Key Takeaways:
Upwork (NASDAQ: UPWK) shares fell in after-hours trading after the company lowered its full-year revenue outlook, citing a slowdown in demand for smaller projects due to macroeconomic uncertainty and the rapid adoption of artificial intelligence.
"Two trends emerged during the quarter: geopolitical instability and concerns around war slowed higher-value contracts, while AI adoption reduced client activity on low-end contracts of $500 and below," President and Chief Executive Officer Hayden Brown said on the company's earnings call.
For the first quarter, Upwork reported revenue and earnings that missed analyst expectations. The company cut its full-year revenue guidance to a range of $760 million to $790 million, down from a previous forecast, but raised its adjusted EBITDA outlook to $250 million to $260 million.
In response to the shifting demand, Upwork announced a restructuring plan that includes a 24% reduction in its workforce, aiming for about $70 million in annualized cost savings. The company said the move should help it reach its 35% adjusted EBITDA margin target in the second half of 2026, more than two years ahead of schedule.
Management noted that while AI is creating headwinds for contracts under $500, AI-related work on the platform is growing rapidly. AI-specific projects exceeded $300 million on an annualized basis, representing 8% of marketplace gross services volume (GSV) in the first quarter. The company estimates that only about 10% of its GSV is in an "AI at-risk" category.
Despite weaker trends in its core marketplace, Upwork's Business Plus plan for small and medium-sized businesses grew 34% quarter over quarter. The enterprise pipeline at its Lifted subsidiary also grew threefold for new clients.
The guidance revision reflects a more conservative outlook amid a rapidly changing demand environment. Investors will watch the company's ability to execute its cost-saving plan and grow its enterprise and AI-related segments to offset the weakness in smaller marketplace contracts.
This article is for informational purposes only and does not constitute investment advice.
