UPWK: AI Momentum And Enterprise Platform Expansion Will Drive Business Growth

Key Takeaways

• Investment in AI and enterprise solutions is enhancing user experience, revenue potential, and operational efficiency, supporting long-term earnings and margin expansion.
  
• Strong growth in AI-related work and success with larger clients is driving higher transaction volumes, improving revenue visibility and client retention.
  
• Sluggish client acquisition, reliance on cyclical enterprise customers, fee experimentation risks, complex post-acquisition integration, and AI-driven market shifts could undermine growth and profitability.

Catalysts

Operates a work marketplace that connects businesses with various independent professionals and agencies in the United States, India, the Philippines, and internationally.

• Upwork's accelerated investment in AI-powered talent matching and workflow automation is already increasing average spend per contract and improving user experience for both clients and freelancers, providing a clear path to higher revenue and improved gross margins as these enhancements scale.
  
• The rapid growth of AI-related work on the platform-demonstrated by a 38% increase in clients posting AI jobs and 30% GSV growth in this area-reflects expanding freelance demand from businesses' shift toward flexible, tech-driven workforce models, supporting sustained transaction volume growth and higher average revenue per user.
  
• Upwork's launch of integrated enterprise solutions through recent acquisitions (Bubty and Ascen) positions the company to capture a larger share of the $650 billion contingent workforce market, with expectations for meaningful GSV, revenue, and adjusted EBITDA contributions beginning in late 2026 and accelerating into 2027, supporting long-term earnings expansion.
  
• The continued expansion and outperformance of Business Plus, which drove a 45% quarterly increase in active clients and 190% growth in GSV from those clients, evidences Upwork's ability to attract and retain larger SMBs and new customers, boosting revenue, increasing client stickiness, and improving recurring revenue visibility.
  
• Ongoing internal AI adoption is driving significant cost efficiencies (e.g., 70% reduction in model iteration costs, 35% of code now AI-generated), which, paired with disciplined cost management, underpins margin expansion and supports Upwork's 35% adjusted EBITDA margin target-positively impacting future net margins and earnings.

Upwork Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Upwork's revenue will grow by 5.5% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 31.7% today to 16.3% in 3 years time.
• Analysts expect earnings to reach $147.8 million (and earnings per share of $1.02) by about September 2028, down from $245.4 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 20.2x on those 2028 earnings, up from 8.6x today. This future PE is lower than the current PE for the US Professional Services industry at 26.3x.
• Analysts expect the number of shares outstanding to decline by 0.79% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.31%, as per the Simply Wall St company report.

Upwork Future Earnings Per Share Growth

Risks

• Persistent macroeconomic uncertainty and ongoing top-of-funnel demand pressure could limit active client growth, with Upwork noting that acquisition of new clients remains slow and the broader macro environment is unpredictable-posing risks to sustained revenue and GSV growth.
  
• Increased concentration on enterprise clients, who face internal budget cuts and layoffs, raises exposure to cyclical spending and long sales cycles; as evidenced by sequential enterprise revenue decline, this may lead to volatile or slower top-line growth, especially if enterprise adoption underwhelms.
  
• Continued experimentation with pricing, freelancer fees, and monetization strategies might risk user churn or dissatisfaction among freelancers and clients, potentially undermining long-term engagement and take rate expansion, thus impacting net margins and revenue stability.
  
• The integration of recent acquisitions (Bubty and Ascen) brings operational complexity and incremental OpEx; their near-term dilutive impact on adjusted EBITDA, combined with uncertain timelines for meaningful GSV and revenue contributions (not expected until 2026–2027), could pressure profitability and create execution risk around promised financial accretion.
  
• Advancements in AI, while currently a growth driver, are already substituting simpler tasks and smaller projects (notably in writing and translation); if AI displaces more complex categories or client preferences shift, this could materially reduce Upwork's addressable market and constrain long-term revenue and GSV expansion.

Valuation

• The analysts have a consensus price target of $18.7 for Upwork based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $24.0, and the most bearish reporting a price target of just $15.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $906.3 million, earnings will come to $147.8 million, and it would be trading on a PE ratio of 20.2x, assuming you use a discount rate of 7.3%.
• Given the current share price of $16.0, the analyst price target of $18.7 is 14.4% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.