Upwork was formed in 2015 following the merger between Elance and oDesk, founded in 1999 and 2003, respectively. It has since grown into one of the world’s largest staffing platforms where individuals and enterprises can connect to get work done. It is headquartered in Santa Clara, California.


WORK DELIVERY

Upwork is a platform where clients can post their work, receive applications from qualified freelancers, negotiate prices and have the job done for them by a freelancer. Clients can also browse pre-defined projects offered by freelancers and select the ones they would like to buy. The entire process, for clients, takes five easy steps:

  1. Setting up a profile
  2. Posting a job by writing a detailed description
  3. Connecting with talent and selecting one who is most qualified for the job
  4. Setting up the contract
  5. Getting the work done and delivered

For freelancers, the platform only requires three easy steps:

  1. Creating a profile, which is free
  2. Exploring the jobs posted by clients and sending proposals to those that can fit the skill sets and expertise
  3. Working on the contract and getting paid for it

For pre-determined projects, clients can express interest in purchasing the service by contacting the freelancer. They will then send their project requirements, after which the freelancer can confirm the instructions, get started on the work and get paid upon delivery.


COMPETITIVE MARKET

Upwork has three main competitors: Fiverr, Freelancer and PeoplePerHour. Fiverr allows clients to purchase products and services from as little as $5, hence its name. Freelancer, on the other hand offers a variety of payment options, unlike Upwork which mainly relies on debit and credit cards. Lastly, PeoplePerHour only focuses on the European market whereas Upwork operates globally.

Fiverr

Arguably one of the best-known independent marketplaces for small businesses and freelancers. One can buy or sell a service or product for as little as $5.

  • As of March 31, 2021, Fiverr had over 3.8 million active buyers, up from 2.5 million during the same period in 2020
  • At the time, the platform had over 830,000 freelancers in over 160 countries, selling services that include web development, logo design, music composition, video editing and blog writing
  • For this first quarter of 2021, total revenue was $68.3 million, a 100% year-over-year increase from the same period in 2020

Pros

  • Fiverr prides itself in the long range of categories and subcategories of products or services that freelancers offer. This makes searching for a specific product or service easy, allowing for clients to identify specialized sellers within a particular niche
  • Fiverr also offers a fast delivery option for clients who may have time-sensitive projects
  • It also allows for clients and freelancers to agree on prices based on budgets that both parties agree on

Cons

  • Fiverr has a relatively low number of well-trained freelancers, particularly compared to its competitors: Freelancer and Upwork

Freelancer

Freelancer has over 32 million users and is regarded as one of the world’s largest marketplace-type platforms. It has been around for over a decade.

  • In the first quarter of 2021, Freelancer’s delivered a Gross Payment Volume of $192.9 million, a 39% growth on personal contract purchase (PCP) from the same period in 2020
  • Over the same period, gross marketplace volume totaled $25.9 million, a 23.6% growth from the same period the previous year
  • Traffic to the website grew by 105.7% year-on-year for the first quarter of 2021, totaling 16.4 million from the same period in 2020

Pros

  • Freelancer offers various payment options for clients
  • Freelancers can enjoy excellent customer service, especially compared to the other competitors
  • The platform supports businesses that have big budgets, along with those who might not have a lot to work with. It is more accommodating than Upwork

Cons

  • It is usually challenging to choose the right person, given how many freelancers are signed up
  • It is usually more expensive to hire a new freelancer
  • Freelancers are typically pushed to pay a subscription should they wish to apply for more than 8 jobs in a month, which is a significant barrier for beginners

PeoplePerHour

Headquartered in the United Kingdom, PeoplePerHour focuses on the European market. From a functionality standpoint, this platform is a blend of both Fiverr and Upwork, where clients can post a job and freelancers can either offer gigs or apply

Pros

  • The hiring process is the easiest of the three competitors
  • It is also more customer-friendly, allowing businesses to hire the right person for the job efficiently and on time

Cons

  • The platform has poor customer service
  • Clients can receive so many applications on a single project, which can be overwhelming at times

LinkedIn

In March 2021, LinkedIn, the world’s largest professional network online, announced that it would be launching its freelance marketplace platform.

