Upwork Stock Looks Cheap (And Attractive)
Summary
TLDRUpwork, an online freelance marketplace, saw its stock boom during the pandemic but has since fallen 80%. Despite a market value of $1.3 billion, the company has strong cash reserves and manageable debt. With a recent uptick in profitability and a 22% average revenue growth over five years, Upwork is valued at 18 times earnings. However, concerns over AI disruption and platform dissatisfaction persist. If Upwork can maintain its current performance, its valuation could improve significantly, making it a potentially bullish investment, though challenges remain.
Takeaways
- 📈 Upwork's stock price has significantly dropped by over 80% since its peak during the pandemic when people were working from home.
- 💼 The company has a current market value of $1.3 billion, with $500 million in cash and investments, and $360 million in debt, resulting in an enterprise value of $1.2 billion.
- 💰 Revenue for the last 12 months is reported at $744 million, with a net income of $74 million and free cash flow of $7.3 million.
- 📊 The stock is valued at 18 times earnings and 16 times free cash flow, which is considered a reasonable valuation given Upwork's recent performance.
- 🚀 Over the last 5 years, Upwork has shown an average revenue growth of 22%, with a 14% increase in sales in the past 12 months.
- 💹 Profitability has improved, with cost-cutting measures reducing total operating expenses by 10 percentage points and adjusted EBITDA margin doubling to 21%.
- 🌐 There is potential for the free cash flow to surge to $33.5 million, which could significantly lower the valuation if sustained.
- 🔮 Management aims to achieve an adjusted EBITDA margin of 35% within the next 5 years, indicating a positive outlook for the company's financial health.
- 📉 Despite positive trends, gross sales volume fell by 2.7% in the recent quarter, and full-year revenue guidance was reduced, signaling potential weaknesses.
- 🤖 There are concerns about AI disrupting Upwork's business model, as AI could potentially handle many tasks currently performed by freelancers on the platform.
- 🛠️ However, AI could also be a net positive for Upwork, with a 67% year-over-year increase in sales volume from AI-related work and a partnership with OpenAI.
- 🔑 Two major issues for Upwork include freelancers finding it difficult to secure work due to low-cost competition and clients facing frustration with low-quality candidates.
- 🔄 The platform also faces the challenge of freelancers and clients taking work outside of Upwork to avoid the 10% fee once a relationship is established.
- 📈 A conservative scenario projects a 7% annual topline revenue growth for the next 5 years, with a 15% net income margin, leading to a potential valuation of over $3.1 billion.
- 📊 The annualized return based on this scenario is estimated at 12.4%, which is considered a bullish outlook for the stock, although it's important to note that this is not financial advice.
Q & A
What is Upwork's current market value?
-Upwork's current market value is $1.3 billion.
How much cash and investments does Upwork have on its balance sheet?
-Upwork has almost 500 million dollars in cash and investments on its balance sheet.
What is the Enterprise Value of Upwork?
-The Enterprise Value of Upwork is 1.2 billion dollars.
What was Upwork's revenue over the last 12 months?
-Upwork's revenue over the last 12 months was 744 million dollars.
What is the current valuation of Upwork in terms of earnings and free cash flow?
-The stock is currently valued at 18 times earnings and 16 times free cash flow.
What has been Upwork's average revenue growth over the last 5 years?
-Upwork's average revenue growth over the last 5 years is 22%.
How has cost cutting affected Upwork's profitability?
-Cost cutting helped total operating expenses to decline by 10 percentage points, resulting in an adjusted EBITDA margin more than doubling to 21%.
What is Upwork's goal for its adjusted EBITDA margin in 5 years?
-Upwork's goal is to hit an adjusted EBITDA margin of 35% in 5 years.
What challenges does Upwork face in terms of its platform's user experience?
-Freelancers find it hard to get work due to low-cost competition, while clients face frustration from too many low-quality candidates and job proposals.
How has AI impacted Upwork's sales volume from AI-related work?
-Sales volume from AI-related work on Upwork was up 67% year-over-year.
What is the potential long-term impact of AI on Upwork's business model?
-AI could disrupt the usefulness of Upwork by taking over projects, but it could also be a net positive by increasing demand for AI-related work.
What is the projected annualized return on investment for Upwork if it meets certain growth and profitability targets?
-If Upwork meets the conservative scenario of growing its topline revenue at 7% per year for the next 5 years and operating with a 15% net income margin, the annualized return works out to about 12.4%.
What is the potential market capitalization of Upwork in 5 years based on the given scenario?
-Based on the scenario where Upwork grows its topline revenue at 7% per year and operates with a 15% net income margin, the market capitalization could just over 3.1 billion dollars.
Outlines
📈 Upwork's Market Performance and Financial Analysis
The script discusses Upwork's online marketplace for freelancers, which saw a significant stock increase during the pandemic due to people working from home. However, the stock has since fallen by over 80%. With a current market value of $1.3 billion, Upwork has nearly $500 million in cash and investments and $360 million in debt, resulting in an enterprise value of $1.2 billion. Revenue for the last 12 months was $744 million, with a net income of $74 million and free cash flow of $7.3 million. The stock is valued at 18 times earnings and 16 times free cash flow. Despite this, Upwork has shown strong performance with an average revenue growth of 22% over the last five years and a 14% increase in sales in the past 12 months. Profitability has improved due to cost-cutting measures, resulting in a decline in operating expenses and a significant increase in adjusted EBITDA margin and free cash flow. The goal is to achieve an adjusted EBITDA margin of 35% within five years. However, there are concerns about the impact of AI on the platform's usefulness, with a potential disruption of the service due to AI's ability to perform many tasks currently done by freelancers. Despite this, AI-related work sales have increased by 67% year-over-year, and Upwork has a partnership with OpenAI. The script also highlights issues faced by freelancers and clients on the platform, such as difficulty finding work and low-quality candidates, and the tendency for freelancers to move work outside the platform to avoid fees. The author provides a conservative scenario for Upwork's growth and gives the stock a bullish rating, while emphasizing that this is a personal opinion and not financial advice.
