UPWK Q3 Deep Dive: AI Product Enhancements and SMB Focus Drive Turnaround

Online work marketplace Upwork (NASDAQ:UPWK) reported revenue ahead of Wall Streets expectations in Q3 CY2025, with sales up 4.1% year on year to $201.7 million. Guidance for next quarter’s revenue was better than expected at $195.5 million at the midpoint, 1.7% above analysts’ estimates. Its non-GAAP profit of $0.36 per share was 25.9% above analysts’ consensus estimates.

Is now the time to buy UPWK? Find out in our full research report (it’s free for active Edge members).

StockStory’s Take

Upwork’s third quarter results were met with a significant positive market reaction, reflecting management’s success in reigniting growth after several challenging quarters. Leadership credited new AI-powered platform features and increased adoption of Upwork Business Plus by small and midsize businesses as key contributors. CEO Hayden Brown described the period as a turning point, noting that “the payoffs of our strategy are now visible.” The company also saw strong traction from AI-related projects and a return to growth in gross services volume, which had previously been pressured by macroeconomic headwinds.

For the quarters ahead, Upwork’s guidance is anchored by anticipated gains from its AI-native platform, expanding suite of services for both SMB and enterprise clients, and continued rollout of new features. Management highlighted the launch of Lifted, the new enterprise subsidiary, as a catalyst for unlocking larger contingent workforce contracts. CFO Erica Gessert cautioned that near-term investments in integration and product development could temporarily limit margin expansion, but stated, “We remain focused on driving operational excellence and increasing long-term shareholder value.”

Key Insights from Management’s Remarks

Management pointed to accelerating adoption of AI-driven platform tools and tailored SMB offerings as primary drivers of the quarter’s outperformance relative to Wall Street expectations.

• AI-powered platform enhancements: Upwork’s Uma AI was further embedded across workflows, enabling automated talent sourcing, proposal writing, and project management. Management expects these improvements to drive $100 million in incremental gross services volume (GSV) this year.
• AI job category growth: The number of clients engaging in AI-related projects rose by 45% year-over-year, while GSV from AI work accelerated to 53% growth. This shift is expanding the platform’s relevance as businesses seek specialized talent for AI initiatives.
• SMB Business Plus adoption: The Business Plus subscription saw active clients rise 36% quarter-over-quarter, reflecting small and midsize businesses turning to Upwork for help navigating AI integration and complex hiring needs.
• Lifted enterprise expansion: The launch of Lifted positions Upwork to compete for a broader array of contingent workforce contracts. Early demand is strong, but management noted that large enterprise deal cycles can take up to a year to close, with meaningful revenue contribution expected in 2026 and beyond.
• Dynamic pricing and take rate optimization: Upwork began testing variable freelancer fees in select categories, with early results showing modest incremental revenue. Management sees further opportunity to tailor marketplace pricing to supply and demand, supporting long-term margin improvement.

Drivers of Future Performance

Upwork’s forward outlook is supported by ongoing investment in AI features, expanded enterprise offerings, and efforts to capture higher-value contracts, though integration costs and market seasonality remain near-term considerations.

• AI and product innovation: Management plans to broaden Uma AI’s capabilities across more workflows in 2026, aiming to enhance productivity for clients and freelancers and increase project complexity and value on the platform.
• Enterprise Lifted ramp-up: The Lifted subsidiary’s integration and product suite are expected to unlock larger enterprise contracts, though margin dilution from these investments will be offset by anticipated GSV and revenue growth in late 2026 and 2027.
• Marketplace pricing strategies: Upwork intends to expand dynamic pricing and value-based fee models, using data-driven approaches to balance take rate increases with demand stimulation, potentially supporting both top-line and margin growth over time.

Catalysts in Upcoming Quarters

Looking ahead, the StockStory team will closely monitor (1) signs of increased enterprise contract wins and the pace of Lifted’s client onboarding, (2) continued growth in AI-related project adoption and resulting impact on gross services volume, and (3) further expansion of Business Plus among SMB clients. Execution on dynamic pricing and integration of recent acquisitions will also be important indicators of Upwork’s ability to sustain margin gains while investing in growth.

Upwork currently trades at $18.53, up from $15.62 just before the earnings. Is there an opportunity in the stock?Find out in our full research report (it’s free for active Edge members).

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