On Thursday, Upwork Inc. (NASDAQ:UPWK) received an upgrade from BTIG from Neutral to Buy, along with a new price target set at $16.00. The upgrade follows a strong first-quarter report for 2024, where the company surpassed expectations in both revenue and EBITDA and showcased significant growth in its active client base.
Upwork added 21,000 clients in the quarter, marking a 5% year-over-year increase and the highest number since the first quarter of 2022. This growth exceeded the anticipated client gains, outpacing the estimates significantly. The firm noted that this achievement was particularly impressive given the current weak hiring market, suggesting potential for even stronger growth when market conditions improve.
The company's Gross Services Volume (GSV) met predictions at $1.01 billion. However, Upwork's recent change in freelancer commission structure, from a 5% tier to a flat 10% fee, led to an approximate 2% impact on growth. Without this pricing change, GSV growth would have been around 2.6%, a slight acceleration from the previous quarter's rate.
Upwork's take-rate climbed to 17.7%, notably higher than the anticipated 16.0%. This contributed to a revenue of $190.9 million for the quarter, topping the expected $185.9 million. The report also highlighted strong performance in other growth areas, with a 93% increase in ads and other monetization products and a 76% rise in subscription revenue from Freelancer Plus.
BTIG pointed out that despite having over 100,000 subscribers to Freelancer Plus, the penetration rate remains below 20%, leaving room for considerable growth. The firm also suggested the possibility of Upwork introducing a more premium subscription tier to enhance monetization.
Reflecting on past performance, BTIG acknowledged Upwork's solid execution since their downgrade to Neutral in August of the previous year. The company's FY25 Adjusted EBITDA estimate has since increased from $111 million to $161 million. The stock's valuation has become more appealing, dropping from 17 times EV/EBITDA in August 2023 to 8 times currently. BTIG's analysis concludes that a 12 times multiple is reasonable, justifying the $16 price target, which implies a 34% upside potential.
InvestingPro Insights
Following the positive outlook from BTIG, Upwork Inc. (NASDAQ:UPWK) shows intriguing financial metrics that could inform investor decisions. With a market capitalization of $1.64 billion, Upwork is maintaining a strong cash position, indicated by one of the InvestingPro Tips that it holds more cash than debt on its balance sheet. This financial stability is a reassuring sign for investors, especially in a volatile market. Additionally, the company's gross profit margin stands impressively at 75.27% for the last twelve months as of Q1 2023, which is a testament to its efficient cost management and robust business model.
Moreover, Upwork's stock is trading at a P/E ratio of 35.11, which when paired with its near-term earnings growth, presents the stock as trading at a low P/E ratio relative to its growth—a noteworthy point for those looking for growth at a reasonable price. The company's revenue growth also remains strong, with an 11.45% increase over the last twelve months as of Q1 2023. Despite recent volatility, with a 6.98% total return over the past week, the company's stock price resilience could be appealing to investors looking for opportunities in the tech sector.
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