What happened

Shares of Upwork (NASDAQ:UPWK) got a big boost Monday when investment banker Jefferies upped its price target on the stock ahead of earnings, promising investors as much as a 20% profit in the event Upwork outperformed expectations. At the time, I warned that Jefferies was playing with fire, "potentially getting caught wrong-footed when Upwork reports earnings tomorrow."

And that's exactly what just happened. Instead of going up after reporting earnings Tuesday night, Upwork stock is headed down: 13.5% lower as of 1:05 p.m. EDT today.

Chalkboard drawing of stock chart arrow going up being erased and pointing back down

Image source: Getty Images.

So what

But is that fair? Upwork beat on earnings, didn't it?  

It did. Heading into Tuesday's announcement, analysts on average had forecast that the company, whose website facilitates freelance work, could lose as much as $0.09 per share pro forma on sales of only $80.3 million. As it turned out, Upwork lost only $0.03 per share pro forma, and scored sales of $87.5 million -- both numbers far better than predicted. The company also gave new guidance suggesting a further earnings beat in Q3 and predicting sales will be about $90 million versus the $85 million the Street has been forecasting.  

Now what

Sales grew 19% for Upwork in Q2, and the company's latest guidance implies a further 14% rise in revenue in Q3. CEO Hayden Brown says the company is capitalizing on "the global shift toward remote work and the widespread need for flexible talent solutions, welcoming a surge of new customers," and holding the line on prices, with gross margins steady at 71%.

Nevertheless, the fact remains that Upwork lost money in Q2. What's more, its loss, as calculated by generally accepted accounting principles (GAAP), was exactly as bad as the pro forma loss Wall Street had predicted: $0.09 per share.

Its outstanding ability to grow revenue despite a pandemic notwithstanding, until Upwork finds a way to earn a profit on that revenue, it will remain a risky stock to own.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.