Upwork Inc: A Great Pandemic Stock, Up 126% Since April but More to Come

Upwork Inc: A Great Pandemic Stock. Up 126% Since April But More to Come.Upwork Inc Rides Gig Economy Wave Aided by Pandemic

The outbreak of COVID-19 worldwide has caused massive structural changes in the workplace. There has been a big reduction in commuting, as companies force employees to work at home. And things aren’t likely going back to normal after the pandemic, since many workers desire to work at home.

To play this shift, freelance work platform company Upwork Inc (NASDAQ:UPWK) is ideally situated.

Upwork is a pure play on the global freelance market; its platform is used by freelancers in over 180 countries.

UPWK stock debuted with its initial public offering (IPO) at $15.00 in October 2018. But it has not been easy since then. Upwork stock collapsed to $5.14 during the March 2020 sell-off, before more than tripling. As of this writing, it’s up 44% over the past month and up 126% over the past three months.

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The below chart shows UPWK stock displaying a bullish golden cross and breaking higher. The move is supported by strong relative strength and an uptrending moving average convergence/divergence (MACD).

Chart courtesy of StockCharts.com

But despite this move, Upwork stock may have more room to run, considering that rival freelancing stock Fiverr International Ltd. (NYSE:FVRR) surged 181% over the past three months and is up 264% this year, well ahead of the 54% advance by UPWK stock over the same period.

Upwork is the smaller of the two gig-economy stocks: its market cap is $1.6 billion, versus $2.6 billion for Fiverr.

But the relative valuation based on revenues and book value overwhelmingly favor Upwork Inc, as shown in the below table.

Company Price/Sales Ratio Price/Book Ratio
Upwork Inc 5.25 6.60
Fiverr International Ltd. 20.98 16.75

This suggests that Upwork stock has more upside potential (or that Fiverr is overvalued). Regardless of which is correct, the reality is that the pandemic has created an ideal situation for gig-economy stocks.

Big Revenue Growth to Accelerate Amid Pandemic

Upwork Inc’s revenues jumped in three consecutive years to a record level in 2019, representing a strong compound annual growth rate (CAGR) of 22.3%.

Fiscal Year Revenues (Millions) Growth
2016 $164.5
2017 $202.6 23.2%
2018 $253.4 25.1%
2019 $300.6 18.6%

(Source: “Upwork Inc.MarketWatch, last accessed July 14, 2020.)

The pandemic will likely give Upwork’s revenues an added boost. The consensus view calls for the company to report revenue growth of 12.1% to $336.9 million this year, followed by 13.9% to $383.7 million in 2021. (Source: “Upwork Inc. (UPWK),” Yahoo! Finance, last accessed July 14, 2020.)

While Upwork has yet to turn generally accepted accounting principles (GAAP) or adjusted profits, the losses are expected to narrow in 2021.

Fiscal Year GAAP Diluted EPS Growth
2016 -$0.15
2017 -$0.10 34.5%
2018 -$0.38 -279.3
2019 -$0.15 60.1%

(Source: MarketWatch, op. cit.)

Upwork Inc’s adjusted loss is expected to rise to $0.30 per diluted share in 2020 before improving to a loss of $0.17 per diluted share in 2021. (Source: Yahoo! Finance, op. cit.)

A big plus is that the company has a strong balance sheet, which is critical in the current environment. Cash on hand was a healthy $145.3 million, with debt of $57.0 million at the end of March. (Source: Yahoo! Finance, op. cit.)

Analyst Take

The bull thesis for UPWK stock is obvious, given the impact of the pandemic and the rapidly rising freelancing market.

Insiders have been buying Upwork stock. Over the past six months, insiders bought 1,157,136 shares of Upwork Inc and sold 131,712 shares. This display of confidence by the insiders helps reaffirm my bull case. (Source: Yahoo! Finance, op. cit.)