Upwork Inc: Best-of-Breed Freelancing Stock Could Double

Upwork Inc: Best-of-Breed Freelancing Stock Could Double
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Upwork Inc’s Massive Global Potential Means Major Gains Ahead

The global workforce is becoming more interconnected whether you like it or not. The ability to perform freelance tasks regardless of where you live has opened up endless opportunities for workers around the world.

The scale of the potential market is massive. The current leader in the freelance segment is Upwork Inc (NASDAQ:UPWK), which debuted with a highly anticipated initial public offering (IPO) at $15.00 per share in October 2018.

But after a jump to $25.00 on its first day, UPWK stock has been under selling pressure, breaking below $16.00 on May 16 to just above its IPO price.

The selling in this stock over the past three months means it’s vastly oversold when you consider the strong revenue growth and the move toward profitability.

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One positive development is that the 180-day lockup period in Upwork stock expired on April 1, which should translate to less selling risk.

My bullish thesis for Upwork Inc is based on the company’s leadership in the global freelance market. The company’s platform is used in over 180 countries. Upwork receives a fee of around 14% of the gross services volume generated on the platform.

But despite the company’s potential, UPWK stock has underperformed, failing to hold support at $18.00 and $16.00.

Chart courtesy of StockCharts.com

If you can deal with the volatility and take a long-term view, you might  want to consider Upwork stock because it could return strong upside gains.

The Fundamental Bull Story for UPWK Stock

The potential market size is staggering and Upwork Inc is already delivering some impressive growth metrics.

The company’s revenue increased in two straight years, as the below chart shows:

Fiscal Year Revenue (Millions) Growth
2016 $164.5
2017 $202.6 23.2%
2018 $253.4 25.1%

(Source: “Upwork Inc.,” MarketWatch, last accessed May 21, 2019.)

Upwork is estimated to ramp up its revenue by 19.4% to $302.6 million this year and by 19.7% to $362.3 million in 2020. (Source: “Upwork Inc. (UPWK),” Yahoo! Finance, last accessed May 21, 2019.)

More importantly, there is also a pathway to profits for Upwork.

Spending to grow the company is expensive, but Upwork managed to report positive earnings before interest, taxes, depreciation, and amortization (EBITDA) in 2017, prior to reverting back to negative EBITDA in 2018.

Fiscal Year EBITDA (Millions) Growth
2016 -$6.0
2017 $1.1 117.7%
2018 -$6.5 -715%

(Source: MarketWatch, op cit.)

Yes, Upwork has been losing money, but there is some optimism because the company is expected to narrow its adjusted losses and move toward profitability.

The following table shows the generally accepted accounting principles (GAAP) diluted earnings per share (EPS) for the past three years:

Fiscal Year GAPP Diluted Earnings Growth
2016 -$0.15
2017 -$0.10 34.6%
2018 -$0.38 -279.3%

(Source: Ibid.)

For 2019, Upwork’s adjusted loss is expected to fall to $0.19 per diluted share. For 2020, it’s expected to fall to $0.11 per diluted share, and there’s a high estimate calling for a breakeven. (Source: Yahoo! Finance, op cit.)

An encouraging sign is that Upwork delivered positive free cash flow (FCF) in 2016 and a record $6.9 million in 2018.

Fiscal Year Free Cash Flow (Millions) Growth
2016 $2.3
2017 -$6.3 -374.5%
2018 $6.9 209.2%

(Source: MarketWatch, op cit.)

Analyst Take

In my view, the current price weakness in Upwork stock is an aggressive opportunity to pick up shares of a company that is best of breed in the surging global freelance market.

That market will only grow and Upwork Inc will likely be a key player.