Upwork stock price risky pattern points to a 30% crash

The Upwork stock price has pulled back in the past few days as investors assessed its growth trajectory. UPWK dropped to a low of $15.6 on Thursday, its lowest level since May 6, and 13% below its highest point this year. So, is this freelancer marketplace a good investment today?

Upwork’s business is doing well, but challenges remain

Upwork is one of the biggest players in the freelancer industry. It operates as a marketplace where companies post jobs and attract talent from around the world. 

Upwork makes money in several ways. It sells connects, which freelancers require when applying for jobs. It also has a subscription solution that gives freelancers more perks.

The company has introduced advertising, which lets freelancers boost their chances for getting clients. Other adverts are featured jobs and boosted profiles.

It also charges clients some money when they list their jobs to the marketplace. Also, the company takes a cut in cash processing fees.

Upwork’s business continues to gain traction among companies and freelancers in the past few years as the concept of remote work has gained steam. Many companies, especially small and medium-sized ones use it to attract talent and save money.

As a result, Upwork’s revenues have soared in the past few years, with the annual figure moving from $373 million in 2020 to $771 million in the last twelve months.

This revenue has increased as more companies and freelancers have joined the platform in the past few years. It has also jumped because of its regular price increases, which have continued to irk freelancers. 

Upwork’s business model has a fatal flaw that affects its revenue and profitability. In an ideal situation, Upwork should make money as long as a project goes on. It has implemented tools to ensure that this happens over time.

However, the reality is that many freelancers take the relationship away from Upwork and are paid directly. By doing this, Upwork misses the revenue that comes with that revenue stream.

Upwork has worked to prevent this from happening, but it is extremely difficult since freelancers and clients always communicate away from its platform. This factor explains why its revenue growth has stalled in the past few years.

UPWK revenue and profitability growth

The most recent results showed that Upwork’s business is doing relatively well, especially in terms of profitability. Its revenues rose by just 1% in the last quarter to $192.7 million, while its gross margin rose by 145 basis points to 78%.

Upwork’s adjusted EBITDA rose to $56 million, while the free cash flow rose to $30.8 million. These are strong numbers for a company that turned profitable a few years ago.

Analysts anticipate that the revenue slowdown will continue for a while. The average revenue estimate is $187.5 million, dowm by 2.8% from the same period last year. 

They expect the annual revenue to drop by 1.8% this year to $755 million, followed by a rebound to $800 million. 

Upwork stock price analysis

The daily chart shows that the UPWK share price remains under pressure this month. It initially jumped to over $17 after its recent earnings release and then pulled back to the current $15.60. 

The stock has formed a triple-top pattern at around $18 and the neckline at $11.15. A triple-top pattern is a sign that bulls are afraid of placing bids above the price. Therefore, there is a likelihood that the UPWK share price will continue falling as sellers target the neckline at $11.15