Upwork stock tumbles as weak guidance overshadows Q2 earnings beat

Shares of Upwork were headed for their worst single-day decline in three months on Tuesday after the freelance marketplace issued weaker-than-expected guidance, overshadowing second-quarter results that topped revenue and earnings estimates.

Upwork shares fell nearly 13% in trading.

For the second quarter, the company reported earnings per share of $0.41 on revenue of $191.7 million, exceeding Wall Street expectations of $0.34 per share on revenue of $190 million, according to Fiscal.ai data.

However, investors focused on the company's outlook.

Upwork forecast third-quarter earnings per share of $0.31 to $0.33 on revenue between $176 million and $184 million, below analyst expectations of $0.41 per share on revenue of $193.8 million.

The company also lowered its full-year guidance, reducing its revenue forecast to $730 million-$750 million from a previous range of $760 million-$790 million. It also cut its adjusted earnings outlook to $1.38-$1.43 per share from $1.50-$1.55.

Analysts point to AI and Google search headwinds

Following the results, Wall Street offered mixed reactions while highlighting continued challenges facing the business.

RBC Capital maintained its Sector Perform rating but reduced its price target to $8 from $9, describing the quarter as difficult.

The brokerage cited both artificial intelligence-driven structural changes and Google's search algorithm updates as key headwinds affecting customer acquisition.

“On top of known AI secular headwinds, Google's May/June SEO changes are driving traffic headwinds, which have yet to stabilize into Q3,” the firm said in its note.

Goldman Sachs took a more optimistic view, maintaining its Buy rating while lowering its price target to $11.50 from $17.50.

The bank said the company delivered "solid execution despite macro and labor-market pressure," highlighting accelerating AI-related work, Business Plus adoption, higher gross services volume per client and enterprise initiatives as potential long-term growth drivers.

Despite the revenue beat, Upwork's business continued to show signs of pressure.

Second-quarter revenue declined 1.7% from a year earlier, while active clients fell 4% year over year to 763,000. Gross services volume per client increased 5% to $5,230, partially offsetting the decline in customers.

Upwork bets on AI as automation reshapes freelance demand

Chief Executive Officer Hayden Brown acknowledged that AI-driven automation and Google's search changes continued to weigh on the business heading into the third quarter.

“Google's changes to search have dampened new customer acquisition with accelerated negative impact in Q2,” Brown said. She added that while Upwork's SEO rankings have continued to improve, “the channel overall is smaller.”

To reduce its reliance on Google, the company is expanding customer acquisition through paid search, answer engine optimization and referrals generated by large language models.

Brown said the cost per new contract start improved 22% quarter over quarter, allowing the company to increase investment in paid acquisition.

Brown also said AI is creating new opportunities despite reducing demand for some categories of freelance work.

“While AI automation shrinks demand for some types of work on our platform, AI creates new demand in other areas,” Brown said.

She added that businesses are increasingly turning to Upwork to find professionals who can complete or repair projects initially created using AI.

The company has also introduced its MCP Server, allowing Upwork jobs and freelancers to be accessed through AI tools.

“These levers give us new paths to acquire customers in this unfolding AI and marketing landscape,” she said.