Upwork: A Promising Halal Growth Stock

Upwork connects businesses of all sizes to freelancers, independent professionals, and agencies for all their hiring needs.

Developers, designers, copywriters, campaign managers, marketers, customer support reps, lawyers, accountants, and basically any other type of freelance worker you can think of can be found and hired on Upwork.

The right business at the right time

The nature of work is changing pretty rapidly.

Individuals and companies alike are getting increasingly comfortable with hiring and working remotely. This was a clear trend even before the recent pandemic and it is an even clearer trend now.

We're also seeing freelance work no longer being limited in its customer base to individuals and small businesses. Larger companies are increasing their utilization of freelance work as well.

In the face of economic uncertainty, it makes a lot of sense to hire flexible freelancers that can be used on an as-needed basis as opposed to full-time employees that you have to make long-term commitments to.

In a nutshell, remote work is becoming mainstream and that genie is just not going back in the bottle anytime soon.

Upwork is in a good position to benefit immensely from this trend.

Competition

Perhaps the two biggest Freelancer platforms are Upwork and Fiverr.

With Upwork, you specify the job you want to be done and freelancers will bid on the job you post.

With Fiverr the freelancer specifies the jobs they are willing to do and the customer shops around to find the job that best suits their needs.

From a freelancer’s perspective, Upwork is good if you’re looking for long-term high-margin clients whereas Fiverr is good if you want to pump out low-margin jobs at a high volume. In this respect, Fiverr and Upwork are serving somewhat different markets.

Moat

Upwork’s moat can be summarized in the Network Effects it enjoys as a result of being the biggest freelancer marketplace in the world. 

This means that whether I’m looking for a job to be done or I’m a freelancer looking for clients, using Upwork makes a lot of sense because the largest number of prospects are on this platform.

Upwork’s Financials:

Since its IPO in 2018, Upwork stock has basically been in the dog house; losing around 25% in this 2-year span (IPO'd at ~$20 in 2018 and currently trading at ~$15 as of the date of this video).

However, looking at their financials I like what I see. Some highlights include:

• In the second quarter of 2020, they reported a 19% revenue growth year-over-year.

• Gross Margins of 71%.

• Trailing twelve months of revenue sits at $330 million.

• Their balance sheet shows $146 million in cash and total debt of just $40 million. 

They are still losing money. However, their losses are coming from increased spending on development and marketing to fuel growth.

I’m ok with investing in pre-profit companies so long as I can see a clear path towards profitability and I see this path with Upwork.

So I like Upwork stock at its current valuation of $1.5 billion (~$15 per share).

I think Upwork has the potential to reach $5 - $10 billion valuation over the next 3 to 5 years, especially if it manages to post a solid profit during this time.

Make sure to do your own due diligence, invest accordingly.