Upwork (UPWK)

Online work marketplace Upwork (NASDAQ:UPWK) reported revenue ahead of Wall Streets expectations in Q3 CY2025, with sales up 4.1% year on year to $201.7 million. Guidance for next quarter’s revenue was better than expected at $195.5 million at the midpoint, 1.7% above analysts’ estimates. Its non-GAAP profit of $0.36 per share was 25.9% above analysts’ consensus estimates.

Company Overview

Formed through the 2013 merger of Elance and oDesk, Upwork (NASDAQ:UPWK) is an online platform where businesses and independent professionals connect to get work done.

The iPhone changed the world, ushering in the era of the “always-on” internet and “on-demand” services - anything someone could want is just a few taps away. Likewise, the gig economy sprang up in a similar fashion, with a proliferation of tech-enabled freelance labor marketplaces, which work hand and hand with many on demand services. Individuals can now work on demand too. What began with tech-enabled platforms that aggregated riders and drivers has expanded over the past decade to include food delivery, groceries, and now even a plumber or graphic designer are all just a few taps away.

Upwork's competitors include Fiverr (NYSE:FVRR), TaskUs (NASDAQ:TASK), Robert Half (NYSE:RHI), Meta's Facebook Marketplace (NASDAQ:META), and Microsoft’s LinkedIn (NASDAQ:MSFT).

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Unfortunately, Upwork’s 9.6% annualized revenue growth over the last three years was mediocre. This wasn’t a great result compared to the rest of the consumer internet sector, but there are still things to like about Upwork.

This quarter, Upwork reported modest year-on-year revenue growth of 4.1% but beat Wall Street’s estimates by 4.3%. Company management is currently guiding for a 2.1% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 2.8% over the next 12 months, a deceleration versus the last three years. This projection is underwhelming and implies its products and services will see some demand headwinds. At least the company is tracking well in other measures of financial health.

Customer Growth

As a gig economy marketplace, Upwork generates revenue growth by expanding the number of services on its platform (e.g. rides, deliveries, freelance jobs) and raising the commission fee from each service provided.

Upwork struggled with new customer acquisition over the last two years as its gross services volume were flat at 794,000. This performance isn't ideal because internet usage is secular, meaning there are typically unaddressed market opportunities. If Upwork wants to accelerate growth, it likely needs to enhance the appeal of its current offerings or innovate with new products.

In Q3, Upwork’s gross services volume decreased by 61,000, a 7.1% drop since last year. The quarterly print was lower than its two-year result, suggesting its new initiatives aren’t moving the needle for customers yet.

Revenue Per Customer

Average revenue per customer (ARPC) is a critical metric to track because it measures how much the company earns in transaction fees from each customer. This number also informs us about Upwork’s take rate, which represents its pricing leverage over the ecosystem, or "cut" from each transaction.

Upwork’s ARPC growth has been excellent over the last two years, averaging 9.4%. Although its gross services volume were flat during this time, the company’s ability to successfully increase monetization demonstrates its platform’s value for existing customers.

This quarter, Upwork’s ARPC clocked in at $254.07. It grew by 12.1% year on year, faster than its gross services volume.

A company’s gross profit margin has a significant impact on its ability to exert pricing power, develop new products, and invest in marketing. These factors can determine the winner in a competitive market.

For gig economy businesses like Upwork, gross profit tells us how much money the company gets to keep after covering the base cost of its products and services, which typically include server hosting, customer support, and payment processing fees. Another cost of revenue could also be insurance to protect against liabilities arising from providing transportation, housing, or freelance work services.

Upwork has robust unit economics, an output of its asset-lite business model and pricing power. Its margin is better than the broader consumer internet industry and enables the company to fund large investments in new products and marketing during periods of rapid growth to achieve higher profits in the future. As you can see below, it averaged an excellent 77.3% gross margin over the last two years. Said differently, roughly $77.27 was left to spend on selling, marketing, and R&D for every $100 in revenue.

