Factors Setting the Tone for Upwork's (UPWK) Q3 Earnings

Zacks Equity Research
·5 min read

Upwork, Inc. UPWK is slated to report third-quarter 2020 results on Nov 4.

The Zacks Consensus Estimate for loss per share has been steady at 8 cents in the past 30 days. In the third quarter of 2019, Upwork had reported non-GAAP earnings per share of 2 cents.

Upwork, a notable online recruitment services’ provider, expects third-quarter revenues of $89-$91 million. The Zacks Consensus Estimate for revenues is pegged at $90.4 million, which indicates an increase of 14.7% from the year-ago quarter’s reported figure.

Notably, the company’s earnings surpassed the Zacks Consensus Estimate in two of the trailing four quarters, missing the same once and reporting in line in the remaining quarter. It has a trailing four-quarter earnings surprise of 1.67%, on average

Upwork Inc. Price and EPS Surprise

Upwork Inc. Price and EPS Surprise
Upwork Inc. Price and EPS Surprise

Upwork Inc. price-eps-surprise | Upwork Inc. Quote

Q2 at a Glance

In second-quarter 2020, the company generated revenues of $87.5 million, up 19% from the year-ago quarter’s reported figure and 5.2% sequentially.

Non-GAAP loss per share during the quarter were 3 cents, compared with non GAAP loss of 1 cent per share reported in the year-ago quarter and non GAAP loss per share of 3 cents reported in the previous quarter.

Let’s see how things have shaped up prior to this announcement.

Factors to Note

Upwork’s third-quarter performance is likely to reflect benefits from the continued remote working trend owing to the COVID-19 crisis.

A surge in hiring of freelance talent as businesses resort to stringent cost-saving practices are likely to have resulted in healthy adoption of Upwork’s services.

Upwork is striving hard to attract large business organizations to hire freelance talent through its Work Together Talent Grants program. Upwork collaborated with Citrix to utilize the latter’s virtual desktop solution to make it easier for clients to work with freelance resources.

To increase the visibility and awareness about its platform, Upwork launched an extensive advertising and multichannel messaging campaign. Also, Upwork collaborated with Business Talent Group, a talent marketplace platform, in the second quarter of 2020 to enhance number of professional business consultants and attract more business organizations.  These initiatives might have contributed to the third-quarter top line.

In the second quarter, management noted that it added 4000 new clients. The momentum in new clients’ addition is likely to have driven the top line in the to-be-reported quarter.

Also, meaningful spend from existing clients is anticipated to have a positive impact on the third quarter performance. In the second-quarter conference call, management had stated that the existing clients are increasingly utilizing the freelancing talent on its platform. To boost utilization of freelance talent by enterprises on its platform, Upwork launched 50 new solutions pages in the second quarter of 2020.

Upwork is witnessing higher demand for freelancers in the customers support operations as well as Web, Mobile and Software Development category along with networking category as enterprises transition to remote work set up.

Moreover, the company is working on improving adoption rates for the technical freelance talent and this is likely to have a positive impact on the quarterly performance. The company is making improvement to semantic search on its platform so that increases significance of search results.

In the second quarter, the company had launched Upwork Expert-Vetted Talent solution which will enable clients to find resources through a combination of vetting and curation that is powered by both machines and humans. The premium offering is expected to have witnessed healthy incremental adoption rates along with Upwork’s Bring Your Own Talent functionality offering and might have positively impacted performance in the to-be-reported quarter.

However, management remains cautious about some of the existing clients as they struggle with the recession and might curb spending on talent acquisition. Moreover, increasing spending on product innovation is likely to have been a drag on profitability in the third quarter.

What the Zacks Model Unveils

Our proven model doesn’t conclusively predict an earnings beat for Upwork this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here.

Upwork has an Earnings ESP of 0.00% and a Zacks Rank #3. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks That Warrant a Look

Skyworks SWKS has an Earnings ESP of +2.20% and it currently carries a Zacks Rank of 2. You can see the complete list of today's Zacks #1 (Strong Buy) Rank stocks here.

ON Semiconductor ON has an Earnings ESP of +7.94% and it currently carries a Zacks Rank of 2.

CDW Corporation CDW has an Earnings ESP of +6.76% and a Zacks Rank of 2 at present.

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