Upwork Inc. experienced its steepest single-day stock decline in three months on Tuesday, as investors focused on a subdued outlook that overshadowed better-than-expected second-quarter results. The freelance marketplace's shares fell nearly 13% in regular trading.
For the quarter ended June 30, Upwork reported adjusted earnings of $0.41 per share on revenue of $191.7 million, surpassing the consensus estimates of $0.34 per share and $190 million in revenue, according to data from Fiscal.ai.
However, the company's forward guidance painted a less rosy picture. Upwork projected third-quarter adjusted earnings of $0.31 to $0.33 per share on revenue ranging from $176 million to $184 million, well below analysts' expectations of $0.41 per share and $193.8 million in revenue.
The company also trimmed its full-year revenue forecast to $730 million to $750 million, down from the prior range of $760 million to $790 million. Adjusted earnings per share guidance was cut to $1.38 to $1.43, compared with the earlier $1.50 to $1.55 range.
Wall Street reacts to persistent headwinds
Analysts offered mixed assessments following the report, with many highlighting the ongoing challenges from artificial intelligence and changes to Google's search algorithms.
RBC Capital maintained its Sector Perform rating but lowered its price target to $8 from $9, describing the quarter as difficult. The firm pointed to both AI-driven structural shifts and Google's May and June SEO updates as key obstacles to customer acquisition.
“On top of known AI secular headwinds, Google's May/June SEO changes are driving traffic headwinds, which have yet to stabilize into Q3,” RBC analysts wrote in a note.
Goldman Sachs took a more constructive stance, keeping its Buy rating while reducing its price target to $11.50 from $17.50. The bank acknowledged “solid execution despite macro and labor-market pressure,” and highlighted accelerating AI-related work, adoption of Business Plus, higher gross services volume per client, and enterprise initiatives as potential long-term growth drivers.
Business metrics show strain
Despite the revenue beat, Upwork's underlying business continued to show signs of pressure. Second-quarter revenue declined 1.7% year over year, and active clients fell 4% to 763,000. Gross services volume per client rose 5% to $5,230, partially offsetting the decline in customer numbers.
CEO Hayden Brown acknowledged that AI-driven automation and Google's search changes continued to weigh on the business heading into the third quarter. “Google's changes to search have dampened new customer acquisition with accelerated negative impact in Q2,” Brown said. She added that while Upwork's SEO rankings have improved, “the channel overall is smaller.”
To reduce its reliance on Google, Upwork is expanding customer acquisition through paid search, answer engine optimization, and referrals generated by large language models. Brown noted that the cost per new contract start improved 22% quarter over quarter, allowing the company to increase investment in paid acquisition.
AI as both a threat and an opportunity
Brown also emphasized that AI is creating new opportunities even as it reduces demand for certain types of freelance work. “While AI automation shrinks demand for some types of work on our platform, AI creates new demand in other areas,” she said.
She added that businesses are increasingly turning to Upwork to find professionals who can complete or repair projects initially created using AI. The company has introduced its MCP Server, which allows Upwork jobs and freelancers to be accessed through AI tools. “These levers give us new paths to acquire customers in this unfolding AI and marketing landscape,” Brown said.
Investors will be watching whether these initiatives can offset the ongoing headwinds. The stock's sharp decline suggests that the market remains skeptical about the near-term outlook. For context, other tech names have faced similar pressures from AI disruption, as seen in SMCI's margin recovery challenges and Coherent's earnings test.
This article is for informational purposes only and does not constitute financial advice.
