Shares of Upwork (NASDAQ: UPWK) came under pressure in late trade on Wednesday after the online freelancer platform reported its third-quarter results. The company beat earnings and revenue estimates but disappointed with its fourth-quarter outlook. The stock price fell as much as 7%, adding to its 40% decline since its March high.
Third-quarter revenue grew 23% to $78.8 million, $1 million ahead of estimates and previous guidance. The adjusted loss per share was $0.03, compared to estimates of a $0.04 loss. This compares to a loss of $0.20 in the same period last year. On a non-GAAP basis, Upwork earned $0.02 – analysts expected this number to be zero.
Outlook Misses Estimates
For the fourth quarter, Upwork expects to earn revenue of $79 to $79.5 million. Analysts had expected fourth-quarter earnings to be as high as $82.3 million. Adjusted EBITDA is expected to be between -1% and 0% of revenue.
For the full year, revenue is expected to be between $301 and $301.5 million. Adjusted EBITDA is expected to be between 1% and 1.5% of revenue.
Increased Marketing Spend Keeps the Pressure on Operating Margins
During the third quarter, the marketplace contributed 91% of revenue and continues to be the growth driver. The overall revenue growth rate of 23% compares to 16% in the first quarter and 19% last quarter. However, despite this re-acceleration, growth is still flat to down from prior quarters.
The ‘take rate,’ which is the percentage of GSV the company earns, declined slightly to 14.3% from 14.5% in the last quarter. While R&D spending grew just 13% over the last year, sales and marketing expenses grew 33%. This reflects increased spending over the past few quarters on the marketing of new product initiatives.
The gross margin now at 71.5% continues to improve sequentially and year over year. Operating expenses as a percentage of revenue increased slightly from last quarter to 75.2%.
Fighting an Uphill Battle to Grow Revenue
The management team seems to be doing a good job of refining the product-market fit and managing costs. However, while it has managed to reverse the downward trend in revenue growth, it took higher spending on marketing to do so.
As a market leader, the company’s growth is now to an extent constrained by growth in its addressable market. The stock remains expensive given the likely growth rates.