Street Calls of the Week
On Wednesday, Citi updated its stance on Upwork Inc. (NASDAQ: NASDAQ:UPWK) stock, reducing the price target on the stock to $11 from $13 while maintaining a Neutral rating.
The adjustment follows a review of Upwork's business model and revised projections in light of a challenging macroeconomic environment observed since May and expected to persist into the second half of 2024.
The freelance platform's visibility in the near term (NT) has diminished as the number of clients seeking work on Upwork fell by 6% quarter over quarter (Q/Q) in the second quarter (2Q), despite a strong performance in the first quarter. However, Citi noted positive developments with the adoption of new products on the marketplace (MP), which could indicate potential for future growth.
Specifically, Upwork's Artificial Intelligence (AI) Gross Services Volume (GSV) increased by 67% year over year (Y/Y), and its Value Added Services, including advertising and monetization revenue, saw a significant increase of 75% Y/Y. Additionally, the company improved its take-rates by 30 basis points Q/Q. The Enterprise segment also showed promise, adding 46 new logos, which marked a recent high for the company.
The expansion of EBITDA margins was another encouraging sign for Upwork. Nevertheless, Citi expressed caution, indicating a need for macroeconomic headwinds to stabilize and for GSV to demonstrate sustained growth before adopting a more positive outlook on the company's shares.
In other recent news, Upwork Inc. reported a 15% year-over-year increase in revenue to $193.1 million for the second quarter of 2024, marking its highest-ever quarterly GAAP net income at $22.2 million. Despite these achievements, Upwork adjusted its full-year revenue guidance downward due to softer client activity and macroeconomic challenges.
The company anticipates Q3 revenue to be between $179 million and $184 million, with full-year revenue expected to range from $735 million to $745 million.
In response to these financial developments, Roth/MKM reduced Upwork's stock price target to $13 from $19, maintaining a Buy rating. Similarly, BTIG reaffirmed its Buy rating and $14.00 price target for Upwork, amidst the backdrop of shareholder activism.
Upwork also announced that it has repurchased $100 million in shares in 2024, accounting for approximately 7.5% of its current market capitalization, and plans to continue this trend. The company has taken steps to optimize costs, including discontinuing brand marketing and optimizing performance marketing.
An activist investor, now the fourth largest shareholder, proposed several changes to improve Upwork's performance and governance, including enhancing the core marketplace, streamlining management levels, and restructuring the board. These are the recent developments in the company's trajectory.
InvestingPro Insights
In light of Citi's recent update on Upwork Inc. (NASDAQ: UPWK), it's pertinent to consider additional insights from InvestingPro. Notably, Upwork has been actively buying back shares, suggesting confidence from management in the company's value proposition. This aligns with the fact that Upwork holds more cash than debt on its balance sheet, providing financial stability in uncertain economic times. Furthermore, Upwork's gross profit margins remain impressive, standing at 76.18% for the last twelve months as of Q2 2024, reinforcing the strength of its business model despite the macroeconomic challenges mentioned by Citi.
InvestingPro data highlights Upwork's market capitalization at approximately $1.41 billion, with a P/E ratio of 19.38, indicating investor expectations of future earnings growth. The company's revenue has grown 14.5% over the last twelve months as of Q2 2024, showcasing its ability to expand its top line. Additionally, Upwork's EBITDA growth has been remarkable at 173.23% over the same period, which could be a signal for potential future profitability, a forecast echoed by analysts who predict the company will be profitable this year.
For readers seeking a more comprehensive analysis, there are over 10 additional InvestingPro Tips available, which delve further into Upwork's financial health and market performance. These can be accessed to gain a deeper understanding of the company's prospects and to inform investment decisions.
InvestingPro also provides a fair value estimate of $13.45 for Upwork, slightly below the analyst target of $14 but above the current price, indicating a potential undervaluation. The next earnings date is set for October 23, 2024, which investors may want to watch closely for any significant updates or changes in the company's outlook.
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