Upwork Inc. (NASDAQ: UPWK)

Upwork’s Q1 2025 revenue grew 1% year-over-year to $192.7 million, with Marketplace revenue increasing 1% to $166.3 million and Enterprise revenue decreasing 1% to $26.4 million. Despite the moderate topline growth, the company demonstrated significant improvement in profitability metrics, reflecting its disciplined approach to cost management and operational efficiency.

Net income more than doubled to $37.7 million (20% margin) from $18.4 million (10% margin) in Q1 2024, a 105% increase year-over-year. This substantial improvement was driven by a 16% reduction in operating expenses, which fell to $112.2 million from $133.7 million in the prior year. The company achieved meaningful reductions across all expense categories: Research and development expenses decreased 13% to $46.2 million, sales and marketing expenses fell 25% to $35.8 million, and general and administrative expenses declined 12% to $28.0 million.

Adjusted EBITDA reached $56.0 million, representing a 68% increase from $33.3 million in Q1 2024. The adjusted EBITDA margin expanded significantly to 29%, up from 17% in the prior year period, reflecting an 1,161 basis point improvement. This performance demonstrates the company’s ongoing commitment to expanding profitability while maintaining strategic investments in growth initiatives.

Gross profit increased 3% year-over-year to $150.9 million, with gross margin expanding 145 basis points to 78%. This improvement was driven by a reduction in cost of revenue, which decreased 5% year-over-year to $41.8 million from $44.2 million.

Cash flow generation was particularly strong, with cash provided by operating activities increasing 150% to $37.0 million from $14.8 million in Q1 2024. Free cash flow more than doubled to $30.8 million, representing a 153% increase compared to $12.1 million in the prior year period.

Gross Services Volume (GSV) decreased 2.1% year-over-year to $987.7 million in Q1 2025 from $1,008.8 million in Q1 2024. This decline reflects the challenging comparison to a strong Q1 2024, as well as broader market conditions affecting client spending patterns. Despite the modest decrease in overall GSV, the company observed improving trends in client spending per active client.

Active Clients totaled 812,000 as of March 31, 2025, a 7% decrease from 872,000 in the prior year period. While total active clients declined, the quality of the client base improved as evidenced by the increase in GSV per active client. The company continues to focus on attracting and retaining higher-value clients who generate more consistent spending on the platform.

GSV per Active Client increased 3% year-over-year to $4,912 in Q1 2025, reflecting positive growth for the first time in six quarters. This improvement indicates that the company’s strategy to focus on higher-value clients and expand wallet share is beginning to yield results. The increase in spend per client partially offset the impact of the decline in active clients on overall GSV.

Marketplace Revenue, which represents 86% of total revenue, grew 1% year-over-year to $166.3 million. This growth was primarily driven by improvements in monetization strategies, including a 23% increase in ads & monetization revenue, a 20% increase in Freelancer Plus subscription revenue, and a 25% increase in Connects revenue compared to Q1 2024.

Enterprise Revenue decreased slightly by 1% year-over-year to $26.4 million. However, the company’s new Business Plus offering, which provides a smoother glidepath for larger clients between Marketplace and Enterprise offerings, showed strong momentum with active clients increasing over 100% from Q4 2024 to Q1 2025. Notably, 37% of active clients for Business Plus are new to the platform, demonstrating the attractiveness of this offering for new client acquisition.

Upwork continues to strengthen its position at the intersection of talent, technology, and work through strategic investments in AI capabilities:

AI-Enabled Platform Features

• Uma™ Adoption Growth: Uma™, Upwork’s Mindful AI assistant, saw 52% more users engaging with it in Q1 2025 versus Q4 2024, demonstrating growing traction as an always-on work companion for both clients and talent
• Performance Improvements: AI-enabled features are unlocking growth and improving user experience, with Uma-powered Proposal Writer increasing engagement by 58% and Uma on Upwork’s homepage increasing user engagement by 340%
• Future Roadmap: The company plans to launch several high-impact AI features in Q2 2025 focused on driving increased engagement, bids, and incremental revenue as it evolves Upwork into the world’s premier, largest-scale AI-native marketplace

AI Category Growth

Upwork is benefiting from the increased demand for AI-related skills, with several positive trends emerging in this category:

• AI-Related Work Growth: GSV from AI-related work grew 25% year-over-year in Q1 2025, outpacing the overall platform performance
• Prompt Engineering Demand: GSV from prompt engineering increased 52% year-over-year while also growing quarter-over-quarter, highlighting the strong demand for this emerging skill set
• Premium Earnings: Freelance professionals working on AI-related work continued to earn more than a 40% premium per hour compared to freelancers working on non-AI-related work in Q1 2025

These trends highlight Upwork’s strategic positioning to capitalize on the growing demand for AI-related skills and services. The company’s investments in AI capabilities are not only enhancing the platform experience but also driving incremental revenue through increased engagement and transactions.

Upwork’s monetization strategy continues to deliver strong results, with several key revenue streams showing robust growth despite the moderate increase in overall revenue:

• Ads & Monetization: Revenue from ads & monetization increased 23% year-over-year in Q1 2025, reflecting the effectiveness of the company’s advertising platform and promotional offerings
• Subscription Revenue: Freelancer Plus subscription revenue grew 20% year-over-year, indicating strong adoption of premium subscription offerings among freelancers seeking enhanced visibility and features
• Connects Revenue: Revenue from Connects (the virtual currency used to submit proposals) increased 25% year-over-year, demonstrating the effectiveness of the company’s bid-based system for proposal submissions
• Managed Services: Revenue from Managed Services grew 3% year-over-year, providing an additional growth driver for the company

The company’s Business Plus offering, a premium plan that provides a smoother glidepath for larger clients and bridges the gap between Marketplace and Enterprise offerings, is showing strong momentum:

• Business Plus active clients increased over 100% from Q4 2024 to Q1 2025
• 37% of active clients for Business Plus are new to the platform, demonstrating the offering’s effectiveness in attracting new clients

This diversified monetization approach has enabled Upwork to maintain revenue growth despite the decrease in active clients, while also supporting the significant expansion in profitability. The company’s ability to generate incremental revenue from existing users and attract higher-value clients positions it well for sustainable growth.

Based on its strong Q1 2025 performance, Upwork provided the following guidance for Q2 2025 and full-year 2025:

Q2 2025 Guidance

• Revenue: $184 million to $189 million
• Adjusted EBITDA: $45 million to $49 million
• Diluted weighted-average shares outstanding: 139 million to 141 million
• Non-GAAP diluted EPS: $0.26 to $0.28

Full-Year 2025 Guidance

• Revenue: $740 million to $760 million (reiterated)
• Adjusted EBITDA: $190 million to $200 million (raised)
• Diluted weighted-average shares outstanding: 138 million to 142 million
• Non-GAAP diluted EPS: $1.14 to $1.18
• Stock-based compensation expense: $60 million to $65 million

The company’s decision to reiterate its full-year revenue guidance while raising its adjusted EBITDA outlook reflects confidence in its ability to continue expanding profitability through operational efficiency and cost discipline. The raised adjusted EBITDA guidance indicates that Upwork expects to maintain or potentially accelerate the margin expansion demonstrated in Q1 2025.

Management emphasized that this strong performance enables the company to continue investing in growth initiatives, particularly in AI capabilities and features, while simultaneously driving margin expansion. The company remains committed to its long-term strategy of balancing profitable growth with strategic investments that enhance the platform and user experience.