 billion in services last year. Revenues for the company grew 23% last year to $202.6 million. For the six months ended June this year, revenues grew 28% to $121.9 million. Marketplace segment is its biggest revenue contributor with revenues growing 29% to $178.1 million for the year ended December 2017. Managed services revenues fell 6% over the year to $24.5 million.
Upwork has been investing heavily on sales and marketing and R&D. As a result, it continues to make losses. Losses have reduced from $16.2 million a year ago to $4.1 million in 2017. Upwork reported a net income of $1.4 million in 2017 compared with a net loss of $7.2 million for the current year. Adjusted EBITDA has increased from $1.3 million in fiscal 2016 to $7.9 million in fiscal 2017. For the six months ended June 2018, adjusted EBITDA reduced from $7 million in 2016 to $0.3.
Upwork had raised $170 million in funding from investors including Kleiner Perkins Caufield & Byers, New Enterprise Associates, Stripes Group, Pequot Capital, Citigroup, Focus Ventures, T. Rowe Price, Sigma Partners, Benchmark, Globespan Capital Partners, DAG Ventures, and SV Angel. It last round of funding was held in November 2014 when it raised $30 million in a round led by Benchmark Capital at an undisclosed valuation. Upwork was estimated to be a Unicorn company in 2014. But slowing economic conditions, and more reasonable valuations had dropped its value. In 2016, T Rowe Price, revalued its investment in Upwork and slashed it by half. But recent financials suggest that the company has secured its position back into the club.
Upwork raised $187 million in the listing by selling 12.5 million shares at $15 each. The listing values the company at $1.5 billion. Soon after listing, the stock soared to $21.18. Analysts believe that its accelerating revenue growth and improving capital efficiency potentially justify its valuation.
Upwork is not the only player in the space. There are other freelance focused portals such as Fiverr, TaskRabbit, and Freelancer.com that operate on a similar business model. Upwork could have to worry about regulatory concerns as well as authorities are clamping down on the gig economy model. Recently, New York State authorities ruled that the contracted drivers working for Uber were actually Uber employees. Some worry that the authorities may decide that freelancers should be classified as employees as well, thus expecting organizations who use their services to fund for taxes, Social Security, and Medicare payments. If that were to happen, Upwork’s business model could be threatened.
We have been consistent users of Upwork over the years. I would like to know from you users how satisfied, or not, are you with Upwork’s services? Does it help provide good talent or would you rather still be looking for contract employees through staffing firms? I would also like to know from the freelancers how they feel about the platform?
This segment is a part in the series : Billion Dollar Unicorns
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