What happened
Shares of freelance work site Upwork (UPWK 2.81%) lived "up" to their name on Thursday, soaring 40% through 9:45 a.m. in early morning trading after the company reported a big earnings beat last night.
Analysts didn't hold out much hope for profits in Upwork's second quarter, predicting the company would barely break even on sales of $162.6 million. But it did quite a bit better than that, with sales coming in at a strong $168.6 million, while earnings were a full $0.10 per diluted share.
NASDAQ: UPWK
Key Data Points
So what
The news wasn't all great. Gross services volume (GSV), the value of all the work done by freelancers for clients on Upwork in the quarter, again exceeded $1 billion in the quarter. But Upwork's share of that GSV generated $168.6 million in revenue, up only 7% year over year. What's more, it turns out that Upwork's $0.10 per share in profit was an adjusted figure, and not as defined by generally accepted accounting principles (GAAP).
On a GAAP basis, earnings for the quarter were actually negative $4 million, or a loss of $0.03 per diluted share. Still, this was better than the $0.18 per share that Upwork lost in the year-ago quarter.
Overall, management characterized its results as strong, and investors seemed to agree. It probably didn't hurt, either, that the company started using the term "artificial intelligence" on the very first page of its earnings release, describing how it's giving clients a "singular destination for sourcing the full breadth of AI-focused talent they need," and also "premiering new AI-powered features" to help clients find freelancers.
If you want to gin up excitement for your money-losing business, talking a lot about AI is a good way to do that.
Now what
That being said, there are other, more solid reasons to be optimistic about the stock. Upwork succeeded in growing its gross profit margin by 2 full percentage points, to 76%. And it cut its operating spending as a percentage of revenue by 10 percentage points, bringing the company markedly closer to profitability.
Management didn't give GAAP guidance but did say its adjusted earnings will probably beat analyst estimates for $0.09 per share in the third quarter, and almost certainly beat estimates for the year. Wall Street is looking for $0.26 per share, but Upwork thinks it can earn anywhere from $0.36 to $0.39.
Granted, this still leaves Upwork stock trading for a pricey 32 times current-year adjusted earnings, and probably even higher versus GAAP profits, which it may or may not achieve.
For a stock showing single-digit revenue growth, that's still an iffy proposition at present. But things are definitely looking up.
