BTIG Upgrades Upwork Inc. (UPWK) to Buy
BTIG analyst Marvin Fong upgraded Upwork Inc. (NASDAQ: UPWK) from Neutral to Buy with a price target of $16.00.
The analyst comments "We are upgrading shares of UPWK to Buy from Neutral after a very constructive 1Q24 report. While revenue and EBITDA beat expectations by a wide margin, we were most impressed by the growth in active clients. UPWK added 21K clients in the quarter, growing 5% y/y and represents the highest number of adds since 1Q22 when the overall labor market was much stronger. The Street was looking for a gain of 5K clients (BTIGe 12K). This performance came despite a weak hiring market, which we believe positions UPWK for even more robust growth when the hiring market turns. Moreover, this makes three quarters of solid client growth (14K or more), suggesting a durable trend. Turning back to 1Q24, GSV came in as expected at $1.01B (BTIGe ($1.01B), but there were underlying nuances. At the start of 2024, any projects that remained at the 5% freelancer commission tier were raised to the new, flat 10% fee structure. This price increase led to some demand destruction -- management estimated the impact at ~2 points of growth. Thus, if not for the pricing change, GSV growth would have been significantly higher than the 0.6% reported growth. The pro-forma growth of ~2.6% would have been a modest acceleration from 4Q's 2.1% pro forma growth rate. The commission rate change helped drive take-rate to 17.7%, well above the Street's 16.0% (BTIGe 17.0%). As a result, UPWK generated revenue of $190.9MM, exceeding the Street's $185.9MM. Elsewhere, UPWK showed strong traction on its other growth initiatives. Ads & other monetization products (e.g., Connects) grew 93% in the quarter while subscription revenue from Freelancer Plus grew 76% on 68% growth in subscribers. Even with 100K+ subscribers to Freelancer Plus, we estimate the penetration rate is still <20% and there is plenty of runway for growth. We would also not be surprised if UPWK improved monetization through the addition of an even more premium tier. Recall we downgraded UPWK shares to Neutral in August of last year. To its credit, UPWK has executed well since, such that our FY25 Adjusted EBITDA estimate has risen from $111MM to $161MM. Meanwhile, the stock has come in and valuation has improved from 17x EV/EBITDA in August 2023 to 8x currently, which we find attractive. We believe a 12x multiple fairly reflects UPWK's growth prospects and monetization opportunities, leading to our $16 PT (34% upside potential)."
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Shares of Upwork Inc. closed at $11.96 yesterday.