  • The platform is set to launch in September 2021
  • It will be dedicated to critical services that include, but will not be limited to, writing, marketing and consulting
  • Just like Upwork and Fiverr, LinkedIn will have users opt for either short-term or long-term contract-based projects

With this move, LinkedIn seeks to tap into the freelance market, which, so far in 2021, has over 50 million users. LinkedIn also plans to capitalize on its already-existing 774 million users to grow the popularity of its platform and grow its overall user base.


FREELANCER AND CONSUMER REVIEWS

Upwork is lauded for professionalism and for the number of options that are available for clients. In 2020, the company was crowned the Customer Choice Winner. It has provided many clients with a reliable and professional source of talent that meets their business needs. Many have even referred to it as the “new normal of doing business”.

  • On the flipside, Upwork has been called out for its weak customer service. For freelancers, getting a hold of a customer care representative is complex. This extends to the client side of things as well
  • There have been reports of clients using fake credit cards and closed contracts because they had issues with their bank account

THE MARKET

Back in 2019, the global freelance platforms market size was valued at $3.4 billion. With the growing disruption and the need for qualified and flexible workforce, the freelance market is projected to grow by a CAGR of 15.3% between 2021 and 2026. It is projected that by 2027, freelancers will become the majority of the U.S. workforce.

  • It is projected that by 2026, this industry will be valued at $9.2 billion, representing a CAGR of 15.3% between 2021 and 2026
  • Today, freelancing accounts for over 35% of the total working population of the United States
  • This growth is fuelled by the disruption within the technological space, along with the innovative investments by established pace-setters and freelancer platforms
  • In 2019, web-based freelance platforms accounted for 79.3% of total sales in the freelance industry compared to cloud-based platforms
  • While large enterprises and SMEs use the platforms, freelancers account for 40.5% of its users
  • There are over 58 million freelancers globally. Freelancing is set to become the United States’ majority workforce by 2027
  • In the United States alone, this industry contributes over $1.4 trillion to the nation’s economy

TIER-1 MANAGEMENT

Upwork is headed by Hayden Brown, the President and CEO of the company. Previous to joining Upwork back in 2011, Brown held various positions in other organizations such as the Director, Corporate Strategy and M&A at Microsoft and Senior Business Analyst at McKinsey & Company. He holds a Bachelor’s degree in Politics from Princeton University.

Hayden Brown

  • Hayden Brown is the President and CEO of Upwork, a position she has held since January 2020
  • Since joining the company in 2011, she has held various positions, including the Vice President, Head of Product and Chief Marketing and Product Officer
  • Brown has also served as the Vice President of Corporate Development at LivePerson and Director, Corporate Strategy and M&A at Microsoft
  • Holds a Bachelor’s Degree in Politics from Princeton University

Jeff McCombs

  • Jeff McCombs is the Chief Financial Officer, a position he has held since August 2020
  • Previous to joining the company, McCombs served as the Chief Financial Officer (CFO) at Doctor On Demand, CFO at OpenTable and CFO at Flipboard Inc., among various other positions
  • Holds a Bachelor’s Degree in Business Economics from the University of California, Los Angeles (UCLA)

Sam Bright

  • Chief Product & Experience Officer at Upwork, a position he has held since November 2020
  • Bright also holds various positions in different organizations, including Advisory Council Member at the Smithsonian Institution, a Board Member at Benetech and a National Association of Corporate Directors (NACD) Governance Fellow
  • Previous to joining Upwork, Bright held various positions in various organizations, including Vice President, General Manager, Director, Head of Americas Strategic Partnerships and Director, Head of Merchandising & Seller partnerships at eBay
  • Holds a Master’s of Business Administration from Harvard University and a Bachelor of Arts Degree in Management from Taylor University

