Upwork: Substantial Upside Opportunity In Workforce Mobility

Upwork Inc (UPWK)
Talent Sourcing - Freelance Employment

Short Term:BUY

First Target:$26.50
Second Target: $30.50
Third Target: $37 

Company Overview:
Virtual labor is the “next big thing” of the mobile economy and Upwork wants to be the de-facto platform. The company operates the largest freelancing website (as measured by Gross Services Volume), enabling businesses and individuals to directly hire, manage and pay for freelance labor. It also enables clients to streamline workflows, such as talent sourcing, outreach and contracting. In addition, its platform provides access to functionality for remote engagements with freelancers, including communication and collaboration in, time tracking and invoicing, and payments via escrow through its wholly owned subsidiary, Upwork Escrow Inc. Clients are able to freelance in various categories such as accounting, business support, I.T. services, personal and virtual assistance, copy edition, SEO, graphic design, web/mobile development and sales. 

The Opportunity:
Traditional methods of sourcing labor are no longer providing the human resources necessary for the fast growing tech sector, especially when labor is tight as it is now. Conversely, when the labor market slows down, many will turn to the freelance market to supplement incomes. Although too early to tell, Upwork is likely to benefit from a slowing economy as long as they are able to keep the quality of service providers up thereby keeping consumers of freelance labor satisfied with the results of their virtual workers. One key strength is the company's emphasis on highly skilled, in-demand professionals who value flexibility and prefer remote work. According to the company's third annual "Future Workforce Report", by 2028, 73% of all teams will have remote workers". More than 1 in 3 Americans will freelance this year as the freelance workforce has grown by 3.7 million to 56.7 million Americans over the past five years. (Perhaps another clue why the unemployment rate remains subdued so late in this economic expansion). According to "Freelancing in America: 2018", Americans are spending more than 1 billion hours per week freelancing, an increase of 72 million hours/week since 2015.

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Disclosure: I own shares of UPWK.

Disclaimer: This report is for informational purposes only and does not constitute individually tailored investment advice. Alpha Insights is not a ...

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Alpha Insights 2 years ago Author's comment

When $UPWK debuted back in October of last year, the shares were oversubscribed by a factor of 20x. A colleague of mine noted that "nearly every investor that met with the company on the roadshow put in an order". They are a first mover and the market opportunity is estimated to be around $560 BILLION.

One potential catalyst for the share price which has fallen off the radar since the December swoon, is their partnership with $MSFT. On Dec 7, #Microsoft announced a partnership with UPWK to launch the Microsoft 365 freelance Toolkit. "The toolkit is an integrated workforce collaboration solution that helps enterprises work with freelancers at scale and is powered by Microsoft 365 and Upwork Enterprise". This move was very much inspired by Microsoft's own initiative to embrace a flexible talent model. Microsoft launched an internal pilot program to give employees access to flexible, freelance talent. Within the past year, Microsoft completed over 2100 projects on Upwork. These projects included writing, research, video editing, translation, design and data science. This level of integration is reminiscent of the early partnership between Microsoft and LinkedIn before Microsoft acquired them.

The market opportunity for #Upwork is huge, expanding and mostly untapped. So where are the analysts? This has a great deal to do with how the investment banking model works and a little known sell-side strategy called "momentum ignition". This involves a (possibly coordinated) series of "beat and raise" actions by sell-side analysts intended to trigger a mark-up phase in the stock price following a period of accumulation for their institutional client's books. To accumulate shares, the stock needs to have unrestricted float. Their post-IPO restriction period has not ended yet. Contrary to popular belief, stocks don't necessarily go down when the IPO restriction ends.

UPWK becomes an extremely juicy takeover candidate for a company like MSFT as the latter is positioning itself to dominate the B.I. and workforce productivity markets.

The rate at which companies are shifting towards a flexible workforce is accelerating and we are in the early stages of a systemic shift that will see flexible workforce models becoming the norm.

Barry Hochhauser 2 years ago Member's comment

Yes, that makes a lot of sense.

Craig Newman 2 years ago Member's comment

Nice to see some optimism about this stock. There hasn't been much out there.

Danny Straus 2 years ago Member's comment

I like #UpWork's model. I've actually been considering using them myself for my own startup business. They clearly have good marketing. Nice to learn more about them from an investment standpoint. $UPWK