Upwork IPO Attracts Investments in Tech Market

The promise of profit looms large as private online tech firms continue to see large sums of investment capital, and online trendsetters line up to go public, including companies such as Eventbrite, currently trading on the New York Stock Exchange (NYSE) under the ticker symbol EB and other online giants such as Spotify and Dropbox also on board. One recent and significant success story is that of the bay's own Upwork, Inc.

Upwork’s Economic Profile

Upwork Inc. was formed by the 2014 merger of two companies that spearheaded the exploration of the market for consultant labor online: Elance, founded in 1998, and oDesk, founded in the early 2000s. Following the merge in 2014, Upwork, headed by CEO Stephane Kasriel, has raised more than $100 million in funding from investors, with the first $30 million round of funding taking place just after the merger. The company’s biggest stakeholders are Benchmark (15%), Sigma Partners (14.2%), Globespan Capital Partners (12.9%), T. Rowe Price (10.6%), FirstMark Capital (5.7%), and SG Growth Partners (5.5%). Dragoneer Investment Group announced its intention to now purchase up to $32 million, or 20% of the IPO in early October. Other underwriters for the company include Citigroup, Jefferies, Stifel, and RBC Capital Markets.

According to its S-1 filing with the Securities and Exchange Commission, Upwork has reported over $225 million in revenue and a gross services volume of $1.5 billion, with more than 375,000 freelancers providing professional services for over 95,000 core clients in 180 countries, and across more than 70 job categories.

While the company has not yet made a profit, with filings reporting a $3.1 million loss on $202.5 million in revenue in 2017, the Upwork platform facilitated service exchange on over 2 million projects and the company reported revenues of $121.9 million, representing a 28% increase over the previous year in which it reported a net loss of $7.2 million. The number of payments processed through the Upwork platform totaled $1.15 billion in 2016, and increased to $1.37 billion in 2017reflecting a growth rate of 20%.

Upwork IPO Leads to Surprise Gain

Upwork began its first day of trading on the NASDAQ exchange under the ticker UPWK in October of 2018. Whereas the company initially priced 12.5 million shares at $15, slightly above the estimated price range of $12 to $14, which in turn had been revised from a previous original estimate of $10 to $12, shares opened at $23 for a 53% gain, and closed at $21.18, up 41%.

"The goal here was not to raise a lot of money,” clarified Upwork CEO Stephane Kasriel, “it was to get out there and show ourselves as the largest global online marketplace for freelancers."

The Upwork Platform

The Upwork platform connects freelancers with employers, so that they can work together remotely. While the gig economy includes all kinds of platforms, from Uber to Etsy to Airbnb, Upwork is the largest platform that specifically connects freelancers with companies or independent employers for the purpose of completing short or long-term projects. Upwork’s chief competitors include Freelancer, TaskRabbit, Fiverr, and even Craigslist, but Upwork is by far the most profitable and respected of these. Upwork scores big points with its users on both sides of the exchange by vetting both workers and employers, and providing a reliable feedback system, as well as trustworthy escrow service for payments.

Upwork provides essential resources for both employers looking to hire freelancers and freelancers looking for projects and jobs to work on. Among the many project categories there are positions for graphic designers, writers, web designers, app developers, marketing experts, translators, and programmers. The company’s goal is to provide easy access and communication between top-quality freelancers and the employers that need their services, without anyone having to rely on an intermediary. It also levels the playing field for freelancers in small towns and rural communities who may not otherwise get opportunities to compete for projects in larger-markets such as major cities. Upwork boasts apps for both iPhone and Droid devices.

Upwork also uses unique digital resources such as data assets and algorithms to yield information on such variables as skills, feedback, and job success. This data is available to both employers and freelancers in order to better evaluate potential candidates before deciding to work with them. The immense quantity of transactions on the Upwork platform also provides Upwork limitless opportunities to continually improve their search engine algorithms and product features.

Upwork makes its money by charging a percentage of the rate paid out by employers to freelance contractors, and uses a sliding scale system that rewards freelancers for securing long-term relationships with specific clients. The company charges 20% of the first $500 earned by any freelancer working for a client on the platform, but once the employer has paid out $500 or more, the fee drops to 10%; and then again to 5% once the freelancer has earned over $10,000 with that same employer. Upwork provides services to thousands of employers, including such top-name companies as Dropbox, Inc., Zendesk Inc., and Airbnb.

The Future of UpWork and the Online Tech Sector

An estimate made by economist Lawrence Katz, of Harvard University, and Alan Krueger, an economist at Princeton University, 94% of the net job growth that occurred in the past decade happened in the sector of alternative work and consultant labor, including temp agencies, independent contractors, and freelancers. They also estimate that the freelancing economy is the fastest growing segment of the overall economy in the U.S.

And it looks like they may be right. In fact, according to McKinsey Global Institute, the freelance economy could grow to generate some $2.7 trillion annually by 2025.

Platforms such as Upwork are part of a new alternative workplace revolution that is transforming the U.S. economy. Essentially, the global economy shifted from manual labor to industrialized mass production during the 18th and 19th centuries; however, by the second half of the 20th century, the economy shifted significantly from mass production to white-collar office labor.

While those sectors are still going strong, there is a whole new segment in the economy that is made up of individual professionals working as independent consultants. And Upwork’s impressive debut on the NASDAQ stands as solid evidence of the importance and growth that this sector represents.

The enthusiastic success of Upwork’s IPO is a sign of the growing interest on the part of investors in this new and promising market, and a nod of approval to the gig economy as well as to independent freelancers. The company’s successful debut on NASDAQ is also a sign of the times in the online tech market sector, where investors are sniffing out growth based on social and economic movement, and seeing inspiring results!