Shares of work-management marketplace Upwork (UPWK 1.35%) fell on Thursday after the company reported financial results for the second quarter of 2022. To see the stock fall is a bit of a surprise to me, considering it beat expectations for the quarter and raised guidance for the year, and analysts set price targets far in excess of where the stock trades right now. However, as of 12:30 p.m. ET, Upwork stock was down 15% nonetheless.
In Q2, Upwork showed growth in almost every measurable metric. Revenue was up 26% year over year to $157 million. Gross profit margin expanded from 73% last year to 74% in Q2. Active clients were up, as was spending per active client. And finally, Upwork's take rate -- its cut of transaction volume -- increased to 15%, which is the highest it's been since the company went public in 2018.
Stifel analyst Scott Devitt raised his price target for Upwork stock today, whereas JMP Securities analyst Andrew Boone lowered his. However, their current price targets are $23 per share and $33 per share respectively, according to The Fly, which still represents strong upside for shares.
On top of strong Q2 results, Upwork also raised its full-year revenue guidance to between $612 million and $617 million, which represents about 22% year-over-year growth. However, considering revenue was up 35% in 2021 and 26% in Q2, full-year growth of 22% means Upwork is slowing down. Its client-growth rate also signals a slowdown, despite ongoing growth. And maybe that's what spooked Upwork investors today.
One thing to watch is Upwork's operating expenses. Q2 operating expenses were up 29% year over year as the company spent more on sales and marketing. When operating expense growth exceeds revenue growth, it can be a troubling sign because overall profitability declines. In Upwork's case, spending more on sales and marketing isn't yielding proportional client growth, which can be a red flag.
That said, it was still a strong quarter for Upwork and, to me, there seems to be plenty of reason for long-term optimism.