The coronavirus doesn’t seem to be letting up. After many states decided to dip their toes into the water and re-open various parts of their economy in phases in late May and early June, cases spiked in some of the largest states around the country, including California, Florida, and Texas.
Companies have had to respond quickly. Some, like Facebook (FB), have noted to all employees that they shouldn’t expect a full return to the office until 2021; others, like Shopify (SHOP), have signaled to employees that they can continue working remotely indefinitely if they chose. This is the perfect macro setup for Upwork (UPWK), a company that has recently tied its entire brand to the remote working trend.
I last wrote on Upwork in early May and focused the company’s recent spate of strong financials and its attractive valuation. The key points of the Upwork bullish thesis still hold:
- We’re all new to remote work, but Upwork is not. Since its founding nearly two decades ago, Upwork has focused a lot on hiring remote workers, and its expertise in the space has allowed it to function as a consultant of sorts to major corporate employers who are hiring remote workforces for the first time.
- Upwork isn’t just a freelance site, corporate employers like Microsoft (MSFT) lean on the platform as well. In a pre-coronavirus world, corporate usage of tools like Upwork might be more niche – after all, blue-chip companies have well-staffed HR and recruiting departments that take care of this. But in a time where remote hiring has become the norm, presenting its own set of challenges, well-established platforms like Upwork have become essential. And especially as many companies look to downsize their operating expenses by cutting down departments like HR, the use of more outsourced hiring processes like Upwork could rise.
- Upwork is projecting >20% y/y growth for the foreseeable future. Upwork’s growth has accelerated since the coronavirus began, and management thinks the 20% growth target is reasonable in perpetuity.
- Gross margins are rising as scale expands, and Upwork is also cash-flow positive on a full year basis.
Also considering the fact that Upwork shares have remained virtually flat as the market rose ~7% over the past two months, Upwork’s valuation also remains incredibly attractive. At current share prices near $15, Upwork has a market cap of $1.68 billion. After netting out the company’s $145.3 million of cash and minor $31.3 million of debt on the balance sheet, its enterprise value is $1.57 billion. Wall Street consensus, meanwhile, is now pointing to $337.1 million in revenues for the full year (slightly higher than right after Upwork’s most recent earnings release; data from Yahoo Finance).
This puts Upwork’s valuation at just 4.6x EV/FY20 revenues. For a company that is slated to grow at a ~20% y/y pace on the top line and is also one of the biggest beneficiary of the remote work trend (some of the hottest remote work software stocks are now trading at valuation multiples in excess of >30x forward revenues), Upwork has plenty of room to rise higher.
Here’s a valuation comparison against software stocks with a similar financial profile to Upwork, with ~20% y/y current revenue growth and ~70% gross margins:
My new price target on Upwork is $21, representing 7x EV/FY20 revenues (still at the lower bound of this comp range) and 43% upside from current levels. I also believe a new joint offering between Upwork and Citrix could be one major catalyst to getting closer to that price target.
A new joint software platform from Citrix
Just this week, Upwork announced a new collaboration with Citrix in rolling out a new software platform to onboard remote workers and provision secure access to internal applications. The companies note that “remote work is here to stay,” and that three out of four hiring managers are currently looking for independent professionals to fill critical roles. But given that the nature of many of these assignments are shorter-term, many companies currently avoid hiring independent remote workers because setting up the infrastructure may be more time-consuming than it’s worth.
That’s where the new Upwork-Citrix platform comes in. Branded the “Upwork Talent Solution with Citrix Workspace” (admittedly a clunky name for a software product), the platform takes Citrix’s current virtual-provisioning infrastructure and connects it directly to the talent pool on Upwork’s marketplace, allowing for simpler administration of the entire employee lifecycle across onboarding/managing/offboarding.
The snapshot below, taken from Citrix’s marketing video introducing the new product, showcases an employee (taken from the Upwork marketplace) connecting securely through Citrix Workspace to the tools needed to work – including the internet and corporate apps.
In a blog post introducing the new product, Citrix called out the below points as the key benefits:
With the Upwork Talent Solution with Citrix Workspace, delivered and managed by Citrix CSP A2K Partners, businesses can efficiently and effectively integrate remote independent professionals with quick access to company tools and resources from anywhere and to any preferred endpoint device. This empowers organizations to quickly and securely hire and manage independent professionals and agencies with confidence from onboarding to offboarding, without having to provide corporate devices;
- More easily access a wide range of proven, expert professional talent.
- Utilize best-in-class, secure remote infrastructure to rapidly onboard (and offboard) independent professionals and agencies.
- Provide independent contractors and agencies with secure, reliable access to company tools and resources by easily provisioning needed apps or complete managed desktops from any device.
- Enjoy the benefits of a flexible, pay-as-you-go cloud services model.”
The last point is key: like the on-demand workers they’re hiring, companies are also consuming this platform on a flexible-consumption/cloud-based model.
Upwork’s future: the Uber for work?
Aside from the immediate revenue-share benefits of the Citrix partnership (details on the financial impact of the product are not yet clear), what’s even more important for the Upwork bullish thesis is that this type of product tilts Upwork toward the direction of becoming an “Uber for work”.
At present, Upwork is focused on hiring alone. Once the worker is hired, it’s up to the hiring company to manage onboarding and provisioning access for the new employee (which, as Citrix noted, may be the barrier for many companies in hiring remote workers in the first place). The Citrix partnership gives Upwork end-to-end control over the hiring lifecycle, for the first time. This new product basically gives hiring managers the ability to hire a worker on-demand, set them up with the tools and access they need to work, and offboard them when the job is done.
With the concepts of remote work and independent contractors becoming more and more normalized this year thanks to the pandemic, the future for on-demand work is bright, and Upwork is leading that charge alongside Citrix.
Upwork is still in the early days of capitalizing on an economy that is more open to remote, flexible, on-demand workers. Trading at <5x forward revenues despite being directly tied to one of the hottest investing themes of the year, investors still have a chance to invest in Upwork at the ground floor. New offerings like the joint Citrix partnership give Upwork end-to-end exposure over the entire remote-work process. Stay long here.
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Disclosure: I am/we are long UPWK. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.