Mindmap
Keywords
💡Upwork
💡Market Value
💡Enterprise Value
💡Revenue Growth
💡Profitability
💡Adjusted EBITDA Margin
💡Free Cash Flow
💡Gross Sales Volume
💡Artificial Intelligence (AI)
💡Platform Issues
💡Topline Revenue
💡Net Income Margin
💡Stock-Based Compensation
💡Annualized Return
Highlights
Upwork's stock boomed during the pandemic but has since fallen over 80%.
Upwork currently has a market value of $1.3 billion with 500 million in cash and investments, and 360 million in debt.
The enterprise value is 1.2 billion with revenue over the last 12 months at 744 million.
Upwork reported 74 million of net income and 7.3 million of free cash flow.
The stock is valued at 18 times earnings and 16 times free cash flow.
Average revenue growth over the last 5 years is 22%, with sales up 14% in the past 12 months.
Upwork turned profitable with cost-cutting measures, reducing operating expenses by 10 percentage points.
Adjusted EBITDA margin more than doubled to 21%, and free cash flow surged to 33.5 million.
If performance repeats, free cash flow for the year could hit 134 million, improving valuation metrics.
Management aims to achieve an adjusted EBITDA margin of 35% in 5 years.
Gross sales volume fell 2.7% in the latest quarter, and revenue guidance was reduced.
Investors are concerned about AI disrupting Upwork's business model.
AI-related work sales volume increased by 67% year-over-year, and Upwork has a relationship with Open AI.
Freelancers find it hard to get work due to low-cost competition, and clients face frustration with low-quality candidates.
Once a freelancer-client relationship is formed, there's little to stop them from taking work outside the platform to avoid fees.
Upwork has been growing sales and clients despite these issues.
A conservative scenario projects a 5-year growth of topline revenue at 7% and a 15% net income margin.
This scenario results in a net income of 156 million in 5 years and a valuation of over 3.1 billion.
The annualized return based on this scenario is about 12.4%, giving the stock a bullish rating.
The speaker's personal opinion is bullish on Upwork, but this is not financial advice.
Transcripts
upwork operates an online Marketplace
for Freelancers the stock boomed during
the pandemic when people were stuck at
home but shares have fallen over 80%
since at the latest price upwork has now
got a market value of $1.3 billion it's
got almost 500 million of cash and
Investments on its balance sheet and 360
million of debt so the Enterprise Value
is 1.2 billion Revenue over the last 12
months comes to 744 million with 74
million of net income and 7 3 million of
free cash flow so the stock is now
valued at 18 times earnings and 16 times
free cash flow that valuation is not bad
when you look at upw work's recent
performance average revenue growth over
the last 5 years is 22% with sales up
14% over the past 12 months crucially
upwork recently turned the corner on
profitability cost cutting help total
operating expenses to decline by 10
percentage points in the latest quarter
as a result adjusted ebitdar margin more
than doubled to 21% and free cash flow
surged to 33.5 million if upwork repeats
this kind of performance free cash flow
for the year could hit 134 million which
would put the valuation at under n times
free cash flow and management does think
the efficiency will continue the goal is
to hit an adjusted ebit D margin of 35%
in 5 years time it's not all good news
however gross sales volume in the
quarter fell 2.7% and management reduced
their revenue guidance for the full year
on signs of weakness and investors are
worried that artificial intelligence
could disrupt the usefulness of upwork
since many upwork projects could
feasibly be done by AI however there's
also an argument that AI could end up
being a net positive for upwork
management said that sales volume from
AI related work was up 67%
year-over-year and they talked up a
relationship with open AI even so there
are still two big problems that face
upwork the first is that no one really
likes the platform Freelancers find it
hard to get work amongst the Sea of
lowcost competition meanwhile clients
face frustration from too many
lowquality candidates and cookie cutter
job proposals the second issue is that
once a freelancer has formed a
relationship with a client on upwork
there isn't much that stops them taking
the work outside the platform in order
to circumvent the 10% fee but these
issues have been around for years and
nether have stopped the company from
growing sales and clients there's
clearly value in the marketplace and
this is a business that doesn't require
huge capital investment but that said I
would like to see upwork improve how it
deals with these issues let's assume
that upwork can grow its Topline Revenue
at 7% per year for the next 5 years and
then operate with a 15% net income
margin that would result in 156 million
of net income in 5 years time and a 20
times PE mon multiple would then take
the valuation to just over 3.1 billion
account for stock-based compensation and
the annualized return works out to about
12.4% a year that seems like a
conservative scenario which is why I
give this stock a bullish rating but
these are my personal opinions not
Financial advice and I do hold shares in
upwork for more investing videos make
sure to visit my website at 3em minute
breakdown. comom thank you for watching
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