When it comes to the gig economy, companies such as Uber, Lyft, or DoorDash may be top-of-mind. And while delivering food or doubling your car as a taxi may be lucrative side hustles, there are lots of other opportunities as well. But they can be hard to find.
This is what makes marketplaces such as Upwork (UPWK 3.40%) so compelling. Upwork operates a platform that helps match companies with freelancers.
In this article, I am going to explore the future of freelancing, how Upwork is leveraging artificial intelligence (AI), and how these two catalysts can spark a new frontier for the company.
More than a phase
Over the last year or so, corporations have struggled to lure employees back to the office. Office workers are increasingly deciding that free snacks and a casual dress attire are no longer sufficient perks. The flexibility that a remote work environment provides seems to be the top priority for professionals at large. While some companies are listening, others are doubling down on return-to-office mandates. The result? Something that has become known as "The Great Resignation." But if people are leaving their jobs en masse, how are they making a living?
According to public surveys, freelancing has become a popular alternative to traditional office work. To put some data around the context, a survey conducted by Upwork found that 43% of Gen Z workers and 46% of millennial employees performed freelance work in 2022.
Furthermore, the Society for Human Resource Management (SHRM) recently published a report which aggregated different studies conducted by several consulting firms focused on return-to-office work. In one instance, the survey suggested that nearly 70% of participants preferred to look for a new job than return to the office, with that figure closer to 80% among Gen Z.
The beauty of freelancing is that it allows professionals to pick and choose work that is aligned with their interests, while also providing the flexibility of working from anywhere. Moreover, top freelancing can also provide you with the opportunity to set your own billable rate, which could end up generating more income than your fixed salary.
Now while the benefits of freelancing may be obvious, investors might be wondering what else beyond societal trends is fueling Upwork's model.
Image source: Getty Images.
What's this about Upwork and AI?
It is no secret that AI is a hot topic right now. What is less clear is which companies are poised to benefit from this technology and which are using the buzzword to gain enthusiasm in the investment community.
Throughout earnings season, I have noticed a common denominator among shareholder letters for tech companies. In particular, myriad companies are boasting about advancements in generative AI and large language models (LLMs). And while this seems exciting on the surface, on several occasions it would become clear that these companies built chatbots to facilitate product discovery among consumers or help advertisers better market their products. Although there is a lot of merit to these features, I believe that the companies that will emerge as leaders in the AI space will be developing far beyond chatbots.
Upwork has demonstrated in a couple of ways how the AI boom is serving as a tailwind for its business. First off, the company recently announced a partnership with ChatGPT creator, OpenAI. The alliance is meant to match developers that are well versed in ChatGPT and its capabilities with OpenAI and its customers.
Potentially even more exciting details were revealed during a recent interview on CNBC by Upwork's CEO Hayden Brown. Brown shared that during the second quarter of 2023, "Upwork witnessed a 1,000% increase in generative AI job posts ... [and a] 1,500% increase in searches for generative AI skills."
These statistics have me very bullish on Upwork's long-term potential. More specifically, it is clear that skills for AI are in demand. However, it is particularly encouraging that companies are tapping freelancers for this type of work. While it is still early days, the trends above indicate that Upwork could be quickly turning into the default marketplace for freelance AI opportunities.
Trades at a compelling value
As of the time of this article, Upwork trades at a price-to-sales (P/S) ratio of 2.9. By comparison, Fiverr and ZipRecruiter trade for P/S ratios of 3.2 and 2.3, respectively. All things considered, Upwork trades in line with its cohorts. For this reason, it might be worth looking beyond valuation multiples. Upwork stock peaked at around $60 per share in October 2021. The stock now trades for roughly $14, or essentially one-quarter its highs.
At a high level, this makes some sense. As with many stocks throughout 2020 and 2021, for one reason or another, logic gradually evaporated, only to be subsumed by meme-induced euphoria propelling the price upwards.
For me, Upwork looks attractive on both a fundamental level and a secular theme level. The broad theme is that data increasingly suggests that a good portion of the work force, especially younger people, are open to freelance work opportunities. This trend should be an obvious benefit for Upwork and its competition.
But what has me most optimistic for Upwork in particular is how AI is already playing a big role on the company's marketplace. The partnership with OpenAI, coupled with surging demand for AI skill sets and Upwork's depressed stock price compared to where it once was, make a compelling recipe. I believe that dollar-cost averaging could be a great strategy to owning this stock, while also gaining some exposure to the ever-popular AI landscape.
