Global Remote Work Adoption Will Drive AI Matching Amid Risks

Key Takeaways

• AI-driven product innovation and acquisitions are poised to expand Upwork's enterprise reach and unlock significant revenue and margin growth potential.
  
• Evolving monetization strategies and internal automation are supporting operating leverage, margin expansion, and strong long-term earnings growth.
  
• Upwork faces revenue and margin pressures from AI-driven task automation, increased competition, regulatory risks, macroeconomic headwinds, and rising costs for compliance and client acquisition.

Catalysts

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

• While analyst consensus sees Upwork's recent strong financial results as possibly unsustainable, the momentum in AI-driven product enhancements and rapid adoption in AI-related work categories suggest that revenue and gross services volume will not just be resilient but could accelerate further in 2026 and 2027, especially as enterprise adoption of Upwork's AI-powered platform increases average deal sizes and wallet share per client.
  
• Analyst consensus points to rising competition and possible fee compression, yet Upwork's continued innovation in monetization strategies (such as Connects and Freelancer Plus) and successful pricing experiments are already driving steady take rate expansion and could meaningfully boost net margins as variable fees are fully rolled out to more segments over the next 18 months.
  
• The ongoing shift toward remote and distributed work enables global enterprises to tap broader labor markets via Upwork, expanding the addressable market and supporting double-digit annual growth in gross services volume and platform revenue over the long term.
  
• Upwork's strategic move to acquire Bubty and Ascen gives it an unmatched, contract-agnostic, digitally native solution for all forms of contingent and contract work, allowing the company to capture a much larger share of the $650 billion enterprise workforce market and unlocking significant upside in both revenue and EBITDA starting in late 2026.
  
• Substantial internal adoption of AI and automation is rapidly driving operating leverage, with management targeting a 35 percent adjusted EBITDA margin and ongoing cost reductions-setting the stage for outsized earnings and free cash flow growth, further enabled by ongoing share buybacks.

Upwork Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Upwork compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Upwork's revenue will grow by 6.4% annually over the next 3 years.
• The bullish analysts assume that profit margins will shrink from 31.7% today to 14.6% in 3 years time.
• The bullish analysts expect earnings to reach $135.5 million (and earnings per share of $0.9) by about August 2028, down from $245.4 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 29.0x on those 2028 earnings, up from 7.4x today. This future PE is greater than the current PE for the US Professional Services industry at 26.6x.
• Analysts expect the number of shares outstanding to grow by 0.45% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.36%, as per the Simply Wall St company report.

Upwork Future Earnings Per Share Growth

Risks

• The accelerating adoption of artificial intelligence is leading to substitution of simpler freelance tasks on Upwork's platform, such as writing and translation, and as AI capabilities expand, this trend could broaden to affect more complex categories, thereby reducing transaction volumes and impacting top-line revenue.
  
• Intensifying competition, both from incumbent platforms like Fiverr and Freelancer.com and from emerging AI-enabled or more specialized marketplaces, threatens Upwork's ability to sustain market share and pricing power, which may limit revenue growth and compress net margins.
  
• Growing regulatory scrutiny on gig worker classification, particularly if more countries require treating freelancers as employees rather than independent contractors, could increase compliance costs and operational complexity, weighing on both margin and earnings.
  
• Economic uncertainty and budget cuts at large client organizations, as seen in sequential declines in Upwork's enterprise revenue due to layoffs and internal cost pressures, indicate that prolonged macro headwinds may drive reduced discretionary spending on freelance projects, negatively affecting gross services volume and future revenues.
  
• Upwork's ongoing need to experiment with dynamic freelancer fees along with increased customer acquisition and marketing costs to counteract a "slower acquisition environment" and to maintain active client growth could erode profitability and make sustainable margin expansion more challenging in the long run.

Valuation

• The assumed bullish price target for Upwork is $23.68, which represents two standard deviations above the consensus price target of $18.7. This valuation is based on what can be assumed as the expectations of Upwork's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• 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 bullish analysts, you'd need to believe that by 2028, revenues will be $931.1 million, earnings will come to $135.5 million, and it would be trading on a PE ratio of 29.0x, assuming you use a discount rate of 7.4%.
• Given the current share price of $13.7, the bullish analyst price target of $23.68 is 42.2% 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.