Macro Pressures Flatten Upwork Volumes as Larger Clients Face Budget Constraints

Upwork’s first quarter results show macro pressures coming to bear on the gig economy, while management laid out plans to reduce costs — and pointed to the long term potential in generative AI.

As noted in the company’s earnings materials, gross services volume (GSV) — the amount that clients spend on Upwork’s offerings and fees charged by the company for other services — in the first quarter of 2023 was flat year over year at $1 billion. GSV was down approximately 3% quarter over quarter, which the company said was “primarily driven by continued impacts from the macroeconomic environment.” In the midst of the pandemic, GSV growth rates topped 50% year over year by mid-2021.

Active clients were up 4% year over year in the March quarter to 827,000 clients, which was up nearly 2% quarter over quarter. GSV per active client increased 5% year over year to $4,967 as of March 31, a slowdown from the  growth rate had been 18% in the same quarter a year ago.

During the conference call with analysts, CEO Hayden Brown noted that the company hit a milestone in the quarter,  having logged $20 billion in lifetime freelancer earnings on Upwork, up $10 billion in three years.

Nonetheless, as the CEO said, “we saw some unanticipated deterioration in certain client metrics due to macroeconomic uncertainty, which was most pronounced with our enterprise customers and large businesses in the self-service marketplace.”

And against that backdrop, the company has laid off 15% of its full time staff. Enterprise revenues were up 6% in the March quarter, year over year, down from 22% in the fourth quarter of 2022, and down from 55% year over year growth in the first quarter of last year.

“We’re also pausing our brand media investment indefinitely,” Brown said, adding, “In the current macroeconomic environment, we do not have enough visibility into exactly when we will see brand awareness translate into client conversion to continue prioritizing the investment at this time.” Those measures, according to the company, will drive $80 million of annualized net cost savings.

Looking Towards AI

Generative artificial intelligence (AI) will continue to be in focus, said Brown, for Upwork’s talent on the platform and client firms looking to harness expertise in that technology. Brown said that the average weekly number of search queries related to generative AI in the first quarter increased over 1,000% compared to the fourth quarter of 2022, and the average number of weekly job posts related to generative AI increased more than 600% over the same time period.

“We’re testing generative AI-powered solutions for transforming core customer experiences,” said Brown, “like getting started, posting jobs, receiving support, and having questions answered.”

During the question-and-answer session with analysts, management noted that larger clients are feeling budgetary pressure, and some clients are going through budget cuts and layoffs — thus reducing the size of the spend that they have allocated to Upwork.

Spending from smaller clients has been resilient, said Brown, but the average spend for client has been a bit smaller than would have been seen with other macro environments.  The impact is being more keenly felt within the tech sector, where layoffs have been mounting, according to commentary on the call.

Drilling down a bit more into the dynamics surrounding AI, Brown noted that demand and job postings are growing in categories such as data sciences and analytics — where postings here are up 33% year on year and up 22% sequentially.

“As we look across the work that’s happening on the platform, some of the more interesting things we see is in pretty much every category we serve, talent is using AI tools to augment their workflows,” Brown said. As much as 85% of the company’s GSV comes from longer and complex projects and jobs — so AI augments work, she said, rather than replaces it.