TAKE A BREATH

So… This is a lot of information. Let’s summarise:

  1. Upwork was formed in 2015 following the merger between Elance and oDesk, founded in 1999 and 2003, respectively. It has since grown into one of the world’s largest staffing platforms where individuals and enterprises can connect to get work done
  2. Upwork is a platform where clients can post their work, receive applications from qualified freelancers, negotiate prices and have the job done for them by a freelancer. Clients can also browse pre-defined projects offered by freelancers and select the ones they would like to buy
  3. Upwork has three main competitors: Fiverr, Freelancer and PeoplePerHour. Fiverr allows clients to purchase products and services from as little as $5, hence its name. Freelancer, on the other hand offers a variety of payment options, unlike Upwork which mainly relies on debit and credit cards. Lastly, PeoplePerHour only focuses on the European market whereas Upwork operates globally
  4. Upwork is lauded for professionalism and for the number of options that are available for clients. In 2020, the company was crowned the Customer Choice Winner. It has provided many clients with a reliable and professional source of talent that meets their business needs. Many have even referred to it as the “new normal of doing business”
  5. Back in 2019, the global freelance platforms market size was valued at $3.4 billion. With the growing disruption and the need for qualified and flexible workforce, the freelance market is projected to grow by a CAGR of 15.3% between 2021 and 2026. It is projected that by 2027, freelancers will become the majority of the U.S. workforce
  6. Upwork is headed by Hayden Brown, the President and CEO of the company. Previous to joining Upwork back in 2011, Brown held various positions in other organizations such as the Director, Corporate Strategy and M&A at Microsoft and Senior Business Analyst at McKinsey & Company. Holds a Bachelor’s degree in Politics from Princeton University

FINANCIAL CHECK

  • For the first quarter of the 2021 fiscal year, Upwork posted a gross sales value (GSV) of $786.8 million, a 41% year-over-year increase from the same period the previous year, 2020
  • Revenue also increased by 37% to $113.6 million
  • The gross margin grew from 72% to 73% year-over-year in the first quarter of 2021
  • Total revenue was $373.6 million for the entire 2020 fiscal year, up from $300.6 million the year before
  • Gross profit totaled $269.4 million, up from $231.2 million in the 2019 financial year
  • Operating income amounted to -$22.4 million, an decrease from -$18.7 million in 2019

THE BOTTOM LINE

The Good

  • Technological disruption and growing competition is pushing companies to rely on a more flexible and already-trained workforce
  • The global freelancing market is expected to grow by around 15% a year over the 2021 - 2026 period
  • Upwork is one of the largest freelancing platforms and is innovating fast in order to stay relevant versus Fiverr and LinkedIn

The Bad

  • Given its established user base, competition form LinkedIn may become a significant threat to Upwork

THE STAKE

We have a position in Upwork. Upwork is leading freelancing platform that is innovating fast in order to benefit from the organic market growth and stay relevant versus Fiverr and LinkedIn.

  • We will increase if it manages to grow its sales in a post-pandemic world by over 20% a year all while sustaining its margins
  • We will cut if LinkedIn's foray into freelancing proves successful and if it cuts prices in order to attract business

UPWORK IS NOT OUR ONLY INVESTMENT

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We have invested in over 45 stocks throughout North America, Latin America, Europe and Asia. Typically, we target fast-growing companies (U.S. and global) with a market cap between $ 1B and $ 100B.

Disclaimer

Please note that this article does not constitute investment advice in any form. This article is not a research report and is not intended to serve as the basis for any investment decision. All investments involve risk and the past performance of a security or financial product does not guarantee future returns. Investors have to conduct their own research before conducting any transaction. There is always the risk of losing parts or all of your money when you invest in securities or other financial products.

Credits

Photo by S O C I A L . C U T on Unsplash.