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Upwork Q2: RBC Bullish Into Print Despite Stock’s Steep Climb
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Upwork Q2: RBC Bullish Into Print Despite Stock’s Steep Climb

Global freelancing platform Upwork (UPWK) is set to report its second quarter earning results tomorrow, after market close. And going into the print RBC Capital analyst Mark Mahaney is bullish on the stock’s outlook.

He reiterated his buy rating on Upwork on August 2 with a $14 price target. However, given the stock’s year-to-date climb of over 40%, his price target indicates 7% downside potential from current levels.

According to the analyst, intra-quarter data points and model sensitivity suggest that the Street’s Q2 Revenue and EBITDA estimates are reasonable.

“We also see Street’s Q3 and FY20 estimates as bracketable, with slightly greater upside variance as the elevated job postings and record high client engagements UPWK saw in April translate to billings, and we think there is the possibility that UPWK emerges from the COVID Crisis as a Structural Winner, which is not captured in current Street estimates” he told investors.

Specifically, Mahaney is forecasting of $80MM, in line with the Street and within management guidance at $79MM-$81MM, and Q2 EBITDA of ($8.4MM), below the Street at ($5.8MM). That’s alongside $72MM of Marketplace Revenue (up 9% Y/Y vs. 23% Y/Y in Q1) and 76% Marketplace Gross Margin (vs. 77% in Q2:19).

For Q2, he is also estimating that UPWK will add 4K new core clients to reach 133k (15% Y/Y growth vs. 5K Net Adds and 21% Y/Y growth in Q2:19), with a potential acceleration in Net Adds in H2:20 as the Enterprise salesforce the company acquired in 2019 is fully ramped up.

Longer term, Mahaney believe Upwork faces a very large market opportunity with a a strong value proposition to clients and freelancers, and has multiple future growth opportunities.

“The key business model strengths influencing our Outperform rating are high visibility into the businesses (104% Retention Rate on Client Spend), strong gross margins (71%), and robust, sustainable Revenue growth of 20%+” he concludes.

Overall the Street shares Mahaney’s optimistic take on this key internet player. The Street consensus is a bullish Strong Buy, although the average analyst price target of $13.25 indicate that shares could pullback from current levels. (See UPWK stock analysis on TipRanks)

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