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Inside Upwork’s Fresh IPO Filing

Upwork has filed paperwork with the SEC signaling its intent to go public. Upwork is an online marketplace for freelance labor, mostly catering to creative digital work like web development, graphic design, copywriting, and related fields.

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According to an announcement from the company, the “number of shares to be offered and the price range for the proposed offering have not yet been determined.” The announcement also says the company will list its shares on the Nasdaq exchange under the symbol UPWK.

Background

Upwork has raised $168.8 million in venture funding to date, according to Crunchbase data.1 The company’s last funding came in the form of a $30 million venture round led by Benchmark, a venture firm with a deep portfolio of marketplace and marketplace-adjacent startups.

Investors in the company include Kleiner Perkins, T. Rowe Price, New Enterprise Associates, FirstMark, and Sigma Partners, among several others.

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In terms of its corporate makeup, Upwork is the result of a merger between two competing organizations: Elance and oDesk. Elance was founded in 1999 and oDesk was founded in 2003. After a decade of fierce competition, the two freelancing platforms agreed to merge in December 2013 to create a new corporate entity called Elance-oDesk, which was rebranded and relaunched as Upwork eighteen months later in May 2015.

To put the company’s scale into perspective, Upwork disclosed some details about its business. In the year ending June 30, 2018, the Upwork platform “enabled $1.56 billion of GSV across 2.0 million projects between approximately 375,000 freelancers and 475,000 clients, including more than 30% of the Fortune 500 companies.” Upwork freelancers hail from “over 180” countries and practice one or more of some “5,000 skills […] across over 70 categories.”

What The Financials Tell Us

[bctt tweet=”Upwork has an expanding growth rate, improving profit metrics, and strong year-to-date operating cash flow generation heading into its IPO cycle.” via=”no”]

Upwork doesn’t rank among the fastest growing companies that have filed to go public this year, but it also loses far less money. Even more, the firm has generated GAAP profits (inclusive of all costs) at times in the past, and it has recently-improved gross margins.

We’ll start with growth. Upwork expanded its revenue 23.2 percent from 2016 to 2017. In dollar terms, the company recorded $164.4 million in total revenue in 2016 and $202.6 million in 2017.

The company’s more recent growth rate is slightly better. In the first half of 2017, Upwork had top-line revenue of $95.5 million. In the same period in 2018, the company had revenue of $121.9 million. That works out to 27.6 percent growth.

So Upwork grew a bit faster in the first half of 2018 than it did in 2017, comparing each to their respective, year-ago periods. That’s notable, but the growth came at a cost. In the first six months of 2017, Upwork generated $1.4 million in GAAP net income, despite losing $4.1 million during the full calendar year. During the faster-growing first two quarters of 2018 alone, Upwork lost a steeper $7.2 million.

Higher spend in sales and marketing spend was a key driver of Upwork’s growing losses. The firm spent $23.7 million on sales and marketing costs in the first two quarters of 2017. That figure swelled to $36.1 million in the first half of 2018.

But there’s good news as well. Upwork bolstered its gross margin from 62 percent in 2016 to 68 percent in 2017. Its improved margins weren’t ephemeral. The company managed a similar 67 percent gross margin in the first half of 2018 (a period of faster revenue growth).

Moving along, Upwork’s business often generates cash. It had strong, positive operating cash flow in the first half of 2017, before wrapping the year having consumed $4 million in operating cash. Upwork generated even more positive operating cash flow in the first half of 2018 than it did in the year-ago period. If it can keep that up for the full year isn’t clear, but the company is off to a good start.

Its improving operating cash generation dovetails with a few other metrics that may make Upwork more attractive to investors than its growth rate might indicate. After losing $6.8 million and $5.2 million in the sequentially preceding quarters, Upwork generated a net loss of just $412,000 in the most recent calendar quarter, kicking out adjusted EBITDA of $3.3 million in the same period, a more than $6 million positive swing from the sequentially preceding quarter.

Upwork has an expanding growth rate, improving profit metrics, and strong year-to-date operating cash flow generation heading into its IPO cycle. Upwork’s biggest task, therefore, will be convincing investors that it start to grow more quickly. And with a new grip of cash from an IPO, perhaps it can.

Illustration: Li-Anne Dias


  1. This includes the capital raised separately by Elance and oDesk, which merged to become Upwork.

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