As you can see from the chart below, the market rotation out of growth stocks toward the end of the year dashed what had been a strong performance.
Like a number of other growth stocks, Upwork came into 2021 on a hot streak. The stock surged in the latter months of 2020, benefiting from a strong earnings report and a boost in demand from the remote work trend and labor displacement from the pandemic.
The stock jumped 20% in January on little news and surged through most of February in anticipation of its fourth-quarter earnings report. Revenue rose 32% in the quarter to $106.2 million, easily beating estimates of $97.2 million, and adjusted earnings per share doubled from $0.03 to $0.06, much better than the consensus of a loss of $0.05, as management touted the tailwinds from remote work.
Guidance was also better than expected, and the stock briefly jumped 20% on the report before giving up much of those gains by the end of the session. Shifting market sentiment away from pandemic winners seemed to play a role in that, and the stock drifted downward following the report.
It remained volatile for the next two months before falling lower on its first-quarter earnings report despite beating estimates once again. Revenue jumped 37% to $113.2 million, and the company posted earnings per share (EPS) of $0.03, which compared to analyst estimates of $108.7 million in revenue and a loss of $0.04 per share.
The stock bounced higher in June before again diving on its second-quarter earnings report at the end of July as investors seemed to think the stock price growth was outrunning that of the business. Revenue growth accelerated to 42% and the company posted a surprise profit, but the stock still fell 10% on the news.
Shares recovered from that sell-off and gained over the next couple of months with the help of some analyst upgrades. Finally, the stock fell again on its third-quarter earnings report as revenue growth slowed to 32% to $128 million, though that still beat analyst estimates. The stock then fell over the rest of the year in line with a sell-off in unprofitable tech stocks.
Upwork has continued to slump into the new year, with the stock down 15% through Jan. 10 as the market is rotating out of high-priced growth stocks. However, Upwork’s valuation now seems a lot more reasonable at a price-to-sales ratio around 8 than it did at its peak last year when it was double what it is now.
2022 will present a different set of challenges; the company will have more difficult comparisons, but the remote work trend still favors it.
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