Upwork’s gross profit margin came in at 77.3% this quarter, in line with the same quarter last year. On a wider time horizon, Upwork’s full-year margin has been trending up over the past 12 months, increasing by 1.1 percentage points. If this move continues, it could suggest better unit economics due to more leverage from its growing sales on the fixed portion of its cost of goods sold (such as servers).

Consumer internet businesses like Upwork grow from a combination of product virality, paid advertisement, and incentives (unlike enterprise software products, which are often sold by dedicated sales teams).

Upwork is very efficient at acquiring new users, spending only 23.8% of its gross profit on sales and marketing expenses over the last year. This efficiency indicates that it has a highly differentiated product offering and strong brand reputation, giving Upwork the freedom to invest its resources into new growth initiatives while maintaining optionality.

EBITDA is a good way of judging operating profitability for consumer internet companies because it excludes various one-time or non-cash expenses (depreciation), providing a more standardized view of the business’s profit potential.

Upwork has been a well-oiled machine over the last two years. It demonstrated elite profitability for a consumer internet business, boasting an average EBITDA margin of 24%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Looking at the trend in its profitability, Upwork’s EBITDA margin rose by 30 percentage points over the last few years, as its sales growth gave it operating leverage.

This quarter, Upwork generated an EBITDA margin profit margin of 29.6%, up 7.3 percentage points year on year. The increase was solid, and because its EBITDA margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, R&D, and administrative overhead.

We track the change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

In Q3, Upwork reported adjusted EPS of $0.36, up from $0.29 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. We also like to analyze expected EPS growth based on Wall Street analysts’ consensus projections, but there is insufficient data.

Although EBITDA is undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Upwork has shown terrific cash profitability, driven by its lucrative business model and cost-effective customer acquisition strategy that enable it to stay ahead of the competition through investments in new products rather than sales and marketing. The company’s free cash flow margin was among the best in the consumer internet sector, averaging 23.5% over the last two years.

Taking a step back, we can see that Upwork’s margin expanded by 29.3 percentage points over the last few years. This is encouraging because it gives the company more optionality.

Upwork’s free cash flow clocked in at $69.43 million in Q3, equivalent to a 34.4% margin. The company’s cash profitability regressed as it was 16.1 percentage points lower than in the same quarter last year, but it’s still above its two-year average. We wouldn’t read too much into this quarter’s decline because investment needs can be seasonal, leading to short-term swings. Long-term trends carry greater meaning.

Companies with more cash than debt have lower bankruptcy risk.

Upwork is a profitable, well-capitalized company with $646.9 million of cash and $10.13 million of debt on its balance sheet. This $636.8 million net cash position is 30.1% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

Revenue beat, which is a good start. We were also impressed by how significantly Upwork blew past analysts’ EBITDA expectations this quarter. Looking ahead, the company's full-year EBITDA guidance trumped Wall Street’s estimates and full-year EPS guidance was raised. Overall, we think this was a very solid quarter with some key areas of upside. The stock traded up 14.9% to $17.95 immediately following the results.

Updated: December 3, 2025 at 9:24 PM EST

We think that the latest earnings result is only one piece of the bigger puzzle. If you’re deciding whether to own Upwork, you should also grasp the company’s longer-term business quality and valuation.

There are definitely a lot of things to like about Upwork. Although its revenue growth was mediocre over the last three years and analysts expect growth to slow over the next 12 months, its impressive EBITDA margins show it has a highly efficient business model. And while its active customers were flat, its rising cash profitability gives it more optionality.

Upwork’s EV/EBITDA ratio based on the next 12 months is 12.3x. Looking at the consumer internet landscape right now, Upwork trades at a pretty interesting price. If you trust the business and its direction, this is an ideal time to buy.

Wall Street analysts have a consensus one-year price target of $22.90 on the company (compared to the current share price of $19.79), implying they see 15.7% upside in buying Upwork in the short term.