Upwork Cuts Outlook as Revenue Returns to Decline
Adjusted EBITDA margin reached 33% even as the freelance marketplace contracted.
Upwork Inc. (UPWK), the freelance-work marketplace operator, reported a 2% revenue decline to $191.7 million as fewer active clients outweighed higher spending per client.
The contraction reversed 1% growth in the first quarter and extended a sequential slide from $201.7 million in the third quarter of 2024. Gross services volume fell 3.6% from a year earlier and 2.1% from the prior quarter to $966.4 million.
Diluted earnings fell to $0.20 a share from $0.24 in the first quarter, while net income declined sequentially to $25.4 million from $31.5 million. Adjusted EBITDA moved higher for a third consecutive quarter, rising 12% from a year earlier to $64.1 million, as its margin expanded 415 basis points.
Active clients declined to 763,000 from 784,000 in the first quarter and 794,000 in the third quarter of 2024. GSV per active client reached a record $5,230, marking an eighth consecutive sequential increase. Marketplace revenue fell 2% to $166.9 million, while Enterprise revenue grew 2% to $24.8 million.
Growth in AI-related work slowed to more than 22% from more than 40% in the first quarter, though AI Strategy & Consulting grew more than 50%. Business Plus GSV rose 24% from the prior quarter, down from 34% growth in the first quarter, while its active-client growth slowed to 16% from 35%.
Gross margin narrowed to 76% from 78% a year earlier, and net margin contracted to 13% even as adjusted profitability improved. Upwork incurred $13.8 million in restructuring-related costs after announcing plans to reduce its workforce by about 24%. Free cash flow recovered to $35.9 million from $12.9 million in the first quarter, remaining 45% below the year-earlier period.
Upwork now expects full-year revenue of $730 million to $750 million, roughly $101 million to $105 million below the corresponding endpoints implied by its initial outlook. Third-quarter guidance calls for revenue of $176 million to $184 million and adjusted EBITDA of $50 million to $54 million, both below second-quarter levels.
The company completed the first customer-migration wave for Lifted, as GSV from its Enterprise Solutions employer-of-record offering rose 29%. It also added a Claude Connector and an MCP server to its AI distribution tools, extending that work as the near-term revenue outlook pointed to another sequential decline.