Takeaway: Upwork is on the Hedgeye Technology BEST IDEAS LONG List

Ami, are you insane? UPWK screens lower quality than enterprise software class peers because:  

  • It took them forever to get here
  • There is an unclean merger in the history
  • There is no predictability to growth
  • There may be no linearity of results
  • Deferred revenue is sub-$1MM giving no floor to revenue
  • Regular site outages
  • Lack of recognizable technology feature growth

And you’re BELOW Street on 2019 Revenue??!?! YES.

Aren’t you normally Short all these factors? Yes, normally.

But the UPWK opportunity is a game changer in labor and enterprise productivity. Scale up and down workplace needs just like you scale up and down your asset utilization in an on-demand economy.

UPWK | EPS This Week | On the Lookout for Long Term Potential - UPWK chart 1

WHY BELOW?

GSV is driven by:

  • Bottom-up
    • More supply of freelancers
    • With increasingly wider skill set
    • Enhanced by the site’s improvements in removing the friction of global and local on-demand labor delivery, contracting, and fulfillment
  • Top-down
    • Gradual discovery and comfort among enterprises of the economic benefits of the site
    • Macro demand for excess labor productivity

The trailing GSV growth results contain the catalyst of the creation of a local labor demand site for US consumption. On a forward basis, GSV is the simple combination of a) growth of projects, and b) increasing value per project.

The former appears to be growing mid-high teens %. We believe it will grow faster in the future as the platform is increasingly discovered. The latter has grown substantially on a trailing basis thanks to the localization of labor supply to the US. However, the forward basis will be growth based on core client net retention % which is something like a mid-high single digit impact.

UPWK | EPS This Week | On the Lookout for Long Term Potential - UPWK chart 2

Our caution mainly signals how tough it is to accurately predict a new marketplace, with trailing factors not all repeating on a forward basis. Regardless, we think flexible, on-demand labor is the future, and at some point in the coming years, this approach will go mainstream. Will UPWK execute and be the winner? Today UPWK is the scale leader in the marketplace. There are a lot of hurdles and challenges along the way, including trying to re-accelerate their technology stack (integrating 3 tiers of data, for example) and drive more value into the market for freelancers and customers. But this is an open road right now and the opportunity is ahead. If there is some near term volatility on marketplace growth, we see it as a chance for investors to do their work, and build solid positions for the medium and long term.  

CLICK HERE to access our UPWK | Best Idea Long Replay Webcast from 2/11/19.

Please call or e-mail with any questions.

Ami Joseph

Managing Director

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Yosef Vaitsblit

Analyst

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