Competition And AI Will Cut Freelance Markets But Enterprise Helps

Key Takeaways

• Heightened competition, regulatory pressures, and rapid AI adoption threaten Upwork's revenue growth, market share, and ability to scale profitably across borders.
  
• Sustained differentiation challenges and potential changes to freelancer classification could constrain long-term earnings, scalability, and growth in key market segments.
  
• Increased competition from AI and automation, weak client growth, pricing risks, and costly acquisitions threaten Upwork's revenue expansion, client retention, and long-term margin improvement.

Catalysts

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

• Although Upwork is benefiting from the ongoing global expansion of the remote workforce and mainstream acceptance of freelance work, there remains a risk that intensifying competition from established and niche platforms could erode Upwork's customer base over time, leading to downward pressure on revenue growth and net margins.
  
• While Upwork's integration of AI and automation within its platform is currently boosting product efficiency and increasing average spend per client, the rapid adoption of generative AI and automation in the broader market could ultimately reduce overall demand for freelance labor-particularly in areas such as content creation and basic coding-limiting Upwork's total addressable market and restraining future revenue expansion.
  
• Despite strong early traction with large enterprise customers following recent acquisitions and Upwork's expansion into enterprise, changing international labor and data regulations driven by geopolitical uncertainty and digital nationalism could raise compliance costs and prevent Upwork from fully capitalizing on cross-border talent engagement, negatively impacting future earnings and net margins.
  
• Although Upwork's Business Plus and value-added SaaS offerings are driving higher-margin revenue streams and improved customer retention now, sustained difficulty in differentiating these services as new competitors and alternative models arise could result in slower take rate growth and lower long-term earnings prospects.
  
• While regulatory clarity around digital contracting is expected to support broader institutional adoption, there is a significant risk that growing regulatory scrutiny or potential reclassification of freelancers as employees in key markets could increase costs, limit scalability, and dampen both revenue and margin growth for Upwork over the longer term.

Upwork Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Upwork compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Upwork's revenue will grow by 4.3% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 31.7% today to 13.6% in 3 years time.
• The bearish analysts expect earnings to reach $118.8 million (and earnings per share of $0.84) 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 bearish analyst cohort, the company would need to trade at a PE ratio of 20.9x on those 2028 earnings, up from 7.1x today. This future PE is lower than the current PE for the US Professional Services industry at 25.4x.
• 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 7.35%, as per the Simply Wall St company report.

Upwork Future Earnings Per Share Growth

Risks

• Rising adoption of generative AI and automation continues to substitute or commoditize basic freelance tasks such as writing and translation, which could shrink Upwork's addressable market and put downward pressure on gross marketplace revenues and GSV growth if AI replacement accelerates beyond current trends.
  
• Ongoing macroeconomic uncertainty and the unpredictable client acquisition environment are causing persistent top-of-funnel demand pressures, resulting in stagnant or declining active client count, which presents risk to future revenue expansion and sustained earnings growth.
  
• Enterprise revenue was down sequentially in the quarter due to internal budget cuts and layoffs among large clients, and the long enterprise sales cycles combined with delayed contribution from recent acquisitions mean meaningful GSV and revenue benefit will not be realized until late 2026 or 2027, potentially causing a gap or shortfall in top-line growth and net margin improvement in the intermediate term.
  
• The need for continued fee experimentation and price testing, along with competition from other platforms, introduces risk of higher churn or lower customer satisfaction if pricing changes are not well received, which could impact client retention rates and ultimately reduce recurring revenue and margin stability.
  
• Integration costs and operational expenses from the Bubty and Ascen acquisitions are expected to be dilutive to adjusted EBITDA by approximately $10 million in the back half of 2025, and there remains execution risk that the new enterprise offerings may not be adopted at the scale projected, which could limit both revenue growth and sustainable improvement in net margins and earnings in future years.

Valuation

• The assumed bearish price target for Upwork is $15.0, which represents the lowest price target estimate amongst analysts. 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 more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $25.0, and the most bearish reporting a price target of just $15.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $876.3 million, earnings will come to $118.8 million, and it would be trading on a PE ratio of 20.9x, assuming you use a discount rate of 7.3%.
  
• Given the current share price of $13.17, the bearish analyst price target of $15.0 is 12.2% 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.