Upwork Inc. (Nasdaq: UPWK)

Upwork’s Q2 2025 results demonstrated the company’s strong execution and the increasing value of its AI-powered platform. Total revenue of $194.9 million represented a 1% year-over-year increase, with Marketplace revenue growing 2% to $170.7 million while Enterprise revenue declined 8% to $24.3 million. Despite modest revenue growth, the company achieved significant margin expansion through operational efficiency improvements.

The standout performance came from profitability metrics. Net income surged 47% to $32.7 million, representing a 16.8% profit margin compared to 12% in the prior year. This improvement was driven by disciplined cost management and operational leverage from the company’s AI investments. Adjusted EBITDA reached $57.1 million (29.3% margin), an all-time high, up 40% from $40.8 million in Q2 2024.

Free cash flow performance was particularly impressive, increasing 85% to $65.6 million compared to $35.5 million in Q2 2024. This represented a free cash flow margin of 34%, demonstrating the capital-light nature of Upwork’s business model and the company’s ability to convert earnings into cash efficiently.

The company’s key business metrics showed healthy trends, with GSV per active client increasing 5% year-over-year to $5,002, and average hours per contract reaching the highest level ever as projects on the platform increase in size and complexity. Active clients totaled 796,000, down 8% year-over-year, but the increase in spending per client more than offset the client count decline.

Gross Service Volume (GSV) decreased slightly by 0.6% to $1.00 billion in Q2 2025, primarily due to the 8% decline in active clients. However, this was largely offset by the strong 5% increase in GSV per active client, demonstrating that clients are engaging more deeply with the platform and spending more per project.

The marketplace take rate improved to 17.0% from 16.5% in the prior year, reflecting pricing optimization and the increased value delivered through AI-powered features. This 50 basis point improvement contributed significantly to revenue growth despite the modest GSV decline.

Average hours per contract reached the highest levels ever recorded, indicating that projects on the platform are becoming more substantial and complex. This trend aligns with the company’s strategic focus on capturing larger, higher-value work as enterprises increasingly turn to Upwork for their contingent workforce needs.

Upwork’s AI initiatives continued to drive exceptional value for the platform, with several breakthrough developments in Q2 2025:

Uma™ (Upwork’s Mindful AI) Advancements

• Uma™ Adoption Growth: 24% quarter-over-quarter increase in adoption across the platform
• Enhanced Capabilities: Uma™ now functions as an AI work agent, taking action on behalf of customers to accelerate hiring, collaboration, and work outcomes
• New Features: Instant interviews, reimagined job posting experience, Upwork Video Meetings, and Uma™-powered search
• Proposal Writer Success: 58% increase in freelancers utilizing Uma™ to submit proposals compared to baseline experience

AI Work Marketplace Growth

• AI-related work GSV accelerated to 30% year-over-year growth in Q2 2025, up from 25% in Q1 2025
• Clients hiring AI specialists across 365+ different skills, including AI Agents, AI Model Tuning & Integration, and Natural Language Processing
• GSV in Prompt Engineering subcategory grew 51% year-over-year
• Average GSV per active client engaged in AI work is more than 3x larger than average GSV per active client across the marketplace

The acceleration in AI-related work demonstrates Upwork’s positioning at the forefront of the AI transformation in work. The platform’s ability to connect businesses with specialized AI talent and provide AI-powered tools to enhance the work experience creates a compelling value proposition for both clients and freelancers.

Upwork made significant strategic moves in Q2 2025 to expand its enterprise capabilities and capture a larger share of the $650 billion Enterprise TAM opportunity:

Strategic Acquisitions

• Bubty Acquisition: A purpose-built platform to help enterprises manage a broad range of contingent workforce models and contract types, from independent contractors to contingent W-2 workers
• Ascen Agreement: A digitally native solution for contingent W-2 workers with easy-to-integrate APIs (expected to close in second half of 2025)
• Full-Stack Solution: Combined offering provides clients with access to a full range of contingent workforce models sourced from Upwork’s talent pool, including over 250,000 AI experts globally

Enterprise Revenue Trends

• Enterprise revenue of $24.3 million, down 8% year-over-year, primarily due to client optimization and focus on higher-value engagements
• Business Plus GSV increased 190% quarter-over-quarter, with active clients growing 45%
• New customers represented 35% of active Business Plus clients, demonstrating strong demand with the right value proposition

These acquisitions position Upwork to offer a comprehensive suite of contingent workforce solutions, from independent contractors to agency-of-record, employer-of-record, staff augmentation, statement of work, and outsourcing models. This expanded capability set enables the company to compete more effectively for large enterprise contracts and capture a greater share of enterprise spending on contingent labor.

Upwork continued to demonstrate strong execution in monetization and revenue diversification across multiple revenue streams:

Advertising & Monetization Performance

• Ads & monetization revenue increased 17% year-over-year, demonstrating the value of enhanced discovery and promotion tools
• Freelancer Plus subscriptions grew 13% year-over-year, showing strong demand for premium features
• Connects revenue increased 19% year-over-year, driven by improved search and match capabilities

Product Innovation Impact

• Improved search and match capabilities lifted average spend per contract by 4% and increased Connects revenue by 3% compared to prior feature set
• Uma™ enhancements are driving measurable improvements in client engagement and spending patterns
• Platform improvements contributing to higher client retention and increased project complexity

The diversification of revenue streams beyond the core marketplace take rate provides Upwork with multiple levers for growth and demonstrates the platform’s ability to capture additional value from the network effects of its marketplace.

Upwork provided updated guidance for both Q3 2025 and full-year 2025, raising expectations based on strong Q2 performance:

Q3 2025 Guidance

• Revenue: $190 million to $195 million
• Adjusted EBITDA: $47 million to $51 million
• Diluted weighted-average shares outstanding: 140 million to 141 million
• Non-GAAP diluted EPS: $0.28 to $0.30

Full Year 2025 Guidance (Raised)

• Revenue: $765 million to $775 million (raised from previous guidance)
• Adjusted EBITDA: $206 million to $214 million (raised from previous guidance)
• Diluted weighted-average shares outstanding: 140 million to 142 million
• Non-GAAP diluted EPS: $1.24 to $1.27
• Stock-based compensation expense: $60 million to $65 million

The raised guidance reflects management’s confidence in the company’s ability to continue executing on its strategic initiatives while maintaining strong profitability. The guidance assumes continued adoption of AI features, successful integration of the Bubty and Ascen acquisitions, and sustained demand for contingent workforce solutions.