Upwork Analyst Sees Pullbacks As Buying Opportunities

Online freelancing platform Upwork Inc (NASDAQ: UPWK) is the dominant market leader, with plenty of growth opportunities ahead, according to BTIG.

The Analyst

Marvin Fong initiated coverage of Upwork with a Buy rating and $24 price target.

The Thesis

Upwork's market share is eight times that of its closest competitor, but at the same time it controls just 0.5 percent of the $322 billion total addressable market, Fong said in the Thursday initiation note. 

The company, which started trading in October, has a path for sustainable growth over time, especially given that it operates one of the lowest-cost platforms, with a commission take as low as 5 percent, the analyst said. Assuming Upwork more than doubles its commission take rate to 13 percent, it will still be operating at around half the rate of most of its peers, he said. 

Upwork enacted several initiatives to increase monetization aside from commission rates, Fong said: the company introduced a 15-cent-per-connect fee for freelancers to apply for a job.

The financial impact to Upwork could be an incremental $6-$12 million, the analyst said. 

Upwork also has a large opportunity to increase its Upwork Enterprise business, which accounts for 20 percent of its gross services volume, which is a mismatch with its 53-percent share of all wages, according to BTIG.

This gives investors a "free call" on the business segment, which could over time double the company's total revenue, Fong said. 

Upwork's lock-up period ended in early April, and large investors could be tempted to sell some of their shares and pressure the stock, he said — and added that investors should view any pullback as a buying opportunity.

Price Action

Upwork shares were up 0.41 percent at $19.73 at the time of publication Friday. 

Related Links:

Upwork Will Benefit From The Freelance Economy, Analysts Say

Here's How Freelancers Can Ensure Success