#015 - Upwork

Upwork is the largest freelancing marketplace. The freelancing industry has some interesting tailwinds. Combine a strong business model with good tailwinds and it makes for an interesting business.

Upwork - (NASDAQ: UPWK)

Upwork is the largest freelancing marketplace by gross volume. The gig economy and freelancing industry have interesting tailwinds. Combine a strong business model with good tailwinds and it makes for an interesting business to study.

If you enjoy this, sign up for more shallow dives here!👇

Please note that this article does not constitute investment advice in any form. This article is not a research report and is not intended to serve as the basis for any investment decision. All investments involve risk and the past performance of a security or financial product does not guarantee future returns. Investors have to conduct their own research before conducting any transaction. There is always the risk of losing parts or all of your money when you invest in securities or other financial products.

Industry Overview

I’ve written about Fiverr before, but I wanted to look at Upwork this week because I wanted to learn more about the differences between these two companies. I think freelancing is an interesting industry and has some really interesting tailwinds and potential. Nonetheless, this is just a basic shallow dive on Upwork and primarily serves as my lead generation for my own private deep dive research.

Upwork and Fiverr have a few major and notable differences. Upwork has historically focused on enterprises and more “real work” instead of Fiverr which has the connatation of people buying $5 services to ship a friend a pet rock or other silly gag gifts. Fiverr is looking to move upstream into more complex work whereas Upwork has historically focused on this market. These differences have led to a slight difference in how these companies operate for clients and freelancers.

Upwork focuses on complex projects where a business might need to hire a freelancer to help complete a 6 month project or more. Because of this difference, there’s a large difference in how clients buy services on Fiverr or Upwork. On Fiverr, it’s much more of a productized service where there’s a price and for the most part the client either purchases it with some discussion, but on Upwork, there’s more negotiation and the services offered aren’t a productized service since every project can be so different.

Fiverr likes to say its the “Amazon of digital services,” referencing the ability to buy productized services with little to no negotiation, but this likely changes as freelancers move into enterprise customers.

Business Overview

Upwork’s mission is to “create economic opportunities so people have better lives.”

Upwork is a freelancing marketplace. Upwork helps connect freelancers with companies and collects a small portion of the transaction fee. Upwork is the largest freelancing marketplace in the world when measured by gross services volume (GSV).

Elance and oDesk merged in 2013 to create Elance-oDesk but rebranded to Upwork in 2015. Upwork IPO’d in 2018 and has gone from ~$21 to $54.

Upwork works with every type of organization ranging from 1 man businesses to Fortune 100 companies. Upwork has freelancers that help provide many services in various verticals such as:

  • Development & IT

  • Design & Creative

  • Sales & Marketing

  • Writing & Translation

  • Admin & Customer Support

  • Finance & Accounting

These are just a number of the verticals that Upwork focuses on and this list will likely expand in the future. I think Upwork’s business model is simple enough to understand. I think some of the more attractive things about this business is the TAM and some of the industry tailwinds.

Total Addressable Market

Upwork defines the labor market as roughly $1.3 trillion. Although freelancing is only a small percentage of this total market size, this is still a massive opportunity. Upwork’s Gross Services Volume (GSV) is only $2.5 billion. This is one of the largest markets. Work, healthcare, e-commerce, and real estate are some of the largest industries that come to mind. Considering Upwork’s opportunity is to capture a large portion of the spending in work, this seems like an attractive industry to be looking for investments in.

If working with freelancers becomes even more common and accepted in the working world, what happens to Upwork’s revenue? It might just accelerate and who knows how large this company can be in 5-10 years. Upwork will likely to continue to innovate and offer additional services that will help it collect revenue without taking more money away from freelancers or clients. What I think could happen (strong opinions loosely held) is that Upwork could provide many services to help make the lives of a freelancer much easier. What if Upwork can help with taxes? What if Upwork goes beyond just connecting freelancers and clients but also help freelancers with healthcare, taxes, skill development, and whatever else freelancers might need?

This is where Upwork could greatly expand its TAM by offering additional services or products to a large base of clients. Adding a couple hundred across thousands or millions of freelancers could be quite beneficial for Upwork.

What happens if the ease of use of Upwork’s platform leads to more people becoming freelancers and pursuing this work lifestyle? The TAM will likely expand even more. What if larger projects go to freelancers therefore increasing the average $ amount per freelancer leading to an even bigger TAM? If you’re new here, I’m pretty optimistic in some of my thoughts but for the most innovative companies your optimistic assumptions may seem pessimistic in a number of years.

Competitive Advantages

Upwork and Fiverr likely have the same set of competitive advantages, but determining which one is stronger is also important. I can’t answer that question today and it will likely take years of results to see if you’re right.

  • Marketplace business model

    Upwork operates a freelancing marketplace. Exact same business model as Fiverr yet Upwork focuses more on enterprise clients and allows clients and freelancers to have a discussion about the work to be done instead of using an e-commerce transaction process like Fiverr.

    Marketplaces benefit from network effects. The largest marketplace will attract more supply and demand. This combined with various other competitive advantages could keep competitors out of the market and give Upwork a sustainable position in this industry.

  • Switching costs

    Freelancers rely on their “reputation score” to attract clients and appear trustworthy to potential customers. Clients also face this problem but to a lesser extent. Freelancers and clients want to work with trustworthy people who won’t scam them or require a headache to deal with.

    If either freelancers or clients wanted to switch platforms, they’d have to consider the costs of starting anew on a platform. Sellers and clients likely use multiple platforms, but this may decrease over time as one platform provides more benefits than others and its worth focusing on one platform.


Upwork’s growth accelerated in 2020, but Fiverr has had stronger growth for a number of years now. Upwork seems to be trying to catch up to Fiverr and has even implemented some changes to try and copy some of Fiverr’s tactics.

Core clients are defined as the clients that have spent at least $5,000 on the platform and have performed some spend-activity on the platform in the latest 12 months.


GSV = ~ $2.5 billion

Core clients = ~ 145,400

Revenue = ~ $374 million

Gross profit = ~ $269 million

GAAP EBIT = ~ -$22 million

Adjusted EBITDA = ~ $14 million

Revenue growth = 24.3%

Gross profit margin = 72.1%

GAAP EBIT margin = -6.0%

Adjusted EBITDA margin = 3.8%

Client spend retention = 102%

Marketplace take rate = 13.6%


GSV = ~ $2.1 billion

Core clients = ~ 124,400

Revenue = ~ $301 million

Gross profit = ~ $212 million

GAAP EBIT = ~ -$19 million

Adjusted EBITDA = ~ $7 million

Revenue growth = 18.6%

Gross profit margin = 70.7%

GAAP EBIT margin = -6.2%

Adjusted EBITDA margin = 2.5%

Client spend retention = 102%

Marketplace take rate = 13.1%


GSV = ~ $1.8 billion

Core clients = ~ 105,500

Revenue = ~ $253 million

Gross profit = ~ $172 million

GAAP EBIT = ~ -$12 million

Adjusted EBITDA = ~ $4 million

Revenue growth = 25.1%

Gross profit margin = 67.8%

GAAP EBIT margin = -4.6%

Adjusted EBITDA margin = 1.5%

Client spend retention = 108%

Marketplace take rate = 13.0%

What’s Interesting

  • Gig Economy

    I’ve likely talked about this before but I think the gig economy is an interesting space to look at. I think there’s a number of tailwinds that likely benefit Upwork and Fiverr that are rather interesting to study and think about how it might look in the future.

    For example, with COVID-19 do more people work remotely? Do more people look to find a second source of income? It doesn’t even have to be thousands of dollars, but do people rely on different sources instead of just one to make enough money? One could easily make the argument that relying on 20 different clients as a freelancer is safer than relying on a boss or 1 employer. A skilled freelancer can always go out and find another client and continue to develop relationships with many others, but a employee can’t really develop relationships with 10 other employers at once. The risk of a company being shut down is spread across more clients rather than just 1 employer.

  • Massive Market

    Touched on this above, but work is one of the largest market sizes in the world. Considering work services aren’t necessarily limited by geography in an increasingly digital world, Upwork could capture many more clients and freelancers. Upwork and the overall freelancing trend, if successful, could transform the way work is done and could lead to massive tailwinds that benefit companies like Upwork.

Future Questions

  • What else can these freelancing marketplaces offer?

    I think the potential of marketplace business models is better than any other business model. There are so many opportunities to add on different products or services because of the number of consumers or users. Looking at Amazon (I understand it’s a once in a generation type company) and the number of different products or services it’s offered in addition to starting as a 1P marketplace bascially. Not all marketplaces will be as successful as Amazon, but what’s stopping Upwork from offering a bit more services or products to either freelancers or companies looking for freelancer talent?

  • Leaking Faucet

    One of the main concerns about Fiverr and Upwork is that freelancers and companies might take that relationship off these platforms. Upwork gets completely cut out of the relationship if that happens.

    There are some comments by Upwork’s CEO, Hayden Brown, about that exact worry. I’ll break down some of them in simple sentences:

    • Companies don’t want to risk breaking the terms of services to save a few bucks.

    • There are many security protocols in place when doing a transaction on Upwork. If you go offline, these control aren’t in place and bad things can happen to both freelancers and companies.

    • Freelancers get penalized in search results by lower visibility when they are less active and also lose out on developing a positive reputation score.

    • Upwork will continue to invest in ways that make the platform more sticky and prevent freelancers and companies from leaving the platform.

    • What happens if Upwork can afford to decrease the spend take rate so that it further disincentivizes clients and freelancers to move off the platform?

    Obviously the CEO is in a position to say this, but if I had to focus a deep dive on this company in only one area, this is the problem I would research and understand whether it’s large enough to deter me from investing in Upwork.


I’m really interested in this space so if you have any other ideas, I’d love to discuss them. If you have other companies that might benefit from tailwinds in this industry, I’d also love to hear about them. I think Upwork is an interesting business and I’d love to do a deep dive on both of them and the overall freelancing space, but this newsletter is for shallow dives. I use this newsletter for myself and for my own lead generation process for ideas.

If you’ve enjoyed this edition of Weekly 10-K please considering subscribing below, sharing it with friends and colleagues, or following me on Twitter.